COURT FILE NO.: 15-63338R

DATE: 2018/02/09

COURT OF ONTARIO

SUPERIOR COURT OF JUSTICE

In the matter of the Construction Lien Act, RSO 1990, c. c.30 as amended

RE: CORNELIS GREY CONSTRUCTION INC. (also known as THE CONSCIOUS BUILDER), Plaintiff (Defendant by Counterclaim)

AND:

MATTHEW JOHN FOLZ, KELLY ANNE FOLZ and THE BANK OF NOVA SCOTIA, Defendants (Plaintiffs by Counterclaim)

BEFORE: Mr. Justice Calum MacLeod

COUNSEL: Nigel McCready, for the Plaintiff (“contractor”)

Jocelyn Duquette, for the Folz Defendants (“homeowners”)

HEARD: June 13 – 16, 2016, May 16 – 19, 2017, May 23 – 25, 2017,

Written Submissions completed August 8, 2017

REASONS FOR DECISION

Introduction

[1] This is the decision on a reference under the Construction Lien Act. The trial began in June of 2016 when I was a master and it continued in May of 2017 after I had been appointed a judge.

[2] On the day of my appointment, I had already heard a week of evidence and read the written evidence. The option of appointing a new referee and starting the trial over did not appeal to the parties and did not appear to me to be in the interests of justice. As such, it was agreed I should continue to act as the referee and complete the matter. Under the Construction Lien Act, a matter may be referred to a case management master or to a person agreed upon by the parties.[^1] Under the reference rules a reference may be conducted by a judge with permission of that judge.[^2]

[3] The parties had decided to conduct certain cross examinations out of court. They were not able to complete these and were unable to find mutually convenient dates for the resumption of the trial until June of 2017. Despite the best efforts of counsel to streamline the evidence, several additional days of trial were required. The hearing ultimately required more than double the time that had been estimated by counsel and was followed by written submissions.

[4] The following is my decision and the reasons. As set out herein a report may issue for judgment in favour of the plaintiffs by counterclaim in the amount of $64,607.83 (plus interest and costs as may be subsequently agreed or determined by the court) and the lien will be vacated. Upon confirmation of the report a judgment will issue accordingly.[^3]

The Dispute and the Process

Summary

[5] The defendants are the owners of a home located at 9 Richlin Crescent in the City of Ottawa. The plaintiff is an Ottawa-based construction company and general contractor. The owner and principal of the company is Casey Grey who is an experienced carpenter.

[6] In the year prior to the events in question, the homeowners had consulted designers and structural engineers. They had drawn up plans and obtained planning permission for an extensive home renovation. They hoped to transform the premises into a dream home and they began their search for an appropriate builder. This led them to the plaintiff.

[7] The defendants were impressed with Mr. Grey and with his description of his experience as a builder. The company promotes itself as a quality builder with a particular interest in energy efficient and “green” construction. The defendants were left with the impression that the plaintiff was a conscientious and careful builder priding itself on quality.

[8] Following discussions with other contractors and a period of negotiations with the plaintiff in early 2014, the homeowners eventually hired the plaintiff to undertake the work. As ultimately agreed, the renovations included construction of an addition, reconfiguration of the second floor, kitchen renovation, replacement of windows and replacement of the roof. The project was supposed to cost $287,023.77 plus applicable taxes and construction was supposed to take place between June and August of 2014.

[9] As the summer wore on, a number of disputes arose between the parties in relation to the quality of the work, construction delays and payment schedules. Eventually the plaintiff abandoned the project and registered a lien against the property. By that time the defendants had paid the plaintiff $289,294.85 but the plaintiff claimed to be owed a further $61,171.16. It registered a lien for that amount and commenced this action to enforce it.

[10] In response, the homeowners launched a counterclaim. They contend that far from owing the plaintiff money, the plaintiff should pay damages for breach of contract as well as negligence and misrepresentation. They seek reimbursement of $255,324.94 plus interest and costs. Included in this amount is the cost of completing the work and repairing deficiencies, as well as damages for delay.

[11] As outlined in these reasons, the threshold question in a case such as this is to determine which party breached the contract. It is one thing if the homeowners were in breach so that the contractor was justified in abandoning the job. It is another if the contractor improperly abandoned a partly finished project.

[12] As is often the case when construction contracts terminate in acrimony, the court was presented with two narratives. In one narrative, the homeowners were impossible to please, interfered with the management of the project, had unreasonable expectations, did not want to pay for extra work and refused to make payments that were due. In the other narrative, the contractor overpromised and under delivered. The quality of workmanship was shoddy, the project was improperly managed, significant structural errors were made in the work. There were cost overruns, delays and general incompetence. The parties each accused the other of dishonesty and the homeowners believe they were misled from the outset about the ability of the contractor to deliver what was promised.

[13] For the reasons that follow, I have concluded that the allegations of pre-contract misrepresentation are unproven but they are largely irrelevant because the evidence clearly demonstrates that the contractor failed to deliver what was promised under the contract. The contractor was negligent and careless in performance of the work and was not justified in abandoning the job. It was the contractor that breached the agreement. Under these circumstances, the homeowners are entitled to damages.

[14] Under the construction contract, the homeowners were entitled to have the specified work completed to the appropriate standard for the adjusted price in the specified time. To the extent that the work was not completed or it was deficient, the homeowners are entitled to damages for breach of contract. Those damages include the cost of completion of the work that was not completed and the cost of repairing the work that was deficient. Additional damages flowing from the delay in completion and the personal costs imposed upon the homeowners must also be considered.

[15] In assessing the damages, the court must be fair. The objective of contractual damages is to put the innocent party homeowners into the position they would have been in had the contract been fulfilled. It is not to put them in a better position or to effectively provide them with materials and labour free of charge. The court must be persuaded that the expenses incurred by the homeowners were reasonable and necessary to complete the contract and rectify the damage. The damages claimed by the homeowners must be recoverable at law and must flow unavoidably from the breach of contract.

[16] The homeowners had to spend a significant amount of money to complete the work and to repair deficiencies. Work remains to be done. In addition they incurred expenses because of delay and they had to invest a significant amount of their own time in dealing with subtrades, scheduling work and doing labour which was the responsibility of the contractor. To the extent that these are legitimate expenses of completion and can be proven, the homeowners are entitled to be compensated. The amount is significant but I have not awarded 100% of what was claimed. They are not entitled to damages for aggravation, hurt feelings or mark ups which they have attempted to claim nor for speculative amounts or expenses incurred beyond what would have been required by the original contract.

Form of the Trial

[17] There was an arbitration clause in the construction contract. Instead of going to arbitration, the parties agreed to use the streamlined process of a reference. This should have had many of the advantages of arbitration and avoided the need to proceed in two forums. In the absence of agreement, a court order is ultimately required to remove the lien from title or to enforce the lien against the land even if the parties proceed to arbitration on the merits.

[18] By agreement of counsel, the parties each submitted affidavit evidence and prepared “Scott Schedules”[^4] detailing their position in respect to construction defects, extras and other claims. Those documents along with electronic copies of the relevant documents were deposited in an on-line electronic repository (Dropbox) and were admitted as part of the evidentiary record.

[19] The use of the Dropbox as a depository for the documents worked well. At first I had intended to mark the documents that were referred to by witnesses as individual exhibits but this proved cumbersome and unnecessary. The record clearly indicates what documents witnesses were referring to and a DVD containing all of the documents was filed as part of the record. In any event, counsel had agreed in writing that all documents in the Dropbox were admitted as authentic and were before the court. The Scott Schedules setting out the positions of the parties were to be considered as if they were affidavit evidence. The court also had the benefit of affidavit evidence from several witnesses and transcripts of cross examinations.

[20] Despite these efforts to reduce the amount of oral evidence, the parties and several of the witnesses were called and subjected to cross examination. Closing submissions were made in writing and were completed by August 8th, 2017.

Structure of the Reasons

[21] It is not necessary in giving reasons to review every piece of evidence or to catalogue the testimony in chronological order. I do not intend to do so. Comprehensive reasons are necessary to address troublesome principles of unsettled law, or to resolve confused and contradictory evidence on a key issue.[^5] It is not necessary to engage in the same analysis for each item listed in the Scott Schedule. These reasons deal with the most significant evidentiary and legal rulings and with assessment of the claim for damages. The amounts allowed have been summarized in the chart attached as Schedule A. The chart and these reasons must be read together.

[22] I will deal firstly with the claim for misrepresentation because it is important to determine the basis on which damages should be calculated. I will then discuss the basis for concluding that the plaintiff is liable for damages. I will then deal with the items claimed by the homeowners and provide my ruling and assessment of the damages.

Misrepresentation

[23] I deal with this issue first because it has the potential to confuse matters and it occupied significant time in argument. The homeowners understandably feel misled and let down by a contractor who promised more than he delivered but there are several reasons why in the context of these facts this claim does not give rise to an independent claim for damages for misrepresentation.

[24] Counsel agree that liability for misrepresentation may exist independently and concurrently with liability in contract. The requirements for the tort of negligent misrepresentation were articulated by the Supreme Court of Canada in Queen v. Cognos.[^6] Of particular importance amongst those requirements: the party claiming damages must prove there was a representation that was untrue, inaccurate or misleading at the time it was made; the representor acted negligently in making the representation; the representee relied upon the representation; and, damages have resulted from such reasonable reliance.

[25] Queen v. Cognos was an employment case. It is useful in its synthesis of the elements of the tort of negligent misrepresentation. Of much more assistance for the case at bar is the Supreme Court’s decision in BG Checo International Ltd. v. British Columbia Hydro and Power Authority released almost concurrently. The latter case stands for the proposition that generally speaking, in situations of concurrent liability in tort and contract “it would seem anomalous to award a different level of damages for what is essentially the same wrong on the sole basis of the form of action chosen, though, of course, particular circumstances or policy may dictate such a course”. [^7]

[26] BG Checo also stands for the proposition that a plaintiff may not obtain double recovery by stacking tort damages on top of contractual damages. The measure of damages in tort is what it would take to put the innocent party “in the position it would have been in had the misrepresentation not been made”. The measure of damages in contract is to put the innocent party “in the position it would have been in had the contract been performed as agreed”.[^8] Frequently this leads to the same result.

[27] The first problem for the homeowners is an evidentiary one. The homeowners have not proven that Casey Grey made misrepresentations. He told the homeowners his company had a keen interest in energy efficient construction, that it prided itself on high quality workmanship and that it had qualified and skilled staff. Mr. Grey denies making specific representations about how much work he would personally do on the site. He states that the other representations were true when they were made and remain true today.

[28] The contractor may not have lived up to the promises that were made when it came time to perform the contract but the evidence does not persuade me that the representations were false when they were made. To the contrary, the evidence supports a finding that Mr. Grey intended the company would deliver quality workmanship and it supports a finding that the contractor does have a reputation for quality. It has earned various awards and holds various certifications. It is wrong to conclude that because a party failed to live up to its contractual obligations, it proves misrepresentation at the point of contract formation. The homeowners have not proven they were lied to or misled. In any event whether Mr. Grey made promises he knew he could not fulfill or simply failed to live up to the promises he made is a largely irrelevant distinction in the circumstances of this case.

[29] The reason it is irrelevant is the measure of damages. This is not a situation where the homeowners demolished their house or undertook the renovations based on misrepresentations. They had every intention of undertaking the work. The representations influenced who they would hire and not whether they would proceed.

[30] The only step they took in reliance on the alleged misrepresentations was to hire this contractor rather than another and perhaps to agree to what they assert to be a higher price. In fact the contractor’s quote was not the highest. Furthermore as argued by the contractor, the evidence does not permit the court to determine what another contractor might have charged for the scope of work ultimately included in the contract. This is because none of the other quotes are for the identical work.

[31] The contract the parties eventually signed was negotiated over a period of months in which various quotes were produced and various decisions made by the homeowners as to what to include in the scope of the project. In short, the consequence of selecting this contractor based on Mr. Grey’s representations (even if they were false) was the failure of the contractor to properly complete the work in the way the homeowners had envisioned. The measure of damages in tort or in contract would be the same. As such it is unnecessary to determine the question of tort liability.[^9]

[32] The final problem is the “entire agreement” clause. Although the homeowners made arguments against the enforcement of this provision, there is no doubt they read it and were aware of it. The entire agreement clause purports to exclude any pre-contract representations and to codify the only representations or warranties on which either party may rely. At the very least this provision should have put the homeowners on notice that if they wished to rely on specific representations about issues such as energy efficiency, those representations ought to have been reduced to writing. As I have concluded that the contractor failed to deliver the quality of work required by the contract, there is no need to venture outside the agreement in search of another basis for liability.

[33] This does not mean that representations of construction quality are not important. As I will discuss shortly, the representations made during the negotiation phase inform the interpretation of the contract. Mr. Grey does not deny that he promised careful high quality building practices and to the extent that there is any ambiguity in the contract, these representations may be important.

Nature of the Contract

[34] In considering cases of breach of contract, the first task is to identify the terms of the contract. In this case that is relatively simple because there is a written contract and there are written change orders. All parties agree that the contract signed on May 31st, 2014 was the contract arrived at after the contractor had delivered various written quotes. There is some disagreement as to whether the written schedules sufficiently particularize the agreed upon level of performance. There is no disagreement that the contract defined the scope of the work with reference to the project drawings and a detailed Schedule A entitled “Description of Work”. According to the contract, the work was to begin on June 2nd, 2014 and be substantially completed by August 29th, 2014. The homeowners had agreed to vacate the premises during that period of time.

[35] A number of features of the contract are important. Firstly, the agreement is what is normally described as a “fixed price contract” or “stipulated price contract”. That is to say that the contractor was to supply all materials, labour and supervision necessary to complete the work and would be paid the stipulated price. Secondly, “fixed price” is not a completely accurate description because the contract provides for escalation or adjustment in certain circumstances. One of those is the discovery of unanticipated hazards or electrical, plumbing, venting or structural obstructions. The other is the provision for “change orders” by which the parties may agree to change the scope of work and to an increase or decrease in the price. There is also a clause which sets out “cash allowances” for certain building materials such as plumbing fixtures, countertops and tiles. That provision is inserted to indicate the quality of material included in the contract and to indicate that selection of different quality of finishes or fixtures may require a price adjustment.

[36] The second feature of the contract is a provision that the “stipulated lump sum” is to be paid in installments on the achievement of certain construction milestones. For example $57,404.75 was to be due on signing the contract. A further $43,053.57 was to be paid upon “commencement of framing” and a similar amount upon “commencement of rough ins”. The agreement contemplated that at the time of substantial completion (defined as 97% complete), 90% of the lump sum would have been paid. These amounts are what are generally known as “progress payments” or “payment draws” and must be adjusted by addition of HST and deduction of the 10% holdback required by the Construction Lien Act.

[37] Although progress payments are required at particular milestones, progress payments are not identical with the value of the work completed. This is because construction projects require cashflow. Typically, as was the case here, a large sum must be paid at the beginning of the project to fund the acquisition of materials, mobilization of workers and site preparation. At that point, the payments will greatly exceed the value of the work that has actually been done. The fact that the progress payments are not necessarily identical with the value of the work completed becomes particularly important if the contract is terminated before the work is completed.

[38] In a stipulated price contract, the homeowners are entitled to expect all of the work defined by the contract will be completed in a “good and workmanlike fashion” for the agreed upon price (as adjusted) and the contractor is entitled to expect it will receive that price. If the contractor has priced the job correctly, the contractor expects to make a profit. When the contract is terminated before the work is finished, homeowners are left trying to complete the project with other contractors and will incur the costs of completion and repair. Assuming the contractor has paid its suppliers and subtrades, the contractor may or may not have been fully paid for the work done to the point of termination depending on the circumstances.

[39] The contract contains specific provisions dealing with premature termination. It reads as follows:

12. DEFAULT BY OWNER

If payment of any of the amounts to be paid to the Renovation Contractor by the Owner are not made at the time and date specified, or if the Owner defaults in any of the other covenants or agreements hereunder, the Renovation Contractor may, at its option, cease work and treat the contract as repudiated forthwith on the occurrence of such default, and the Renovation Contractor may recover payment for the work already completed plus damages, including loss of profit together with interests therein at the same rate of interest as an overdue payments.

13. DEFAULT BY RENOVATION CONTRACTOR

a) If the Renovation Contractor neglects to perform the Work in accordance with the terms of this Contract, the Owner may by a written notice to the Renovation Contractor require it to cure the default, neglect or event specified in such notice within (15) days.

b) If the Renovation Contractor fails to comply with the said notice, or is not then actively curing the said default, within fifteen (15) days of receipt of this notice or if the Renovation Contractor becomes bankrupt or makes a general assignment for the benefit of its creditors, or if a receiver of the Renovation Contractor is appointed in the times so limited, the Owner may take possession of the Lands and of all materials and appliances therein and finish the Work in accordance with the plans and specifications as the Owner may deem expedient but without undue delay or expense. In such event, the Renovation Contractor shall not be entitled to any further payment under the Contract but upon completion of the Work and accounting shall be made with the Owner and the Renovation Contractor at the time the Owner took possession of the Lands. If the unpaid balance shall exceed the expense of finishing the Work, such excess shall be paid to the Renovation Contractor, however, if such expense shall exceed such unpaid balance, the Renovation Contractor shall pay the difference to the Owner.

[40] In short, the contract provides that if the owner breaches the contract by failing to make the progress payments or otherwise defaulting on the owner’s obligations, the contractor may terminate the contract. In that case the contractor may recover payment for the work done plus damages including the profit that would have been earned had the contract been completed.

[41] On the other hand if the contractor breaches the contract by failing to complete the work, failing to rectify deficient work or abandoning the project, the owner may terminate the contract and complete the work. In that case the contractor will be entitled to any balance owing up to the time the contract was terminated net of the reasonable expenses incurred by the owner to finish the work. If that balance is negative, the contractor will be required to reimburse the owner.

[42] This provision is reasonable and generally reflects the law of contract. When a party breaches a contract in a significant manner, the innocent party may either treat the contract as continuing or it may terminate the contract and seek damages. In construction projects where the progress draws have generally been used to fund the cost of materials and labour, providing the work is not so deficient as to be without value, the contractor will ordinarily be entitled to retain the value of the work that was completed. But where the contractor has fundamentally breached the contract by abandoning the job and leaving it incomplete, it will normally not be entitled to recover any further payment or profit and will be liable in damages.[^10] The measure of damages generally consists of the costs which the homeowner incurs to complete the work to the extent that those costs exceed the balance of the original contract price. In the circumstances of this case, there is no unfairness in applying these provisions of the contract and it is the approach I have followed. The homeowners are entitled to all reasonable amounts included in the “expense of finishing the work”.

[43] One of the difficulties in interpreting a construction contract is to determine what the contract says about the quality of workmanship. As with most such contracts, the contract contains a provision that the specified work will be done “in a good and workmanlike fashion”. This is often no more than saying the work will be completed to “industry standards”.

[44] Construction quality can be affected by various factors besides workmanship. For example energy saving features may be added to the design, structural elements may be over engineered or may be “over code” in the sense that they are stronger than the minimum requirements, and different material may be used. Quality of materials such as windows, doors, tiling and framing material will affect the outcome, the price and the appearance of the finished product. Contractors may undertake to use particular protocols or build to particular standards such as the “energy star” program. In this case the drawings and the specifications attached to the contract specify the materials and other aspects of the construction but the contract does not contain specifics about how the work is to be done or by what trades. The latter is generally the responsibility of the contractor.

[45] It is here that the representations, negotiations and discussions leading up to the formation of the contract may have some relevance. This is a complicated area of the law which involves a balancing of legal principles. There is for example, the parol evidence rule. The parol evidence rule “precludes admission of evidence outside the words of the written contract that would add to, subtract from, vary, or contradict a contract that has been wholly reduced to writing”.[^11] The court may not admit oral evidence to demonstrate that the agreement was intended to mean something other than what it says. This remains the law even in the absence of a complete agreement clause but it is a rule riddled with exceptions.

[46] The governing principle of contractual interpretation is to determine the intent of the parties and the scope of their understanding. In this exercise the surrounding circumstances inform the exercise because “words alone do not have an immutable meaning”. On the other hand the surrounding circumstances cannot be allowed to “overwhelm the words” of the agreement. The “interpretation of a written contractual provision must always be grounded in the text and read in light of the entire contract”.[^12] In the final analysis if the drawings and the scope documents attached to the contract are specific, the written agreement will govern. Where the contract is vague or silent, pre-contract representations about the quality of the workmanship will be useful as an interpretive aid.

[47] In the case at bar, some of the work fell below the contractual expectation because it was either not “up to spec.” or because it was sloppy and not “good and workmanlike performance” by any standard. If there is any ambiguity about the standard of workmanship required, however, the contractor’s advertising and promotional material, its web site and the representations made by Casey Grey concerning quality, as well as the contra proferentem rule, favour the homeowners. It is not necessary to go outside the written agreement or to ignore the complete agreement clause to conclude that in the circumstances of this case, the homeowners were entitled to assume the work would be completed to a high degree of craftsmanship. The contractor’s current web site promises the “world’s greatest homes” and the “best building practices”. This is consistent with the homeowner’s evidence about what they were told in regard to quality of construction.

[48] In summary, the written construction contract is the agreement between the parties and subject to change orders (which are amendments to the contract) it defines the scope of work. It should be presumed that the quality of workmanship required by the contract is similar to that represented by the contractor and by Mr. Grey. I agree with the homeowners that they were entitled to expect a high quality of workmanship. This does not mean they were entitled to complimentary upgrades or to construction features or materials not contemplated by the specifications. Nor were they entitled to a standard of perfection.

Breach of Contract

[49] I turn now to some of the significant problems and to the reasons for concluding that the contractor breached the contract.

[50] As agreed, the homeowners vacated the premises in June of 2014 and demolition work began. Up until the termination of the contract the homeowners dutifully paid the progress payments as requested and they also paid for certain extras.

[51] The evidence discloses a gradual breakdown in the relationship. The homeowners became increasingly concerned that the work was not of the quality they expected, that the workers were unqualified, that the project was not properly supervised, that the price was mounting and that the work would not be completed on time. In fact they felt the project was going backwards because on occasion a worker sent to rectify one problem caused another by failing to protect previously installed flooring, doors or windows.

[52] The contractor became increasingly frustrated at what he believed was inappropriate interference with the work, second guessing of the workers and attempts by the homeowners to micromanage the construction project. Towards the end of the project he also became concerned that the homeowners were not able to pay for the rest of the work and it would be impossible to satisfy them.

[53] The law of contract requires the parties to carefully gauge their response to breach of contract by the other party. Not every breach of contract justifies termination of the contract though it may give rise to a claim for damages.[^13] In construction projects, in the absence of specific forfeiture provisions, most construction deficiencies and reasonable delays would be treated as breaches of warranties and not as breaches of contract justifying termination. By contrast, an unreasonable response by the homeowner demanding immediate or extreme rectification of minor defects and withholding payment might well justify the contractor in terminating the contract and leaving the job. That was not the case here although Mr. Grey appears to have believed that was the situation. At trial, he conceded that his understanding of “substantial completion” and release of holdback was flawed.

[54] On the evidence before me, there is absolutely no doubt that at the point of termination of the contract, there were very significant construction defects. The most significant of these were problems with the roof but there were also significant quality problems with finishes, window installation and damage to previously installed windows and doors. Many of these issues might have been rectified by the contractor had it stayed on the job but the problems were compounded by construction delays. As a consequence the homeowners were out of the home for longer than planned. The construction delays resulted in additional expenses to the homeowners and eventually they felt they had no choice but to move back in.

[55] What happened next was a fatal error from the point of view of the contract. Mr. Grey became concerned that the homeowners were not going to pay the balance of the contract price or perhaps would not be able to do so. He appears to have formed the impression that many of the complaints by the homeowners were exaggerated and unjustified. He also erroneously concluded that since they had moved back into the home, this meant that “substantial completion” had been achieved. He therefore purported to invoice for the balance of the contract price and to demand release of holdback. When this was not forthcoming, the contractor cancelled the kitchen counters that were on order and abandoned the job. There can be no doubt that when that took place, the contractor was in fundamental breach of the contract and the homeowners were entitled to terminate the contract as they did.

[56] Firstly, the contractor had failed to complete the construction project as required in the specified time. Secondly, there were persisting and ongoing deficiencies of both a major and minor nature not all of which the contractor was prepared to recognize or rectify. Thirdly, the work was not “substantially complete” within the meaning of the progress draw schedule in the contract or the definition in the Act. The contractor was in error in demanding the balance of the funds. It was certainly in error in demanding the release of holdback. Abandoning the job entitled the homeowners to terminate the contract and exercise their remedies.

[57] Some of these defects were known at the time and some have been discovered later. Many of the minor defects could and probably would have been dealt with by the contractor had it remained on the job. In light of the contractor’s abandonment of the project, and what the homeowners regarded as vindictively cancelling the kitchen counters and cabinetry, it was not a failure to mitigate for the homeowners to hire other contractors or to do the work themselves.

[58] I believe it is fair to make a general observation before continuing. The homeowners have assembled a vast list of deficiencies ranging from serious structural problems to minor annoyances. They have been fastidious in doing so. This may create the impression that nothing done by the contractor was done correctly. That is not the case.

[59] No one is seriously suggesting that the material purchased and incorporated into the home, the labour expended or the demolition and reconstruction were worthless. Despite very serious defects in the roof and in finishing work, the lengthy delays and the work that was necessary to complete the project once the contractor abandoned it, much of the work was sound. The construction passed necessary inspections and engineering reviews. Some of the claims by the homeowners are exaggerated.

[60] In saying this I am not for a moment downplaying the awful experience suffered by the homeowners. What was supposed to be a three-month renovation project leading to a dream home became an extended nightmare for them. It has been followed by years of litigation and they still live with some of the deficiencies. Despite this, this is not a case where all of the work must be ripped out and redone justifying a full refund. This is a case in which the measure of damages is the cost of finishing the job, putting it right and compensating for delay.

Calculation of Damages

Use of the Scott Schedules and Schedule A

[61] The difficulty with construction litigation is that it tends to become a series of mini-trials on individual items. For example, I have found that the roof work was defective but it does not automatically follow that all of the work that was done by the new roofing contractor was within the scope of the original contract, is reasonably priced and should form part of the damages claim. That must be proven. Similarly, deficiencies in the roof do not assist the court to determine if there were deficiencies in the painting or the drywall. The Scott Schedule is a tool to organize the claim in an attempt to facilitate admissions and streamline the process.

[62] As I indicated earlier in these reasons, I do not intend to write extensive reasons about each of the items listed in the Scott Schedule. Scott Schedules are designed in part to permit the court to provide cryptic reasons in a column on the document. In this case I have not used the Scott Schedules themselves because they are large Excel spreadsheets and too unwieldy to reproduce. In some cases remedial work covered more than one item or it has been necessary to allow global amounts covering claims for many small items. For example the work done by Mr. Jorgensen to repair the roof includes dealing with roof trusses, sun tunnels, flashing, drip edge and some stucco. I have instead prepared my own chart which is attached as Schedule A to these reasons.

[63] The chart contains the individual items as allowed. I have matched each item with the numbers in the Scott Schedules where it has been possible to do so. In some cases I have assessed global amounts for more than one item in the Scott Schedule and in other cases, where for example the claim was simply for time spent by the homeowners, I have dealt with it in a different manner. The chart contains all of the expenses I have accepted as legitimate and proven. If an item is not listed then it is either covered by one of the global categories such as labour or I have not allowed the claim.

[64] The chart contains the individual items as allowed. The chart (Schedule A) and these reasons must be read together.

Approach to Calculating Damages

[65] The breach of contract by the contractor is not carte blanche for the homeowners to make extravagant claims amounting to a complete refund of what was paid for the work. The homeowners must act reasonably and prudently and must mitigate their losses if possible.[^14] On the other hand, it would not be fair to quibble unduly over each minor item. I need simply be persuaded on the evidence that the homeowners have proven their entitlement to each item of damages on a balance of probabilities. It does not require scientific precision.

[66] In accordance with the termination provision in the contract and the general law of contractual damages, the first task is to assess the claims of the homeowner in order to calculate the cost of completion. The cost of completion will include work done to complete unfinished items which are within the scope of the contract and the cost of repairing any construction deficiencies.

[67] Once the cost of completing the contract has been calculated, it is necessary to compare it with the cost which would have been incurred under the original contract. This is the full contract price as modified by any change orders. The damages incurred by the homeowners will be the amount by which the cost of completion exceeds the original cost. This will be the amount necessary to put the homeowners in the same position they would have been in had the contractor completed the contract properly.

[68] To be fair and to fully compensate the homeowners, their damages will also include costs incurred because of the delay in completion if those can be proven and quantified. For example, there may be costs of renting alternative accommodation or increased borrowing costs related to such delay. It is however difficult to assess these costs if the remediation has not all been completed or drags on for an unreasonable amount of time. The duty to mitigate applies to all damages.

Homeowners’ Labour

[69] In this case, the homeowners claim compensation for time they spent doing manual labour, managing and meeting with sub-trades, and other work the contractor would have done under the contract. There is no reason in principle why the homeowners should be penalized if they mitigated their losses by doing work themselves rather than hiring labourers or if hiring someone else was not an option. But the claim must be reasonable and must be supported by evidence. In this case the homeowners attempted to value their work by applying the hourly rate they would have earned at their own work. That would only be appropriate if there was proof that they were forced to take time off work, actually lost income and there was no reasonable alternative.

[70] In terms of valuing laborious tasks such as scraping tape off windows, the homeowners have estimated how long it took them but they did not keep time sheets or other records and even if they had done so, then unlike time sheets which are business records, the records might not have been probative. There is no doubt that the homeowners spent a considerable amount of time on the project but they have not been able to support the specific amounts claimed under different items in the Scott Schedule. My approach to this problem has been to use a conservative global estimate of the time spent based on their evidence and to value it at a reasonable labourer’s rate. Unskilled labourers may earn minimum wage while experienced labourers on some construction projects earn in excess of $25.00 per hour. I have allowed the homeowners 120 hours at $20.00 per hour for the combined cost of their time. This comes to $2,400.00.

Claim for Mark Up

[71] The homeowners also sought a general “mark up” of 20% because this percentage was included in the contractor’s prices. This was articulated in the provision that materials specified by the homeowners in excess of the cash allowances would be charged by the contractor at “cost plus 20%” to cover “overhead, profit and management fees”.

[72] It is completely inappropriate for the homeowners to attempt a reciprocal 20% mark up on expenses they incurred. A contractor marks up the price of materials and labour when estimating a job in order to make a profit. Mr. Grey gave evidence about the difference between “mark up” and “profit”. A 20% mark up does not generate a 20% profit. In addition to the expenses of performing the work, a construction company also has general operating costs or “head office” costs. The reality is that profit margins in construction are often very thin (7% - 13% is common). This is the risk assumed by a contractor in a fixed price contract and why they are so vigilant regarding extras. A miscalculation about the cost of construction can quickly mean there is no profit at all. The homeowners are not entitled to build in profit or overhead on top of what they actually paid to complete the work.

Claims for Credits

[73] Similarly, in some cases the homeowners have sought the amount that was listed in the contract for particular items as if it was an expense. An example is the kitchen counter. The allowance in the contract was $3,800.00 but the homeowners were able to get the counter supplied and installed by the kitchen supplier for $3,051.00. If this was the only item in dispute, and assuming the homeowners cannot prove other expenses they incurred in arranging this installation themselves, then they would have suffered no damage. The cost of completing this item was less than the contract price. Of course they would not have to pay the contractor for work the contractor did not do but they are not entitled to treat the credit for this item in the contract price as if it was an expense.

[74] By contrast, the contract amount was in some cases adjusted by the parties and the credits listed in the contract were important. For example the contractor had reduced the contract price to remove the patio (see below) and a credit had been given for damage to a floor. These credits have already been removed from the total contract price.

General Damages & Delay

[75] The homeowners have asked for general damages for aggravation and mental distress. Damages for mental distress, hurt feelings, annoyance and disappointment are not recognized in Canadian contract law unless the parties have specifically contracted for peace of mind or it is a contract in which mental distress was specifically contemplated by the parties as a likely consequence of the breach of the contract. Contracts for home repair and renovation are not “peace of mind” contracts, and even if the homeowners could make an argument that mental distress was contemplated by the parties, any distress would have needed to be proven to be of such an extent that compensation is warranted.[^15] I have allowed damages for delay costs where the evidence supports it. There were costs associated with the delay in completion date, living in an unfinished house (particularly one with an unfinished kitchen) with a young family and other expenses of that nature. The evidence does not permit a precise quantification but I have allowed $10,000.00 in addition to the labour time mentioned above.

[76] I turn now to specific items that were listed in the Scott Schedule and which were repaired, completed or remain to be repaired. In some cases it has been necessary to comment on the evidence and the law but in many instances I have simply determined whether the evidence supports the claim or some other number and listed it in the chart.

Specific Deficiencies

The Roof

[77] Much was made by the homeowners in their evidence about the trades and employees used by the contractor and the limited time spent by Mr. Grey on the job site. The homeowners were unhappy that a carpenter rather than a roofer did the roof work. They were unhappy that there were apprentice carpenters on the job doing some of the work. They were unhappy that Mr. Grey was not personally on site. Quite frankly, if the work was performed to the proper standard, it would have been none of their business how the work was done or by whom.

[78] The contract contains no representations about these kinds of specifics. It is the responsibility of the contractor to ensure the proper standard is achieved and from the point of view of contract performance, if the work is sub-standard, the reason for the failure to perform the contract need not concern the court. As it happens Casey Grey and four of the individuals working on the project are “red seal” carpenters.[^16] This requires a short explanation.

[79] The regulation of construction trades in Ontario is complex. The province has created the Ontario College of Trades which is an umbrella regulatory body for over 120 recognized trades. While all of the recognized trades have standards of training and membership, membership in the College is voluntary for some trades while for others it is compulsory. In the case of voluntary membership, it is not necessary for a person holding themselves out as a tradesperson to be a member. In those trades, membership permits the member to earn a certificate of qualification in particular trades. A certificate confirms its holder has the skills, knowledge and experience that meet industry standards of practice for the trade.

[80] In some cases membership of the college in a particular trade confers exclusive use of a particular designation or trade mark. It does not necessarily follow that only members with that designation may perform particular kinds of work. Only certain trades have mandatory membership and a monopoly on work such that all persons practicing the trade must be members of the College. Plumbers and electricians are examples. No person in Ontario may practice those trades without being qualified members of the College. Electricians are subject to additional requirements such that only electrical contractors holding a licence from the Electrical Safety Authority may offer or perform electrical work. This is not the case for the majority of construction trades and in any event there is much overlap between trades.

[81] Many trades are also part of the national “red seal” program which provides for interprovincial recognition of qualifications. Carpentry is a trade which has a very broad scope of practice and in which red seal certification represents a high standard of training. It is not the case however that only journeymen or red seal carpenters may perform carpentry work and there is no legal impediment to having general labourers perform tasks such as framing. Similarly, there is no legal requirement that all roofing work must be done by red seal roofers or members of the College of Trades holding certificates of qualification as a roofer. In particular “roof framing” falls within the scope of carpentry as a trade. So there is no reason in principle that the contractor could not assign a carpenter to do the roof work.

[82] To be clear, it was not a breach of the construction contract to hire a carpenter to build or install the roof. I do not accept the evidence of the homeowners that they were promised particular trades would be hired or that any such representations formed part of the contract. On the other hand, they were certainly promised that the work would be done competently, in accordance with the contract specifications, manufacturer’s warranty requirements, and the building code. It was a breach of the contract to fail to build the roof to the required specifications or to complete the work in a good and workmanlike fashion. The homeowners may or may not have been lied to about the qualifications of the subcontractor but ultimately the reason for the failure to build to the necessary standard is irrelevant. Whatever the explanation, there is no doubt that there were significant problems with the roof installation. At the trial, Mr. Grey admitted that these were errors for which the contractor bears responsibility.

[83] These were not minor problems. One of the problems was with the overhang of the eaves on the new roof. The drawings provided for new roof construction to match the existing roof. The overhang of the eaves on the new roof was to match the existing overhang. Apparently the drawings show the overhang as 2’ but it turns out they were 2’6”. The drawings also state that the contractor is to verify the measurements and draw any discrepancies to the attention of the designer or structural engineer.

[84] When the pre-manufactured roof trusses were ordered, the contractor relied upon the 2’ measurement shown on the drawings and did not verify the measurements. As a consequence the overhang on the new roof was too short. This was noticed by the homeowners and the contractor was advised that it was not acceptable that the overhang between the old and new construction did not match. It was decided to address the problem by extending the trusses.

[85] I am satisfied that the method used by the contractor to extend the trusses was inappropriate and inadequate. It was also done without obtaining approval from a structural engineer or the truss manufacturer. If the original discrepancy was a minor problem, the botched attempt to rectify the problem was not. It was not structurally sound and would have resulted in sagging of the eaves.

[86] Another problem arose because the contractor did not check the slope of one portion of the roof. The consequence was that shingles and sun tunnels were installed on a roof that was not sufficiently steep. Different products should have been used.

[87] There is a deflection in the roof. The evidence is in conflict as to whether the deflection is in a part of the roof supported by old construction or by new framing. Regardless, this is a significant problem which should not exist. It should have been noticed and rectified at a time when it would have been relatively simple to do so.

[88] There were cosmetic problems in the form of “oil canning” on the metal edge of the roof. That may or may not have been inevitable with the materials originally selected by the homeowners. Mr. Grey testified that he recommended a stiffener (as an extra) but the homeowners decided not to proceed with it. Still, the oil canning appears to have been more severe than anticipated. It should have been noticed and further remedial steps suggested before installation was complete. This situation was compounded by various workmanship issues with flashing, the drip edge and other issues itemized in the Scott Schedule. In any event the expense to repair this is included in the overall cost of repairing the roof.

[89] The homeowners called evidence to prove that the only viable solution to the roofing problems was a virtual complete rebuild of the roof at a cost of close to $40,000.00. The roofing expert was Ike Jorgenson, who is a very experienced roofing contractor. Unfortunately Mr. Jorgensen is open to criticism because he is not an independent expert. He is really a “participant expert” because he was called in to diagnose the problem and propose a solution even before the contract was terminated. Mr. Jorgensen was then hired by the homeowners to implement his proposed solution and it is his invoice which is used to prove the cost of repair. While the homeowners elected not to take all possible remedial steps, the invoice was more than $31,000.00.

[90] I accept Mr. Jorgensen’s evidence despite his potential lack of objectivity. He signed form 53, certifying he was aware of his duty to be neutral in giving evidence to the court. He appeared to be an honest and straightforward witness. Neither he nor the homeowners adopted the most expensive remedial options. I did not get the impression that he was attempting to maximize his own bill. In addition, his evidence was consistent with the expert evidence of Mr. McIntyre and of Mr. Van Leuween as well as with common sense. For example, it would not be reasonable to only shingle the low slope portion of the roof and the sections of the roof that had to be opened if the shingles previously installed would not be a match.

[91] The homeowners should not be required to live with mismatched shingles and the absence of the manufacturer’s warranty because of the necessity of remedial work. Similarly, while there is nothing inherently wrong with the type of “drip edge” installed by the contractor and the drip edge used by Mr. Jorgensen may be a superior and more expensive type, some of the drip edge had to be replaced and given the overall price of the work, I do not consider the remedial work to be significantly different or superior to the original contract specifications. I therefore accept the evidence that the most appropriate remedial action was to rebuild the eve extensions, replace the sun tunnels and redo the roof with proper material. I accept Mr. Jorgensen’s invoice of $31,188.00 as evidence of the value of the remedial work.

[92] Counsel for the contractor argues that the Jorgensen invoice should not be accepted because the homeowners did not obtain other competitive quotes. It was reasonable to proceed with Mr. Jorgensen because the homeowners had already brought him onto the site, because there was some urgency to the roof repairs and because this price appears reasonable for the work that was done. The contractor did not call any evidence to prove that this price was inflated.

[93] This remedial work is not complete. The deflection has not been repaired. The homeowners claim a credit towards repairs or reduction in value in the amount of $4,000.00. This is at best a guess but some credit should be allowed. I have allowed this item at $2,000.00. I have also allowed the cost of evestroughing which was neither supplied nor installed.

Framing and Levelling

[94] The homeowners complain that certain new or rebuilt walls are not plumb and there is a significant deflection in the floor at the threshold of the master bedroom. The contractor conceded that some of this work would have been remedied or repaired had the contract been completed. Of course it is always more expensive to bring in another contractor to do remedial work.

[95] In an effort to mitigate, the homeowners have elected to use cosmetic repairs to disguise some of the more minor issues but they wish to repair the worst of the framing issues. The quotes they have obtained total $14,347.00 inclusive of HST.

[96] It is always problematic to use single quotes to estimate costs of repairs which have not yet been completed. This is particularly so since the scope of work in these quotes is not clearly defined and unlike the invoices for work actually done supported by affidavits, these quotes are hearsay. On the other hand the homeowners have estimated these costs based on the quotes, and the need for the remedial work is supported by the experts. There is a risk that when the work is done, the costs may be higher. As submitted by counsel, this does not include costs such as waste removal and it is proposed that $960.50 be added to cover that cost. While the documents themselves are not probative of the cost, they are of some assistance. I agree with the submissions of the contractor, however, that there is inadequate explanation for replacing the bathroom floor and the charge for waste removal is overestimated. I have allowed the homeowners a credit of $10,000.00 towards the framing and levelling issues.

Kitchen and Plumbing

[97] It is not in dispute that there was cabinet work to be completed and the contractor did not pay for the missing cabinets. The supplier provided them to the homeowners at the original cost and the credit of $639.58 is not contested. The homeowners paid $3,051.00 for the countertop to be installed and they are entitled to that amount. The amount included in the original contract price was $4,294.00 and the homeowners seek the full amount as a credit.

[98] It is important not to confuse damages with adjustments to the contract price. If the kitchen counter was the only item in dispute, the homeowners would have suffered no damage because they paid less to the new kitchen counter supplier than they would have paid the contractor. Because the contractor abandoned the project, the homeowners would not have to pay the contractor but their damages would be zero.[^17] Had the parties agreed to amend the contract to delete the kitchen counter then the credit (change order) would have been the $4,294.00 but because the exercise I am currently engaged in is totalling the expenses incurred to complete or repair the work, the proper amount is $3,690.58 ($3,051.00 + $639.58).

[99] The homeowners also claim the cost of unfinished plumbing work. While it is true that the contract does not mention re-installation of the dishwasher or the water purifier in the scope of work, I am satisfied this was an implied term. These items were disassembled in order to complete the kitchen renovation. It was always contemplated they would be salvaged and reinstalled.

[100] The cost of the plumbing work was $545.23. Adding this to the $3,690.58 produces a sum of $4,235.81.

Doors and Windows

[101] The homeowners had ordered Lambden triple glazed windows and doors. The contractor had agreed to install them and according to the homeowners they were content with this because of the contractor’s representations that they did quality work and were familiar with requirements of energy efficient construction.

[102] It is the evidence of the homeowners that the windows and doors were not installed properly and the contractor damaged some of the doors and windows. They are supported in this by evidence given by a representative of Lambden. Lambden performed an inspection, diagnosed problems and then replaced, re-installed or repaired in accordance with their recommendations. It should be noted that the homeowners did not implement all of Lambden’s recommendations in order to reduce the cost of remediation.

[103] The contractor has the same criticism of this evidence as it does of that of Mr. Jorgensen. That is to say that Lambden is not independent since the company has a financial interest in blaming the contractor rather than accepting any responsibility for manufacturing defects. This is fanciful. There is no evidence that there were manufacturing defects. There is no evidence that Lambden charged for services that were not required.

[104] I recognize there was some conflict in the evidence. Mr. Grey and Mr. Kane Wachter testified that there was nothing wrong with certain specific doors which the homeowners now say were damaged when they left the site. In addition, there is the “punch list” which was prepared during a walk through and purports to be a list of all construction defects. The homeowners explained why not all items were in the punch list and I accept their evidence that the doors and windows were not damaged by them or by anyone else after the contractor left the job site.

[105] Val Hamilton testified that she sent a very experienced service technician to assess the work that was required to repair these problems and the initial quote was more than $10,000.00. The homeowners decided to proceed with only some of the work and live with the remaining deficiencies. The invoice for $6,032.19 is supported by the evidence. I am not satisfied with the evidence in support of the claim for door handles and I agree with the contractor that there is nothing specific about the door handles in the contract specifications.

[106] The remaining issues regarding the windows are largely cosmetic and finishing issues. They are supported by photographs. The homeowners claim for their own time in cleaning up tape stuck to windows and removing marks from window frames and in performing caulking. The time is not adequately documented and they ask to be compensated at the rate they would earn at their own places of employment. That is not reasonable. The homeowners also speculate that some of the windows they have not repaired may not be watertight. I cannot award damages for speculative events which have not occurred but it is obvious that work has been done by the homeowners and additional work will be required to address the faulty workmanship.

[107] I will address the question of time spent by the homeowners and how that should be compensated later in these reasons.

[108] The contractor also recognizes the claim for $300.00 in respect of missing flashing around an upstairs window which was removed to allow drywall to be brought in. This brings the cost of rectifying these deficiencies to $6,332.19.

Roof over Garage

[109] This item is a small roof over the garage. There was much evidence about why the roof was changed from the specifications but in any event the metal roof installed by the contractor was improperly designed or installed and it leaks. The homeowners propose to replace this with a copper roof but that is a superior and more expensive roof than was called for in the contract. On the other hand they have had to remedy the damage done by the water leak and the original torch on roof cannot be installed without damaging the stucco. The amount claimed is based on an estimate from Mr. Jorgensen. I have discounted this slightly and allowed $5,000.00

Patio

[110] The dispute over the patio is a good example of how extras and credits creep into construction contracts. The contract called for construction of a patio and allocated $4,300.00 to that work. It turned out that a retaining wall would be necessary and a retaining wall was not included in the scope of the contract. The contractor was correct that construction of a retaining wall would have been an extra. As a result of this disagreement, the homeowners decided not to proceed with the patio and this should have been a credit against the contract price of $4,300.00.

[111] Instead the contractor attempted to invoice for $1,300.00 for crushed stone and included it in the claim for lien. The homeowners need not pay for this but they also are not entitled to damages. I have not allowed any expense for the patio. I will deal with the reductions against the contract price later in these reasons.

Electrical Work

[112] The evidence on this point does not persuade me that there are significant defects nor that the used “pony panel” was inappropriate. All of the electrical work passed inspection but there was work unfinished.

[113] The parties are in agreement that the cost to complete the unfinished electrical work was $734.00. The homeowners also had to purchase smoke detectors for $101.68. They have claimed for their own labour but specific time spent on this specific task is not documented. I will address the question of remedial labour later in these reasons.

Paint and Drywall

[114] There is no doubt that the painting and dry walling was of poor quality and fell below industry standards let alone the quality of workmanship for which the contractor was apparently renowned. The deficiencies were adequately documented and in this case the homeowners obtained competitive quotes for the completion and repairs. They spent $10,509.00 to remediate these issues.

[115] Mr. Grey and Mr. Wachter testified that the homeowners were overly fastidious in claiming deficiencies that were almost invisible and that they made numerous unnecessary repairs in an effort to satisfy them. They also suggested that the homeowners themselves damaged paint or drywall while living in the house. I do not accept this evidence. The evidence supports a finding that the painting sub-trade did not do a complete or sufficient job of the painting and appears not to have applied two coats of paint.

[116] There is also an unfortunate reality when a new trade must be hired to rectify deficient work. In order for the new trade to take responsibility for the work and provide a warranty, it will frequently be necessary to refinish and repaint entire rooms where the original contractor might have attempted to patch. I am satisfied that the invoiced work was necessary to complete the contract.

Energy Efficiency, Insulation and Air Barrier

[117] This was an area of considerable dispute at trial. There is no doubt that the homeowners expressed an interest in making their home more energy efficient. There is no doubt that the contractor advertises that it is qualified to build energy efficient homes.

[118] The question in a renovation project such as this is whether the homeowners were promised a particular level of energy efficiency and whether they had included energy efficient construction standards in the contract. Energy efficiency cannot be discussed in the abstract. To take a simple example, it is the case that generally speaking more insulation with higher R values will reduce heating and cooling requirements but the question is what thickness and type of insulation was actually ordered and installed. To take another example, penetrations in the air and vapour barriers can be minimized by constructing “chases”, by using double barriers and by using higher quality “Siga tape”. All of these measures increase the cost of construction and although they were discussed as possibilities, they were not included in the construction specifications.

[119] The homeowners concede that they did not include all of the recommendations made by either the contractor or by an earlier energy consultant. They also concede that there was no particular energy performance level incorporated into the contract and in fact the completed home was more energy efficient than the original according to the energy audit performed in 2016.

[120] On the evidence, I find that there was no contractual obligation to create an energy efficient home or to meet particular targets. That is not to say there are no deficiencies. The homeowners were entitled to expect that to the extent possible, energy efficiency would be a consideration when the renovations were completed. Missing insulation, the cold spot at the fireplace, the failure to insulate or seal around windows, the failure to ensure the integrity of the vapour barrier at the sun tunnels and windows, and the failure to properly insulate around many of the pot lights are examples of deficiencies.

[121] I accept the evidence of the contractor that they were not contracted to do the work to insulate the garage ceiling under the children’s room. I accept the evidence of the homeowners that the insulation under the cantilever was faulty and prone to moisture build up.

[122] The homeowners obtained several expert reports. They have had some remedial work done and they have obtained quotes for estimated future remedial work. They paid $5,957.58 for remedial insulation work in addition to work included in the Jorgensen invoice but this includes $1,670.03 for insulating the children’s room which was not in the contract. They anticipate over $8,000.00 in further repairs. I am allowing the cost of the repairs actually performed other than the children’s room and a further $4,000.00 towards the estimated $8,000.00 cost of further repairs and remediation. I have already allowed the full amount of the Jorgensen invoice. The amount allowed for this item is $8,287.55.

Cantilever & Drip Edge

[123] I have not allowed the claim for the repair of cantilever soffits as the evidence did not support that this was a construction defect. The replacement of the drip edge has been allowed as it forms part of the Jorgensen invoice for the roof work.

Acrylic Coating & Stucco

[124] There is a deficiency because the Stucco was installed too close to the ground and not as per the drawings. There are also various Stucco repairs required including one where the contractor drove a shim through the Stucco. The contractor may be correct that some of these deficiencies should be remedied by the Stucco sub-contractor but that would be an issue between the contractor and the sub-trade. In any event the evidence of the homeowners is that the sub-contractor did not charge to remedy defects in its workmanship and the invoice is for repairs that were not considered to be warranty items. I have allowed $2,500.00

Finishing Carpentry & Pocket Doors

[125] There is no doubt that there were deficiencies in finishing work and carpentry. In particular there were drywall screws that were too long and had damaged several pocket doors. The evidence is in conflict as to whether all of these problems had been remedied and whether some of the damage now described in the homeowner’s evidence is the result of wear, tear and maintenance issues in the years since the homeowners moved back into the house.

[126] The carpenter hired by the homeowners to do remedial work charged $4,248.00 and the cost of materials valued at $1,498.00 appears to have been incurred. While there may have been some damage caused by wear and tear, the issues described by the carpenter, Mr. Ford, are similar to the issues acknowledged by the contractor before it left the job. The evidence supports a finding that most of this work was to address deficiencies.

[127] The contractor also argues that some of the damage may have been caused by the numerous trades that have worked on the house since the contractor left the job. There is no specific evidence of this theory. I have allowed $5,000.00 for these items.

Damage to Foundation

[128] Damage was done to the foundation and although it was repaired by the contractor, the structural engineer was not consulted. The homeowners have had this reviewed by an engineer who has made recommendations. They claim the cost of the engineer and the repairs totalling $3,706.40. This is a legitimate expense.

Concrete Piers, Backfill & Drain

[129] There are concrete piers supporting part of the new structure. These were not built to the specifications. Firstly, there was a slight change in the position of the piers and secondly, the piers were not backfilled in accordance with the specifications. The homeowners also claim a labour amount for tightening bolts the contractor had failed to tighten. There was a related problem where the contractor damaged a section of French drain.

[130] The homeowners claim the cost of having the piers inspected by an engineer to approve the deviation from the plans. They also claim $4,418.00 which is the estimated cost of backfill and drain repair. Of course this is only an estimate but it does not appear unreasonable. I have allowed this amount as well as the cost of the engineer. The total is $4,745.86.

Miscellaneous Items

[131] I am not satisfied with the evidence relating to the specific amounts for the Terrazzo floor or the frost free tap. I am not allowing the claims for items 44 & 45. There is no evidence that supports design flaws in the HVAC system as it relates to air returns. There are almost always ways to improve air circulation in homes but it does not follow that the design is flawed. There is evidence that there was faulty workmanship repaired by the homeowner’s own labour. I am not allowing any amounts for speculative damages such as “loss of warranty”.

[132] I have allowed a total of $6,000.00 for the shower glass, damage to stairs, damage to floors, humidifier and other items. There was significant dispute in the evidence about who was responsible for what damage but there is sufficient evidence to find that there is or was damage in need of repair.

Site Cleanup and Landscaping

[133] The homeowners have claimed labour costs for work done to clean up the site but they also gave evidence about damaged interlock, grading issues and other finishing work which would have been completed or should have been completed by the contractor. I am allowing $2,000.00 for this work.

Damages for Registration of Lien

[134] Section 35 of the Act provides that a person who knowingly registers an inflated claim for lien or ought to have known that the claim for lien was inflated or non-existent is liable for any resulting damages.

[135] Given my finding that the contractor breached the contract and abandoned the job, this section would apply. The contractor should have known he was wrong in asserting that substantial completion had been achieved and demanding release of holdback in the face of the significant deficiencies. He should have appreciated that the work was not 97% complete in light of those deficiencies and the work remaining to be done. In any event it is improper to register a lien for the full price of completing a contract when the contractor has abandoned the job and has no intention of returning.[^18]

[136] I recognize that the lien was not grossly inflated or based on imaginary claims. It was a lien for the balance of the contract price and for extras that had not been paid for. Had I found that the homeowners were in breach of contract the contractor may well have been entitled to damages, though the damages would not have included the full cost of completing the work. Under those circumstances the lien would have been inflated but not non-existent.

[137] The homeowners have not proven damage which flows from the registration of the lien. They assert that they could not access their line of credit because of the lien and they claim they would have used their borrowing power to purchase a rental property. This is self-serving evidence supported only by an e-mail from the bank confirming Mr. Folz’s e-mail that the homeowners cannot access the equity in their home while there is a lien on title. Besides being hearsay, an e-mail simply confirming a proposition put by the homeowner can be given no real weight.

[138] There is no evidence of any preparation to purchase rental property or attempts to refinance or borrow. There is no evidence of any attempt to remove the lien from title in order to mitigate this loss. The lien could have been bonded off at any time under s. 44 (1) or (2) of the Act or a motion could have been brought to reduce the amount or to discharge the lien pursuant to s. 47.

[139] I have not awarded damages for the registration of the lien. No damage has been proven.

Cost of Completion

[140] As will be seen in Schedule A, the total cost to the homeowners of completing the work that should have been done under the contract comes to $116,429.84. This is in addition to the amounts they had already paid the contractor.

[141] The amount the homeowners have paid the contractor was $289,294.85. This means that the total cost of the project (inclusive of the cost of delay and the other items I have allowed in the counterclaim) was $405,724.69. By contrast, the original contract had been for $287,023.77 (approximately $324,337.00 with tax) but that number was altered by change orders.

Contract Price

[142] It is necessary to determine the total contract price because that establishes how much the homeowners would have paid the contractor had the contractor completed the work as promised. Their damages are the difference between what it should have cost and the cost that the court has determined they should be allowed as completion and repair costs.

[143] The contract provides that no change order is effective unless it was signed by the parties but it was the contractor’s evidence that some orders were not signed for one reason or another. Sometimes decisions were made at the site and documented later. In addition, it appears that after October of 2014, the homeowners did not sign any more change orders even though some of those are for credits.

[144] Change order 19 is the last change order that was signed. That change order is actually a credit but it confirms that the cumulative effect of the change orders to September 15th, 2014 had increased the price of the contract to $305,028.70. Adding HST would bring this to $344,682.43. This was acknowledged by the homeowners on October 10th, 2014.

[145] Subsequent to that, the contractor issued additional change orders which are unsigned but several of which the contractor testified had been accepted. There are 9 such unsigned “accepted” change orders some of which are for credits. The last such change order was change order 33 for extra garbage bins. In that change order, dated November 5th, 2014 the total contract price was shown as $313,319.57 which would be $354,051.11 inclusive of HST. It is this latter amount which formed the basis for the claim for lien representing the unpaid balance of the adjusted contract price together with release of holdbacks.

[146] The contractor would not have been entitled to the value of work it had not done. Had the homeowners breached the contract, the contractor might have been entitled to claim lost profits and materials and other expenses for which it was liable that had not yet been paid. Under the circumstances, however, the parties should be held to the contractual term that the contract price can only be adjusted by duly “signed” change orders. Consequently, I find that the contract price as adjusted by agreement was $305,028.70 (shown in signed change order # 19) but that should be reduced by the plumbing credit for $1,855.37[^19] and the $1,300.00 for gravel which was charged but disallowed by me. The resulting value of the contract is $301,873.33. That in turn would be $341,116.86 inclusive of HST.

[147] There may be some imprecision in the comparison between the total project cost incurred by the homeowners and the amount they would have paid under the contract because of HST. All of the contractors prices would have had HST added and of course the homeowners paid HST to any contractors or suppliers they obtained to complete the work. The amounts set out in the Scott Schedule are generally inclusive of HST. HST does not apply to the amounts I have allowed the homeowners for their own labour or which are simply allowances towards an expense not yet incurred. It is not feasible to fine tune the calculations in the absence of expert evidence and the difference is minor. I mention it only to make it clear that I am aware of it and have not ignored it.

[148] In summary, I find that the total cost incurred by the homeowners for the renovation project was $405,724.69 ($289,294.85 + $116,429.84). The total amount they should have paid was $341,116.86. The difference is $64,607.83 and this is the amount owing to them on the counterclaim.

Conclusion

[149] In conclusion, the plaintiff’s claim is dismissed and the lien shall be vacated from title. The Folz defendants shall have judgment on the counterclaim in the amount of $64,607.83.

[150] The plaintiffs by counterclaim are also entitled to pre-judgment interest and, subject to any offers to settle to which I am not yet privy, they shall be entitled to costs of this proceeding.

[151] Counsel are invited to agree on the PJI and costs but if they are unable to do so I will hear argument.

[152] Subject to finalizing PJI and costs, a report may issue accordingly.

Mr. Justice Calum MacLeod

Released: February 9, 2018

Schedule A – Itemization of Damages

Item	Ruling	Damages or Adjustment
Homeowners’ labour costs (This includes all items where the homeowners sought to recover their own time, for example items 31, 32 and 42 in the Scott Schedule)	See reasons. I have allowed a global amount of 120 hours calculated at $20.00 per hour under this heading.	$2,400.00
Delay costs (This item covers various claims listed in the Scott Schedule)	See reasons. This is an estimate of costs incurred because of the delay in occupancy and the delay in completing the kitchen, as well as other expenses due to ongoing remedial work.	$10,000.00
Roof repairs and related remedial work by Ike Jorgensen (Items 1a & Items 18 – 23, Scott Schedule)	See reasons. I am satisfied that the Jorgensen invoice represents necessary remedial work and it was reasonable to proceed without additional quotes.	$31,188.00
Credit towards repair of roof deflection (Item 1b, Scott Schedule)	See reasons. While this item has not yet been addressed, I am satisfied this is a genuine issue and a credit is justified.	$2,000.00
Framing and levelling (Items 2 – 4, Scott Schedule)	See reasons. I have allowed a reduced amount for this claim.	$10,000.00
Kitchen and plumbing (Scott Schedule, items 5 – 7)	See reasons. These are the costs actually incurred.	$4,235.81
Doors and windows (Scott Schedule, items 8 – 17)	See reasons. This is the cost actually charged by Lambden plus the $300.00 for item 17 recognized by the contractor.	$6,332.19
Garage roof (Scott Schedule, Item 24)	See reasons. A more expensive option is required than the contractor should have installed because the original option would now cause damage to the stucco. Even though there is no real choice, the end result will still be higher quality than the “torch on” roof in the contract. I have discounted the quote only slightly to balance necessity against betterment.	$5,000.00
Eavestrough (Scott Schedule, Item 25)	This is the amount actually spent to obtain the eavestrough that would have been provided under the contract.	$1,689.35
Electrical work (Scott Schedule, Items 27 – 29)	See reasons.	$835.68
Painting and dry walling (Scott Schedule, Items 30 & 43)	See reasons. I have accepted the evidence of poor quality workmanship. This invoice is allowed.	$10,509.00
Insulation, vapour barrier, cantilever and drip edge (Scott Schedule, items 33 – 39)	See reasons. This is the amount paid for remedial work and an allowance for work yet to be completed. Drip edge is addressed as part of the roof repair. I have not allowed the repair to the cantilever.	$8,287.55
Acrylic coating and Stucco (Scott Schedule, items 40 & 41)	See reasons. There are deficiencies and damage and Stucco work required as a consequence of other remedial work. I have allowed a slight discount from the invoices.	$2,500.00
Finishing carpentry and repair of pocket doors (Item 43, Scott Schedule)	See reasons.	$5,000.00
Foundation Repair (Item 62, Scott Schedule)	See reasons.	$3,706.40
Piers, backfill and drain (Scott Schedule items 55 -57 & 63)	See reasons. I have allowed the cost of the engineer and the backfill.	$4,745.86
Miscellaneous items	See reasons – allowance for various items of damage.	$6,000.00
Site cleanup and landscaping	See reasons. This is a reasonable allowance for this work.	$2,000.00
TOTAL COST OF COMPLETION INCURRED BY HOMEOWNERS.		$116,429.84
AMOUNT PREVIOUSLY PAID BY HOMEOWNERS		$289,294.85
TOTAL COST TO HOMEOWNERS		$405,724.69
ADJUSTED CONTRACT PRICE		$341,116.86
BALANCE OWED TO HOMEOWNERS		$64,607.83

COURT FILE NO.: 15-63338R

DATE: 2018/02/09

ONTARIO

SUPERIOR COURT OF JUSTICE

In the matter of the Construction Lien Act, RSO 1990, c. c.30 as amended

RE: CORNELIS GREY CONSTRUCTION INC. (also known as THE CONSCIOUS BUILDER), Plaintiff (Defendant by Counterclaim)

AND

MATTHEW JOHN FOLZ, KELLY ANNE FOLZ and THE BANK OF NOVA SCOTIA, Defendants (Plaintiffs by Counterclaim)

BEFORE: Mr. Justice Calum MacLeod

COUNSEL: Nigel McCready, for the Plaintiff (“contractor”)

Jocelyn Duquette, for the Folz Defendants (“homeowners”)

reasons for decision

Mr. Justice Calum MacLeod

Released: February 9, 2018

[^1]: See section 58 of the Act. [^2]: Rules of Civil Procedure, Rule 54.03 (1). [^3]: See Rules 54.09 and 55.02 (19) – (21) for the procedure to be followed to confirm the report. [^4]: “Scott Schedules” are essentially tables used to particularize construction disputes and are named after George Alexander Scott (1862-1933), an “Official Referee” in what is now known in England as the Technology and Construction Court. Scott Schedules are now used routinely in construction disputes in Ontario and throughout the world. See “Scott Schedule Note”, online: www.justice.gov.uk/courts/procedure-rules/civil/standard-directions/general/scott-schedule-note. [^5]: R. v. Sheppard, 2002 SCC 26. [^6]: 1993 CanLII 146 (SCC), [1993] 1 S.C.R. 87, at p. 110. [^7]: 1993 CanLII 145 (SCC), [1993] 1 S.C.R. 12, at p. 38. [^8]: Ibid, at p. 37. [^9]: See BG Checo, supra. See also Royal Bank of Canada v. W. Got & Associates Electric Ltd., 1999 CanLII 714 (SCC), [1999] 3 S.C.R. 408. [^10]: In the absence of a specific contractual term, the rights of the parties will depend on the particular facts. See for example: Heyday Homes Ltd. v. Gunraj (2005), 44 C.L.R. (3d) 169 (Ont. S.C.); Tanenbaum and Downsview Meadows Ltd. v. Wright-Winston Ltd., 1965 CanLII 308 (ON CA), [1965] 2 O.R. 1 (C.A.); Summers v. Harrower (2005), 2005 CanLII 50261 (ON SC), 49 C.L.R. (3d) 303 (Ont. S.C.); Kaplun v. Mihhailenko (2005), 43 C.L.R. (3d) 223 (Ont. Master). I note that “substantial completion” as used in the jurisprudence may not be identical with “substantial completion” for purposes of the Act or the 97% completion used in the contract. [^11]: Sattva Capital Corp. v. Creston Moly Corp., 2014 SCC 53, at para. 59. [^12]: Ibid. [^13]: See G.H.L. Fridman, The Law of Contract in Canada, 6th ed. (Toronto: Carswell, 2011), c. 16. [^14]: See Interborough Electric Incorporated v. Maple Reinders Construction Ltd., 2015 ONSC 5591. [^15]: Turczinski Estate v. Dupont Heating & Air Conditioning Ltd. (2004), 2004 CanLII 35549 (ON CA), 191 O.A.C. 350 (C.A.), at paras. 26-30; Mellor v. Kiddle Karpentry, 2010 ONSC 4318, at paras. 36-38. [^16]: Although at least one of these individuals had just earned the designation. [^17]: For purposes of the example, I am not taking into account the labour costs or other costs relating to delay which the homeowners may also have incurred. For example, they had to cook in the laundry room for two months. [^18]: Landmark II Inc. v. 1535709 Ontario Limited, 2011 ONCA 567. [^19]: Which was agreed by the contractor