ONTARIO

SUPERIOR COURT OF JUSTICE

COURT FILE NO.: 15-53902 and 15-54325

DATE: 2018-04-09

B E T W E E N:

Cornerstone Select Properties Inc.

G. Falletta, for the Plaintiff/Defendant to the Counterclaim

Plaintiff/
Defendant to the Counterclaim

• and -

George Scott Matthews and Margaret Mary Matthews

D. Schmuck, for the Defendants/Plaintiffs by Counterclaim

Defendants/
Plaintiffs by Counterclaim

• AND –

George Scott Matthews and Margaret Mary Matthews

Plaintiffs

• and -

Jeffrey William Varcoe

Defendants

D. Schmuck, for the Defendants/Plaintiffs by Counterclaim
G. Falletta, for the Plaintiff/Defendant to the Counterclaim

HEARD: November 21-24, 28 and 29, 2017

REASONS FOR JUDGMENT

I. Introduction

[1] The trial in this matter was essentially a blended or combined trial with three separate actions:

1. a claim by Cornerstone against the Matthews for monies outstanding,

2. a counterclaim by the Matthews for overpayment by themselves to Cornerstone and the cost of correcting deficiencies in the work performed, and

3. an action against both Varcoe and Cornerstone for damages arising out of the misrepresentations made by Jeff Varcoe.

[2] Home renovation has become a topic of interest in the population of the GTA confronted with rising home prices, and focused on the need to develop independent sources of income, perhaps for retirement. Television shows on the subject of renovation and the experiences of parties have proliferated. You can watch “Holmes on Homes” or “Property Brothers”.

[3] This case illustrates how people can be naïve in their contractual relationships, how what everyone’s understanding is as to the nature of what is contracted for can be nebulous and completely dissimilar.

II. Issues

[4] Essentially the issues boiled down to:

1. What were the key elements of the verbal contract between the parties?

2. What representations were made by Jeffrey Varcoe, (Varcoe), to the parties, the Matthews, and were some of those misrepresentations false?

3. Did the Matthews act upon these representations to their detriment?

4. Was the quality of the work performed by Cornerstone Select Properties Inc. (Cornerstone) adequate and necessary?

5. Was the work performed by Cornerstone deficient such that the Matthews had to expend sums to correct those deficiencies?

6. Did the Matthews experience other damages beyond out of pocket expenses, for example, punitive and aggravated damages, loss of anticipated revenues? If so, to what extent?

7. In the total picture, do the Matthews owe Cornerstone or Varcoe money for outstanding invoices or does Varcoe and Cornerstone owe the Matthews money for the consequences of the renovations carried out?

III. Testimony at Trial

(i) General Background

[5] What is not disputed is that Mrs. Matthews became familiar with Jeff Varcoe as a consequence of her working in a real estate office. Varcoe was friendly and known to her as a property manager and investor in income producing properties. Indeed, Varcoe touts his expertise in such matters in his signature signing off in emails as “Professional Real Estate Investor/Property Manager/Problem Solver”. Did he overstate his qualifications? At this point that does not need to be addressed as it is suffice to say that Margaret Matthews was a believer.

[6] Margaret had attended “Real Estate as an Investment” seminars with her husband George and was prepared to mortgage the matrimonial home to acquire an income-producing property, the obvious hope being that the income generated would be used to pay down the indebtedness over time and the Matthews would have an income stream in the twilight of their years.

[7] Varcoe assumed the role of “friend” and advisor and accompanied the Matthews to various showings of houses, generally in the north end of Hamilton.

[8] The relationship that the Matthews had with Varcoe was that he was the experienced hand in such matters, he would help them find the appropriate structure, his company would carry out the renovations to create multiple units, and then they could sit back and receive the benefits. The Matthews were neophytes and became dependent upon Varcoe for advice on this project.

[9] Eventually 65 Aikman Avenue, (Aikman), was selected as the perfect house for investment realty. Aikman was over 105 years old, and was a single family dwelling and any changes to multiple occupancy would involve a zone change. The property was purchased as per the advice of Varcoe for around $220,000.00.

[10] The Matthews, Margaret in particular, testified that they had a budget, which included the price of the home and was around $300,000.00, all of which was borrowed on the strength of the marital home. This notion of a “budget” was credibly presented. Given the existence of a budget, it would flow that there would only be so much available for the actual renovations. Consequently a lump sum figure evolved. Yet at the same time Varcoe introduced the concept of “time and materials” as a possible basis for the cost of renovations. A question arising out of this concept, was how the time and materials were to be calculated. Was it actual time and materials or would there be a mark-up? Was the fact of the mark-up communicated?

[11] This is where the testimony of the parties becomes murky. There was never a written contract. Other non-contentious matters are that although a building permit is to be sought before engaging in such a project, none was ever applied for during the Cornerstone and Varcoe’s tenure.

[12] Incidental to a building permit is the obtaining of a zoning variation to permit the construction of the duplex in the hitherto single family dwelling. Again Varcoe and the Matthews took no steps in this regard.

[13] Both the necessity for a building permit and a zoning variance would appear to have been conceded by Varcoe in an email from him dated January 28, 2015, Exhibit E.

(ii) Jeffrey Varcoe

[14] Varcoe is the sole owner/officer of the defendant Cornerstone Properties, a renovation and property management company. He has absolutely no formal education in the construction trades. He had acquired a diploma in aviation management, and worked in that industry for 10 years.

[15] Varcoe became involved in renovation work and acquiring investment properties. He enjoys this line of work. He testified he has some 20-30 projects per year.

[16] As indicated at the outset, he knew Margaret, and started to make the rounds of various properties with her and her husband George. Tab 1 of Exhibit A is typical of the email exchange between him and Margaret in the early stages of their relationship in September, 2014. It was obvious that Margaret and George relied upon Varcoe for his alleged expertise and that the plan was to have an income producing property.

[17] With the selection of Aikman, a home inspection report was obtained (Tab 5, Exhibit A). Varcoe claimed he did not have any input in this selection, yet the inspection was November 14 with the deal closing December 4, 2014. He agrees the inspection recommended further investigation which is not surprising as this was a hundred plus year old house. Varcoe testified that he typically offers a “fixed price” but that Matthews wanted “time and materials”. In cross-examination, Varcoe could not recall if he had told the couple, that with the former ie: the fixed price contract, change orders would slow the process. The latter would mean more time if you discover problems (which, given the vintage of this home, would be inevitable).

[18] The initial intent was to start December 8, 2014 with superficial work. Varcoe claims he did not provide a budget of $75,000.00 to $80,000.00, that would be impossible given the unknowns in this project. That being said, it will be observed that project manager Marc Blackstone was present at the same time when Varcoe did so quote and, according to Blackstone, these figures were typical quotes by Varcoe to get Cornerstone in on a project. Furthermore, Varcoe has visited the site on two occasions before this. Varcoe claims that it was the real estate agent who bandied around such figures, which seems a rather odd territory for a real estate agent to venture into. In cross-examination he resiles from this assertion stating he cannot say with certainty that the real estate agent said such a thing. He denies telling the Matthews that change orders would slow the process. Ultimately he says he would not have agreed to a range of $75,000.00 to $85,000.00 but Blackmore says otherwise.

[19] What Varcoe states is that the essential contract was “time and materials”, which would work out to $45 per hour for a labourer (who apparently would be paid between $18.50 to $35.00 per hour) and 13 percent on top of the cost of materials. In cross-examination it was brought to his attention that at his discovery he acknowledged that the specifics of a mark-up had not been discussed. In the early stages there was a conversation with respect to zoning and a building permit (referenced earlier in the “general background”). However, he says the responsibility for acquiring the permit on the home owners, he and his company would assist.

[20] Cornerstone apparently retained Invizij Architects. Tab 72, Exhibit A is the plans so produced. Those plans were available by the December 12, 2014 start. Unfortunately they were not prepared by an architect, but by a designer, Mr. Stonehouse, who could not provide the necessary stamp by an engineer. In cross-examination, Varcoe admitted that the drawings/plans were never developed to the point where they would be submitted to the city to obtain the building permit. Yet the Matthews paid $2,760.00 for these unacceptable drawings.

[21] The initial demolition took about three weeks. Cornerstone requested $20,000.00 which was paid. Margaret made certain specific requests, namely, a two piece bathroom and a schedule for when things would be accomplished.

[22] By December 30, 2014, it was discovered that there were issues with respect to the basement foundation. This necessitated breaking out the concrete floor to install new plumbing. Throughout all of this Marc Blackmore was the on-site manager.

[23] More issues emerged with the discovery of the need for a replacement joist to support the second floor bathroom. Margaret would have agreed to these changes. It became obvious that the February 1, 2015 deadline for completion could not be met.

[24] Tab 11, Exhibit A, according to Varcoe, is a “job cost billing summary”. It was not backed up by any invoice. Varcoe claims invoices would only be provided if the client requested them. Interestingly too, this summary starts referencing $75.00 per hour for technical work, which he claims was agreed to. The purported technicians are not identified, apparently some were licensed and others were not. One of the alleged plumbers, Steve, was not licensed as such and Varcoe cannot say if he was supervised or not. However, Varcoe seeks to justify $75.00 per hour as a standard plumbing rate. In cross examination, he stated that some of the summaries would include work to be done and product to be installed. Not surprisingly, the Matthews found these summaries confusing.

[25] Varcoe testified as to the discovery of further issues as the project advanced to the end of January. Some of these issues had apparently been missed in the home inspection. However, a review at Tab 5, Exhibit A, the inspection report, does indicate as a significant problem, “moisture”, which again is referenced under the heading “improvement recommendations, “ as in, “water damage” in the foundation. This phenomenon was not a surprise. It was known at the outset as were the deficiencies of the furnace. Margaret testified she had given the home inspection report to Varcoe. At the end of January, 2015, the Matthews Varcoe claims, wanted to change the layout of the basement. Varcoe was unsure if this was touched upon in the architectural drawings, yet somehow we are to believe that this was not part of the original scope of the project.

[26] Apparently Varcoe anticipated by the end of February, 2015, a visit from the building inspector. That assertion suggests a need for a permit.

[27] By email dated January 28, 2015, Tab 15, Exhibit A, Varcoe is recommending the installation of a backflow preventative valve. He appears to be shifting the building permit acquisition to that of the Matthews. There was additional plumbing work to be included. He notes, “This work will be done under permit”. A notation that suggests a need for a building permit; however, why was it not obtained back in 2014?

[28] Changes in the layout of the first floor, specifically the inclusion of a kitchen on the first floor, were according to Varcoe a completely new discussion. Which seems remarkable if you are going to have a ground floor unit. When it was suggested by the Matthews at the end of January, 2015, that the new date of completion would be in six weeks, Varcoe was unsure.

[29] Tab 18, Exhibit A, appears to be yet another complaint by the Matthews as to the completion date and the consequential move in by any tenants, and a further request for a schedule. Varcoe’s responses to questions with respect to the ever-shifting deadline present as vague.

[30] Varcoe testified that he and his company’s role with respect to the minor variance to the zoning change application needed to obtain the building permit was to walk the client through the process, an assertion which appears at odds with earlier assertions. Besides that, there is no evidence that he ever commenced this “walk”. Somehow, he asserts that they wanted to wait until the tenants moved in, to make such an application. An assertion which appears contrary to the “risk adverse” Matthews, why would they so wait and run the risk of being rejected as a nonconforming use and run afoul of building inspectors who may require work to be removed to permit a view to ensure compliance.

[31] Varcoe is insistent that there never was a budget. That the scope of the project had changed dramatically. There may be some truth to the assertion that the scope had changed, but it would appear to have occurred at the time when the parties were simply not communicating. Things were becoming more chaotic, sometimes Cornerstone would purchase materials, other times the Matthews. He admitted that he himself was not going to the job site every day. He somehow felt he had control over the situation by the preparation of these “job costs billing summaries”.

[32] The work on the job site in January of 2015 slowed down to a trickle. Somehow, the possibility of the installation of a backflow prevention valve in the basement and obtaining a grant for that, became Margaret’s responsibility. That necessity would have been mooted by the building department if a building permit had been obtained before the project commenced in December 2014.

[33] By February, 2015, Cornerstone had started to drywall. Was this not quite risky without a building inspection having taken place, as mentioned above, there would be a risk an inspector would demand that it be removed or opened up to permit an inspection? Blaming it on the homeowner, is an approach but Varcoe was the “expert” they were relying on. It was extremely reckless on his part.

[34] Varcoe acknowledges with respect to one of the numerous requests by Margaret for a budget (ref. Tab 21, Exhibit A – February 19), that he had not acceded to this request as he was still finalizing the scope of the work.

[35] It would appear in Varcoe’s words by the end of February, 2015, the project had gotten “out of control”. There were so many changes, et cetera. Despite there being so many changes, there was only one change order (Tab 36, Exhibit A).

[36] By March 9, 2015, Cornerstone had received $50,000.00 from the Matthews and there was a balance owing of $23,883.44. The total between what had been paid and what was necessary to complete was $160,000.00. The Matthews started to push back. Varcoe did not know where the figures they referred to came from, in particular that the project was $30,000.00 over budget. Cornerstone refused to do anymore work ultimately because the Matthews were not paying Cornerstone according to the job cost billing summaries which admittedly contained future costs.

[37] The Matthews, in his opinion, kept requesting additional items, for example, appliances, carpeting on the floor, et cetera. By email dated May 3, 2015, (Tab 47, Exhibit A), Varcoe was literally pleading to “get this financial situation sorted out”. As of April 29, 2015, he had finally prepared an estimate and proposal which requested another $28,028.79. The problem is, he and his company had engaged in such ambiguous billing, for example, May 21, 2015, Tab 48, Exhibit A, he submitted a bill simply for $16,503.65 based on simply “time and materials”. By June 2, 2015, see Tab 51, Exhibit A, the job total was being described as $157,269.74 and that $100,000.00 had been paid, leaving a balance of $57,269.74. owing, (essentially the claim made by Varcoe against the Matthews). Interesting enough, the same document speaks of a gross profit of labour of $55,070.54 and on materials $6,256.00. Varcoe attempted to explain this away in cross-examination by saying it was a bookkeeping error. No wonder work stopped May 13, 2015 and the Matthews were denying his company access. It would appear any efforts to salvage the situation after that were for naught.

[38] All in all, Mr. Varcoe’s evidence was at many times vague and at other times he contradicted himself. The confusion was revealed in his invoices, the unexplained mark-ups, the lack of change orders, the risky behavior starting a project of this magnitude without a building permit. The distinct lack of control and the failure of his responsibility to inform his clients the Matthews, who were clearly relying on his expertise, all paints a picture of an individual out of his depth or clearly incompetent. He did not live up to his self-description as “Professional Real Estate/Property Manager/Problem Solver”. There was nothing professional about how he conducted himself and he certainly was not a “problem solver”. If anything, he created more problems by his cavalier approach to billing and his hitherto unknown mark-ups. He did not help his cause in these actions by producing no one else aside himself as a witness, especially when he has former employee Marc Blackmore anticipated to testify against him. Why would he have not called David Ciesielski, another project manager of this project? As the authors, J. Sopinka, S. M. Lederman and A.W. Bryant in their text, The Law of Evidence in Canada, 2^nd Edition, (Toronto, Butterworths, 2009) write, “In civil cases, an unfavourable inference can be drawn when in the absence of an explanation, a party litigant…fails to call a witness who would have knowledge of the facts and would be assumed to be willing to assist that party.” (at page 377)

(iii) Margaret Matthews

[39] By trial time, Margaret was a licensed real estate agent, which was not her status in the fall of 2014.

[40] In September of 2014, she and her husband were looking for an investment property, from conversations with Varcoe they thought he was a source of good advice. For example, he recommended getting a home inspection of a proposed property, and in fact making a positive outcome a condition of any agreement of purchase and sale.

[41] The building at Aikman Avenue was ultimately selected after a home inspection by Chuck Villingsley, which Varcoe knew of. The Matthews incorporated Varcoe in the purchasing process, viewing him as a good friend and property manager. Varcoe endorsed their choice wholeheartedly. It was in his words, “a very suitable investment and rental property”. The Matthews had mortgaged their home to make this acquisition, and Margaret testified that she explained to Varcoe their budget of $300,000.00, which included the purchase and renovation.

[42] The renovation costs would include two units with their respective kitchens and bathrooms, and the restoration of the understructure which meant, amongst other things, securing the stairs. All of the renovations would be “to code”. Varcoe conveyed the impression that a $75,000.00 to $80,000.00 budget was doable. The only variable would be with respect to the quality of certain items, i.e. the countertops. In cross-examination Margaret stated that if the renovation was going to cost $150,000.00 they would not have bought the property.

[43] The Matthews closed on Aikman December 4, 2014. They met with Varcoe, a member of the architectural firm and Marc Blackmore who worked with Cornerstone (Varcoe’s company) .

[44] As for the costs of the renovations, Varcoe gave them the Matthews two choices. The first was a written quote for the renovations which was problematic from Varcoe’s point of view in that if you have change orders the work would be delayed, while approval was sought. This “approval” did not appear to be explained. Was it approval by the City or an approval achieved between the parties? The other choice was “time and materials”. The actual difference from “time and materials” Varcoe explained was inconsequential but “time and materials” would somehow give them the option to make changes easier, assuming that they were regular changes, for example, location of a light fixture. No rates were mentioned with respect to the “time” nor was there any mention of a “mark-up” when it came to materials. Possibly with the benefit of hindsight, one would view either option as being rather ambiguously explained.

[45] The renovations were to be as per the architect’s plans, which it turned out to be prepared by a non-architect in the architectural firm.

[46] Margaret maintains that she sought “a budget” from Varcoe from the outset. She and George wanted to see what was going forward. The months went by without a budget. Finally February 25, 2015, the parties had a conversation and the summary which is Tab 22, Exhibit A, was produced. One notes that the estimates provided by Varcoe were “loose”. Up to this point no one had expressed any concern about the quality of the architectural drawings. Notwithstanding this estimate the Matthews continued to press for a “budget”.

[47] Margaret is emphatic that Varcoe said he would apply for the necessary zone change and all building permits required.

[48] At one point, Margaret testified that Varcoe stated that if a building permit was pursued it would delay the project. According to Varcoe, you complete the work and then get the inspector. The inspector may have to punch a few holes in the wall. Therefore, his advice was to proceed without it. Consistent with that advice he dissuaded Margaret from applying for a grant from the city with respect to the back water valve as it would reveal the absence of a building permit. Low and behold when the Matthews told Varcoe and his company to stop work a building inspector turned up within weeks and issued a “stop work” order. A suspicious coincidence at best. In order to get things back on track with the City building department, walls had to be opened up and floors broken to determine whether what had been done conformed to the building code. A building permit was not obtained for the main unit at Aikman until May 1, 2016.

[49] The “stop work” order effectively froze all work for months. Margaret had to teach herself how to apply for a work permit. This necessitated new drawings as Cornerstone would not release the old drawings that the Matthews had paid for. Finally she was able to obtain a permit.

[50] The Matthews hired some of the former employees of Cornerstone who had since left, namely Marc Blackmore, Steve, the non-licensed plumber and Evan the framer. This time the Matthews knew enough to request estimates of the work of which needed to be completed and any correction of deficiencies. They obtained three quotes. Eventually they hired Kenneth Homes. The Matthews did not rent out the unit above until June of 2016. By this time the Matthews had separated and George occupied the ground floor unit.

[51] During the employment of Kenneth Homes the building inspector came and identified several deficiencies in the Cornerstone work. This added costs and required that the Matthew remortgage their matrimonial home again and cash in certain RRSP’s, the latter of course would have attendant tax consequences.

[52] The Matthews believed by March, 2015, they had paid Cornerstone $50,000.00 and still had no invoices. Yet they had received the “Job Billing summaries” that Varcoe attested to, but they found them incomprehensible. Margaret says they were relying on “Jeff’s integrity”.

[53] They encountered numerous communication problems during the renovation by Cornerstone. For example, the replacement of joists for the second floor, they could understand the necessity thanks to Marc Blackmore’s explanation but they never received any documentation as to how much that would cost. At that point they had too much money tied up in the project that they felt that they had no choice by to remain with Cornerstone.

[54] By June of 2015, their frustration with Varcoe had reached something of a hiatus. Margaret was paying for some things direct, for example, the kitchen cabinets.

[55] They received contradictory advice from Varcoe and Cornerstone. Items which had not been necessary at the outset of the renovations were now insisted upon by the City: for example, an outside fire escape. That meant another $8000.00, the same with a back water valve in the basement floor. Varcoe says it was necessary, the City ultimately said otherwise.

[56] All Electrical was, as the name suggested, an Electrical supplier for the project. In January, 2015, Margaret asked Jeff to apply $10,000.00 of the $30,000.000 advance to their account. That was not done.

[57] Major renovation steps were not communicated to the Matthews. They were surprised by the total gutting of the basement. This gutting was probably mandated after even their home inspection report revealed moisture in the basement of this 100 year old home. Even Margaret recalls a damp smell, but the necessity for the step itself was not explained by Varcoe. He did not have any sense of the need to keep the clients informed. Obviously well-informed clients make for better relations, than clients who discover phenomena after the fact.

[58] In all the Matthews paid Varcoe and Cornerstone $100,000.00. As previously mentioned, Margaret had directed out of one advance that Varcoe pay all electrical of $10,000.00. This was not done. So in order to keep that trade to finish the electrical work, which was only 60 percent complete as of the end of the Varcoe/Cornerstone tenure, the Matthews had to pay $10,000.00. In total they paid All Electrical $24,835.00.

[59] The Matthews ended up paying $58,000.00 to Kenneth Homes to correct and complete the renovation. They isolated almost $20,000.00 in overcharges by Cornerstone. They did not rent the upstairs unit until June of 2016. The Matthews claim they literally lost rental income for throughout 2015, (effectively from March, 2015 to June, 2016). That assertion would have to be tested against when the work by Kenneth Homes was completed. The difference between that time and the actual rental may be due to market versus availability of the units per se.

[60] Margaret seeks the cost of borrowing the money for this project from Varcoe and Cornerstone. Possibly some of the costs should be borne by Varcoe and company but not all. The problem for the Matthews is that they had to borrow for their budgeted $300,000.00 in the first place. Some of the additional costs were for items that should have been anticipated. In some respects they were not shrewd enough to appreciate that. Certainly they would be entitled to increased borrowing to correct deficiencies and possible some sum representing a loss of rental opportunity. Property taxes on Aikman they would have had to pay in any event.

[61] It goes without saying that the stress of this experience would be hard on any marital relationship. Margaret views this event as contributing to her and George’s breakup. An objective observer may think that there is some responsibility for the travails that the Matthews should absorb as they clearly could not afford to make an investment of this magnitude, even at $300,000.00. Surely you would realize that you would need to have some form of cushion in dealing with a 100 year old property, which would inevitably lead to surprises in renovations.

(iv) Chris Zavarase

[62] Mr. Zavarase was the Chief Executive Officer and owner of Integrated Contracting. He learned the contracting business from his father as a child. Personally he has done framing, tile work, roofs and foundation work, literally everything involved in house construction and renovation. He has a diploma in carpentry and renovation from Mohawk College. Additionally, he is certified by the City of Hamilton.

[63] Mr. Zavarase prepared the Letter of Opinion, which is Tab 62, Exhibit A, in which he expressed the opinion that as of May 12, 2015, the value of the work at Aikman was worth between $65,000.00 and $70,000.00. To complete the project to building code standards, would cost an additional $65,000.00. Part of the completion estimate was based on two pages of data prepared by Margaret.

[64] Mr. Zavarase had also provided an opinion, Tab 70, Exhibit A, about the same time to the effect, and I quote, “a typical renovation of this scale should fall in the cost range of $100,000.00 to $120,000.00. This does include any unforeseen circumstances. Bear in mind that it is very difficult to achieve level of estimating accuracy when asked to review a project at this current stage of production.”

[65] Mr. Zavarase impressed the court as a candid, experienced contractor. His opinion merited considerable weight.

(v) Chris Atchison

[66] Mr. Atchison was a building inspector for the City of Hamilton. Part of his duties would involve attending at properties that had building permits to inspect the quality of the work done.

[67] Mr. Atchison had graduated from Mohawk with a diploma in Architectural Technology. He had furthered his education with various building code courses offered by the City and the responsible ministry.

[68] Mr. Atchison was emphatic, you cannot start renovation work of this nature without having a building permit. That permit will not cover electrical work which is inspected separately, but it does cover plumbing work.

[69] It was November 8, 2015, when he himself attended at Aikman. He was concerned that certain aspects of the construction did not meet code. To determine whether or not there had been compliance, certain locations had to be opened up which meant that the removal of drywall. The plumbing in the basement did not meet code. Noncompliance will result in a stop work order.

[70] Mr. Atchison testified that with a conversion of this nature to multiple units a lot of fire separation materials would be required. Generally with a permit an inspector would plan for future visits.

[71] Mr. Atchison returned to the site December 4, 2015, at which time a new contractor, Kenneth Homes, had started. He approved the structural work performed. A fire escape is mandatory in the case of a building with two units (vertically). Compliance Alternative C136 referred to by Bryce Stonehouse, the architectural technician within Invizij Architects Inc., as a means of avoiding a fire escape was inapplicable to this project according to Mr. Atchison. At that point Cornerstone was not a licensed City contractor. That status would require a master contractor to be present on the site.

[72] By December 8, 2015, the footing had been installed for the fire escape. The drain in the basement was fine, except the plumbing had been damaged in the opening up for inspection. The third floor laundry had to be upgraded to a 2” box.

[73] By December 22, 2015, more work had been done on the upstairs bathroom. One of the pipes was too high and the slope had to be changed. Apparently the prior contractor (i.e. Cornerstone) had installed a “T” connect upside down.

[74] On January 20, 2016, Mr. Atchison approved the plumbing on the second floor and in the laundry room along with the fire separations in the kitchen.

[75] On February 24, 2016, the fire escape was inspected and approved. A final inspection was made of the plumbing on the second and third floors. There was still drywall work to be done to provide sufficient headroom in the basement. That was still the case as of March 22, 2016, as he recommended the use of 5/8” thick drywall to provide the necessary fire separation. At that time Mr. Atchison approved the second and top floor, but not the first floor and basement. Fire alarms and smoke and carbon monoxide detectors had to be installed throughout along with strobe lights to permit vision in circumstances of smoke.

[76] Finally by June 24, 2016, the structure was approved for occupancy.

[77] The evidence of Mr. Atchison was informative. This court gleaned a better understanding of the complexity of the renovations. His evidence illustrated how a contractor must work closely with building inspectors in order to satisfy the building code. If anything, the absence of that kind of relationship was clearly reckless and foolhardy. That would be literally an invitation for future cost consequences.

[78] Mr. Atchison explained that an owner as well as a contractor can apply for the original permit. Ultimately it is the responsibility of the property owner. Failure to do so, as we saw in this case, leads to a stop work order.

[79] In cross-examination, Mr. Atchison confirmed that the items listed in Tab 64, Exhibit A, as “to be done” were pursuant to his instructions.

[80] In re-examination, Mr. Atchison noted that the drawings prepared by Invizij, Tab 74, Exhibit A, did not have the building department stamp upon them. Naturally one would wonder if they were ever submitted.

(vi) Wilhelm Huiniuk

[81] Mr. Huiniuk testified as a qualified expert quantity evaluator of construction work. He had a diploma in Architectural Technology and was a member of the Canadian Institute of Quantity Surveyors. Normally he would take continuing education to maintain his expertise. Although he completed the evaluation on this project around the time of his retirement, he was still a full member of the above institute.

[82] Exhibit P1 is his acknowledgement of expert duty. Exhibit P2 is his report on a quantum merit basis.

[83] Mr. Huiniuk received the initial drawings, Exhibit A, Tab 74, and the list of work completed compiled by Cornerstone. He reviewed various photographs of the project, commencing before the work was started. He himself attended at the site and took photographs. He discussed with Margaret what had been done by Cornerstone and what had been done by others. He listed every item and level of work performed by a particular trade. As his report indicated, he priced out the work performed by Cornerstone at “unit rates considered competitive in the industry for the dates the work was carried out”. Mr. Huiniuk factored in an element of overhead for such work, which does not normally directly come into the project as costs. He attributed 10 percent to the overhead based on his experience.

[84] In my Huiniuk’s opinion, the value of the work installed at Aikman by Cornerstone on a quantum merit basis was $57,600.00 plus HST (assuming 13 percent), which actually would be comparable to what Mr. Zavarase had opined.

[85] In cross-examination he agreed that labour rates will vary from contractor to contractor but generally such rates will be the same.

(vii) Brian Dosramos

[86] Mr. Dosramos is a City licensed contractor. He is the owner of Kenneth Holmes Design Build, the company that brought the project at Aikman to completion. He has considerable experience in the construction business, having learned from both his father and grandfather. He too, like Mr. Zavarase and Mr. Huiniuk, valued what had been done by Cornerstone at between $55,000.00 to $65,000.00.

[87] Mr. Dosramos testified that if his company had performed the work; the cost to finish would be $104,275.00 plus HST of $13,555.75.

[88] To pick up where Cornerstone left off, he estimated the cost to be $70,000.00 plus HST (ref. Tab 61, Exhibit A). In cross-examination, he did agree he had missed the fire escape and that would have added another $10,000.00.

[89] Mr. Dosramos prepared a revised estimate, having met Mr. Atchison, the building inspector, and that was for $33,500.00 plus HST of $4,355.00 (ref. Tab 64, Exhibit A). The actual cost of materials removed was around $11,000.00. The delivery charge of materials to a site was around $50.00 to $80.00 at that time. Mr. Dosramos would not charge, if a supplier in fact delivered the product.

[90] His contract set out in Tab 64, Exhibit A referenced both what Cornerstone had done and what had to be done; for example, the fire escape. He testified that the total charge to fix the deficiencies was between $20,000.00 to $25,000.00 and the corresponding HST.

[91] The building inspector, Mr. Atchison, required that certain areas be opened to permit inspection as to whether or not the code had been complied with. Mr. Dosramos identified as a partial list of the bigger deficiencies; the fire escape, the basement floor trap, the plumbing between the floors. Aside from the fire escape which Cornerstone had deemed unnecessary, none of the items required to be redone were easily remedied.

[92] Mr. Dosramos believed “time and materials” to be actual time dissipated without markup and for materials likewise. He actually provided invoices to back up the material. In cross-examination on these points, Mr. Dosramos stated that generally he would pay labourers between $20.00 to $35.00. All of these rates would be established with the client at the outset.

[93] Possibly to answer the court’s musing as to whether or not the Invizij drawings (ref. Tab 74, Exhibit A) had actually been submitted, Mr. Dosramos indicates that the drawings submitted to the City by the Matthews to obtain a building permit (ref. Tab 58, Exhibit A) actually bear the seal and signature of the professional engineer at the City of Hamilton.

[94] Mr. Dosramos was able to complete what remained of the project in two and-a-half months, having started at the end of November 2015.

(viii) George Matthews

[95] George has a diploma in engineering technology from Seneca and a B.Sc. from Minnesota State,

[96] George first met Varcoe at one of the properties visited by him and his wife in advance of purchasing Aikman. He knew of the fact that Margaret had met Varcoe through her employment. Varcoe’s role was to advise the couple as to suitable investment properties; in particular, whether or not the deficiencies of a particular property outweighed its potential as an investment.

[97] The budget, the Matthews wanted to work with, was $300,000.00, which would include the purchase price and the necessary renovations. That budget was always out there in their dealings with Varcoe. A subsequent viewing revealed a property nicely done but in a poor neighbourhood. Varcoe had told the Matthews he had renovated many properties and owned several. So in other words, he was a person of experience in this domain.

[98] The first time George attended Aikman was in the company of the home inspector and Varcoe and a real estate agent. Varcoe made notes. This was before he and his wife had purchased the property. Jeff had stated on this occasion that, “it was a good property in a decent neighbourhood and they could get good tenants”.

[99] Varcoe provided an estimate. At that time the necessity of a fire escape was discussed, along with a need to replace the narrow, awkward stairs to the attic. The renovation budget/estimate would be between $75,000.00 to $80,000.00. According to Blackmore, that was a “foot in the door price”. Varcoe touted how he had done hundreds of these types of projects and usually his estimate was “spot on”.

[100] Preliminary plans were arranged through Invizij Architects. George was limited in how often he would attend at the site, as he was working full-time. On average, he would go once a week or once every other week. Both he and Margaret discovered around Christmastime that the basement had been completely gutted. There was no advance communication of the necessity for this.

[101] In one of the final meetings between the Matthews and Varcoe, which was recorded by Margaret, Jeff blamed inflated time claims by Marc Blackmore and Tony Lees as a reason for higher than expected costs. Nevertheless, despite this alleged fraud, Varcoe had paid his workers and expected to be paid by the Matthews. (This sounds like a rather faint complaint.)

[102] As far as the “job cost and billing estimates”, George, like his spouse, found them confusing.

[103] According to George, Varcoe never gave an explanation for his failure to get a building permit aside from that the application would slow them down. A work permit is acquired when the work is done, according to Varcoe.

[104] Originally he and Margaret were led to believe the renovations would be complete by February 1, 2015. They agreed to go ahead with the understanding that a work permit would be obtained, and everything would be according to code.

[105] By June, however, after they had paid out $100,000.00, Varcoe was asking for yet another $58,000.00 to complete the job. At the same meeting they offered $152,000.00 “all in” to complete. Varcoe said he would sleep on this but by the next day he stated it was unacceptable. That was the last straw, they fired him.

(ix) Marc Blackmore

[106] Mr. Blackmore, (Blackmore), presented as a decent, conscientious person. He had been involved in renovations for 25 years. He was employed at Cornerstone from November, 2012, to May of 2015, as a project manager.

[107] Blackmore worked on other projects at the same time as the project at Aikman. He had met the Matthews and knew that they were interested in a viable investment project. It was evident to Blackmore that the Matthews trusted Varcoe. $80,000.00 was a sum expressed by Varcoe to complete the project with a $20,000.00 contingency factor. Varcoe guaranteed the Matthews he would come within their budget. Blackmore would have spoken to Varcoe about his quote as, “it was an old house with layers of people band-aiding things along the way”. Blackmore felt nervous about the budget. There was also a possibility of structural problems.

[108] According to Blackmore, it was not necessary to have three project managers at Aikman at a time. He attested to a specific occasion when another project manager, Sean Price, was present as well. He did not know of an hourly paid employee on the site.

[109] Job cost and material summaries would be prepared by Varcoe and the bookkeeper. Blackmore and his onsite colleagues would keep track of their time by using a digital time sheet or they would hand in a time sheet. There was some confusion in the collecting of all this information by Cornerstone. Blackmore would order and arrange for the delivery of materials to the site. The time submitted would include attendances of suppliers and wait time there. Nonetheless, there would be breaks for cigarettes, lunches and so forth during the day.

[110] Blackmore describes Steven Kerr as a plumbing technician versus a plumber.

[111] Blackmore had been unhappy at Cornerstone and finally resigned. His resignation letter is Exhibit Q. He and other former employees went back to help the Matthews finish the project. The whole crew felt badly for them. He said in the final Cornerstone days that there was considerable confusion, workers wanted to meet with management, there was difficulty getting supplies. The question of a building permit seemed to be up in the air. It was his experience that you applied for a building permit before the project started. To do otherwise would run the risk of a “stop work order”.

[112] Blackmore was present when the basement was gutted. This was necessary in his opinion as the existing materials were either mouldy or rotted. Ultimately he explained the necessity for this to the Matthews and they agreed with him.

[113] Blackmore concedes there were delays in the project while he worked for Cornerstone, particularly with the arrival of materials. The suppliers had received conflicting directions from himself, Varcoe and others.

IV. Applicable Law and Analysis

(i) Liability Between Varcoe and Cornerstone

[114] As mentioned, Cornerstone is a closely held, sole shareholder, sole officer company. Generally speaking, the corporation is still a separate legal entity from that of its officer and that officer is liable for his or her own tortious acts or conduct (which would include negligent misrepresentation)

ADGA Systems International Ltd. v. Valcom Ltd, (1999) 1999 CanLII 1527 (ON CA), 43 O.R. (3d) 101, para. 18

[115] The corporation can be vicariously libel for its employee’s behaviour when that employee is its controlling mind.

1052276 Alberta Ltd. (c.o.b.) Cedar Hill Bulk System v. Consultant Feeds, (2007) A.J. No. 1097.

[116] That is the predominant impression in the case at hand, Varcoe is the alter ego of Cornerstone. He acted throughout as the face of that entity. It would be inequitable if the corporation, in the absence of any evidence, that there were other interested or controlling officers, would not be vicariously liable for Varcoe’s conduct.

(ii) De Facto or Unwritten Contracts

[117] With a written contract, the jurist determines the intention of the parties. The idea being to understand the phraseology in that context. The same approach applies in the unwritten context, the jurist can then assess what is reasonable or consistent with the purpose or intention.

[118] In the unwritten context, the credibility of the participants is invariably assessed. Corroboration in that exercise is desirable.

[119] The base contract in the matter at hand is the provision of renovation services and products by Cornerstone/Varcoe with respect to the structure on Aikman. It would come within the definition of a “Consumer Agreement” as defined in the Consumer Protection Act. The Consumer Protection Act, 2002, SO 2002 c.30. It is acknowledged that counsel for Varcoe/Cornerstone complained as to being blindsided by the reference to the consumer protection legislation, but the original pleadings are rife with such references.

[120] Inherent in any such contract is the notion that the work performed will be performed in a good workmanlike manner, in other words, whatever is done is fit for the purpose. No one pays for a deficient product or services.

[121] This requirement of fitness, presupposes that the service provider is competent to do that which is contemplated, in other words, they know what they are doing and what is necessary to accomplish the task. It is that “expertise” or capability that attracts a consumer or purchaser to the provider, and provides the foundation of trust in which the purchaser relies upon the provider for the services and product in question. As was observed in the review of the trial testimony, the Matthews believed Varcoe and his company had the necessary skill set to perform the renovation.

[122] Having identified the base contract and the implicit assumptions, the obvious issues are:

(1) How is the remuneration and price of the services and product to be determined, and

(2) What is the scope of the contract?

These issues are based on the assertions of the principle parties and to some extent what is customary in the construction industry.

[123] The unwritten contract does not stand alone. It exists in the context of a statutory regime and, in particular, the Consumer Protection Act. This statue reiterates precedential principles of equity to achieve as its name suggests, “Consumer Protection”. This goal reflects the fact that as the discussion above suggests, that there is potential for vulnerability on the part of the consumer, procuring the services of one who has the expertise in a particular area. Akin to the concept of contra proferentem employed in the interpretation of written contracts, the statute provides that the terms of such contract should be interpreted generously in favour of the consumer.

Seidel v. Telus Communications, 2011 SCC 15 Binnie J. para. 37

(iii) Representations and Misrepresentations

[124] The base representation is that Varcoe and his company knew how to do such renovations and they would carry out such a service according to acceptable standards, the predominant standard in construction is that the work is “according to code”. Justice Iacobucci in Queen v. Cognos, [1993] S.C.R. 87, para. 3 in talking about representations which found the relationship of obligation on the part of the declarant stated:

1. There must be a duty of care based on a special “relationship” between the representor to the representee;

2. The representation in question must be untrue, inaccurate or misleading;

3. The representor must have acted negligently in making said representation;

4. The representee must have relied in a reasonable matter on the said negligent representation, and;

5. The reliance must have been detrimental to the representee that damage resulted…

[125] All of these observations apply to the inherent or basic representations of competence. That is the representation that founds the “special relationship” which Justice Iacobucci speaks of. Leaving aside the negligent representations referred to above; namely, “untrue, inaccurate or misleading”, which are negligently made, the base representation leads to a reliance on the part of the representee, reliance which is to that person’s detriment if indeed the representations are all the negative character.

[126] A misrepresentation can go beyond the negative characteristics referred to by Justice Iacobucci to become “fraudulent”. A fraud in misrepresentation occurs when a party represents the truth of a fact without any actual belief in the truth with the intent that the person to whom it is made will act on it.

Armstrong J. in Nzeadibe v. Khan (2017) BCSC 1456 .

[127] A fraudulent representation occurs in the same circumstances of misrepresentation referred to above; namely:

1. Special unique relationship of reliance;

2. The representation is made;

3. The representation is knowingly false or the declarant is reckless as to the falsity; and

4. The victim is, as a result, is induced to enter into a contract with the declarant.

[128] A distinguishing feature between a contract made on the basis of a fraudulent misrepresentation versus that of merely negligent, or carelessness misrepresentations is that the contract is voidable at the election of the defrauded party (Ibid, para. 234).

[129] A representation as to the price of the services or costs can be perceived as negligent if that which is quoted is wildly different from what other similar contractors would quote. That being said, there has to be some responsibility on the representee (recipient of the assertion) to have a rough idea of what something is worth. The lay person must realize that you cannot buy a brand new upper-end Porsche for what you would pay for a base Volkswagen.

[130] In the matter at hand, the Court finds as fact that the Varco/Cornerstone quoted as per the evidence of Blackmore, $80,000 to complete the project of renovation with a $20,000 contingency factor. That figure was within the ballpark figures that Chris Zavarase and Brian Dosramos spoke of. Therefore, the initial quote, although a bit more than what the Matthews contemplated in, their budget was not a negligent representation per se. To some extent, that finding is supported by the fact that the Matthews actually paid $100,000.

[131] That finding does not mean the Matthews received proper and adequate services in accordance with the quote. Nor does it vindicate the mysterious and nebulous billing that Varcoe engaged in.

[132] An assertion by Varcoe, that I find as a fact was made, that you do not need a building inspection until after the work is done, is clearly negligent and of a negative character as referred to, based on the evidence of the building inspector, Chris Atkinson. That is clearly a false representation that had significant correction costs consequences for the Matthews. It is clearly a careless and negligent comment, but in the opinion of the Court, is not of the magnitude of being fraudulent.

[133] A representation that the project will be completed by a particular time is not necessarily a false representation, unless the author clearly knows that it is not a possibility. If there’s no building permit, no attempt to obtain the necessary zoning variance, a failure to dedicate the necessary trained personnel to the project, and the failure to do that which was promised in a good and workmanlike manner, then the actual conduct by Varcoe belies his assertion as to a completion time in the first place. His after assertion conduct renders his assertion false, negligent and virtually impossible to achieve. Because the Matthews clearly were relying on this as an “income property” (that is the very reason they had sought Varcoe’s advice and guidance in the first place), that timeline was crucial. They needed as soon as possible, a completion date to service their debt.

(iv) Time and Materials

[134] Varcoe provided the two primary pricing scenarios to the Matthews, fixed price and “time and materials”. The latter was advanced as being more practicable, more responsive/flexible to “extras”. There was no evidence advanced by Cornerstone/Varcoe as to the communication to the Matthews as to how the time and materials would be calculated. These calculations were obviously a complete mystery to the Matthews who kept pushing for a “budget”. The Matthews used that term in a sense of having some idea of what had to be done, when it had to be done, and at what price.

[135] In Jorgensen Construction Co. Ltd. v. Benny and Benny, [1953] OWN 343, Carswell Ont. 201, Master Cushing stated that where a profit addition has to be made on the basis of the percentage of the cost, that basis presupposes a calculation on the actual cost. In other words, the contractor cannot mark up the base costs, and then calculate a percentage to represent his or her profit. To do so really is a form of double accounting and the question invariably arises “why, what is the justification?” There’s no reasonable or equitable basis for allowing someone to use a marked up cost in the first instance. The more honest approach is to show your mark-up, whether it be for overhead, handling etcetera, on the actual cost. To allow otherwise is to permit hiding of the magnitude of the mark-up. (Para. 13)

[136] Master Cushing based the above assertion on (by today’s standards) a rather mature text entitled, Hudson on Building Contracts, 7^th edition, 1946 p. 168. The logic is still contemporary.

[137] Varcoe offended this basic rule in that he characterized workers as having trade qualifications that they did not possess (ie: Stephen, the non-plumber) and then billing in accordance with the false designation.

[138] A sub-specie of what the author, Hudson referred to as errors was with respect to supervisors or foreman and a project. They costing of such, had to be with respect to time exclusively devoted to the particular project. Blackmore had testified, that he was responsible for other projects coincidental to his management of Aikman.

[139] Again, from an equitable prospective, this makes sense, because of the risk of double-billing, in that several clients would bear the costs of the supervisor’s day. There is no logical reason that one client would end up subsidizing supervision at a site other than their own, or more likely than not, all effected clients in a day paying for a service not completely received.

[140] Master Cushing also tackled that reoccurring phenomenon in renovations and constructions, “the extras”. In a well-organized project, “extras” are the subjects of change orders. There was only one change order in the Cornerstone tenure at Aikman, notwithstanding the Varcoe’s complaining about myriad changes by Margaret Matthews. Master Cushing opined that extras were to be paid for on the same cost basis as per the original contract. The problem in our matter is that that basis was never explained or agreed to.

[141] A more contemporary discussion of extras was by Metivier J. in Glass Block Solutions Ltd. v. Carol Maisonneuve-Pickles [2006] 12313 (ONSCJ). Her Honour harkened back to Chittick v. Taylor 1954 CanLII 492 (AB KB), [1954] A.J., No. 23, para. 30 to note that:

1. An item specifically provided for in the contract is not an ‘extra’;

2. When the contractor supplies materials of a better quality then the minimum required necessary for the fulfillment of the contract without any instruction expressed or implied, he or she is not entitled to charge the additional work as a ‘extra’.

[142] Another rule identified by Metivier J. was that similarly, if a contractor supplies services or materials not contemplated by the contract (which would normally be in reference to the plans or original drawings), those additions cannot be charged as an extra unless the client expressly or implicitly agreed. This latter observation touches upon the communication between the contractor and the client. Obviously, the optimum communication is a written communication (as mentioned above by means of a change order); however, the client can implicitly consent by acquiescing to a known variation.

[143] Similar observations to the above were made in 20016637 Ontario Inc. (c.o.b.) Balkin Construction) v. Gitan Canada Inc. (2013) ONSC 3259.

[144] The dominate theme with respect to “extras” is that there has to be some mechanism between the parties as to the calculation of the costs. Otherwise, a quantum meruit determination will have to be made.

[145] The obvious dilemma in this case is that the communications between the parties as to what was going on was almost non-existent. The Matthews had to rely on what Mr. Blackmore told them and what they observed when they visited this site. The overall impression as to Varcoe’s role is that he was an absent contractor, he was rarely on-site to field any inquiries and his billing methods just perpetuated the communication gap. In this environment, it would be hard to determine what was an “extra”.

[146] Master Cushing also wrote that the contractor must keep proper accounts, supported by invoices, receipts and vouchers, which are to be made available to the owner. This documentation was to provide “details of the time of the workmen employed in the particular job and of the materials used in building and the materials necessarily wasted in the building operation must be accurately recorded”, [Ibid].

[147] The cost summaries that Varcoe provided were devoid of any such supporting documentation.

(v) Consequences of a Breach of Contract

[148] Baring the existence of a fraudulent misrepresentation, a contract cannot be unilaterally rescinded without good reason. That being said, the contract was clearly breached by Cornerstone/Varcoe, ie: given the negligent representations referred to above and the failure by Cornerstone/Varcoe to fulfill the base condition of competence and good work.

(a) Opportunity to correct

[149] Justice Ferrier in C.S. Bachly Builders Ltd. v. Lajlo, 2008 CanLII 57444 (ONSC) wrote at paragraph 87 that a defendant can ask for a “set-off with respect to defective work, in the absence of a fundamental breach…she (the defendant) was obliged in mitigation of her damages to provide the plaintiff (the contractor) a reasonable opportunity to correct its own work”.

[150] This observation is problematic in the case at hand. By the end of February, beginning of March 2015, the Matthews were clearly frustrated with the lack of detail and information they were receiving from Varcoe/Cornerstone. Regrettably, things were going to get worse as the relationship progressed when the obvious obstacle of no building permit or zoning variation having been obtained, or at least attempted, would surface. Whatever had been done would be subject to scrutiny by the city building department.

[151] In effect the Matthews were being prevailed upon to continue to shell out money in a relationship in which they were not receiving any answers, from a contractor, hiding behind his billing methods, and allowing personnel such as Blackmore, who is having his own problems in dealing with Varcoe to front or deal with all the Matthews complaints.

[152] Understandably, trust by the spring of 2015 in Varcoe’s ability to pull off this project had evaporated. In these circumstances, it would be unrealistic and inequitable to find that the Matthews had to give Varcoe an opportunity to correct deficiencies which, if anything, with the passage of time would see light of day. Varcoe, by its own carelessness and lack of attentiveness to his client had rendered the ongoing relationship impossible. This was, in reality, a fundamental breach of the contract.

(b) Duty to Mitigate

[153] Matthews had, by the spring of 2015, a real dilemma. They had no building permit, no zoning variation, both which potentially could undermine the value of what work had been done. They had a contractor in whom they understandably had no trust. They had a property which was supposed to be up and running as an income producing entity, partially completed.

[154] As to the value of the work completed by Varcoe and Cornerstone, there is uniformity between the witnesses Chris Zavarase and William Heinecke, that value would be about $65,000 - $70,000. The former had estimated that another $65,000 would be required to complete the project.

[155] As mentioned previously, in the discussion with respect to “extras” and the absence of a methodology as to how such items are to be billed for, the Court must assess the work done on a “quantum meruit” basis. This doctrine also prevails in the Consumer Protection Act, Section 18(2) provides for repayment on a case of overpayment to the extent that the monies paid exceed the value of the goods and services provided.

[156] Given the testimony of Messrs. Zavarase and Heinecke, the value of the work done by Varcoe and Cornerstone is placed at $65,000. That being said, that amount has to be reduced by the amount paid to correct the deficiencies which arose during the inspection by the building inspector. That cost, according to Brian Dosramos was at the highest, $25,000 plus HST. That sum does not include the fire escape, but the cost of that, did not require correction, it was essentially an addition to be done to conform with the bylaws.

[157] Therefore the net value of what Varcoe and Cornerstone had rendered is found to be $40,000. As we all know, the Matthews had paid $100,000, they would be entitled to the difference from Varcoe and Cornerstone, namely, $60,000.

V. Damages

(a) Generally - Out-of-Pocket Expenses

[158] The Matthews are entitled to damages which flow from the negligent, tortious misrepresentations of Varcoe on behalf of the company, above and beyond what is found to be the extent of the overpayment described.

[159] The misrepresentations being:

(a) The misrepresentation of Varcoe and the company were competent, diligent enough to perform the contract;

(b) That a building permit was not necessary; and

(c) That the project could be completed by February 1, 2015.

[160] The Matthews are entitled to the out-of-pocket expenses and consequential damages that flow from the tortious conduct of Varcoe.

[161] In this regard, the Matthews claim various expenses that result from either:

(a) having to borrow more money, for example, money borrowed to correct deficiencies and complete the project of $16,793.20; and

(b) the second mortgage fee of $2000, and increased tax liability as a result of cashing in an RRSP in the amount of $21,000.

[162] The Matthews had funded a project on “the margin”. Should they be allowed the cost of having to borrow to correct and complete? That question being posed their evidence was rife with the references to the fact that they were operating according to a budget allocated for this project. Their evidence as to the existence of a budget was confirmed by Blackmore, who also testified as to how Varcoe had tailored his costs remarks to that budget, by proposing a “get in the door” offer.

[163] Therefore, if the contractor knew his clients were operating on “the margin” it follows that objectively he would know that if the costs exceeded the budget, there would be monetary costs related to this surplus. Therefore an additional interest of $16,793.20 (the amount of interest on monies necessary for correction and completion) and the mortgage fee of $2000 making for a total of $18,793.20 would be payable.

[164] With respect to the tax paid on the RRSP withdraw of $21,000, Varcoe would not necessarily know of the existence of the RRSP nor the applicable income tax rates for the Matthews. For that matter, how would he know that they would resort to such a desperate financing means? This Court finds that “loss” too remote to the event being compensatable.

[165] As for the loss of rental income and utility costs, Varcoe, by virtue of his participation in the search for the right rental property and the fact that the Matthews were relying on his advice in that regard, would clearly know the purpose behind this project. As mentioned, when he quoted a completion date and then sabotaged his own date by not dedicating enough resources and his complete failure to ensure the existence of a building permit, which in turn presupposes a zoning variation, he knew, or he should have known that the deadline was impossible to achieve. That being said, that is what he sold the Matthews. He would know that the anticipated time of when the revenue generating capacity of the units on Aikman, would come online was crucial to the Matthews. Varcoe must take the Matthews as he finds them. They were financially “thin skulled”. That possibility of revenue was the raison detre for the project.

[166] Therefore the loss of rental revenue and utility cost would be a direct consequence of his negligence. Therefore, Varcoe/Cornerstone are liable for the loss of rental income of $42,000 and the utilities of $3750 for a total of $45,750. Property taxes are not included in this obligation as they would have to be paid in any event.

(b) Punitive Damages

[167] In Whiten v. Pilot Insurance 2002 SCC 18, 2002, 1 SCR 595, Binnie J. wrote at paragraph 36:

Punitive damages ‘themselves’ are awarded against a defendant in exceptional cases for ‘malicious, oppressive and high-handed’ misconduct that “offends the court’s sense of decency”, Hill v. Church of Scientology of Toronto, 1995 CanLII 59 (SCC), [1995] 2 S.C.R. 1130, para. 196. The test thus limits the award to misconduct that represents ‘a marked departure from ordinary standards of decent behaviour’. Because the objective is to punish the defendant rather than compensate a plaintiff (whose just compensation will already have been assessed), punitive damages should straddle the frontier between civil law (compensation) and criminal law (punishment).

(underlining mine)

[168] Juriansz J. as he then was, in 3com Corporation v. Zorin International Corporation, [2004] O.J. No. 1767 (ONSCJ) noted that once the conditions for misrepresentation, described by Iacobucci J. previously were met and in particular, when the defendant knowingly made false statements, (in our case with respect to necessity for a building permit and a time of completion), the onus shifts to the defendant, Varcoe, to show that the plaintiffs were not induced by these representations. (Paragraph 12)

[169] Juriansz J. went on to note in paragraph 59:

Although Whiten acknowledged that punishment and denunciation are legitimate objectives to punitive damages, it also recognizes that a principle social value served by such awards is deterrence of similar malicious conduct. Malicious punitive damages are usually only awarded when compensatory damages are insufficient to accomplish the above-stated objectives.

[170] The claim for punitive damages is no doubt influenced by the horrendous impact of the financial difficulties the Matthews experienced on their marriage. It is not unheard of that such difficulties can be fatal to a relationship.

[171] Relationships are complex. No one relationship is fully known to the world outside, or for that matter to the participants themselves. The very vastness of the relationship makes the identification of the reasons for its demise difficult. Varcoe would not have known the extent of the fragility or strength of what existed between the Matthews.

[172] It is impossible to say that the treatment of the Matthews, by Varcoe and his company caused their break-up on a balance of probabilities. No doubt his behaviour contributed to their angst but we have to look to the bigger picture as Whiten v. Pilot Insurance challenges us to do.

[173] Was his behaviour so offensive as to be caught within that broad range of social offensiveness and morality? This jurist thinks not, probably his behaviour is the result of an individual who was careless, cavalier in his pursuit of business. Regrettably, it is a feature of everyday life. We have an obligation to ourselves to not commit to a sloppy contract, primarily based on whether we like or feel we can trust the service provider. All of us have to look after ourselves.

[174] These lawsuits are examples of that. Redress, is sought from the courts, for what is fair, appropriate, and equitable. The compensation which flows, as described above, is adequate to address the behaviour complained of. This is not a case meriting punitive damages.

VI. Summary of Conclusions

(1) The claims of Varcoe and Cornerstone against the Matthews are dismissed in their entirety.

(2) The Matthews shall have judgment against Varcoe and Cornerstone jointly representing the actual value of the work performed, minus the cost of correcting the deficiencies, subtracted from the $100,000 paid by the Matthews.

(3) The Matthews shall have judgment against Varcoe and Cornerstone in the amount of $18,793.20 representing extra interests incurred by the Matthews to correct and complete Aikman (as per number two above).

(4) The Matthews shall have judgment against Varcoe and Cornerstone for the sum of $45,750 representing the loss of rental income and utilities up until the time of actual occupation in June of 2016.

(5) The total judgment by Varcoe and Cornerstone is therefore is $124,453.20, upon which the applicable prejudgment interest shall be paid for the period June 1, 2015 onwards to the date of this judgment as per the Courts of Justice Act rate.

[175] In the event that the parties cannot agree as to the level and quantum of costs payable, the parties shall have no later than 60 days from the receipt of this judgment; namely,

[176] June 6, 2018 to exchange bills of costs and submissions as to costs (limited to five pages) and any replies and to file same with court. If submissions are not received by June 6, 2018, the file will be considered closed and the issue of costs considered settled.

WHITTEN J.

Released: April 9, 2018

COURT FILE NO.: 15-53902 and 15-54325

DATE: 2018-04-09

ONTARIO

SUPERIOR COURT OF JUSTICE

Cornerstone Select Properties Inc.

Plaintiff/
Defendant to the Counterclaim

• and -

George Scott Matthews and Margaret Mary Matthews

Defendants/
Plaintiffs by Counterclaim

• AND –

George Scott Matthews and Margaret Mary Matthews

Plaintiffs

• and -

Jeffrey William Varcoe

Defendants

Released: April 9, 2018