Court File and Parties

BARRIE COURT FILE NO.: CV-17-237 DATE: 20200619 ONTARIO SUPERIOR COURT OF JUSTICE

BETWEEN:

1157391 ONTARIO INC Plaintiff – and – ALEJANDRO DAD ORTIZ, MICHELLE NICOLE TREMBLAY, MICHAEL JOSEPH TREMBLAY and MERIDIAN CREDIT UNTION LIMITED Defendants

Counsel: W. Michael Adams, Counsel for the Plaintiff R. Christopher M. Belsito, Counsel for the Defendants Ortiz and Michelle Tremblay

HEARD: November 18, 19, 20, 22, 25, 26, 27, 29, December 2, 3, 4, 5 and 6, 2019 Submissions received by the Court in writing

REASONS FOR DECISION

McCARTHY, J.:

Introduction

[1] This is a lien action by the Plaintiff corporation. A.N.T. Construction (“ANT”) is a division of the corporate entity. ANT is owned and operated by Wayne Ezekiel. It is hereinafter referred to as ‘the Plaintiff”.

[2] The Defendants Alejandro Dada Ortiz (“AO”) and Michelle Nicole Ortiz (“MO”) (formerly known as Michelle Tremblay) are spouses. They own and reside at 345 Coxmill Road in the City of Barrie (“the property”). They are referred to as the “Defendants”. The named defendant Michael Joseph Tremblay played no part in the trial. No judgment is sought against him. The action against the Meridian Credit Union (“MCU”) has been dismissed.

[3] The events in question took place between July 2016 and April 2017. For the sake of convenience and brevity and unless otherwise stated, any references to dates within that time period will not include the year. The court heard evidence over some 13 days and received submissions in writing.

[4] The Ontario Building Code is hereinafter referred to as the “Code”. The City of Barrie is hereinafter referred to as “the city”.

The Contract

[5] On August 10, the parties executed an “Agreement to Build” (referred to as “the contract”) which called for the Plaintiff to build a custom home on the property (referred to as “the project”). The total price for the Plaintiff’s labour, material and services (inclusive of HST) was agreed upon at $571,929.81. This was a fixed price contract. Schedule “F” to the contract was a rate sheet for extras. The Defendants were responsible for providing project drawings. The contract called for completion of the project within four months of the date when the necessary permits were obtained from the city. The Plaintiff could exercise a right to extend the completion date a further two months upon providing notice of the extension to the Defendants within the initial four-month period.

[6] Schedule “C” contained a “Deposit Schedule”. It stipulated that the draws were to be based on percentages of work completed as identified by the lender’s guideline. In accordance with that schedule, the Defendants provided a deposit of $50,000 upon the execution of the contract. A further payment of $50,000 was made following the completion of the excavation, footings, foundation, damp proofing and backfill on September 16. The remaining payments were to be made by way of four unequal draws upon completion of defined stages of the project. The first draw of $123,052.62 was to be paid, “upon completion of framing/roof complete/exterior doors and windows installed.” At trial, the parties and the witnesses often referred to these defined stages as “milestones”.

The Project

[7] On site work began in August. The Defendants delivered the approved permit plans to the Plaintiff on August 25. On September 6, the Plaintiff’s Project Manager Sigmund Tronowicz (“ST”) advised MO that because of site elevation issues, the hybrid foundation wall called for in the drawings had to be replaced with an eight-foot solid poured concrete wall.

[8] Issues soon arose in respect of the design of the porch, the dimension and location of porch pads, the location of water and sewer services, and the sizing, dimensions, connectivity and location of beams for the structure. Weeks passed during which little construction took place. During this time, the Defendants’ designers Bailey Designs (“Bailey”), the Plaintiffs, the Defendants and the framing sub-contractor Elite Construction (“Elite”) exchanged and addressed various concerns, ideas, suggestions and potential solutions. This caused a significant delay in the framing. When the framing of the structure did commence in November, further difficulties arose with both the interior stair opening and the sizing and viability of certain windows.

[9] On December 11, the Defendants gave written notice to the Plaintiff that they were terminating the contract. Despite this and after some discussion with the Defendants, the Plaintiff continued to provide labour and materials to the project on a sporadic basis until December 23. The Plaintiff did not return to the project after that date.

[10] On December 20 the Plaintiff invoiced the Defendants for the first draw in the amount of $123,052.90. The Defendants replied that they required an accounting detail and a release from the Plaintiffs.

[11] On December 21, the framing inspection was completed with some minor items noted by the city building inspector. On December 23, the Plaintiff sent an invoice to the Defendants for extras.

[12] On January 5, the Defendants received the amount of $155,350.00 from MCU as part of a building loan.

[13] On March 21, the Defendants obtained an engineered plan for a timber framed vaulted front porch from an architect.

[14] The Defendants obtained an occupancy permit for the home on April 12.

[15] The Defendants have made no payments towards the first draw or any extras.

The Plaintiff’s Position

[16] In written submissions, the Plaintiff has summarized its position as follows:

The Defendants terminated and failed to pay their home building contractor just as the first of four progress draws was about to come due. They complain that the plaintiff deviated from the plans. But the defendants’ plans were in error which drove changes to the foundation and basement windows at the rear of the house. They complain the plaintiff did not produce a porch with natural wood timbers. The plaintiff agreed to modify the build to accommodate changes that the defendants showed in a sketch. But the porch as modified could not be built from the defendants’ sketch and defendants were to produce plans. Before they signed the contract, the parties agreed that the price for the modifications to the porch would be left off the quote until ‘they knew what they were dealing with’. The defendants failed to produce porch plans. The failure to modify the porch were (sic) the defendants’ fault and they cannot claim that the plaintiff was in breach. And any breaches if so found are not so serious as to go to the root of the contract. They could not entitle the defendants to terminate the contract and to deny the plaintiff any payment at all for the work done to termination.

[17] As for damages, the Plaintiff argues that, in calculating the value of the work it contributed to the project, the simplest and fairest approach is to take the amount of the first draw of $123,052 (inclusive of HST) and add $5,704.90 for extras. This was a fixed price contract. The Defendants unilaterally and improperly terminated the contract. The Plaintiff having completed all, or substantially all, of the work comprising the first milestone at the time of that termination, the starting point for its entitlement to recovery should be the first draw. The Plaintiff should therefore be entitled to a lien against the property in the amount of $129, 498.00. In default of payment of that amount, the Plaintiff seeks an order that the property be sold with the sale proceeds being used to satisfy the amount of the lien. In addition, because the termination constituted a contract breach by the Defendants, the Plaintiff is entitled to recover damages for unrealized profit on the remainder of the contract. The Plaintiff seeks the amount of $25,256.29, being 10% of the balance of the contract price at termination.

[18] In the alternative, taking a straight value of the work approach, the Plaintiff refers the court to the calculations set out at Tab 99 of Exhibit 6B (as adjusted) and argues that the value of the work done to the date of termination was $213,036.31. Factoring in the credit of $100,000 for the deposits paid, the amount of $113,036.31 plus HST remains owing. Adding on HST would bring the claim for value of work done to $127,731.03. The claim for lien should be allowed in this amount. In addition, the Plaintiff should be entitled to recover its loss of expected profit on the balance of the improperly terminated contract (the calculated $25,256.29).

The Defendants’ Position

[19] The Defendants seek both a declaration that the Plaintiff repudiated the contract and an order dismissing the action.

[20] The Defendants assert that the Plaintiff fundamentally breached the contract. This amounts to a repudiation of the contract. To the extent that any amount is owed by the Defendants, it should be determined on a quantum meruit basis and only after accounting for various setoffs and back-charges. The basis for the fundamental breach of contract can be summarized as follows:

i) The Plaintiff pressured the Defendant into abandoning the knee wall in favour of an 8-foot poured concrete foundation wall; ii) The Plaintiff made unilateral changes to the basement windows; iii) The Plaintiff made a unilateral change to the design of the front porch, from a vaulted natural timber frame porch to one with joists and a flat drop ceiling; iv) The Plaintiff’s failure to protect the property from the elements caused mould growth; v) The Plaintiff failed to provide adequate site supervision or site labour to properly clean, care and protect the Defendant’s home; vi) The Plaintiff failed to identify and resolve adverse site conditions and discrepancies in the contract drawings; and vii) The Plaintiff’s failure to coordinate construction and to resolve problems delayed the project by 42 days.

[21] The Defendants also seek the amount of $36,473.55 for their own damages. They seek a set-off against any amount found owing by them.

The Evidence

[22] In addition to documentary evidence, the court heard from various witnesses on behalf of both sides.

Wayne Ezekiel (“WE”)

[23] WE is the president and directing mind of the Plaintiff.

[24] The project was priced out via a reverse engineering approach, that is by determining the amount of money the customer wished to spend and building a house to fit that budget. The feature sheets of his building contracts address mostly the interior details of a home. The choices on the feature sheet are derived from builder samples. As stated at Schedule “E” to the contract, work that is not on the feature sheet is treated as an upgrade or “extra” and is billed out according to the rate sheet at Schedule “D”. The schedule stipulates that 30% for overhead and profit is applied to all extras.

[25] The Defendants too responsibility for the site plan, HVAC system and the truss plans. The Defendants retained Bailey to complete the house plans and drawings.

[26] The parties agreed on a payment schedule consisting of two deposits totalling $100,000, followed by four draws to correspond with project milestones. The entire contract price was $571,929.81 inclusive of HST. The first payment draw became due “upon completion of framing/roof complete/exterior doors and windows installed”. This comprised components totalling 39% of the entire contract. The first draw was stipulated to be $123,052.62.

[27] By December 11, there remained only a few windows left to install for the first milestone to be attained. Those installations had been delayed by deficiencies in the plans. In addition, the Plaintiff had completed work not encompassed in that first milestone: sewer, water, floor drains, front door upgrades, tempered glass and a roughed in driveway.

[28] Prior to the execution of the contract, WE suggested leaving the timber framed porch out of the contract until a better plan and quote could be obtained. The Defendants agreed to this suggestion in writing.

[29] On July 19, the city building department directed that the ridge beam depicted on the front porch plans needed to be carried down into a footing. The city requested a detail of this. On July 26, WE advised MO that the final drawings did not show that required footing. This detail remained outstanding as of September 13 – there were no drawings showing the dimensions or location of the support pads for the porch columns. WE asked the Defendants to address this issue with Bailey and to notify his site manager as soon as possible.

[30] In a September 14 email, Krista Howe (“KH”) of Bailey instructed Elite as follows:

Also, the clients have requested that the front porch is to be vaulted now and we’ll have to resize and design this. I just want to inform you that we are working on this so you are aware. It will be a ridge beam with point load sitting on the window header which will need to be engineered by Tarpin as we cannot size that in the building code.

[31] This change meant delay – as pointed out by Elite’s Doug Betts in his email to Bailey on September 19,

Regarding the changes to the front porch I appreciate the noticed (sic). Those adjustments must be made shortly before we start building the front walls in order to put the proper pockets in the wall for the beams

[32] On September 21, KH advised Elite, the Defendants, WE and ST:

The front porch is going to be a vaulted porch, but we are NOT designing it with a ridge beam anymore, as it is going to be easier to keep the collar ties and not have point loads coming down.

[33] That email was accompanied by a small sketch featuring collar ties only without any allowance for a ridge beam.

[34] In a September 26 email to Bailey, MO asked her designer to

…please take a second look at our front porch. I know we didn’t get to talk about this in too much detail, but since it will be the new focal point of our home, we want to be sure we get it right. Please see attached and see that we do want a full vaulted ‘post and beam look’, with wood ceiling and siding carried down behind.

That email was neither copied nor forwarded to the Plaintiff or Elite.

[35] Although WE received a hand-drawn sketch of a porch indicating a “vaulted roof” from MO as an attachment to an email dated July 22, WE never received a set of plans that would have allowed the Plaintiff to construct such a vaulted ceiling in compliance with the Code. WE made a note on the sketch “To Code” by which he meant to point out the difficulty with being able to build what was depicted on the sketch. The Plaintiff had no ability or authority to prepare or revise project plans. Even after the email exchange between MO and KH on September 26, the Plaintiff received no further instructions, plans or drawings pertaining to the porch.

[36] Schedule “D” to the contract provided for tentative and firm closing dates. The tentative closing date was set at four months from the receipt of both city permits and a signed contract. The complete set of permits was provided to the Plaintiff on August 25. The Plaintiff was entitled to extend the project’s closing date a further 60 days if written notice was provided no later than four months from this commencement date.

[37] Because of a miscalculation of the elevations in the site plan drawings, the proposed hybrid/knee wall was abandoned in favour of a solid poured concrete foundation wall. That issue was addressed between ST and MO; the least expensive and most appropriate solution of the poured concrete wall was agreed upon. This resulted in no costs savings for the Plaintiff. The sub-contractor charged the same amount for the poured concrete wall as it had on his quote.

[38] There were other problems with the plans which caused delays: the water and sewer hook ups were not in the location suggested by the plans. In addition, the steel beams in the drawings were inadequate in length or inappropriate for connection.

[39] WE became frustrated when he reviewed the November 3 email from AO to Shelby Revie (“SR”) in which AO suggested that there be no charge for pot lights in light of a window deficiencies “credit”.

[40] Weather was no impediment to the completion of the project. The Plaintiff planned to alleviate any risk of foundation wall cracks by installing heaters once hydro service was in place on December 9.

[41] On December 6, SR addressed siding preferences with the Defendants. On December 8, ST provided the Defendants with written responses to their questions and concerns raised the day before.

[42] Despite the December 11 termination letter, the Plaintiff remained willing to move the project forward. There were outstanding orders and sub-trades scheduled to come on site. The Plaintiff arranged for a plumbing inspection, for the basement to be poured, for additional windows to be ordered and for the delivery of roof shingles. This was not an attempt to fulfill the first milestone; the plumbing inspection and pouring of the basement floor were not part of that first milestone. As late as December 19 and 20, the Plaintiff remained prepared to move the project forward in the expectation that the Plaintiff would receive payment for the work performed.

[43] The Plaintiff qualified for the first milestone draw since it had complied with the contract. In accordance with Schedule “C”, the Plaintiff rendered its invoice for the first draw in the amount of $123,052.90 on December 20. The Plaintiff received a request for an accounting detail from AO later that same afternoon. AO then requested an itemized cost and transparent mark-up. The Plaintiff did not normally provide clients with an itemized cost on a fixed price contract; only on an extras invoice. A fixed price contract is front end loaded – a great deal of work involves administration, set-up, commencement, feature sheet selection and organizing the sub-trades.

[44] WE learned that the defendants received $155,520 from the Meridian Credit Union in early January. Meanwhile, the Plaintiff had been obliged to pay the sub-trades and vendors.

[45] WE made for an excellent witness. I found him to be candid, balanced and credible. He was forthright in acknowledging that at least once, he failed to adhere to the communication protocol with the Defendants by declining to respond to their concerns. He conceded that the rear basement windows were not in conformity with the drawings: they were not continuous; they could have and should have been installed away from where the deck was to be installed; the windows should have been aligned with the windows on the main floor above.

[46] I accept that, apart from the final framing inspection, all but some minor aspects of the first milestone had been completed by December 11. I accept that the Plaintiff provided materials and labour beyond those contemplated in that first milestone. I accept that the framing was delayed while design and plan issues were being addressed; it would have been inefficient and wasteful to have idle labour at the site. I accept that it was not within the power or responsibility of Elite or the Plaintiff to prepare, revise or correct any drawings.

I accept WE’s evidence that the contract did not require the Plaintiff to provide any kind of after the fact accounting to justify the fixed price. I find that nothing turns on his admission that, prior to the extras invoice being rendered, the Plaintiff did not advise the Defendants of these extras. The way extras would be billed was covered in the contract; it did not call for any kind of pre-invoice notification.

[47] Finally, I accept WE’s evidence that there was nothing extraneous to the project (i.e. involvement in other projects, including Innisfil Executive Estates) which served to divert the Plaintiff’s attention and commitment to the project. There was simply no credible evidence to contradict this assertion.

Sigmund Tronowicz (“ST”)

[48] ST was the Plaintiff’s project supervisor. He made for an impressive witness: understated, soft spoken but possessing extensive knowledge of the home construction business. I find that he was a reliable historian. I would attach significant weight to his evidence.

[49] ST reviewed the deficiencies in Bailey’s plans and summarized the problems and challenges these created in respect of: the sizing, location and connectivity of the beams; the location of the interior staircase; and the dimensions and location of the front porch footings.

[50] The miscalculation of the grade in the site plan design necessitated pouring the eight-foot concrete foundation wall. This was the most practical, time saving and cost-effective solution. ST addressed the issue with MO on September 6; she provided him with authorization to extend the foundation wall to full height and abandon the hybrid wall. The remaining options (raising the footing by engineering fill or building a retaining wall) would have resulted in both delay and additional cost.

[51] The three 36” basement windows required a 6” spacing between them in a poured concrete wall. A continuous nine-foot window could not be supported. Interior posts in those spacings were needed for the windows to be set in place. This made it impossible for those basement windows to line up perfectly with the 108” main floor window above. In the end, the owners received just as much window space as was envisaged in the plans.

[52] Bailey’s drawings did not set out the location and dimensions for the front porch pads. These pads were required to support the concrete piers. Without those in the drawings, the footings could not be formed. This led to delays because the trades lined up to form the footings had to be re-scheduled.

[53] The final instruction on the front porch came from Bailey in the September 21st email with attached sketch: the front porch was to be constructed without ridge beams or point loads coming down; simple collar ties would be used to hold the structure together. There were no further instructions or directions from Defendants or from Bailey. The porch was constructed according to that design; it was at the direction of the city’s building department that the Plaintiff installed the ceiling joists pictured in Exhibit 11.

[54] Bailey’s drawings did not allow enough space for insulation in the walls abutting the interior staircase. The adjustments to the plans required moving over one interior wall; this in turn created spacing issues which necessitated the re-alignment and re-centering of windows.

[55] The drawings did not allow for adequate bearing for the main steel beam. The drawings did not allow for proper connectivity between the steel beam and the wood beam in the basement. ST ultimately took it upon himself to order a longer steel beam.

[56] I accept that ST took steps to resolve the bearing and connectivity issues, did so in a professional and competent manner and with only minimal delay. I find that the delays occasioned by the steel beam issues were as a result of design flaws and cannot be laid at the feet of the Plaintiff or its sub-trades.

[57] I accept that design flaws pertaining to the porch pads and beams necessarily delayed a great deal of the framing work. Proper framing could not proceed until the beams and pads which supported the proposed structure were properly located and dimensioned.

[58] I find that ST responded promptly, courteously and completely to issues raised, questions posed, and concerns expressed during the project. This is evidenced by his many emails to the designers, the Defendants, the sub-trades and his willingness to convene and attend site meetings. Examples include: a September 12 email to Doug Betts regarding the porch beams; the September 13 discussions with WE and MO regarding the front porch; the October 20 memo containing summary notes from a site meeting three days earlier; an October 24 summary of the recent meeting; the October 28 discussion of the steel beam issue with Bailey; the November 1 email to Bailey regarding the steel beam connection; the November 7 site meeting summary which included confirmation that Bailey would be addressing issues with its engineer. In the absence of satisfactory responses and directions from Bailey, and to keep the project moving, ST took the initiative to order additional materials with which to resolve the beam support and connectivity issues. Finally, on December 8, ST provided detailed answers to a host of questions posed by the owners.

[59] Overall, I find that ST was responsive, prompt, courteous and thorough in his communications with the sub trades, Bailey, the Defendants and others at the Plaintiff’s office. I would go as far as to say that his communication on matters of importance and immediate concern was exemplary.

[60] ST reviewed the city’s December 21 framing inspection report and explained how the back framing could only be done once the service “rough ins” were completed. These rough ins were not part of the first milestone. To reach that first milestone, there remained only a handful of minor tasks (window sealing, the installation of the ½ moon window in the bonus room, the securing of one post to the floor and some paper work); these were either ultimately completed or could have been completed with a minimum of time and effort.

[61] Changes in the type, location or size of various windows were necessitated by several design flaws: a) some windows were placed too low to the floor in the plans (discovered after framing had been done); b) some window openings had to be moved after the adjustment to the interior stair openings ; c) the ½ moon window did not fit into the wall as constructed; d) the roof line ran into some of the proposed window openings (this required an adjustment to the size of the openings).

[62] ST reviewed the extras invoice: snow plowing; installation of sewers, drains and sump pump; revisions to the original truss design; and the additional steel charge of $767.75 (the latter to correct the problem left by the beam issues discussed above). The balance of the extras set out on the invoice were anticipated sub-trade charges which did not materialize.

[63] I accept ST’s evidence that as of the termination date, there was no snow build up on the property; while there was some garbage on site, a total clean up would normally have been carried out at the time of drywalling. Clean up of the site was not part of the first milestone.

[64] ST referred the court to the project quoting sheet (exhibit e-21) dated July 26 which was used to arrive at the project price found at Schedule “C” to the contract. ST also referred the court to a document which he prepared in May 2019 which suggests that the Plaintiff lost profit of $24,607 because it was unable to complete the project.

[65] ST reflected that he had never been on a project where the drawings had caused so many problems. Elite identified deficiencies in the drawings from the outset. Elite was not prepared to remain on site unless and until the problems were resolved. This explains why no framing took place between September 21 and November 14.

Doug Betts (“DB”) of Elite Home Builders

[66] DB is the principal and owner of Elite, the framing sub-trade on the project. DB was a straightforward, knowledgeable and entirely credible witness. His evidence was logical, compelling and consistent. I attach great weight to it.

[67] On July 25, after a review of the plans submitted, he provided a quote for rough carpentry and labour (framing) of $32,000 plus HST. The quote was based on square footage.

[68] DB identified a number of deficiencies with the plans: there were no porch pads or footings to carry the load of the porch roof - collar ties were going to be insufficient to hold the porch roof; it was unclear what trusses were being used; there was a conflict between the size of the trusses and the overhang of the roof; there was no space allotted for insulation at the interior stair opening; the roof elevation did not match the side elevation; some of the windows appeared too large for the openings allotted for them in the drawings; it was improper to have a steel beam with a bearing on an interior partition wall; and there was going to be a connection problem between the steel beam and the wooden beam.

[69] The designers at Bailey seemed incapable of appreciating the deficiencies in their drawings. On September 14, Bailey suggested that the Defendants were hoping for a vaulted porch roof featuring a ridge beam with a point load sitting on the window header. DB understood immediately that the point load would have to be engineered. On September 19, he advised Bailey and others as follows: “Those adjustments must be made shortly before we can start building the front walls in order to put the proper pockets in the wall for the beams.”

[70] As of September 19, Elite was awaiting the revisions to the interior stair case opening. As well, because the drawings showed the trusses sitting higher than the windows, either the roof construct or the windows had to be reconfigured.

[71] Because of the delays occasioned by these design deficiencies and the accompanying changes, Elite tended to other projects until the problems could be resolved.

[72] DB was never furnished with engineered drawings of the porch; it was constructed in accordance with the plans provided by Bailey. At the direction of the city, Elite added a 2 X 10 ceiling joist to the porch to make the porch Code compliant. The full timber porch depicted in Exhibit 6 would have required engineered drawings for it to be Code compliant.

Norm Ezekiel (“NE”)

[73] NE testified that three days were lost on the project when the sewer and water services could not be located on the site. This caused a delay getting the plumbing trades to the site and pinning the front porch. NE attributed this to the errors contained on the lot grading plan.

[74] NE was on the site in the last few days of the project. Other than a small amount of snow in one area of the soffit, there was no snow or moisture on the interior of the building.

[75] NE installed four windows using screws. “Toe nails” were used as an installation tool. They had no structural value.

[76] I accept NE as credible and his evidence as reliable.

Ronald Koerth (“RK”)

[77] Professional engineer RK testified as an expert with a specialty in structures and building sciences. He provided the following opinions:

i. It is common for builders to first identify problems with plans and drawings once on site. Rarely would a builder discover an error in a drawing or plan while preparing a labour and materials estimate; ii. Contractors often work with an owner and designer to resolve issues created by design problems; iii. This foundation wall would not have been laterally supported by the proposed wood stud wall (knee wall). Building the house in accordance with the plans would have compromised the foundation walls. The plans should not have been approved by the designer or the city. The best option to resolve the foundation wall issue was to bring the concrete wall right up to the floor joist (i.e. the eight-foot poured concrete wall); iv. The Bailey plans could not be used to construct the kind of vaulted porch ceiling that the Defendants ultimately built after the project. Part IX of the Code does not allow for it. An open vaulted ceiling is only possible using a ridge beam or with a certified engineer’s design. The engineered design option is ultimately what the Defendants obtained in March 2017. That kind of vaulted ceiling requires a structured configuration. The design plans provided by Bailey were not engineered and would not have sufficed for a legal vaulted ceiling; v. The main floor steel beam bearing issue was not apparent on the plans; upon closer examination, that beam was resting on a pantry wall which was not a load bearing wall. The Plaintiff properly ordered a longer steal beam so that it would sit on a foundation wall. In respect of the basement steel beam, there was insufficient space allowed for the connection of the cross beam to the LVL wood beam. The Code requires that the two beams come together; the problem needed to be addressed by the designer. Design issues of this kind cause a domino effect of delay because sub-trades cannot be expected to remain on site while design changes are being addressed; vi. The drawings did not allow for insulation in the interior stair opening as required under the Code. The stairway had to be moved; this would have a cascading and delaying effect because such revisions impact all levels, room sizes, window and door layouts; and vii. The drawings resulted in some of the window openings encroaching under the roof overhang. The pre-engineered roof trusses could not be modified on site by the framers. Revising the roof layout is expensive and time consuming. It is far more convenient and less costly to simply adjust the size or locations of the subject windows.

[78] RK reviewed the options that might have been available to save the hybrid foundation wall. An interior reinforced steel wall would have needed to be engineered, submitted for approval and then constructed. In addition to the expense involved, such an undertaking would have delayed the project for two weeks or more. As well, such an interior wall would have reduced interior space and created a tunnelling effect in the basement windows.

I place great weight on the opinion evidence offered by RK. It was logical and compelling and generally consistent with the observations of both ST and DB.

The Defendants’ Evidence

[79] The evidence of both Defendants was entirely uncompelling. It is not my intention to be overly harsh; they both presented as pleasant and amiable individuals – indeed, they appear to have established a very strong rapport with the Plaintiff by the time the project commenced. They were polite and respectful of the court.

[80] A benign and gentle approach might be to simply dismiss their overall commentary as naïve and to treat the bulk of their evidence as unreliable and deserving of no weight. Sadly, there was a profoundly disturbing quality in the tone and content of the whole of their evidence which was difficult to ignore. The content of their evidence and the manner in which it was presented lead me to some rather unpleasant conclusions.

Michelle Ortiz

[81] I found MO to be singularly lacking in credibility. She was extremely careful and evasive in many of her answers to questions on cross-examination. She is no doubt an intelligent person, possessing an engineering degree from a respected university. This made it doubly confounding and maddening when she was unable to provide cohesive, responsive answers to simply put questions. When faced with a subject or a question where a clear, simple and honest response was called for, she appeared to quickly grasp the harm a truthful answer might do to her case and opted instead to provide an incoherent, rambling and evasive answer which skirted as best it could the real substance of the question. When asked to explain why there was no mention of the front porch in the termination letter of December 11, she gave the following answer:

We, you know, we didn’t decide to send this letter and, and terminate the contract just overnight. You know, it was a series of events that, that led up to it, and in and around this time they were working on building that front porch. And I think we sort of just felt it, it wasn’t quite at a stage that we could, you know, say that it wasn’t what we had agree to in the contract, because it was still under construction and perhaps they, it was a temporary porch to get the roofing on. You know, we, it was so close to termination that we, we hadn’t sent notice that, you know, any written sort of e-mails questioning the front porch, so we just, we didn’t include it because it, it felt sort of like a, a bit of a muddy area at the time. But, but I can say that, you know, what was being built at the time of termination wasn’t consistent with what we had agreed to.

[82] In addition to its rambling, evasive and jumbled content, the answer simply makes no sense in context. If, as she stated elsewhere in the evidence, the vaulted full timber front porch was to be one of the central features of the residence, it is simply unfathomable that a person of above average intelligence with a degree in engineering would not have recognized that the porch as constructed on December 11, was not what was depicted in the sketch in the contract schedule. Nor could such a person legitimately be of the view that the porch was temporary or that a timber frame structure was going to be the end-product of further construction. It is equally unfathomable that the porch as constructed would not have been listed among the items purporting to justify the termination of the contract.

[83] The same can be said for the hybrid knee wall. It did not figure on the list of reasons for termination even though it had been plain to see for months that the foundation wall was, and could only remain, a poured concrete wall. Again, when asked what led to the Defendants’ decision to terminate the contract, MO offered the following answers:

So, we sort of go through it in, in the letter, but maybe I’ll try and walk through chronologically, but the, the things that were going on with it. In summary, we, we weren’t seeing our home being built to what, to what we had agreed to. We weren’t being treated the way we, you know, we, we would have expected to be treated. We weren’t being communicated to and responded to in the way that we should have been […]

So, once we sort of realized the impacts of that, that the foundation wall change, we went back and we, we realized we weren’t, we weren’t being consulted, you know, formally, with options before that change was made. You know, a fast, rushed, pressured phone call was made, that, you know, let to, led to that foundation wall being poured that full, I’ll say full height.

[84] Such a position is simply untenable. If the foundation wall was of such importance to the Defendants, why was it not set out as a ground for contract termination in December or for that matter, not even mentioned in any of the dozens of communications between the parties in the weeks and months following its installation in September? Her additional evidence as to why the Defendants terminated the contract descended into the preposterous:

Yeah, right from the beginning it, it felt like everything was a rush. Things didn’t feel like they were planned out. You know, we were, the beginning of the project, you know, A.N.T. had time to contact us to get permit, building permit drawings and no, it was that morning. We had to rush from Aurora to Barrie to get, to get them drawings. The foundation pour, no one looked at the, the plans, noticed possible discrepancies with the plans, my site plan even, and site conditions. It was that day, a phone call needed an answer. You know, that, that rush and pressure just felt unprofessional, but it also was just the continued breakdown in communication of not feeling like we were working as a team. It was like that blame game where it kept going back to the, the plan issues, the plan issues. And we just wanted to work through things and figure it out. We, we understood there were plan issues. I’m not denying there were plan issues, and they were our plans, yeah, we had to help work through. We never said we didn’t want to work through it, but it was the way it was handled. It was, it just felt like the project, like it felt like we were dealing with such, you know, we were so early on, but we, we couldn’t work together as a team. Like we just didn’t feel like there was proper management, proper supervision. We were dealing with all these different trades and, it was just, and we didn’t get responded to like, for, in the emails. We would express concerns and we didn’t get adequate responses and sometimes even any responses. So that just didn’t, you know, that, that’s what we expected in the process of, you know, when we signed that contract, those were our expectations, to get responses, to work together as a team, that everyone would be on board to work, to work towards, you know, building, building our home.

[85] I do not accept that during the September 6 conversation with ST, MO felt rushed or pressured; rather I find that MO fully understood the issue and provided clear and explicit instructions to proceed with the least costly and most timely solution to the foundation wall issue. After all, this was a problem created by grading and the site plan, not by anything caused or contributed to by the Plaintiff or any of the sub-trades.

[86] MO’s complaints about the delays on the project and the failure of the Plaintiff to communicate properly are not supported by the evidence. Leaving aside for a moment that most of these delays were caused by design deficiencies, the documentary evidence makes it clear that the quality and frequency of communication from the Plaintiff was nothing short of commendable. Other than WE declining to address AO’s November 3 communication about the pot lights and windows defects, the evidence establishes that the Plaintiff and Elite were alive to the issues, responsive to the problems and pro-active in their approach to resolution. I highly doubt that the Defendants held a subjective belief that they were being treated poorly or that the Plaintiff was non-communicative or unprofessional; if they did hold that belief, it was an unreasonable one.

[87] Overall, I can assign little to no weight to the evidence of MO.

Alejandro Ortiz (“AO”)

[88] The evidence of this Defendant ranged from irrelevant to highly unconvincing; overall, I found it to be thoroughly unreliable. Both his testimony and the content of his email contributions were liberally sprinkled with the type of jargon which one associates with persons attempting to dodge unpleasant truths or come up with excuses for past unreasonable conduct: “flew over his head”; “manage the challenges”; “I am no expert”; “not teamwork” “feeling neglected, isolated” “they are the brain” “for me that is project management” “leadership and team-building strategies” “the comments of Sigmund were ‘loaded’ and ‘masked” “happy customer that is being pampered” “pulled into a drama” “to find a more flowing, joyful and smooth process” “synergy and flow” “mind-blowing and unacceptable” “I wanted to cry” “we felt neglected” “we wanted the project to be joyful” “a flowing way to deal with challenges” “did not feel positivity” “made me feel very angry” “transparency and accountability” “mild blame” “the gap in action” “not my sandbox” “I know about process and management” “transparent”.

[89] This pattern of verbiage was both troubling and revealing. One, it typified how cautious and circumspect a witness AO was; I found that he chose his words carefully and even cleverly – never committing fully to an answer, leaving himself room to manoeuvre to avoid being pinned down by any one answer. Two, the Plaintiff and the Defendants had freely entered into a house construction contract. They were not planning a birthday party. While it is always to be hoped that parties to a commercial contract will not come to feel isolated or neglected and that the experience will be a joyful and smooth one, the subject of the contract was the construction of a custom-built home. Such a project involves designs, estimates, schedules, quotes, materials, sub-trades, suppliers, labour, wood, steel, nails, concrete and glass. Team building, pampering and synergy are of course desirable, but they are not essential to a successful and timely house build. Emotions and feelings do not erect buildings; labour and materials do. Three, the documentary evidence does not support the conclusion that AO could have reasonably harbored those feelings. As an intelligent and worldly person, I find in fact, that he did not genuinely harbor those feelings. Rather, it became clear as his evidence unfolded that the entire purpose of his pious and lofty testimony was to provide an ex post facto justification for what was not supportable then and is not supportable now – that the Plaintiff fundamentally breached the contract and/or that the Defendants were justified in unilaterally terminating it.

[90] I find it telling that AO was reluctant to level any criticism at Bailey. Instead, he emphasized that Bailey was not responsible for “implementation”, had a more open “willingness” and did not miss meetings. This contrasted sharply with his determination, even eagerness, to micro-analyze all aspects of the Plaintiff’s performance. This rather forgets the fact that Bailey failed mightily to provide correct, accurate, complete and dependable designs, upon which the project could proceed in a timely and organized fashion. He continued to resist levelling any criticism at Bailey even after being taken through the beam discussions of late October and early November which make it obvious that ST was unsuccessfully pressing Bailey for a detail to connect the LVL and a confirmation of the size of the steel beam.

[91] I find as well that his praise of Elite (“Elite did a great job”) was transparent and disingenuous – Elite has no claim for lien and has been fully paid by the Plaintiff.

[92] I find that pointing the finger at the Plaintiff for all that went wrong on the project, micro-analyzing and criticizing the Plaintiff for the tiniest and most insignificant of omissions, gratuitously praising Elite, and giving Bailey a pass for the deficiencies in the plans were all part and parcel of a discourse which was cynically and shamelessly designed to vilify the Plaintiff, create a justification for the decision to terminate the contract and leave the Plaintiff unpaid.

[93] In cross-examination, AO’s evidence often disintegrated into the absurd: after strenuously denying that it was the Defendants’ responsibility to provide the plans for the project (no doubt aware of the significance of giving such an admission), he only partially relented by stating that, while it was the Defendants understanding that they would produce the plans, WE was to going to guide them and “hand hold” them.

[94] AO was overly anxious to heap blame and criticism on the Plaintiff. While admitting that a design flaw had left a problem with the stair opening, he insisted on being critical of the Plaintiff because it took more than a week to address the problem! He then advised that he was not able to say who was at fault for the problem because it was not his “sandbox”.

[95] Although ST looks to have thoroughly identified and addressed several concerns in an October 12 email (including porch pads, steel beam, stair openings and window elevations), AO still insisted on placing some “mild blame” on ST.

[96] I find it revealing that, in AO’s email of November 3 in which he sought an exchange of sorts of pot lights for the windows defect “credit”, the vital importance of the windows to the Defendants, which was to feature as one of the principal reasons for termination in December and later undergird their assertion of fundamental breach, was notably absent.

[97] AO had no real answer for the period of some eight days in early December during which the Defendants failed to respond to the Plaintiff about flooring and other selections. His response that the Defendants were “taking care of fires going on” was vague, unsubstantiated, unconvincing and frankly silly. Precise questioning left him forced to admit that by December 1, the thorny issues of the stair opening, the steel beam and the upstairs window height had all been resolved.

Lindsey Tkaczuk (“LT”)

[98] LT of Bailey Design was the designer for the project home. She made for a poor witness. Her evidence was scripted and contrived. I assign it no weight.

[99] LT claimed that, although Bailey was responsible for the drawings for the home, it was “always the understanding” that the Plaintiff would get the architectural drawings for the vaulted roof. LT claimed that she thought the contractor knew that “it was part of the contract.”

[100] This evidence was pure nonsense. The Plaintiff’s obligation to obtain architectural drawings for the vaulted roof was not in the contract. Not once during the project (although both LT and KH certainly had plenty of opportunity to do so) did anybody at Bailey even suggest that some other entity other than Bailey was responsible for obtaining architectural or engineered drawings. Moreover, the email exchanges, notably the directions and sketch produced by Bailey on September 21, make it clear that Bailey was taking full responsibility for the design of the porch as it was for all design aspects of the project. Quite how any reasonable, rational person would think otherwise is beyond comprehension.

[101] LT went on to state that the purpose of the September 21 design was to give the owner “the look” of a timber frame porch but not the actual the structural design of it. I found preposterous her suggestion that the Plaintiff was not supposed to build according to the specifications provided by Bailey but according to a yet to be obtained engineered drawing.

[102] LT lived two houses down from the project. She knew MO personally and professionally. She would have had the opportunity to observe the porch roof being constructed. As a person of intelligence, in possession of both expertise and an intimate knowledge of this project, I find it highly improbable that she would have failed to observe that the porch was being built according to Bailey’s September 21 design and not in accordance with some non-existent engineered drawings. Yet, although she had been part of the email dialogue updating and informing all parties from early in the project, she did not raise any concern about the porch at the material time.

[103] Under cross-examination, I found her to be highly defensive, more interested in minimizing the significance and impact of Bailey’s design flaws on the project than in conceding the obvious. Nevertheless, she had to admit that the original designs did not have the porch pads located or sized; that the porch pad issue had not been resolved by September 13; that the revised plans were only sent to the Plaintiff on September 20; and that the stair opening had to be enlarged to accommodate insulation. After much wrangling and hesitation, she had to concede that Bailey’s plans showed the main floor beam sitting on a non-bearing wall. Similarly, although she displayed great reluctance to do so, she finally agreed that the designed combination of the wood and steel beams was unsuitable because of insufficient connection.

[104] LT could not confirm when or in what manner the beam issues were finally resolved; instead, she was critical of the on-site personnel for not addressing the issue in a timely fashion. When taken to the actual exchange of emails on the subject, she acknowledged that DB appeared to be the person who resolved the issue. As well, her email of November 7 confirmed that she was revising the drawings to increase the size of the beam across the dining room and checking with her LVL engineer regarding the point load.

[105] LT’s position that the Plaintiff was somehow expected to obtain engineered drawings for the front porch was completely undermined by the email from her colleague KH on September 27. Referring to the revised design and sketch sent to all parties on September 21, KH wrote “I’m not sure why this is holding anything up because the design is there on the elevations and shown how to construct on the plans. (rafters, collar ties, and a ridge board, noted as vaulted ceiling).” This would be an odd, yea an incomprehensible, direction from the designer if, as LT insisted in her evidence, the contractor was expected to obtain an engineered drawing.

[106] I place no weight on the evidence of LT.

Joseph Emonds (“JE”)

[107] This gentleman was called by the defendants as an expert in construction cost consulting and quality surveying.

[108] I place no weight on his evidence. It might have been modestly helpful in a time and materials forensic analysis; but this was a fixed price contract. His conclusion that 28% of the contract was completed struck me as a completely unfounded, arbitrary and unreliable figure, even more so because he did not give due credit for completed aspects of the project like surveying and Tarion costs. Nor did he consider any extra effort expended by the Plaintiff in addressing and adapting for design flaws. He seemed completely ignorant of the fact that this was a fixed price contract.

[109] I can give no weight to his evidence that the option of the solid concrete foundation wall in lieu of the knee wall would result in a savings of $3,927.00. This failed to consider that less concrete would be used in the building of a knee wall.

[110] Finally, I can give no weight to his evidence about the cost savings for the builder installing pour in place windows in the basement – the witness failed to even obtain a price for such windows.

Kalle Vasianen (“KV”)

[111] This self-employed carpenter attended at the project to affect some repairs to the windows. He claims that the windows had been improperly installed. Together with a co-worker, he removed and refastened windows to allow for them to be properly insulated. He claims to have placed some blocking underneath a steel beam. KV observed what he believed to be black mould in the basement; he suggested to the homeowners that they have a sample tested by a mould specialist. He charged the Defendants $2,640 for this work performed.

Findings

[112] I accept the near entirety of the evidence adduced on behalf of the Plaintiff. I reject and attach little to no weight to the evidence of the Defendants. The following conclusions flow inexorably from the evidence that I accept:

i) Fixed Price Contract

[113] This was a fixed price contract which the parties entered prior to the commencement of any construction. Absent a breach of contract by the Plaintiff (and I find that there was none), the Plaintiff was not obliged to provide any kind of accounting setting out the details of its pricing, costing, overhead or mark-ups to justify how it arrived at its fixed price. The entire nature of a fixed price contract, with draws becoming due at various stages of the project, is that the value of the labour and materials at any stage is agreed upon from the outset. This protects both the builder and the owner. The builder can price out the project in advance and include within that price, his or her profit and overhead and the quotes from the sub-trades. The builder can go ahead to pay the sub-trades as they provide their labour and materials to a phase of the project, knowing that it will be reimbursed for those outlays at a pre-determined point. In turn, the owner can rely on the certainty of a fixed price contract to plan, budget and if need be, obtain financing for the build. I find that nothing the Plaintiff did at any stage of the project served to undermine the integrity of the fixed price contract; nor was it open to the Defendants to convert it into a labour and materials contract by their conduct, declaration, termination or any amount of ex post facto wishful thinking or explanation.

ii) Fundamental Breach

[114] There was no fundamental breach of the contract by the Plaintiff. A fundamental breach is one which deprives the aggrieved party of substantially the whole benefit of the contract. In Spirent Communications v Quake Technologies, 2008 ONCA 92, 88 O.R. (3d) 721 (leave to appeal to the Supreme Court of Canada refused 2008 CarswellOnt 4317), the Court of Appeal set out the five factors that should be considered when determining whether conduct by a contracting party has led to this result. The five factors are, at paragraph 36: (1) the ratio of the party's obligations not performed to that party's obligations as a whole; (2) the seriousness of the breach to the innocent party; (3) the likelihood of repetition of such breach; (4) the seriousness of the consequences of the breach; and (5) the relationship of the part of the obligation performed to the whole obligation.

[115] I find that none of the five factors were present here for the following reasons:

(a) to the extent that there were some aspects of the first milestone left to be completed, they represented only a small fraction of the work envisaged for that stage of the project; (b) any breach by the Plaintiffs was not serious – I note that the only major area of complaint and one of the principal grounds set out in the termination notice was the basement windows. Yet the Defendants have seemingly done nothing to correct the problem or even obtain an estimate for doing so; though the Defendants received more than $155,000 from MCU within a few weeks of terminating the contract. Having not released a cent to the Plaintiff, one would have thought that they would have at least obtained an estimate or opinion on what it would have taken to remedy the windows issue in the basement. I find that neither the failure to construct the vaulted porch roof nor the installation of the eight-foot poured foundation wall can be viewed as serious. The Defendants never cited the absence of a vaulted porch roof issue as a ground for terminating the contract. In July, Michelle Ortiz was quite prepared to leave that detail out of the pricing. The Defendants then stood by passively in September while their own designer gave instructions for a porch roof sporting simple collar ties without a ridge beam or point loads. Finally, they failed to obtain, or direct their designer to obtain, what they knew to be the necessary engineered drawings for the vaulted porch. In respect of the foundation wall, I find that MO gave clear instructions to ST to forego the knee wall in favour of the far more practical and less expensive poured wall. Had the hybrid wall been of such importance to the Defendants, they would have suffered the accompanying delays involved in salvaging that design feature. Moreover, as with the porch issue, it was not cited as a ground for termination on December 11 even though it would have been plainly obvious to the Defendants for months that there was no hybrid wall; (c) there was no reliable evidence of the seriousness of the consequences of these alleged breaches: there was no evidence that the home is worth less than it otherwise would be with the claimed features; there is no suggestion that any of the Plaintiff’s was non-compliant with city by-laws or the Code; there is no evidence that any of the impugned features have left the home structurally unsound, vulnerable or unstable; finally, the Defendants received the building loan advance from MCU in the amount of $155,350.00 on January 5. It was apparently MCU which dictated the schedule according to which advances would be paid. I would draw the inference that, as a commercial lender, MCU was satisfied that a scheduled draw should be paid to the borrowers based on the value of work put into the home. In the absence of any evidence that any value was added to the building in the short period between the Plaintiff leaving the project and the date of the MCU advance, I would conclude that the actual value of labour and materials added to the project by the Plaintiff for which they had not been paid was at least equal to the amount that had been invoiced for the first milestone; (d) I am not satisfied that any lack of communication, project delay or poor customer service on the part of the Plaintiff could serve as a basis for fundamental breach. One, I am unable to find that any of these allegations are supported by the evidence. Two, they would not go to the very root of the contract. By the date of termination, the Defendants had received substantially what they had contracted for – a framed structure which was largely in conformity with the designs and plans, features of which had been necessarily adjusted and revised owing to design flaws not caused or created by the Plaintiff. Three, to the extent that the project had been delayed, it was not the fault of the Plaintiff; in any event, the Plaintiff would have had the contractual right to extend the completion date to the six-month out date had the contract not been wrongfully terminated by the Defendants on December 11. If anyone failed to communicate or respond in a timely manner to inquiries or issues of substance, it was the Defendants. I refer to the Plaintiff’s written requests for flooring choices (December 1); interior selections (December 2) and plumbing rough ins (December 9), each of which went unanswered; (e) finally, there was no evidence of any likelihood that the Plaintiff was about to breach the contract. In fact, the Plaintiff’s willingness to soldier on with the project in the wake of the unilateral termination serves as proof of its dedication to the project and it commitment to seeing it through to its conclusion.

iii) Design Deficiencies

[116] The evidence makes it clear that most of the delays on the project were caused either directly or indirectly by deficiencies in the plans and drawings which were the exclusive domain of the Defendants and Bailey. The Plaintiffs were not responsible for any of the plans or drawings for the project. Neither the Plaintiff nor the sub-trades had the authority to make design changes on their own initiative.

[117] Any changes to the project which deviated from the drawings were made necessary because of circumstances encountered on the project or because of omissions or deficiencies in the plans.

[118] The evidence of DB, WE, ST and the plethora of email exchanges in the evidentiary record make it clear that the design deficiencies, from the site plan elevations to the absence of porch pads, can be laid solely at the feet of the Defendants and their designers. Some of those deficiencies required plan revisions (the interior staircase and porch pads); others, pro-active decisions (ST ordering a longer beam); others required changes made on site (window type, location and sizing); still others required input from the designer (the porch roof and the instruction of Sept 21 to use only collar ties); and finally the September 6 decision to pour the eight-foot concrete foundation wall which I find was made in consultation with MO and resulted in the most sensible, timely and cost-effective solution.

iv) Communication

[119] Both the Plaintiff and the framer were diligent, consistent and reasonable, if not perfect, in communicating with and updating the Defendants on the status of the project and the issues and challenges encountered. The complaints of the Defendants in this regard are not supported by the evidence. I find that ST was particularly responsive, timely and helpful in addressing questions and concerns; moreover, I find that he was proactive, respectful and fair in approaching the Defendants and the designers about the challenges encountered on the project.

v) The Front Porch

[120] The front porch (including the roof) was built in accordance with the design, direction and drawings provided by Bailey on September 21. The vaulted porch which the Defendants ultimately had constructed in the post project period could only be legally erected with engineered drawings of the kind prepared and submitted by a qualified architect in March 2017. I accept the evidence of Ron Koerth that, without engineered drawings, the porch desired by the Defendants could not be constructed in accordance with the Code.

[121] The decision to content themselves with a more basic porch was taken by the Defendants as early as July 10, in advance of the execution of the contract, when MO agreed with WE’s suggestion to leave the modifications to the porch off the quote until they knew what they were dealing with. This approach was confirmed by KH on July 29 when she advised the city, the Plaintiff and the Defendants that, “[…] we changed the ridge beam note to ridge board with collar ties which does not require the load to be brought down to a footing.”

[122] Even though the sketch of vaulted front porch appeared in the schedule to the contract, WE made a note that such a structure would have to be built “to code”. In any event, the last word on the porch plans and specifications came from KH on September 21 when she provided final direction that the “vaulted” porch roof be constructed with collar ties and no ridge beam. Inserting the label “vaulted porch” on the accompanying design did not change the fact that the type of construct which the Defendants ultimately had erected in the post termination period required engineered drawings. Such drawings were never furnished to the Plaintiff at any time during the project by Bailey or anybody else; they were not something that the Plaintiff was instructed to obtain; nor could it reasonably be expected to obtain such drawings considering the clearly assigned responsibilities of those involved in the project. Even if I am wrong in that finding, the final direction by Bailey to proceed with collar ties and a ridge board served to obviate any requirement for engineered drawings.

[123] I find that the Plaintiff fulfilled its obligations under the contract to provide the porch it was directed to construct by the Defendants and Bailey. Moreover, had the Defendants been of the belief that the porch to be constructed was the timber framed vaulted porch in the schedule to the contract, they would simply have insisted that the porch be built in accordance with that sketch. They never did; certainly not during the September discussions when the design of the porch was extensively considered and became the focus of Bailey’s attention and revisions, leading to the ultimate design and direction in the email and attachment of September 21. I find that, by September 21, the Defendants understood and had accepted what they were getting: exactly what KH had designed and directed on that date. On September 22, MO asked Bailey to take a “second look” at the front porch. This simply reinforces the unmistakeable conclusion that the Defendants fully understood the kind of porch that was going to be built; otherwise why ask the designer to take a second look at it?

vi) The Termination of the Project

[124] I find that the Defendants knew precisely what they were doing when they terminated the project on December 11, just before the framing inspection. When presented with an invoice for the first draw, the Defendants then made an unwarranted and unreasonable demand for an accounting detail and a release. By adopting this tactic, the Defendants sought to retain the benefit of the labour and materials supplied by the Plaintiff under a fixed price contract while demanding a detailed accounting upon which they could then negotiate a more favourable price for the project. This was a unilateral attempt to re-write the contract.

[125] I find it revealing that, when notifying the Plaintiff of the termination of the contract and requesting the “Itemized Cost + Transparent Mark-Up = Project Cost” accounting detail, the Defendants failed to cite the porch roof or the foundation wall as issues of concern, let alone as part of the grounds for termination of the contract. This was more than just an attempt to re-negotiate the fixed price contract; it crossed the line into shameless chicanery.

[126] I find that the Defendants purposely timed this unilateral and groundless termination of the contract, knowing that the first draw was coming due. They did this both as a means of avoiding having to honour that first draw, and as part of a pre-planned strategy to force the Plaintiff into re-negotiating.

The First Milestone Draw and the Value of the Work

[127] I find that the Plaintiff performed nearly all the work contemplated by the first milestone in the draw schedule. It thereby was entitled to be paid the first draw amount. In fact, when one considers the extra work to the plumbing and the basement floor, the Plaintiff likely provided value to the project beyond the first milestone. The Defendants’ unilateral termination of the contract prevented the Plaintiff from completing every detail encompassed in that first milestone; but this did not afford the Defendants a basis in law or in equity to insist upon converting a fixed price contract into a time and materials-based contract.

[128] To permit such a result would be to encourage an owner to baselessly and unilaterally terminate a fix-priced contract just before a draw becomes due thereby depriving the builder of what he is entitled to. This would put that breaching owner in a powerful bargaining position: she would have received all (or nearly all) of what the contract milestone called for; and with it an opportunity to re-negotiate a bargain she previously entered without having incurred many of the sub-trade, labour and materials costs. Meanwhile, that same owner could put the builder to the onerous task of accounting for the value of the labour and materials supplied to date.

[129] In the case at bar, this unfair situation was compounded by the fact that the Defendants were enriched, and no doubt emboldened, by receipt of the building loan funds from MCU, presumably based on the value of the project to date. Allowing such a result would serve both to ignore the clear and mutually expressed intentions of the parties and to emasculate the advantages and protections offered by the fixed price contract. It would also create commercial chaos.

[130] In the present case, I find that the labour and materials supplied by the Plaintiff had the value assigned to them in that fixed price contract. The Plaintiff had calculated the overall cost of the project back in July. The contracting parties had agreed that the completion of the first milestone would trigger a draw entitlement. The Defendants had set up financing in accordance with the draw schedule. The commercial lender was obviously satisfied that the value of the project was at least as much as the amount advanced in January; it is worth recalling that the deposit schedule (Schedule “C” to the contract) stated that draws were payable based on the percentage of work completed as identified by the lender’s guideline. Although left with no direct evidence on the point, I would infer that MCU must have been satisfied that the percentage of work completed matched or exceeded the value of the funds it was advancing on the loan. That being the case, it follows that the value of the work which the Plaintiff contributed to the project, and for which it has yet to be been paid, was at least equal to the amount contemplated in the first draw. That amount is $123,052.62. The Plaintiff’s claim for lien against property is allowed for that amount.

The Extras Claim

[131] The Plaintiff’s claim for extras on its supplementary invoice was excessive but not, I find, unreasonable or advanced in bad faith. I accept that the Plaintiff anticipated receiving invoices from sub-trades for extra work which never materialized. In any event, although the amount now being advanced by the Plaintiff for extras is only a fraction of what was set out on the invoice, I heard no evidence that the Defendants were prejudiced or suffered damages because the lien claim included extras which ultimately could not be justified. I accept that the Plaintiff is entitled to its extras claim for snow removal in the amount of $250 (the delays occasioned by the design flaws and errors caused the project to be pushed into the winter season) and for the additional steel beam in the amount of $767.75 (made necessary by the load bearing issue in the deficient drawings).

[132] I am not satisfied that the Plaintiff should be entitled to any additional amount for the times spent by its employees working on selections that were not in the builder’s samples. First, this was a custom-built home; the Plaintiff must have contemplated that the homeowners would spend some amount of time reviewing non-feature sheet items with staff; I find that this time would have or should have formed part of the Plaintiff’s overhead which was already factored into the fixed price contract. Second, the court did not hear evidence from the staff person who allegedly worked with the Defendants on the non-feature sheet items. There was a smattering of emails from Shelby Revie about flooring samples in early December but that is all. Without the detail of what additional “work” was performed by Shelby Revie, I am not prepared to find this to be an extra.

[133] Finally, I am not prepared to award an extra for additional excavation by Rumball Excavation and Hauling. Contrary to what is suggested in the Plaintiff’s submissions, there is no reference to “additional excavation in the amount of $4,278.40 due to locating and decommissioning the well, locating water and sewer services and re-attendances for excavation re the porch pads” on that sub-contractor’s August 31st invoice Having not heard from Rumball, whose evidence might have shed light on whether the invoice consisted of extra-contractual labour or materials, I am not persuaded that an extra claim is justified.

[134] The allowed claim for extras is therefore $1,011.75. That is a lien-able claim.

Damages for Breach of Contract

[135] I find that the Defendants wrongfully terminated the contract. They had no basis for dismissing the Plaintiff from the project prior to its completion. In addition, they failed to pay the first draw as invoiced on December 20. I find that these actions constituted a breach of contract by the Defendants.

[136] In addition to the claim for lien based upon the value of the labour and material supplied to the project, I find that the Plaintiff is entitled to damages for breach of contract. Those damages should be based upon the loss of expected profit had the Plaintiff been allowed to complete its part of the contract. While in theory the Plaintiff might have been free following termination of the contract to pursue other ventures or reassign resources to other projects, there was no evidence that this happened or that it was even possible given how late in the season the notice was given. Nor was there any evidence of the profit the Plaintiff could have earned had it been able or willing to take on alternative projects. A failure to mitigate damages, which is an affirmative defence, was alluded to but not made out by the Defendants.

[137] I have concluded that loss of expected profit damages can be fairly and reasonably arrived at by applying the Plaintiff’s profit percentage on fixed price contracts (10%) to the portion of the contract left to be performed by the Plaintiff on the date of termination, less any saved labour costs. The figures used should be net of HST. Thus, if the amounts of $100,000 (for the two deposits paid) and the first draw entitlement of $108,896.12 (which is the value of the allowed claim for lien, less the HST) are subtracted from the original contract price of $506,123.00, we are left with the amount of $297,226.88. This would leave a profit of $29,723 available on the remaining part of the contract. There was, however, a saved labour component when at least one employee (“Earl”) was laid off by the Plaintiff in the wake of the termination. There was no evidence of what the Plaintiff saved as a result of its decision to lay Earl off. I find it reasonable to deduct an amount of $10,000, being $1,000 per week for saved labour costs over the anticipated period of ten weeks to complete the project (December 11 to approximately mid February). When this saved labour amount is subtracted from the gross loss of profit, one is left with the sum of $19,723.00 for damages for breach of contract. This is not an amount that is subject to a claim for lien. The plaintiff is nevertheless entitled to judgment for that amount in addition to the allowed lien claim.

Line of Credit Interest

[138] The Plaintiff makes a claim for the 4.5 per cent interest it paid on its line of credit and refers the court to Schedule “I” paragraph 3 of the contract. There was no evidence led of what amounts, if any, were drawn on the line of credit towards materials or sub-trades; nor was there evidence of the total amount of interest charges incurred by the plaintiffs in funding this project to the first draw. I am not prepared to award anything for this aspect of the claim.

The Defendants Back-charge Claims

[139] I am not prepared to allow for any back-charge or set-off claims for the following reasons:

(a) For reasons stated above, I accept little to none of the Defendants’ evidence on important points; (b) In respect of MCU’s legal costs, I find that both the Plaintiff’s demand for payment of the first draw and its claim for lien were entirely reasonable and justified. The Defendants could have made a motion to pay an amount into court. The plaintiff did not demand a defence from MCU; however, it was obliged to include MCU as a defendant in order to assert its position of priority over the building lender. Finally, there was little to no evidence of how the quantum of costs was arrived at; nobody was called from MCU to provide detail of why these costs were claimed. I am not satisfied that they would have survived scrutiny or assessment; (c) I am not prepared to allow any setoff for correction of window or framing deficiencies. It is an axiom of construction law that an owner who complains of deficiencies should allow the contractor a reasonable opportunity to re-attend at the premises to remedy any identified deficiencies before the owner calls in a third party to effect repairs and claims an accompanying charge back: see Vallie Construction Inc. v Minaker, 2011 ONSC 6565, [2012] O.J. No. 2906 at para. 237. In this case, given the Plaintiff’s willingness to continue with the project in the face of a unilateral termination by the Defendants, it follows that the Plaintiff would have promptly returned to the project to assess and remedy any alleged deficiencies, including site clean-up. I accept the evidence of ST that Casa Bella would have been prepared to remedy any problem with windows still under warranty. Nor am I prepared to allow $574.92 to reimburse the Defendants for the cost of a window which did not fit in the proposed opening because of a design flaw; (d) The claim for a credit for the hybrid knee wall cannot be allowed. There is simply no evidence that the Defendants suffered any kind of loss as a result of the election to pour the solid concrete wall. There were no costs savings to the Plaintiff. According to Ron Koerth, the knee wall design would not have provided adequate lateral support. Resolving that support issue would have entailed delays and extra expense. I find that MO gave approval to ST to proceed with the solid foundation wall on September 6 knowing that this might affect the aesthetic look of the home. I find that the Defendants are now estopped from claiming a credit for this item; (e) Similarly, I am not prepared to allow a credit to the Defendants for seven basement windows at $1000. There is simply no basis for it. There is no evidence that there has been a diminution in the value of the home. A continuous window would not have been supported in the foundation wall. I am not prepared to assign some notional value to the loss of aesthetic perfection because the basement windows are slightly out of alignment with the main floor windows or because a small portion of the windows are underneath the rear deck. I find it telling that the Defendants would have gone ahead to install the rear deck in the fashion that they did had reduced light in the basement been of such concern to them. (f) There was insufficient proof that mould was present on the site in December or that the Plaintiffs were responsible for it. The photographs taken by the Defendants which purport to be evidence of mould are not persuasive. Although KV detected what might have been mould in some of the areas where he was working, his suggestion to have it investigated was apparently ignored. There were no samples taken; no testing done. I note a complete absence of any remediation costs. Surely, the Defendants, both of whom are clearly health and environment conscious individuals, would have gladly borne such costs had the problem been so manifest as they claim. (g) I am not able to assign any weight to the Bailey “letter to confirm partial completion of project” dated January 24. LT was not qualified as an expert in anything, let alone structural and plumbing issues. It became evident that her “Deficiencies Report” was nothing more than commentary grafted upon photographs taken of the site by AO. In any event, I found her to be a poor witness whose evidence should be rejected.

Summary of Findings

[140] Based on a consideration of the entirety of the evidence, I have concluded that the Plaintiff performed competent and valuable work consisting of labour, supervision, project management and materials supplied to the project, thereby fulfilling its obligations up to and beyond the first milestone. In good faith, the Plaintiff retained and paid for many of the sub-trades and building materials; as well, the Plaintiff provided both the management and site supervision which brought the project to a stage where the first milestone draw became payable.

[141] As part of the fixed price contract and in keeping with the milestone draw scheme, the Plaintiff shouldered the overwhelming burden of the material and sub-trade costs only to be met with an unwarranted and unilateral termination which has left it both unpaid and out of pocket for more than three years. The value of the material, labour and services provided to the project equalled or exceeded the draw to which it became entitled upon completion of that first milestone.

[142] The Defendants deliberately, knowingly and wrongfully terminated the contract recognizing that a draw was about to come due. They used the tactic of demanding a detailed accounting from the Plaintiff as a means of first delaying, then avoiding, their obligations under the contract and as a bargaining tool in any negotiations for resolution which might follow. They received the benefit of the labour, services and materials but have paid nothing towards the $123,052.90 first draw invoiced to them on December 20.

[143] In the end, the Defendants received and have retained: the progress draw from MCU of $155,350 together with a Code compliant framed structure which allowed them to complete their home and gain occupancy approval in April.

[144] Any deviations from the plans were made necessary by either design flaws, the fault for which cannot be laid at the feet of the Plaintiff, or site and project specific circumstances which could not have been anticipated, avoided or easily resolved. To the extent that there were delays in the project, they were not the fault of the Plaintiff’s or its sub-trades. The challenges in locating the water and sewer services; the issues surrounding the beams; the absence of proper drawings for porch pads; the prevarications over the front porch design; the insufficiency of the stair opening; the changes to window locations and openings - these were all the result of design flaws or deficiencies and/or the failure of the designer to address identified problems in a timely fashion. Taken together, these caused the project delays complained about by the Defendants. I recall the comment of the experienced ST that a day’s delay on the front end of a project can cause many days delay on its back end. Moreover, it is entirely understandable that framing sub-contractors would not want their workers standing around a project site waiting for design flaws to be addressed.

[145] Even if I am wrong in concluding that the project delays could not be attributed to any action by the Plaintiff, then I would conclude that they would not constitute a fundamental breach of the contract in any event. One, the Plaintiff still retained the right to extend the closing date as of the date the contract was terminated. Two, the delays did not go to the root of the contract; the Defendants had clearly received something of value from the Plaintiff, sufficient to warrant a building loan advance from a conventional lender of more than $155,000; three, subject to some minor rectifications the framing was approved by the city in December; finally, on the date of termination, the project was well on its way to completion, the evidence that I accept being that 39% of it or more had been completed.

Disposition

[146] For the reasons set out above, there shall be judgment in favour of the Plaintiff against the Defendants as follows:

(a) The amount of $124,064.65 including a lien for that amount against the property; (b) In default of payment of the amount set out in sub-paragraph (a), the property shall be listed and sold with the sale proceeds being used to pay the lien; (c) The amount of $19,723.00 as damages for breach of contract; (d) The counterclaim of the Defendants is dismissed.

There remain the issues of costs and interest, together with the form and content of a formal order.

[147] The court requires further submissions on the twin issues of costs and interest if the parties are unable to agree on these matters. In particular, the court draws the attention of the parties to paragraph 3 of Schedule “I” of the contract and seeks the parties’ respective submissions on which rate of interest should apply to the amounts now owing to the Plaintiff as set out above. The court invites calculations of pre-judgment interest, together with proposed draft judgments as part of those further submissions.

[148] If the parties are unable to agree on these remaining issues, then the court orders further submissions according to the following time-table:

1. Submissions by the Plaintiff limited to five pages (not including attachments or calculation schedules) on or before July 24, 2020;
2. Responding submissions of the Defendant limited to four pages (not including attachments or calculation schedules) on or before August 7, 2020;
3. Reply submissions of the Plaintiff limited to two pages, on or before August 14, 2020.

Justice J. R. McCarthy Released: June 19, 2020