COURT FILE NO.: CV-15-095-00

DATE: 2020 09 02

AMENDED: 2020 09 15

ONTARIO

SUPERIOR COURT OF JUSTICE

BETWEEN:

FOX EXCAVATING & GRADING LTD.

Plaintiff

– and –

2012299 ONTARIO INC., CANADIAN IMPERIAL BANK OF COMMERCE, MCAP FINANCIAL CORPORATION and VANDYK-SUMMERHILL LIMITED

Defendants

J. Goode, for the Plaintiff

A. Dhillon, for the Defendants

HEARD: October 8, 9, 10, 11, 16, 17 23, 24, and 25, 2019 at Orangeville

CORRECTED REASONS FOR JUDGMENT

Corrected Decision: The text of the original decision was corrected on September 15, 2020. The decision has been amended as follows:

Cover page: Addition of trial dates of October 23, 24, and 25, 2020;

Paragraph 19: Deletion of the word “the”;

After paragraph 41: Heading removed “VDL’s reliance on its “ability to change contractors””;

Paragraph 41: Paragraph number added;

Paragraph 48: Sentence deleted;

Paragraph 57: Addition of quotation marks around “Separate Contracts”;

Paragraph 63: Last sentence: typographical error of 364 - amended number to 354; and

Paragraph 105: Rephrased to reflect the correct names of the experts and the critique expert.

Mcsweeney J:

[1] These are my reasons following trial of the plaintiff’s construction lien action for breach of contract and damages against the builder and owner of a residential development project.

[2] Joseph Spalierno has been in the excavating business for over thirty years. His company is the plaintiff, Fox Excavating and Grading Limited (“Fox”), which provides excavation, moving, and grading services to home builders on construction projects. Mr. Spalierno has always operated his excavation equipment himself, and hired others as needed.

[3] The defendants, builder Vandyk-Summerhill Limited (“VDL”) and the legal property owner, 2012299 Ontario Inc. (“201”) are both part of the Vandyk group of companies owned by John Vandyk Senior.

[4] Between 2013 and early 2018, VDL turned what had previously been a field near Shelburne, Ontario into a 354-home residential development called the “Neighbourhoods of Summerhill”.

[5] On December 3, 2013, Fox and VDL signed a contract (the “Contract”) for excavation and related work on the Neighbourhoods of Summerhill project (“Summerhill project”). Under the terms of the Contract, VDL paid Fox on an hourly rate basis for its services.

[6] By January 2015, Fox had excavated 261 of the 354 homes in the Summerhill project. For the first time since the project began, VDL refused to pay Fox’s outstanding invoices. Fox requested payment. On May 15, 2015, Fox’s lawyers wrote to VDL advising that Fox was ready to finish the work on the Summerhill project.

[7] On May 28, 2015, VDL entered into a contract with a different excavator, First Choice Excavating Ltd. to perform the excavation and grading needed for the remaining 93 lots in the project.

[8] VDL and Fox disagree as to whether the terms of their contract entitled VDL to hire another excavation company to finish the work on the Summerhill project in these circumstances.

[9] Fox claims that VDL breached or repudiated the Contract. On July 10, 2015, Fox issued a claim under the Construction Lien Act, R.S.O. 1990, c. C.30 for $$66,213.30, the value of its outstanding invoices, and for breach of contract and lost profit damages of $200,000.

[10] Shortly after starting its action, Fox discontinued its claim as against the defendants Canadian Imperial Bank of Commerce and MCAP Financial Corporation.

[11] By Statement of Defence and Counterclaim dated August 11, 2015, VDL and 201 pleaded that the $66,213.30 was a valid holdback per the Construction Lien Act, as Fox had breached the Contract.

[12] VDL also counterclaimed for $500,000, alleging breach of contract, negligent misrepresentation, and unjust enrichment. It claimed that Fox had abandoned the project, causing delay and expense to VDL, such that it was forced to hire a replacement subcontractor to finish the Summerhill project.

What is no longer in dispute:

[13] At the outset of trial, counsel for VDL and 201 advised that:

a. They were no longer disputing the validity, quantum, or timeliness of the plaintiff’s lien;

b. VDL was no longer pursuing its counterclaim, or seeking to set-off any damages found owing to Fox; and

c. VDL was no longer alleging breach or repudiation of the Contract by Fox.

[14] Originally Fox had three actions against VDL relating to the Summerhill project: Court Files 95/15; 138/15; and 178/15. These actions were previously ordered to be tried together, or one after the other.

[15] At the outset of trial, Fox advised that, in view of the revised position of the defendants regarding the lien, it was discontinuing action 138/15, subject only to cost submissions to be dealt with at the conclusion of this trial. Action 178/15 was stayed by the court at the joint request of parties. The trial therefore proceeded only on Fox’s claim in action 95/15.

Motion to amend statement of defence to plead “no minimum lots”

[16] On the first day of trial, defendants sought to amend their defence to expressly plead the Contract’s wording of “no minimum lots” as a defence to Fox’s breach of contract claim.

[17] I heard the motion to amend on what was scheduled to have been the first day of trial. I dismissed the motion at the end of the day, with reasons for my ruling released orally on the record the following day, October 9, 2019.

[18] As described in my reasons, I concluded that the proposed amendment pleaded a substantively new defence and also amounted to a withdrawal of a deemed admission. In the circumstances, the proposed amendment met neither the test for amendment under the Construction Lien Act, nor for withdrawal of a deemed admission under the Rules of Civil Procedure.

[19] As a result of my ruling, the defendants were not permitted to plead or rely on “minimum lots” as a defence to Fox’s claim.

ISSUES REMAINING

[20] Issue 1: Did VDL breach the Contract with Fox? For the reasons to follow, I find that it did.

[21] Issue 2: The parties agree that lost profit is the appropriate measure of damages. Has Fox met its evidentiary onus to prove its lost profit?

Issue 1: Did VDL breach the Contract with Fox?

Legal framework

[22] The current approach to interpretation of contracts was articulated by the Supreme Court of Canada in Sattva Capital Corp. v. Creston Moly Corp., 2014 SCC 53, at para. 47 [“Sattva”]:

the interpretation of contracts has evolved towards a practical, common-sense approach not dominated by technical rules of construction. The overriding concern is to determine “the intent of the parties and the scope of their understanding” [citations omitted]…. To do so, a decision-maker must read the contract as a whole, giving the words used their ordinary and grammatical meaning, consistent with the surrounding circumstances known to the parties at the time of formation of the contract.

[23] In Weyerhaeuser Company Limited v. Ontario (Attorney General), 2017 ONCA 1007, at para. 65, the Court of Appeal for Ontario built on Sattva and its own jurisprudence to describe the analytical approach to be followed by a court in determining a contractual dispute. When interpreting a contract, the judge should:

(i) determine the intention of the parties in accordance with the language they have used in the written document, based upon the "cardinal presumption" that they have intended what they have said;

(ii) read the text of the written agreement as a whole, giving the words used their ordinary and grammatical meaning, in a manner that gives meaning to all of its terms and avoids an interpretation that would render one or more of its terms ineffective;

(iii) read the contract in the context of the surrounding circumstances known to the parties at the time of the formation of the contract. The surrounding circumstances, or factual matrix, include facts that were known or reasonably capable of being known by the parties when they entered into the written agreement, such as facts concerning the genesis of the agreement, its purpose, and the commercial context in which the agreement was made. However, the factual matrix cannot include evidence about the subjective intention of the parties; and

(iv) read the text in a fashion that accords with sound commercial principles and good business sense, avoiding a commercially absurd result, objectively assessed.

Evidence and findings re the parties’ Contract

[24] The Contract is between VDL as “Builder” and Fox Excavating & Grading Inc. as “Contractor”, and it states that the Contractor shall supply all of the labour, materials, services, tools and/or equipment necessary to perform the work described in Schedule “A” in accordance with the Builder’s plans, drawings and specifications included as Schedule “F”. Schedule “A” describes the excavation, grading and backfill required on each lot. Schedule “F” contains a lot chart showing 354 lots.

[25] The “Expiry Date” of the Project is the “End of Project” and the “End of Project” is defined in the Contract to mean substantial completion as per the CLA.

[26] A plain reading of the Contract and the portions referenced above clearly sets out that the Contract was for the 354 lots and that Fox was required to do the work under the terms of the Contract until the End of Project.

[27] This position is consistent with the defendant’s admission in its Revised Response to Request to Admit: that Fox’s obligation was to perform its services on the 354 lots which make up the Summerhill project.

[28] This understanding was confirmed by the discovery evidence of Mr. Ma, VDL’s Chief Financial Officer, which was read in at trial. He stated clearly that, in early 2015, there was an “intermission” of several months. Prior to the intermission, Fox had worked on the first 261 lots. Work stopped until May 2015, when VDL obtained the building permits needed to continue the project work on the remaining 93 lots.

[29] Mr. Ma was clear that the Contract was for work on all the lots on the project, before and after the intermission – not only the first 261 lots.

[30] In interpreting a contract, the court must give effect to the intention of the parties as expressed in their written agreement. The Contract makes no mention of “phase 1” or “phase 2”, which became the terms used by the parties to distinguish the periods before and after the intermission in 2015, after which work began on the final 93 lots.

[31] I conclude, on the basis of the Contract language, that Fox was required by the Contract to work on the Summerhill project from beginning to end – that is on all 354 lots of the project.

VDL’s entitlement to change number of units in the Contract

[32] Schedule “A” at p. 8 of the Contract contains a list of responsibilities to be borne by the subcontractor. In this list is a clause giving VDL the right to add or delete lots to the Contract. Specifically, it states:

VDL reserves the right to add or delete units or lots from this contract by written notice to the Subcontractor at any point during the contract period without revision to the contract pricing. There shall be no minimum lots required under the contract” [emphasis added].

[33] Further down on p. 8, the Contract repeats the first sentence of the same clause:

[34] Pursuant to this provision VDL was entitled to add or take away lots, on written notice to Fox, “without revision to the contract pricing.”

[35] In a project the size of the Summerhill project, it is easy to imagine that such a clause would assist VDL if it chose to delete a row of townhomes from the project design; or to add more units by increasing the housing density in some way. In either case, this “add or delete” provision in the Contract would have required Fox, on receipt of the notice of addition or deletion, to perform any additional work required by the change at the same contract prices.

[36] Such additions or deletions, if done on notice, would not give Fox grounds to propose a change to the Contract pricing nor to refuse to perform the additional work at contract prices.

[37] VDL’s witnesses conceded that VDL gave Fox no written notice of proposed removal of 93 lots from the Contract. Without finding that a change of such magnitude would be considered a “deletion” of the type contemplated in the “add or delete” clause, this question may be left for another day since the requirement of written notice was not met in this case, given that the parties agree that Fox received no notice in any event.

[38] I further note that the line “there shall be no minimum lots required under the contract” appears only with the first statement of the “add or delete units” clause, not the second statement on the same page.

[39] VDL asserts that, in this context, the “no minimum lots required under this contract” statement entitles VDL to remove lots from the Contract.

[40] The meaning of the “no minimum lots” statement in this context is not clear. As part of the “add or delete units” clause, however, any change to the Contract premised on the absence of minimum lots would also require written notice to Fox of any change.

[41] In this context, it is not necessary to further analyse what might have been VDL’s entitlement under this clause if it had given Fox the required notice of its intention to make changes to the number of lots in the Contract. In the absence of such notice, this section of the Contract cannot be invoked to justify VDL’s removal of all Fox’s remaining work on the project.

Doctrine of Contra Proferentem

[42] Although it is not necessary in this analysis to go further, I agree with the submissions of the Plaintiff regarding the application of the contra proferentem doctrine to resolution of ambiguity if that were required. In this case, where VDL seeks to rely on a term found to be ambiguous, it would be resolved against VDL on the basis that it drafted the term and now seeks to rely on it: Consolidated-Bathurst Export v. Mutual Boiler, 1979 CanLII 10 (SCC), [1980] 1 S.C.R. 888, at p. 900.

Formation of Contract with Fox

[43] John Vandyk Junior was called as a witness by VDL. He advised the court that he was “34 and a half” at the time of his testimony, and was employed by the Vandyk group of companies owned by his father, John Vandyk Sr. In 2014, Mr. Vandyk Jr. had been the Project Coordinator for the Summerhill project, and invited Fox to bid on its excavation work.

[44] Mr. Vandyk Jr. confirmed that VDL initially asked excavators to bid for a fixed-price contract. Fox provided a fixed-price bid for the Summerhill project.

[45] After the initial bids were received, VDL asked Fox to prepare a revised bid using an hourly rate for the work.

[46] VDL’s rationale for asking Fox to bid on an hourly rate basis was explained by John Vandyk Jr. He testified that:

it would be in the best interest of VDL to change it from a lump sum to an hourly rate, and this was because it gave us the flexibility based on our schedule, the weather, and there was trade shortages as well, and how often we could use Joe Fox’s services – as little or as much as we wanted … we went ahead with hourly rate and no minimums and the contract [signed with Fox] is a direct reflection of what happened at those meetings.

[47] Fox submitted an hourly rate bid for the contract as requested.

[48] John Vandyk Jr. testified that he had experience preparing contracts, and that he himself prepared the Contract on an hourly rate basis. Mr. Spalierno signed the Contract on December 3, 2013. It was signed and stamped by Ron McMillan on February 24, 2014 on behalf of VDL.

VDL decision to change excavation subcontractors

[49] Joe Pellegrino testified on behalf of the defendants. He has over 40 years experience in construction. VDL hired him in 2015 to oversee the Summerhill project. At that time, he was told by Mr. Vandyk Sr., the owner of the Vandyk group of companies, that the Summerhill project was “a little bit out of control”, and that, in Mr. Pellegrino’s words, it “needed to be cleaned up and put on a right path”. He was told that the project had cost overruns, delays in delivering the new homes to customers, and quality concerns with some of the construction.

[50] Mr. Pellegrino examined all the subcontractor contracts for the Summerhill project as part of his review. He testified that when he saw that the Contract was on an hourly basis, he advised VDL: “for the next phase, you want to go on a fixed-price contract ‘per model type’” in order to contain costs. VDL accepted his recommendation. In April or May 2015, Pellegrino testified that he and John Vandyk Sr. attended the project site to speak with Mr. Spalierno. They told him that they wanted Fox “to go fixed price for the next phase”. He testified that he asked him again, and Mr. Spalierno was clear that “I have a contract in place” and refused to change the terms of the Contract.

[51] Mr. Pellegrino was candid in his testimony that when both he and his supervisor had asked Fox to change its contract and Fox refused, “I went into the marketplace and I hired First Choice contractors for the excavation”.

[52] In cross-examination, Mr. Pellegrino agreed that:

a. Fox’s Contract with VDL was a contract to perform work “to the end of the project”, which meant the end of the whole Summerhill project;

b. VDL replaced Fox on the Summerhill project because Fox was not willing to do the remaining project work on a fixed-price basis;

c. Fox was not given written notice of that decision;

d. He did not tell Fox that it was in default on its Contract;

e. He was not told by Mr. Ma that Fox had overbilled on its Contract;

f. First Choice was hired on a fixed-price contract to excavate sewers, grading and backfill on the remaining 93 lots for $110,000 plus HST. Rough grading was not included in the fixed price and was to be billed as an “extra” to the contract.

[53] Mr. Pellegrino acknowledged that in its contract with First Choice, VDL agreed that First Choice was entitled to 15 “minimum lots” for excavating. This meant that that VDL would have to pay the “float charges” to bring First Choice equipment to the job site if First Choice was assigned to excavate any fewer than 15 homes at a time.

[54] By contrast, the hourly rate Contract with Fox guaranteed “no minimum lots”, which meant that, unless Fox had equipment already on the job site, it would be responsible for the cost of moving its heavy equipment to the site to perform as little as one lot excavation.

[55] The economic significance to Fox of the “no minimum lot” term in his bid proposal was emphasized by Mr. Spalierno on cross-examination: “float moves, we agreed there would be none – if equipment not needed, there are costs associated with that – that is where the ‘no minimum lots’ is really really important – I bid on 354 homes; my profit was based on 354 homes.”

[56] I find on the evidence of Mr. Vandyk Jr. and Mr. Spalierno that the hourly rates they negotiated in the Contract took into account, among other factors, that Fox was not guaranteed any minimum lots and was therefore responsible for all float costs incurred to perform the work.

VDL’s reliance on “Separate Contracts” clause

[57] In its closing submissions, VDL argued that it had a contractual entitlement to enter into separate contracts for the Summerhill project excavation work.

[58] To make its argument, VDL relied on section 8 of the Job Instructions schedule at p. 11 of the Contract, entitled “Separate Contracts”. It reads:

The Builder reserves the right to award contracts for separate pieces of work. Separate trade contractors will be instructed that the Builder will have control of the site; and cooperate in all phases of work to ensure proper and expeditious completion of project.

[59] This section is part of the schedule in which VDL sets out its expectations and requirements for how its various subcontractors will conduct themselves and interact with each other on the Summerhill project job site.

[60] I agree that section 8 advises Fox that VDL has the discretion to enter into different subcontractor contracts. I also agree that it could hypothetically enable VDL to apportion different parts or phases of a project to different subcontractors with the same trade. Such contracts would, as part of their terms, specify which parts of the project work were to be performed by each contractor. Once negotiated, VDL would rely on, and the subcontractor would be required to deliver, the specified work.

[61] What VDL argues for in this context, however, is that the “Separate Contracts” wording gives VDL the flexibility to hire a second contractor to perform work already contractually promised to the first subcontractor, without contractual liability to the first.

[62] Such an interpretation would be inconsistent with, and effectively eviscerate, the heart of the parties’ bargain.

[63] I find that the heart of the bargain that VDL negotiated with Fox was this: Fox agrees to supply labour and equipment to perform all the excavating, backfilling, and grading required on the Summerhill project. VDL agrees to pay Fox the specified rates for doing so. And relevant in this context is that Fox agreed that the builder can add or delete lots from the 354 lots in the project if it provides Fox with written notice.

Summary of evidentiary findings

[64] I conclude on the evidence that:

a. The Contract between the parties established the terms on which Fox would perform all excavating and grading work required on the 354 lots comprising the defendant’s Summerhill project;

d. Fox performed the work on 354 lots, as well as additional work as required;

e. Fox decided to keep its equipment on the Summerhill project site so that it was available to work on any number of lots at any time as assigned, without minimum;

f. Fox’s invoices were remitted per the contract, approved by VDL and paid promptly for the first 12+ months of its work on the Summerhill project;

g. In early 2015, VDL became concerned the overall cost and timing of the Summerhill project and refused to pay Fox’s outstanding invoices, causing work on the project to pause for several months;

h. In April or May 2015, VDL asked Fox to submit a new bid on a fixed-price basis to perform the work on the remaining 93 lots of the Summerhill project; Fox refused to do so, on the basis that it already had a contract to perform the work on the Project;

i. Fox was, at all relevant times, ready and willing to perform the remaining work on the Summerhill project on an hourly basis, per the terms of its contract with VDL;

j. In May 2015 VDL entered into a fixed-price contract with First Choice for the work on the 93 lots of the Summerhill project;

k. Fox remained unpaid in the amount of $66,213.30 in May of 2015. VDL has since admitted to owing these amounts to Fox. These amounts remain unpaid and VDL’s failure to pay constitutes a breach of the Contract;

l. The evidence does not support either of the defences advanced by VDL at trial. As such, VDL cannot put forth any valid defence or evidence which excuses its breach of the Contract or justifies its conduct; and

m. In this case, I find that VDL breached its agreement by failing, without notice, to permit Fox to finish the work in accordance with the payment terms of the Contract.

Issue 2: What are the Plaintiff’s damages?

Legal framework: Loss of profit damages

[65] The defendant does not dispute the plaintiff’s statement of the law, namely that, in construction cases where a contractor establishes a breach of contract by an owner, the normal measure of damages is the contractor’s loss of profit caused by the breach. Both parties’ experts agreed with the resulting equation: Loss of Profit = Revenue – Cost to perform work.

[66] Damages for the breach are the amount of funds shown to be necessary to place the contractor in the position it would have been in had the contract been performed as agreed: MJB Enterprises Ltd. v. Defence Construction (1951) Ltd., 1999 CanLII 677 (SCC), [1999] 1 S.C.R. 619, at para. 60; Mackay Construction Ltd. v. Potts Construction Co., [1985] S.J. No. 141 (Sask. C.A.), at para. 13.

[67] The general burden of proof lies upon the plaintiff to establish the case and to prove the damages for which compensation is claimed (Stephen Waddams, Law of Damages (Canada Law Book, 1991), at 13.10).

[68] Loss of profit damages are a form of expectation damages (also known as loss of bargain). These are described as a “more difficult” type breach of contract damages than restitution damages in which the aim is to “put the plaintiff back to the position she or he was in before the contract ever happened”: Ronald M. Snyder & Harvin D. Pitch, Damages for Breach of Contract, 2nd ed. (Carswell, 1989) at c. 2, §1.

[69] The difficulty with loss of profit calculation is that it necessarily involves some hypothetical considerations or estimations, as the aim is to put the plaintiff in the position – but not a better position – than he or she would have been in had they been able to finish the contract.

[70] However, if the plaintiff establishes that a loss has been suffered, the difficulty of determining the amount of that loss can never excuse the wrongdoer from paying damages. If the amount is difficult to estimate, the court must simply do its best on the material available: Waddams, at 13.30.

[71] Where imprecision is inherent in damages calculations, that does not mean the defendant should not be required to pay damages flowing from its breach. There is a distinction between having difficulty in assessing damages and failure to present evidence supporting a damage claim. Where the assessment is difficult because of the nature of the damage proved, the difficulty of assessment is no ground for refusing damages, even to the point of resorting to guesswork: SEP Holdings Ltd. v. Cambridge (City), 2013 ONSC 2870, at para. 106.

Damages

[72] Fox called lay and expert evidence in support of its damages claim. Its two lay witnesses were called per s. 67(4) of the Construction Lien Act to provide information to the court about construction industry practices. Maurizio Bussoli, owner of Del-re Excavating and Grading Inc.; and Claudio de Faveri, Vice President of Brudel Grading and Sodding. Each of them had over 20 years of experience in excavation work.

[73] Neither lay witness was familiar with the Contract between the parties nor the Summerhill project. The defendants did not object to their provision of testimony regarding general construction industry excavation practices.

[74] The plaintiff’s expert, Bruce Roher of Fuller Landau, was qualified by the court as an expert in forensic accounting and the quantification and analysis of economic loss and damages.

[75] VDL took the position that Fox had not proved its damages, that any damages are overstated, and that in any event the plaintiff did not meet its duty to mitigate. In support of its position, VDL filed a critique of Fox’s Loss of Profit supported by the testimony of its own defence expert, Rohan Sethi, who was also qualified an expert in forensic accounting and the quantification and analysis of economic loss and damages.

Expert testimony

[76] Mr. Roher testified in support of his report and his conclusion that Fox incurred a lost profit of $199,000.00.

[77] He confirmed that his methodology was to first determine the revenue that Fox would have earned if it had performed the work on the remaining 93 lots on the project and the rough grading work remaining on the first 261 lots. From that total, he deducted the variable costs that Fox would have incurred to perform the work. The difference between those numbers represents the profit lost by Fox when the remainder of the Summerhill project work was given to First Choice.

[78] As described in his report, Mr. Roher testified that to determine Fox’s lost revenue for the excavation and backfilling work on the remaining 93 lots, he examined the actual hours worked by Fox on each of the first 261 lots, multiplied by the hourly rates in the Contract for workers using each type of equipment.

[79] He then divided this amount by the total front footage of the 261 lots, to obtain a “front footage cost” to VDL of Fox’s excavating and backfilling work. The front footage cost, multiplied by the total footage of the remaining 93 lots, gave the total $291,859 as the revenue Fox would have earned from excavating and backfilling the remaining 93 lots.

[80] To determine lost revenue for rough grading work on all 354 lots, he used an average of 1.75 hours as average time required to grade each lot. He calculated the total rough grading lost revenue at $44,692.

[81] To determine Fox’s variable costs, Mr. Roher used industry standard guides for fuel prices, Mr. Spalierno’s representations for the labour rates on the Project and included an additional 5% for “other variable costs” including repairs and maintenance of equipment used on the project site.

Defendant expert:

[82] The Court qualified Mr. Sethi as an expert in forensic accounting and the quantification and analysis of economic loss and damages.

[83] Mr. Sethi testified in support of his limited critique report. He acknowledged that, as his report is a limited critique, his mandate was to provide comments and observations on Mr. Roher’s calculations and conclusions, and not to propose an alternate calculation or conclusion.

[84] Mr. Sethi’s four main areas of concern with the foundation of Mr. Roher’s calculations were:

Sufficiency of documentation available to calculate lost profit, including lack of a general ledger for Fox’s business and absence of profit calculations from previous Fox contracts;
Concern regarding the calculation of rough grading revenue;
Over-estimation of hours required for the 93 remaining lots due to non-recurring seasonal factors, specifically that work on the final 93 lots was not performed over the winter months; and
Lack of corroboration of hours worked by Joe Spalierno.

[85] I have considered Mr. Sethi’s critique and evidence. None of these concerns take away from the strength of Mr. Roher’s evidence. With respect to the four main areas of concern, I note the following.

[86] With respect to sufficiency of documentation, Mr. Roher explained during cross-examination that Fox’s financial statements were not critical to his determination of Fox’s lost profit. He described calculating the lost profit using source documents including invoices, expenses based on number of hours worked on the first 261 lots, fuel rates obtained from the suppliers and labour rates. In my view, the documentation available to him enabled Mr. Roher to make reasonable corroboration and cross-reference of information received directly from Mr. Spalierno.

[87] With respect to rough grading revenue, Mr. Sethi testified that he relied on information from VDL and based his critique about rough grading on the misunderstanding that Fox had already billed and been paid for rough-grading of the first 261 lots. When asked on cross-examination about the impact of including revenue for rough grade of the additional 261 lots in the lost revenue calculation, Mr. Sethi essentially withdrew his concern. He agreed with the proposition that Fox would have completed the remaining work for the same amount as First Choice did.

[88] Mr. Sethi testified that there was no reason to believe that Fox would not have performed all the “extra” work that First Choice did.

[89] With respect to his concern about overestimating time required in non-winter months, Mr. Sethi suggested that the time required to perform work in the winter would have been greater than that performed in the summer, on the basis that there was no snow removal, rip frost, or straw placement required in the summer.

[90] On cross-examination, Mr. Sethi was shown many invoices from First Choice for seasonal-related “extras” described, such as: clearing straw and lumber, de-weeding, removing weeds, scraping ramps, and re-excavating. Mr. Sethi agreed that he had not made inquiries about seasonal occurrences in warmer weather that require extra work. He agreed that Fox would also likely have had to perform this extra work.

[91] Regarding the estimate of full-time hours for Mr. Spalierno working extensively on site personally, Mr. Sethi was concerned that this assertion might overstate his contribution and thus understate variable costs, specifically labour. I considered this concern in the context of the trial evidence. Mr. Spalierno’s presence on the Summerhill site was referred to by VDL witnesses.

[92] On the basis of this evidence, I accept as reasonable Mr. Roher’s estimate that Mr. Spalierno would have personally attended on site and performed the operator role in the excavating and backfilling and grading needed.

Conclusion on damages

[93] The principles and case law confirm that where the court is satisfied that the plaintiff has shown that it suffered damages as a result of the defendant’s failure to perform their part of the bargain, the court must “do its best” to calculate those damages.

[94] In this case, I accept the evidence by of the plaintiff’s expert, Bruce Roher, for the reasons described earlier.

[95] As a small business owner, Mr. Spalierno explained that he would do work himself, using the excavation equipment, and bring in others to assist as needed. He was on the job site almost every day on the Summerhill project. He acknowledged that although he couldn’t remember specifically, Fox likely had some jobs ongoing during the time it worked on the Summerhill project, but that it was “nothing big”. The priority of the Summerhill project was demonstrated by the fact that Fox left its excavation equipment on the Summerhill project side and did not remove it from the site until it knew First Choice was going to be completing the project.

[96] VDL argues that Fox failed to mitigate its damages. Mr. Spalierno testified to his method of finding new work through word of mouth and professional contacts. He introduced copies of other contracts showing work performed before and after.

[97] I accept his evidence that in Fox’s area of work, it is “who you know” that leads to new or repeat contract work on a construction project. It is not an area in which “cold call” strategies are useful. In his experience, there is little value in making bids for work unless expressly invited to do so.

[98] The onus to show failure to mitigate is on the party alleging that failure. VDL has the onus to show that Fox failed to mitigate where mitigation was possible. VDL has not met that onus on the evidence.

CONCLUSION

[99] I conclude the terms of the Contract required Fox to provide excavation grading and such other related services were required, for all the lots in the Summerhill Project. The term of the Contract was to the end of the project.

[100] The actions of VDL of failing to pay Fox’s invoices constitute a breach of contract. Its refusal to permit Fox to complete the remaining excavation work on hourly basis per the terms of the Contract, and retaining First Choice to do so, constitutes a further breach, amounting to a repudiation of the Contract. Although the Contract with Fox gave VDL the right to make some changes to the volume of assigned work on written notice to Fox, VDL at no time gave Fox written notice.

[101] On all the evidence, I find that the representatives of VDL were determined to move Fox to a fixed-price contract, regardless of whether they were still contractually bound by the terms of the existing hourly-rate contract. The trial evidence does not support a finding that any of the employees of VDL thought that VDL was entitled to require Fox to change its pricing in the middle of the performance of the Contract. In this case, it had in fact been VDL that required Fox to initially bid on the work as a fixed-price contract and then later decided it would have more flexibility if Fox were to work on an hourly rate basis.

[102] I find that VDL’s unilateral demand that Fox change terms back to what it initially proposed, and effectively renegotiate the Contract in order to keep the work, was an effort to reduce its costs, and therefore Fox’s profit, on the remainder of the Summerhill project. In doing so, VDL breached the contact it had negotiated with Fox. Further, VDL’s attempts to subsequently characterize Fox’s actions as contract breaches were motivated by its desire to avoid the legal consequences of those actions.

[103] In addition, the chronology of VDL’s actions supports the conclusion that it withheld the $66,213.30 of payments owing to Fox in order to create financial pressure on Fox to agree to a less advantageous fixed price contract.

[104] The exercise of lost profit calculations is, as cited earlier, inherently speculative as it must hypothesize “what if” and consider many variables. Although such calculation is not an exact science, the court must nonetheless (a) consider and weigh all evidence, (b) ensure the plaintiff has discharged its evidentiary onus to prove its damages, and (c) if it has done so, identify an amount of damages which would put the plaintiff in the same position it would have been in if permitted to perform the contract.

[105] It is also important that the court test the evidence and keep in mind that the damages are not to leave the plaintiff better off than if it had performed the contract. In this trial, the court was assisted in evaluating Mr. Roher’s evidence and assumptions by considering the concerns raised by Mr. Sethi in his expert critique.

[106] I have also considered that, as noted by Mr. Roher, VDL ultimately paid First Choice a total of $355,332.00 to complete the remaining work on the Project. Mr. Roher estimated that Fox would have billed VDL $336,551 to finish its remaining work on the Summerhill project. The similarity of these estimates supports a conclusion that Fox’s revenue for performing the remaining work would have been approximately the same as that billed by First Choice.

[107] Applying the considerations above to the damages evidence in this case, I conclude that Fox has met its evidentiary onus to provide its damages. That evidence supports the conclusion that $199,000 reflects the lost profit to Fox. Judgement for the plaintiff accordingly.

[108] None of the defences pleaded or argued by the defendant met the evidentiary threshold to constitute valid defences at law to either its breach of contract or damages claimed.

ORDER:

[109] The plaintiff’s claim is allowed. The counterclaim of VDL is dismissed. For the reasons given, the Court orders

a. that the Defendant, Vandyk-Summerhill Limited, shall pay to the Plaintiff, Fox Excavating & Grading Ltd., the amount of $66,213.30, the amount of its lien, plus costs and disbursements, together with all accrued interest, within thirty (30) days of the date of this Judgment;

b. that the Accountant of the Superior Court of Justice is directed to pay to the Plaintiff’s counsel, in trust, with any accrued interest as applicable, the additional amount posted by the defendants to vacate the Plaintiff’s Claim for Lien. This amount shall be held in trust by Plaintiff’s counsel until further order of this court or as agreed by the parties in writing;

c. that the Defendant, Vandyk-Summerhill Limited shall pay damages to the Plaintiff, Fox Excavating & Grading Ltd. (“Damages”) in the amount of $199,000.00; and

d. that the Defendant, Vandyk-Summerhill Limited, shall pay to the Plaintiff, Fox Excavating & Grading Ltd., pre- and post-judgment interest on the Damages in accordance with the rates provided under the Courts of Justice Act.

COSTS

[110] The plaintiff was successful and is presumptively entitled to its costs. The parties are encouraged to agree on some or all of the following: costs of trial; costs of the motion to amend pleadings heard just before trial, for which costs were reserved; and costs and disposition of the stayed action and the discontinued action which were to have been tried together with this claim.

[111] If the parties are unable to reach agreement, the following timetable shall apply regarding electronic filing of written submissions:

a. The Plaintiff is directed to file its submissions to my attention by way of the Orangeville Trial Office by 4:00 p.m. September 15, 2020.

b. Defendants’ responding submissions by 4:00 p.m. September 29, 2020.

c. Reply submissions by plaintiff, not to exceed four pages, by 4:00 p.m. October 6, 2020.

[112] Parties’ submissions at a. and b. are not to exceed eight pages, double spaced, not including cost outlines, dockets, and relevant offers to settle.

[113] All written submissions shall be in Word format. Any references to case law shall be hyperlinked in the text of submissions.

[114] Counsel are directed to divide their submissions costs into sections which allow the court to separately consider their submissions on the various categories referenced.

[115] The parties may on consent extend the timelines I have specified for filing of cost submissions. Such agreed extension not to exceed one month for any of the dates given. The parties shall advise the Orangeville Trial office by email of any such agreement.

“Original signed by”______

McSweeney J.

Released: September 2, 2020

AMENDED: September 15, 2020

COURT FILE NO.: CV-15-095