2020 ONSC 77
BARRIE COURT FILE NO.: CV-19-1322
DATE: 20200106
ONTARIO
SUPERIOR COURT OF JUSTICE
BETWEEN:
INFINITY CONSTRUCTION INC.
Plaintiff
– and –
SKYLINE EXECUTIVE ACQUISITIONS INC. and SKYLINE DEERHURST RESORT INC.
Defendants
S. Barbier, for the Plaintiff
S. Rogers and P. Healy, for the Defendants
HEARD: November 19, 20, 21 and 22, 2019
REASONS FOR JUDGMENT
HEALEY J.:
Overview
[1] This is an action for damages arising from unpaid invoices.
[2] The plaintiff, Infinity Construction Inc. (“Infinity”), is a privately-owned construction company. Paul Barber is Infinity’s owner and president.
[3] The two defendants are collectively referred to as Skyline. Skyline carries on business as an owner and developer of hotels and resorts, including Deerhurst Resort in Huntsville, Ontario.
[4] Skyline planned a development of cottages surrounding a golf course adjacent to Deerhurst Resort, referred to as the Deerhurst Golf Cottages project (the “Golf Cottages Project” or the “Project”). Skyline contracted with Infinity’s predecessor, Pamar Developments Ltd., to have it act as general contractor to construct ten cottages as part of the Golf Cottages Project. Infinity’s invoices have been fully paid for three of those buildings; invoices related to the remaining seven are at issue in this proceeding.
[5] Individual contracts were signed for the construction of each of the cottages. The contracts were all standardized CCDC3 cost-plus contracts that did not contain a guaranteed fixed or maximum price (the “Contracts”). Both parties agree that the Contracts are valid.
[6] Infinity’s claim seeks judgment for all unpaid amounts, or in the alternative, payment of the same amount based on quantum meruit or restitution. Infinity’s position is that a total of $1,151,893.81 remains unpaid from the invoices relating to the seven cottages. Skyline admits that it owes Infinity $713,318.48 plus interest. All that remains in dispute in respect of the Project is the sum of $438,575.33 plus interest.
[7] After the Golf Cottages Project was completed or near completion, Skyline asked Infinity to perform other miscellaneous work around Deerhurst Resort, including fixing up the model home/sales office so that it could be sold. This additional work is the subject of five invoices totalling $36,960.87. Skyline agrees that it owes $30,575.24 for the miscellaneous work.
[8] In summary, the unpaid invoices total $1,188,853.81 for the Project and the miscellaneous work. Skyline agrees that it owes $743,893.72. The amount in dispute is $444,960.09, plus interest. All amounts referenced include HST.
[9] With respect to interest, Infinity seeks the contractual interest of prime plus 5% compounded monthly. Skyline asks the court to disregard the agreed upon interest rate and award prejudgment interest at the rate prescribed by the Courts of Justice Act, R.S.O. 1990, Chap. C.43. The parties also disagree about when interest should begin to run.
The Issues
[10] There are three issues to be decided by the court:
a) The amount owed to Infinity by Skyline;
b) The applicable interest rate; and
c) The date from which interest should run.
The Evidence
[11] Only three witnesses testified; two for the plaintiff and one for the defendants. The defendants’ witness, Paul Mondell, was hired by Skyline after all the cottages had been constructed and sold. He had little knowledge about the Project overall, but knew from the time that he was hired by Skyline in November 2014 that there was an outstanding amount of between $600,000 to $700,000 that was owing to Infinity for the Project.
[12] Paul Barber and Bryan Matchett, a former Skyline employee who was the Project Manager for the Golf Cottages Project, testified for the plaintiff. Both gave their evidence in a factual and believable manner. The important aspects of what they said remained unchanged after cross-examination and was not contradicted by evidence provided by Mr. Mondell. None of it conflicted in any material way with the exhibits.
[13] Although defence counsel sought to impeach Mr. Matchett’s credibility by examining him on the fact that he hired a lawyer after his termination and threatened legal proceedings, I accept his explanation that this experience did not taint his evidence. Mr. Matchett presented as a very honest, knowledgeable and careful witness. While he admitted that he did not have a perfect memory for the events, I find that he did in fact have an excellent recall of the events that transpired during this Project.
[14] As such, much of the evidence is not in dispute. The following is a summary of each witness’ evidence.
Paul Barber
[15] Paul Barber has been involved in the construction industry since he was a teenager and has owned his own construction company for 30 years. Mr. Barber has a degree in civil engineering and an MBA, and has significant project management experience. His company has built over 100 high-end homes and some low-rise multi-unit residential buildings. In the last 20 years Infinity’s focus has been on custom homes, with sales between $10-$20 million annually.
[16] In early 2012 Infinity was approached by Skyline to provide an estimate on the base model house being marketed by Skyline for the Golf Cottages Project. The base model home was called a Model B Carnoustie. One such model home had been constructed by another builder; when Infinity became involved it was being used as Skyline’s on-site sales office for the cottages.
[17] Infinity responded to that informal request for tender and provided a bid of $283,830 to construct the model home, rounded down to $280,000. Skyline accepted Infinity’s bid, which was the second lowest of four bids.
[18] Infinity’s estimate of $280,000 to build the model home was based on preliminary architectural drawings that had generic assumptions such as a 5-foot crawlspace instead of a full basement, basic finishes, and commodity prices as they existed in the spring of 2012. Infinity’s bid also assumed a level lot, no complications in the construction, and that construction would be started in warm weather.
[19] Many of the site conditions were unknown to Mr. Barber and his team at the time that the base cost was provided by Infinity, including geological conditions such as depth of bedrock, grading requirements and placement of the home on each lot. He had not been given a final site plan and no subsurface investigations had been undertaken by Skyline. Some lots had visible rock and obvious slopes.
[20] Mr. Barber had negotiations with Adrian Sluga, the Director of Project Management and his supervisor Dan Piggott, the VP of Development, to create the content of a Letter of Intent (“LOI”). On May 16, 2012, Skyline provided the LOI to Infinity to enter into a contract to build the homes. The LOI provides:
Please accept this letter as Skyline’s intent to enter into a Contract with Infinity for the scope of work of which you have been made aware, which includes our mutual review of the project requirements, available drawings, Agreements of Purchase & Sale, etc. We kindly request that you immediately proceed with the preparation of a project schedule (commencement date for site work to be confirmed), budget estimates, etc.
Other terms of the LOI were:
i) the parties were going to use a CCDC3 Costs Plus Standard Form of contract for each home to be constructed;
ii) Infinity’s cost for General Conditions was to be included in the base contract cost;
iii) Infinity would be paid a minimum $30,000 fee for the base contract cost of a home, exclusive of upgrades;
iv) Infinity would receive 15% fee/profit on all options and upgrades where “overheads are billed in General Conditions”. The 15% fee would be calculated/incorporated into the budget of each home;
v) Infinity was not to proceed with a change in scope, or authorize any expenditure without formal written approval from Adrian Sluga of Skyline; and
vi) Skyline agreed to pay Infinity a deposit or advance on each home totalling 20% of the combined mutually agreed upon project budgets.
[21] Mr. Barber testified that the requirement of a 20% deposit was significant because Infinity is a small company and not a financier. The LOI specified that the deposits were to be used solely to make immediate payment terms for various subcontractors.
[22] At the time the LOI was delivered, Skyline had signed sale agreements to have homes constructed on lots numbered 4, 21, 32 and 12B, as referenced in the LOI. Each purchaser had been offered a schedule of options and upgrades. In addition to more costly finishes, some of those purchasers would eventually choose upgrades for their homes. For example, the house on lot 4 was constructed as a Carnoustie with a full basement, loft and garage, on lot 32 as a Carnoustie with a crawlspace, loft and garage, and the house on lot 21 was another model altogether, called the Gleneagle. These things increased the base price, so that the budget for each of the houses varied right from the start. Each Contract included a detailed budget for the construction of the homes, including all options and upgrades that had been agreed to at the time, and the price of each.
[23] Construction was initially anticipated to begin in August 2012. The evidence shows that negotiations about the terms of the Contracts continued in July and August 2012. These communications show that as of July 19, 2012 the parties had reached an understanding. Adrian Sluga wrote: “We are agreeable to the terms as reiterated in your email correspondence below; please ensure this verbiage is included in the draft CCDC documents for our review prior to execution.” The email asked Mr. Barber to prepare five CCDC3 Cost Plus Contracts immediately for Skyline’s review. This email was forwarded to Dan Piggott by Adrian Sluga, with the message “This is what I expect to see from Paul in the coming days. LOI included for your reference”.
[24] At some point Adrian Sluga was terminated and Infinity’s communications went through Dan Piggot. Mr. Barber prepared and sent Mr. Piggot initial drafts of the CCDC3 agreements on August 30, 2012. Those original drafts show a base cost of $280,000 for the Carnoutsie Model B with a crawl space and a loft, in line with Infinity’s initial estimate and proposal. For those homes with no loft, the base cost was $271,000, and for the Gleneagle Model, the base cost was $295,000. Importantly, the draft contracts provided that the base cost built in $15,000 for site work, with additional site work to be determined. Included in his covering email of August 30, 2012 Mr. Barber wrote:
Once I get confirmation that everything is fine I will invoice the agreed-upon deposit amount and we will prepare to mobilize immediately. I would like to commence site work next week.
I should point out that material prices have risen > 30% since May on white wood and plywood. Commodity prices have risen nearly 70% since January and we have experienced increases of +/-2%/week over the past 2 months.
All other building products and labour have remained relatively constant.
As soon as we get deposit funds in place I can lock in pricing.
[25] Mr. Barber made similar warnings to Skyline about lumber costs increasing, as well as increased costs due to building during the winter months, as he was waiting for Skyline to approve the start of construction. All were waiting for the Contracts to be signed by Skyline’s upper management.
[26] It was Mr. Barber’s evidence that the parties chose the cost-plus agreements because of all the unknown pricing variables. These variables particularly affected site and foundation work. This was highlighted in an email exchange between Mr. Piggott and Mr. Barber on September 10, 2012, in which Mr. Barber wrote:
The only cost variables between lots will be site work and foundation work. We have an allowance of $12,000 per lot for site work which was quoted by Fred Boothby Contracting. It was a bulk pricing program whereby he will win on some lots and lose on others. Other quotes I received were in the $18-$22K range. His quotation excludes all blasting. I was told that blasting and extraordinary site costs were to be covered under lot premiums and contingency.
The foundation costs will be established once we establish the terrain and determine foundation requirements.
These will be quoted ahead of time and reviewed with you or Bryan if necessary.
This is not like building in the city where all basements and (sic) an exact depth. We assumed a 5 ft crawlspace.
[27] In late September 2012 more emails were exchanged when Mr. Piggott asked whether Infinity could provide more specific cost estimates for the foundation for each cottage. Mr. Barber’s response on September 28, 2012 was:
The foundation wall height was assumed to be 5 ft. for a crawlspace. We can provide more accurate estimates once the excavation is complete. Adrian had to guess at foundation costs (which he assumed included site work) we do not know where rock is or whether rock will even be a factor. These are estimates and this is partly why the “cost plus” format was chosen to allow us to tender some of these items as we proceed. It does not mean open chequebook. Skyline can be involved in sign-off prior to award of the subcontracts but it cannot mean days or weeks of deliberation else delays will cost more money. This is why I’ve been trying to get authorization to start site work for months so we could have eliminated some of your concerns and nail down some of these cost items.
[28] The Project continued to stall because Skyline experienced difficulties and delays in obtaining its anticipated financing for the Project. By the end of September 2012, the Contracts had still not been signed and the required deposits were not provided to Infinity. As Mr. Barber understood it, Skyline could not sign the Contracts until it had received the construction financing, which was not forthcoming because one of their plans of subdivision had not yet been approved.
[29] As a result, Mr. Barber offered to begin construction on the terms set out in the draft CCDC3 contracts that had been submitted. Skyline had held out the possibility of a long-term working relationship during the negotiations, and Mr. Barber wanted to build the business relationship. Skyline had honoured that representation earlier in 2012 by providing Infinity with additional work at two other sites. Mr. Barber was also concerned about helping Skyline meet their closing dates in the agreements of purchase and sale. He wanted to help Skyline avoid the problem of purchasers terminating those agreements, which may also have created further difficulty with financing and affected payment to Infinity. Furthermore, Mr. Piggott had led him to believe that the deposits would be coming within the next couple of months.
[30] On October 24, 2012 Mr. Piggott informed Mr. Barber that Skyline’s CEO, Michael Sneyd, had accepted Infinity’s offer to proceed with at least the first two cottages, but asked that he still not begin construction. On October 31, 2012, Infinity was finally given approval to proceed with the construction of the first two cottages on sites for which Skyline had already inherited the requisite site plan approvals; over the next few days that number grew to five.
[31] On November 3, 2012 Mr. Barber asked that the parties sign off on the final Contracts tthe following Monday morning. In his response of the same date, Mr. Piggott informed him that financing was close but not likely until mid-November. The Contracts remained unsigned.
[32] Construction began in November 2012 on the first five cottages, on Lots 11B, 12B, 4, 21 and 32.
[33] Skyline asked Mr. Barber not to invoice for the initial 20% deposits or other work until such time as Skyline had secured its construction financing. As it turned out, Skyline did not receive its financing or provide deposits until March 2013. Throughout that entire period – November to March - Infinity financed the Project.
[34] When he received the final Contracts from Skyline’s head office, Mr. Barber found that the base cost of the cottages had been reduced by $20,000 in each Contract. There had been no prior request or discussion to indicate that Skyline wanted to change the terms. Mr. Barber understood from Skyline that the reduction was to satisfy its lender, or to meet some requirement of the construction financing. Mr. Barber was not initially terribly concerned about the reduction because the he was working under a cost-plus agreement. He testified that he also felt that he had no choice but to sign the Contracts because he was already 6 to 7 months into construction, and had incurred significant costs.
[35] Infinity signed back the Contracts as presented but pointed out the budget error to Skyline in writing on several occasions. Mr. Barber drew to Skyline’s attention that the budget exceedances that Skyline was initially noticing were because Skyline was under-reporting the base cost of their budgets for each cottage by $20,000.
[36] Although the Contracts bear the date of October 5, 2012, according to Mr. Barber they were actually signed in May 2013. There are no documents verifying the actual date on which the Contracts were signed, but nor is there any evidence to contradict Mr. Barber on this point. Skyline acknowledges that the parties agreed to backdate the Contracts.
[37] On May 17, 2013 Skyline advised Mr. Barber that it had obtained the initial advance of construction financing, but that it would only cover the initial deposits that were paid back in March 2013. Skyline advised that it was pushing to get more funds advanced. Ultimately Infinity’s invoices started to get paid from late May 2013 onward.
[38] Infinity sent invoices to Skyline on five dates in 2013: March 1; April 15; June 4; August 30; November 30. The first were invoices for the deposits and then four progress draws. For the first four draws, Infinity provided copies of all sub-trade invoices plus a summary invoice setting out the amounts paid and the amount claimed for each draw. Infinity’s invoices for the four draws were first reviewed and approved by Brian Matchett, then Dan Piggot, and finally, Michael Sneyd before being paid. Most of these invoices were paid within one to two months of being received by Skyline. They were usually paid in full, however, Skyline made some arbitrary deductions on some of the payments.
[39] Construction proceeded until the spring of 2014, by which point all ten of the cottages were fully constructed. Five of the cottages were built with a crawlspace and five were built with a full basement. Some also had a loft and garage. Each of the ten cottages was sold to individual purchasers by no later than May 2014. Some were completed and sold much earlier than that.
[40] Over the course of the project there were various extras as a result of purchaser upgrades. As indicated earlier, some of these have been selected from the outset, and were recorded in Schedule D attached to the Contracts. With respect to the change orders that were to be signed by the parties, Mr. Barber testified that not all change orders that were signed were produced in Skyline’s material. The only change orders that are in evidence refer to a garage for $50,000 on Lot 15, basement upgrades for a full, finished basement on Lot 24 in the amount of $65,694.89 and $134,405.91, and a few other minor change orders.
[41] Mr. Barber was not aware of how or whether Skyline was documenting and recording any change orders internally. Mr. Barber simply performed the extra work that he was asked to perform. He acknowledges that some of the extra work that he was asked to do was agreed-upon verbally, and some items were contained in texts or emails exchanged with the Project Manager, Bryan Matchett.
[42] Additionally, there were other significant extra costs arising from the site/ foundation work on certain lots, especially lots 4, 2 and 22, where the subsurface conditions and slope of the lot required additional work costing more than the $15,000 built into the budget. It is Mr. Barber’s position that these items did not require change orders because they were not items requested by the purchasers, but rather were costs necessarily incurred to erect the buildings on the sites presented to Infinity. These extra charges were agreed to be billed on a time and material basis, and Skyline was kept apprised of this work through its own project management.
[43] Whenever possible, Mr. Barber tried to save costs. For example, on Lot 32 the cottage roof was already constructed when it was discovered that Skyline’s sales team had not communicated to Bryan Matchett that the purchasers wanted a loft. Mr. Barber helped to design and engineer the existing roof trusses so that some material costs could be salvaged.
[44] By November 2013 Infinity had invoiced and been paid fully or almost fully for six of the cottages, each of which came in above the initial budget that had been originally forecasted. Mr. Barber maintains that part of this is due to the $20,000 differential in the base cost. The additional costs included extra construction costs that Skyline had never officially issued purchase orders for, but paid nonetheless.
[45] On July 14, 2014 Infinity provided Skyline with proof of final construction costs by delivering a package of trade and supplier invoices, plus statutory declarations. The package did not contain the usual covering invoices showing Infinity’s final general contractor fees. Skyline acknowledges having received that package. Afterward, Skyline continued to press Infinity to provide its final covering invoices for its fifth and final draw.
[46] These final invoices for the Golf Cottages Project were delivered on May 24, 2016, after Infinity was terminated from another project at another resort owned by Skyline (the “Copeland Project”). On that day complete invoicing containing the general contractor fees was given to Bryan Matchett. Infinity thereafter emailed the invoices to Skyline’s head office on June 28, 2016.
[47] Mr. Barber explained his delay in submitting his final invoicing. He testified that the Copeland Project was taking all of Infinity’s time. Infinity was being told not to worry about getting its invoicing in on time, but rather to focus on the Copeland project. Once terminated, Infinity quickly provided its final invoicing to Skyline for the Golf Cottages Project at issue in this claim.
[48] Infinity’s claim is largely comprised of the unpaid invoices for the fifth and final progress draw rendered for Lots 2, 15, 20 and 22. Smaller amounts are alleged to be outstanding from earlier progress draws, when Skyline did not pay the invoices in full.
[49] Mr. Barber registered liens against the individual homeowners’ properties the day after emailing his final invoices.
[50] There were never any complaints about Infinity’s performance during the four-year business relationship with Skyline. Infinity surmises that the payment problems arose as a result of a complete turnover in senior management at Skyline in the period from 2014 to 2016.
Bryan Matchett
[51] Bryan Matchett was an employee of Skyline from 2011 until the fall of 2016. He is an architectural technologist and had five years of contract administration experience at a design consulting firm prior to working for Skyline. One and a half years into his employment he was promoted to the position of Project Manager.
[52] He was the Project Manager for the Golf Cottages Project. He had an office at Deerhurst Resort and was on site daily two oversee the Project. He explained that when Skyline purchased Deerhurst Resort, it inherited an approved subdivision plan. Another plan of subdivision for the same development was still going through the approvals process.
[53] Mr. Matchett confirmed that at the beginning of the Project, Skyline’s Director of Project Management was Adrian Sluga and the VP of Development was Dan Piggott. Mr. Piggott took over the negotiations with Infinity after Mr. Sluga’s termination in the summer of 2012.
[54] In his role, he received the agreements of purchase and sale and any requests made by purchasers for changes. He met with the purchasers to discuss upgrades and changes. He applied for building permits and took care of minor variances if needed. He was aware of the pricing that Skyline had put together for the different model home packages that were being built as part of the Project, and he was aware of the internal costs Skyline incurred for the Project.
[55] He confirmed that Skyline did not undertake any subsurface investigations on the building sites before construction began. The building lots were on land with rock outcroppings and varying slopes, which was apparent to anyone who looked at them.
[56] Mr. Matchett remembered that the initial base cost for the Carnoustie model was $280,000. That number contained an allowance of $15,000 for site work, which was intended to cover 5-foot-high foundation walls to create a crawlspace, on flat rock. Skyline was aware that it might have to incur the cost of foundation walls going down 12 feet on some sites, or rock blasting. Skyline knew that some of the site and construction work would be higher than the $15,000 budgeted due to the terrain. Because of these uncertainties, Skyline was aware that it was not possible to obtain fixed prices for site/foundation work.
[57] Skyline was responsible for the site plan, which determined the lot sizes and locations. This in turn dictated whether the cottage built on each lot would have increased site/foundation costs or not. It was agreed that all such costs would become an approved extra on a time and material basis, and would not require a change order. This applied to work that was required under each Contract. Extras that were requested by a purchaser and additional to the Contract required a change order.
[58] Part of his job was to convince the purchasers to buy full basements by way of an extra in order to offset the risk of additional site and foundation costs. When this happened, he would ask Mr. Barber to give him the pricing and would prepare a change order. He testified that Skyline was successful in selling full basements on all such affected lots, being Lots 4, 21, 2, 20 and 22.
[59] Any additional site and foundation work that was done on a time and material basis under each Contract was supervised by him. He recalled this occurring on Lot 22, which had significant sloping on the back and side, requiring the building of a retaining wall and backfill. He testified that they were well over budget on the site costs for this lot, but that that was the risk of these contract structures. Some of the lots would be flat and easy to build on, and some would be more difficult. Further, trenches had to be blasted on Lots 11B and 12B, which required work to be done on an additional time and material basis.
[60] He confirmed that the roof had to be re-done on Lot 32. The house was sold without a loft originally, and later there was an amendment to add a loft. He was not provided with that addendum, so the house was already being constructed and had to be re-engineered with the loft. He agreed that there was no signed change order with this revision, but it had to be done to meet Skyline’s contractual obligation to the purchaser.
[61] It was part of his role to inspect the work done by Infinity and the subtrades. He would review the work with Mr. Barber. He would review the invoices submitted by Infinity for the progress draws, approve them and submit them to head office. As the Project Manager, he was aware of the work being done and would communicate all that was going on to his superiors.
[62] When he prepared a change order, he would mark up Mr. Barber’s quote with a profit for Skyline. He would obtain Mr. Barber’s signature and the owner’s signature, and then would email it to corporate head office. Thereafter he does not know what happened with each change order. He did not have authority to give final approval to the change orders.
[63] Mr. Matchett worked with Mr. Barber and Mr. Piggott to fill in the blank areas of the draft contracts; it was his evidence that the three of them negotiated all the terms of the drafts that were submitted. He understood them and was familiar with their details.
[64] Mr. Matchett was aware that the Contracts were not signed until May 2013, And that Infinity began to build before receiving any deposits. He confirmed that the amount of $280,000 was used as a base budget for the Carnoustie model in the draft contracts presented to Skyline’s head office. He was aware that Skyline was trying to reduce the budget and so reverted to a figure of $260,000, which was a historic number discussed at an earlier time in connection with the Carnoustie model. He confirmed that Michael Sneyd insisted on using the lower number, as opposed to the base budget that Skyline had originally developed with Infinity.
[65] Mr. Matchett stated that Skyline had cash flow issues that rolled through to Infinity. Where Infinity’s invoices were not paid in full, he was never able to provide an explanation for it to Mr. Barber, as no one provided one to him. He knew that he had approved the work, and the work had been done. He had initial signing authority for all work, which was then sent to Dan Piggot and went from there to either Michael Sneyd or another person, identified during his testimony only as “Adeen”, who was the Chief Financial Officer.
[66] For a time, Infinity was Skyline’s preferred contractor for new construction or renovations outside the GTA. For example, Skyline later contracted with Infinity to build for the Copeland Project. Infinity’s contract for the Copeland Project was terminated by Skyline in the spring of 2016.
[67] Mr. Barber gave him the package of documents for the fifth draw in May 2016. Infinity had been terminated from the Copeland project a couple of weeks earlier. He advised Mr. Barber to send electronic copies of the documents to head office because “paper went missing a lot at corporate”. He did not get a chance to look at those invoices because he was consumed by the Copeland project. He agreed that Skyline needed a covering invoice in order to pay Infinity, and that Mr. Barber knew that to be the case. He reminded Mr. Barber to provide those several times.
[68] Mr. Matchett was privy to all of Skyline’s internal pricing and costing for the Golf Cottages Project. Despite being overbudget with Infinity, it was his evidence that the Project was still profitable for Skyline. All the cottages were completed, the people moved in, and Skyline collected the money.
Paul Mondell
[69] Paul Mondell was hired by Skyline in November 2014 and currently holds a position of Senior VP of Development. Mr. Mondell’s education and early work experience was in urban planning, and subsequently in real estate development.
[70] Mr. Mondell oversees the sales and marketing division and reports directly to the CEO. At the time of his hire the CEO was still Michael Sneyd. Dan Piggot was still overseeing the development activities of Skyline, which at that time included the Copeland Project. Bryan Matchett was the onsite supervisor both at Deerhurst and for the Copeland Project. However, within one-and-a-half to two years of Mr. Mondell’s hire, none of these individuals remained at Skyline.
[71] All the cottages in the Golf Cottages Project had been constructed by the time he joined Skyline. Mr. Mondell confirmed that the Project was Skyline’s first foray into residential real estate development. When he joined Skyline, he was made aware that there was an outstanding amount owing to Infinity - between $600,000 -$700,000 - from work done on the Project.
[72] Mr. Mondell was brought into the company to deal with some of the issues that Skyline was experiencing, and to expand their real estate development opportunities. While he did not say so directly, I infer from Mr. Mondell’s evidence that he implemented a tightening of checks and balances within the company. He felt there were issues with the way that Mr. Piggot was managing projects and handling cost overruns. He testified that he was trying to “create some discipline” with Dan Piggot and his staff. Mr. Piggot was terminated for performance issues sometime in 2016 or 2017. Mr. Sneyd, the CEO, also left Skyline. Mr. Mondell identified the cause of his departure as a problematic management style, including how budgets were being managed, overbudget projects and how staff and outside forces were being managed. According to Mr. Mondell, Bryan Matchett was also terminated in 2016 due to performance issues.
[73] Once the CEO had been replaced, concerns arose about the financial viability of the Copeland project, leading to a decision within Skyline to terminate Infinity.
[74] Because he was not part of Skyline at the relevant time, Mr. Mondell had no direct knowledge about the construction of the cottages. He had no knowledge of whether any change orders were created by Bryan Matchett beyond what have been produced by Skyline. When asked whether he agreed that Skyline does not appear to have complete records relating to the Golf Cottages Project, he stated that he believed that they did have complete records, but only based upon the amount of documents produced in the litigation.
[75] Mr. Mondell has never been involved in negotiating or administering a cost-plus contract, or specifically a CCDC3 contract like those involved in the Project.
[76] Mr. Mondell does not recall whether he ever received the final invoices that Mr. Barber delivered to Skyline through Mr. Matchett on May 24, 2016. In any event, the evidence shows that they were emailed to him on June 28, 2016. He testified that he did not have enough information about the work that have been done to reliably review Infinity’s invoices, other than noting that they were higher than the anticipated amount of $600,000-$700,000.
[77] There is no evidence that he ever asked Dan Piggot or Bryan Matchett to help him to resolve the issue of the final payment owing to Infinity before they were terminated, or asked them to help him to review the invoices. Bryan Matchett remained at Skyline for almost half a year after the invoices came to Mr. Mondell’s attention, and he was the individual with the greatest knowledge about the work that had been done on the Golf Cottages Project. Significantly, there is also no evidence that Mr. Mondell directed someone in the accounting department to assist him to review the invoices, even though he testified that there were accounting staff who had followed the progress of the matter for some time. The explanation for this seems to be that because Infinity commenced legal proceedings immediately after the email of June 28, 2016, the matter “moved out of accounting and into being a legal matter”.
[78] No evidence was provided by the defendants about whether the CFO referred to as “Adeen” still remains at Skyline, and if not, to confirm when he departed. Mr. Mondell did note that one of the documents in this litigation that summarizes Skyline’s records was likely prepared by Skyline’s controller. No information was provided about who that individual was, and whether he or she might also be “Adeen”.
[79] With respect to the Golf Cottages Project, Mr. Mondell agreed that both Infinity and Skyline had relaxed expectations of one another. He acknowledged that there was an expectation created by Dan Piggot and Michael Sneyd that Infinity would be Skyline’s contractor of preference.
The Position of the Plaintiff
[80] Infinity’s position is that the cost-plus Contracts require Skyline to pay, on a time and material basis, all costs required to erect each cottage, and all extras sought by the purchasers and approved by Skyline. Skyline was aware of and approved all of the work that was done by Infinity. The original base budget was an estimate that Skyline knew could not be adhered to on some lots because of the unknown complications associated with site preparation, grading and foundation work. Further, the base budget was $280,000, not $260,000; the latter was a number imposed by Skyline well after construction was underway.
[81] Infinity completed all of the cottages in reasonable time and in the most cost-efficient manner possible. Infinity saved Skyline money in many instances. Budget increases resulted from problem sites, rapidly increasing lumber costs and Skyline offering upgrades to its purchasers without obtaining construction costs beforehand, as well as errors made by Skyline that had to be corrected mid-construction. These additional costs should not be borne by Infinity.
[82] Skyline’s primary defence has been a limitation period argument, in an attempt to avoid paying for work properly completed. Despite acknowledging amounts owing to Infinity, Skyline brought a summary judgment motion on a limitation period argument based on the delay in invoicing. Wood, J. found that the earliest date on which Infinity could have become aware of a claim would have been August 13, 2014, and that it had brought its claim in time. Skyline’s motion was dismissed.
[83] Skyline has insisted on causing financial distress to a family-run business that did nothing wrong and merely delivered what it promised. This includes withholding a large sum of money from Infinity over the course of the litigation despite Paul Mondell acknowledging that he has been aware of the debt since starting in November 2014. Infinity’s position is that these outstanding accounts were purposely withheld to gain financial leverage and cause financial harm to Infinity in an effort to obtain a discounted settlement.
[84] Infinity’s position is that $200,000 of the unpaid amount arises from errors in Skyline’s accounting, as a result of Skyline unilaterally decreasing the base cost of each home by $20,000 contrary to the agreement between the parties at the time that the plaintiff started construction. Skyline appeared to do this to satisfy its lender despite the clear agreement that it had with Infinity about the base cost of each home. The remainder is made up of a series of change orders that Skyline never recorded in its system, for reasons unknown to Infinity.
[85] Skyline was in possession of all supporting subtrade and supplier invoices as of July 14, 2014. These invoices could have been assessed from that point forward. There is no evidence that Skyline found the invoices to be excessive at the time. The bulk of the money outstanding to Infinity for this project is comprised of these invoices from trades, which Infinity paid for between 4 to 6 years ago. Interest should run from July 2014 in accordance with the Contract.
[86] Notably, Skyline approved all of Infinity’s invoices and paid 95-100% of those invoices for the first six homes that were constructed. The average cost that Skyline approved and paid for was higher than the average cost of the four that are outstanding. These were largely the same buildings; the difference in construction price was determined by the upgrades and finishes chosen by the purchasers and the site conditions. It is Infinity’s position that the costs that were approved and paid by Skyline on the first six cottages is evidence of the reasonableness of the costs claimed on the last four cottages completed.
The Position of the Defendant
[87] In total, Skyline paid Infinity $3,552,312. Skyline takes the position that it should be ordered to pay no more than $743,893.72. Any additional amount is not recoverable because it is either: (i) the result of change orders that were not approved in writing; or (ii) the result of extra work that was not approved in writing, not invoiced in a timely way or supported by clear accounting, and that far exceeds the budgets in the Contracts.
[88] The Contracts do not create a blank cheque obligating Skyline to pay the cost of the homes plus 15% to Infinity. Infinity was required to seek written authorization from Skyline for extra costs in advance of incurring those costs in accordance with the Contracts. The extra cost of the work invoiced by Infinity on the Project was not pre-approved.
[89] Additionally, the budgets in the Contracts provide guideposts to what Skyline reasonably expected to pay. The additional amounts sought by Infinity fall outside those budgets. There is no detailed accounting for the cost overruns, and no expert evidence confirming the reasonableness of the overruns. The homes came in anywhere from 100.02% to 222.8% over budget. Some of the exceedances was approved by Skyline, but the remainder was not. The cost overruns remain unexplained by Infinity. Infinity also failed to promptly notify Skyline that the budget estimate was being exceeded.
[90] Like all cost-plus contracts, Infinity had an obligation to provide timely and detailed invoices to allow Skyline to readily check the claimed costs. Skyline was denied the right to conduct a timely and informed review of the claimed costs. Skyline was not able to review the final invoices until they were provided to the corporate office on June 28, 2016. This has created prejudice for Skyline in this case, as it no longer has the personnel, or access to the buildings, that would allow it to complete that assessment.
[91] With respect to interest, Skyline takes the position that interest should not begin to accrue until June 28, 2016. Skyline also argues that this is one of those exceptional cases where the court should exercise its discretion to award interest at the Courts of Justice Act prejudgment interest rate instead of at the higher contract rate. The exceptional circumstances are the unexplained delay in invoicing, the fact that Infinity registered liens against the properties the day after the invoices were provided to Skyline, and the incomprehensible accounting that was submitted to Skyline, which prevented it from properly assessing the invoices.
The Contracts
[92] The Contracts that were signed in May 2013 are “cost-plus” building contracts, as opposed to fixed price contracts. On the face of each contract, the pre-printed words “with guaranteed maximum price option” have been crossed out.
[93] The Contract is defined as the undertaking by the parties to perform their respective duties, responsibilities and obligations as prescribed in the Contract Documents, and represents the entire agreement between the parties.
[94] Article 2.1 of the Contract provides that it supersedes all prior negotiations, representations or agreements, written or oral, including the bidding documents, and Article 2.2 states that the Contract may be amended only as provided in the Contract Documents.
[95] Article A-4 covers those goods and services intended to be included in the “Cost of the Work” to construct each cottage – such as cost of material and supplies, wages, equipment and services required for the contractor’s field office, the cost of removal and disposal of waste product and debris, to name a few. At Article 4.1.26, each Contract provides that the Cost of the Work shall include other costs incurred in the performance of the Work as listed below:
As required and invoiced on a cost-plus basis. The scope of work includes all features described in Schedule C and all upgrades identified in Schedule C1. All other work will be deemed to be extra and will require a signed Change Order from the home owner and Skyline.
[96] The same section of the contract continues:
Notwithstanding the foregoing and any provisions contained in the General Conditions of the Contract, it is the intention of the parties that the Cost of the Work referred to herein shall cover and include any and all contingencies other than those which are the result of or occasioned by any failure on the part of the Contractor to exercise reasonable care and diligence in the Contractor’s attention to the Work. Any cost due to failure on the part of the Contractor to exercise reasonable care and diligence in the Contractor’s attention to the Work shall be borne by the Contractor.
[97] The Contract Price is defined in Article 6.1 as being equal to the sum of the Cost of the Work as defined in Article A-4 of the Agreement and the Contractor’s Fee. The Contractor’s Fee was a fixed fee of $30,000 per cottage, plus 15% on approved Schedule C1 upgrades, and 15% on approved change orders.
[98] The payment provisions of the Contract state that upon issuance of the final certificate for payment, the Owner shall pay the unpaid monies of the Contract Price when due. Article 7.3 deals with interest; should either party fail to make payments as they become due under the terms of the Contract or in an award by an arbitration or court, interest at 5% per annum above the prime rate shall also become due and payable until payment.
[99] Each Contract contains Definitions and General Conditions. Article 6.1.2 of the General Conditions provides that the Contractor shall not perform a change in the Work without a Change Order or a Change Directive. Each are defined terms.
[100] Schedule A to each Contract contains further General Conditions. Those General Conditions provide that the cost-plus construction budget is outlined in Schedule D, and that Schedule C1 provides a list of all approved changes at the time of the Contract execution.
[101] The General Conditions also provide:
The Contractor agrees to manage all aspects of the construction phase on a Cost-Plus basis for a fixed fee (for the base building) and an additional percentage fee (15%) for approved upgrades and extras.
[102] Schedule B of each Contract reviews the Contractor’s Fee, confirming that the fixed fee of $30,000 applies to the base contract and base specification only. All “approved” upgrades identified in Schedule C1 and/or extra work approved by the homeowner and Skyline will generate an additional Contractor’s Fee calculated on a percentage basis of 15% markup over cost.
[103] Schedule B also obliged Infinity to provide the 20% deposit upon signing of the Contract, expressly to be used to secure pricing and provide subtrade and material deposits.
[104] Schedule D contains the cost-plus construction budget for the home in question. Schedule D is not among the listed contract documents set out in article 3.1. It is only incorporated by reference through the General Conditions, which is a listed Contract document. Furthermore, the Schedule C1 referenced in Article 4.1.26 does not appear anywhere, although line items are provided for it in Schedule D.
[105] Although the General Conditions repeatedly refer to a Consultant and that Consultant’s role in aspects of the Contract’s performance, such as reviewing the work following receipt of the Contractor’s application for final payment and issuing a final payment certificate, no such Consultant was involved in this project or identified in the Contract. The Consultant is also identified as being the individual through whom Change Orders and Change Directives are to flow. Article 6.1.1 of the General Conditions provides, for example, that “the Owner, through the Consultant, without invalidating the Contract, may make changes in the Work consisting of additions, deletions, or other revisions to the Work by Change Order or Change Directive”. Each of the General Conditions that deal with a Change Order or a Change Directive (GC 6.2 and GC 6.3) cannot possibly be carried out in the way prescribed, in the absence of a Consultant.
[106] Another example is found at Article 5.4.2 of the General Conditions, which provides that the owner shall make payment to the contractor on account as provided in Article A-7 of the Agreement - Payment no later than five days after the date of the certificate for payment issued by the Consultant.
[107] Accordingly, the Contract cannot always be read literally and gives rise to uncertainty about how the parties were to execute their various obligations under the Contract. On its face, it required the parties to modify the way they were to carry out some of their respective obligations under the Contract.
The Law Applicable to “Cost-Plus” Construction Contracts
General Principles of Contract Law
[108] This dispute focuses on an interpretation of those aspects of the Contracts that are determinative of the Contract price and the cost of the work to be paid by Skyline.
[109] Contractual interpretation is guided by the primary objective of giving effect to the intentions of the parties at the time the contract was formed: Bhasin v. Hrynew, 2014 SCC 71, [2014] 3 S.C.R. 494, at para. 45. The court should interpret the contract in a way that accords with sound commercial principles, good business sense and avoids commercial absurdity.
[110] It is only if the court finds that the contract is ambiguous that it may then resort to extrinsic evidence to clear up the ambiguity: Salah v. Timothy’s Coffees of the World Inc., 2010 ONCA 673, 268 O.A.C. 279, at para. 16.
[111] The process by which a trial judge is to determine the meaning to be given to words in a contract were identified by the trial judge and affirmed by the Supreme Court of Canada in Eli Lilly & C. v. Novopharm Ltd, 1998 CanLII 791 (SCC), [1998] 2 S.C.R. 129 (S.C.C.), at 166-167:
Bearing in mind the relevant background, the purpose of the document, and considering the entirety of the document, what would the parties to the document reasonably have understood the contested words to mean?
(See also Toronto Dominion Bank v. Leigh Instruments Ltd. (Trustee of), 1999 CarswellOnt 2812 (ONCA), at para. 9)
[112] The Ontario Court of Appeal has set out further guiding principles for those interpreting a commercial contract in Weyerhauser Company Limited v. Ontario (Attorney General), 2017 ONCA 1007, 77 B.L.R. (5th) 175, at para. 65:
(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;
(iv) read the text in a fashion that accords with sound commercial principles and good business sense, avoiding a commercially absurd result, objectively assessed.
[113] The Ontario Court of Appeal has repeatedly cautioned against looking to negotiations to interpret a contract: Good life Fitness Centres Inc. v. Rock Developments Inc., 2019 ONCA 58,at paras. 15 – 17, citing Timothy's Coffees, at para. 16, Weyerhauser at para. 112, and Primo Poloniato Grandchildren's Trust (Trustee of) v. Browne, 2012 ONCA 862, 300 O.A.C. 71, at para. 71.
Cost-Plus Construction Contracts
[114] It is fair to say that the body of case law arising from disputes connected to cost-plus contracts is fact specific. However, I draw the following principles from the authorities to which counsel has directed the court:
a) even in an open-ended, cost-plus contract, there is still an obligation on the part of the parties to exercise a degree of diligence in carrying out the work so that they do not incur costs significantly higher than the estimate without prior approval: Ashlar Developments Inc. v. Barakat Industries Ltd., 2018 ABQB 67, at para. 15, Patel v. W.G. Housing Ltd., 2012 ABQB 734, at para. 115; Husky Oil Operations Ltd. v. Ledcor Industries Ltd., 2003 ABQB 751, at para. 118; Lomoth v. Maslo, 2010 ONSC 7055 at para. 33;
b) In open-ended cost-plus contracts, courts will imply terms preventing payment for wasteful or uneconomic use of labour and materials: Hudson’s Building and Engineering Contracts, 11th ed. (1995), p. 438;
c) Where there is an estimate that provides a guide-post, the final price should fall somewhere near the estimate. The degree of variance between the estimate and the final price is subject to the “bounds of reasonableness”, which will be circumstance specific: Patel, at para. 117; Ashlar Developments, at para. 16;
d) Factors that go into assessing the “bounds of reasonableness” will depend on the size of the project, its uniqueness, the number of different cost inputs, and whether each cost input was reasonably ascertainable. There will be a narrower band of reasonable variance where the project comprises numerous input costs where variability in each may offset each other to a degree, and a wider band of reasonable variance the more unique the subject matter of the project: Patel, at para. 118;
e) In assessing the role played by the estimate in the parties’ agreement, various criteria should be examined. These include the circumstances in which the estimate was given, whether the owner communicated that price was of overriding importance, the knowledge and expertise of the party providing the estimate, whether it was relied upon by the party requesting it, whether the owner required the contractor to design a project at a specified cost or seek assurances as to what the project will cost, whether the agreement provided for a percentage of the project cost as a fee to the contractor, whether the contractor made it clear that it was not assuming any of the risk that the estimate might be exceeded, whether the contractor provided the owner with information regarding rates for labour, equipment rental and materials, and whether the owner encouraged the contractor to proceed with the construction despite actual or constructive knowledge that the estimate would be exceeded: Ashlar Developments, at para. 12.; Strait Construction v. Odar, 2006 BCSC 690, 52 C.L.R. (3d) 139 aff’d by 2007 BCCA 437, at para. 18; CJ Smith Contracting v. Kazem-Pour, 2014 BCSC 689, 34 C.L.R. (4th) 117, at para. 93;
f) The inclusion of a process in the contract for approving extras before they would be constructed implies that there would be a degree of certainty around an estimate: Patel, at para. 115;
g) The relative sophistication and knowledge of the parties is important in determining the degree to which the party should be required to adhere to the estimate: Topsider’s Construction Ltd. v. Nielsen, 1997 CarswellOnt 3698 (Gen. Div.), at paras. 43, 64 and 73-74;
h) A contractor is obliged to promptly notify an owner if there are cost overruns to a budget estimate in a cost-plus contract: Topsider’s Construction, at para. 64, 73 and 75;
i) Alterations in the work directed while it is in progress by the owner or the owner’s agent are to be paid for on the cost-plus basis prevailing for the original contract if no special agreement is entered into for the price of such alterations: Jorgensen Construction Co. v. Benny, 1953 CarswellOnt 201, at para. 4;
j) Where a contractor is seeking to recover on a cost-plus basis the evidentiary burden of proving these costs is a heavy one: G.T. Parmenter Construction Ltd. v. Sanders, 1947 CarswellOnt 248, at para. 10; Smith v. Rzasa, 2003 CarswellOnt 685, at para. 18;
k) It is not necessary that the accounts be kept in any particular manner or to a high standard, but well enough to show proof of the contractor’s charges: G.T. Paramenter, at para. 10; Jorgensen Construction Co., at paras. 8, 13(5); R.T. Grant Construction Ltd. v. Ross 1992 CarswellOnt. 879, 5 C.L.R. (2d) 302, at paras. 27-28; Taylor v. Taylor, 1954 CarswellOnt 270, at para. 9; Roger Garside Construction v Stirling, 2013 BCSC 1457, 24 C.L.R. (4th) 165, at paras. 210-213;
l) Once a contractor proves that he has kept proper accounts and is able to show supporting documentation, the onus shifts to the opposing party to adduce evidence to show that the amounts claimed or the accounts are incorrect or unreliable: G.T. Paramenter, at para. 10;
m) Once doubt is cast upon the accounts the onus shifts back to the contractor to satisfy the court that his accounts are accurate and support his claim. If the court is left in doubt, he fails: G.T. Paramenter, at para. 10; and
n) As far as materials are concerned, so long as the building is in existence and the system of recording material is capable of providing a substantially accurate result, the court may find that the plaintiff has proved his claim upon evidence somewhat less conclusive. The records of the time of the workmen employed must be strictly proved since it is difficult to verify after the fact: G.T. Paramenter, at para. 10
Analysis
[115] Reading the Contract documents as a whole, I find that their terms require the construction of the base building in accordance with the architectural drawings provided by Skyline, allowing for a straight cost-plus application, for all work necessary to build the model homes as outlined in the Contract documents. The estimate did not serve to fix a price.
[116] The Cost of the Work expressly includes and covers any and all contingencies, except those caused by any failure on the part of Infinity to exercise reasonable care and diligence in its attention to the work. No such lack of care and diligence has been alleged in this case. A “contingency” is not a defined term in the agreement, but I find that it would capture those things that the parties were aware of from the outset that were likely to increase the site and foundation costs on some of the sites.
[117] None of this work required a change order. A change order was required, as set out in 6.2.1 of the General Conditions, when a change in the Work was being proposed or required. The “Work” is defined as the total construction and related services required by the Contract documents, outlined in the Contract and Schedules A, C, and C1, which all refer to the work done to erect the cottage in accordance with the drawings, along with all upgrades negotiated with the Owner. An example of Schedule C1 upgrades can be seen in the Contract for Lot 21, where Skyline and the purchaser agreed to extra costs for foundation, an enhanced “shell lock up” package and plumbing upgrades.
[118] The fact that the Skyline accepted and understood that additional costs would be incurred for the Work not requiring a change order, to be paid on a cost-plus basis, is demonstrated by the fact that Skyline almost fully paid the invoiced amounts for the first five houses constructed even though each went over budget. These were the homes constructed on Lots 11B, 12B, 4, 21 and 32. As shown on the chart attached as Appendix A to these Reasons, construction costs on those lots exceeded the budget by between $17,000 to over $78,000. The email exchanges with Dan Piggott in September 2012 can leave no doubt that Skyline was aware that the site and foundation costs would fluctuate for each cottage, and be unascertainable until construction began. The evidence is clear that Skyline directed the work to begin with that knowledge.
[119] Lots 4, 11B and 12B required blasting. Skyline did not argue or present evidence that it required a change order for this, in keeping with my interpretation that the Contract Documents did not require Change Orders to be prepared for items such as site preparation.
[120] As the Contract documents provide, changes to the work by virtue of Schedule C1 upgrades requested by the owner and approved by Skyline after the Contract was executed required either a Change Order or a Change Directive. As indicated, there was no way for the parties to strictly comply with the procedure mandated by the General Conditions.
[121] The doctrine of waiver does not apply here. This is not a case of the parties having failed to place into writing an express forbearance of their rights under the contract or of having expressed an unequivocal and conscious intention to abandon rights under the Contract: Saskatchewan River Bungalows Ltd. v. Maritime Life Assurance Co., 1994 CanLII 100 (SCC), [1994] 2 S.C.R. 490 (S.C.C.). This is a case where the express contractual terms are uncertain because there was no consultant through whom Change Orders and Change Directives could flow.
[122] Although there was no consultant, Skyline had an onsite Project Manager and a VP Development, who also stepped into the role of Director of Project Management shortly after the Project began. This is not the same situation as a builder hired to work on a private residence who has no external checks or supervision. Bryan Matchett was on site every day, and his evidence that he kept Dan Piggot apprised of the events occurring there remains uncontradicted.
[123] The parties worked out their own way of dealing with C1 upgrades requested by the purchasers after they had signed their agreements of purchase and sale. It was as outlined in the evidence of Paul Barber and Bryan Matchett, the only witnesses who had knowledge of the practices put in place at the time of construction. Either change orders were prepared, or a process akin to that outlined in the Change Directive section of the General Conditions was followed, through discussion and email. The important part of their evidence is that Skyline was constantly aware of what was being built and how it was being built, and approved all construction provided by Infinity during the course its performance under each Contract.
[124] This is borne out on the evidence. By the summer of 2014, Infinity had invoiced and been nearly paid in full for six of the houses. All of these came in above the initial base cost estimate and included extra construction costs for which Skyline had never officially issued or signed Change Orders or Change Directives.
[125] The fact that only two unsigned Change Orders have been produced in this proceeding does not persuade me that Infinity was providing upgrades without Skyline’s approval and knowledge. Based on all the evidence, I accept that not all the documents pertaining to the Project have been located and produced, or perhaps were never created. There has been a complete turnover in upper level management since this Project was completed. The evidence suggests that this was likely due to performance problems with the individuals involved in this project. Further, it was the evidence of Bryan Matchett that in his experience documents often went missing after being delivered to the head office in Toronto.
[126] I find that there were no complaints about Infinity’s performance during the period of the Project. There is no evidence that Infinity engaged in wasteful or uneconomic practices. To the contrary, there is evidence that Mr. Barber warned against how delays would lead to increased and uncertain costs. The cottages were built on schedule and Infinity was able to sell them. I also find that Mr. Barber completed the homes in the most cost-efficient manner possible. The emails show that he strove to lock in pricing, and he negotiated prices with subtrades. His evidence that he spent additional time helping to salvage building costs on the roof for Lot 32, which I find was a problem created entirely by Skyline, went unchallenged. He had a reason to be fiscally restrained, as he anticipated the long-term relationship with Skyline that had been held out to him from the outset. I find that he did exercise the degree of diligence required of a contractor executing a cost-plus contract.
[127] Accordingly, on Skyline’s first line of defence, I find that Infinity only carried out additional work that Skyline either had approved through Change Orders, Change Directives or had otherwise approved in advance. Infinity has discharged its evidentiary burden of proving that it reasonably incurred these costs, and that Skyline agreed at the time that the costs had to be incurred.
[128] Moving on to Skyline’s second area of defence, Skyline asserts that Infinity did not invoice in a timely way or provide a comprehensible accounting.
[129] The package of invoices provided to Skyline in July 2014 was given in a timely manner. Skyline has presented no evidence that these invoices were ever reviewed at the time, other than potentially by Bryan Matchett. Skyline had over two years to look at those invoices to dispute or complain about the amounts spent on materials and trades. It did not do so. As Infinity testified and the evidence shows, a majority of its claim is comprised of trade and supplier invoices. These amounts total $924,406.58 and were comprehensively organized by Infinity according to lot number and supplier or trade.
[130] Skyline had an accounting department, project manager, and a controller or CFO - personnel who could have reviewed these invoices, and who undoubtedly did. I make that finding because of Paul Mondell’s awareness that there was a payable on the books of between $600,000-$700,000 when he joined Skyline. Yet there is no evidence that Skyline protested or found these costs unreliable or excessive at any time after July 2014 and the beginning of this litigation.
[131] The covering invoices showing the contractor fees were provided two years later. Infinity’s witnesses conceded that Infinity could not be paid until those covering invoices were provided. But that does not necessarily mean that Skyline was left in the dark for two years about what the general contractor fees were, and I have difficulty accepting that argument. This is not the same situation as one in which the contractor presents the owner with a single invoice exceeding the cost estimate at the end of the construction period. Skyline had everything that it needed to calculate the general contractor fees. There had been four draws preceding the final one. The general contractor fee was a straight $30,000 +15% on upgrades and extras. The formula for calculating progress draws and the application of the deposits was outlined in the Contract documents. This is not to say that Skyline should have paid the invoices before June 2016, but the final numbers that it was presented with did not have to be a surprise. I specifically reject Paul Mondell’s evidence on this point, particularly because Skyline had seen these kind of budget overruns with the first six homes.
[132] Again, there is no evidence that material or labour costs were an issue for Skyline before its decision to not pay the final invoices. While Skyline left smaller amounts unpaid on some of the invoices submitted on earlier progress draws, Skyline did not provide any evidence about why it did not pay in full. The only evidence on point came from Bryan Matchett, who testified that Skyline had cash flow problems that “flowed down” to Infinity.
[133] However, I do find that under the terms of the Contract Skyline had no obligation to pay Infinity until it had received the complete invoicing on May 24, 2016.
[134] Skyline also argues that the invoices are “incomprehensible”. There is nothing incomprehensible about them. They are broken down by lot and separate out the amounts billed for each previous draw. They provide a breakdown in accordance with the Contract, setting out the base contract amount, amounts for change orders and for extra costs, together with the general contractor fee on change orders and extras. Just because they do not accord with Skyline’s internal records does not make them incomprehensible.
[135] In accordance with the law set out in GT Paramenter, I find that Infinity has kept accounts in keeping with, if not superior to, the standard required in a cost-plus contract. Skyline has not adduced evidence that the accounts are incorrect or unreliable, and I find as a fact that it had the resources to do so as far back as May 2016. The evidence establishes that it had an arsenal of personnel available to it in 2016 - including Bryan Matchett up until that fall - to make inquiries of and to do the necessary work to evaluate the invoices. Even if, as was argued, it no longer had access to the properties, Mr. Matchett had the requisite institutional knowledge to answer any questions. Skyline’s claim that it has been prejudiced by the delay can be given no weight, nor can its argument that the accounts are not comprehensible.
[136] I turn now to the effect of the base cost estimate, which is Skyline’s last line of defence. As indicated, Skyline was aware that the estimates were not necessarily accurate budgets given the lack of subsurface investigations and the obvious problems with rock and terrain. These were construction costs that could not be predicted with any accuracy and over which Infinity had little control, and the evidence establishes that Skyline knew that from the outset. Accordingly, I find that Skyline had enough information to have actual knowledge that the base estimate would be exceeded on some lots.
[137] Skyline also had warnings from Infinity that various commodities such as lumber were in the process of dramatic cost increases. Lumber had gone up 30% in the space of six months. Infinity warned Skyline the cost would increase if there were delays. I find that the delays were due to Skyline’s financing issues.
[138] All of these facts serve to expand the “bounds of reasonableness” to be assessed in this case between the budget and final cost.
[139] I find that at the time that the building began, the LOI and the emails exchanged established that the parties had reached an understanding on these terms:
a) the base budget was $280,000, which included only $15,000 for site/foundation work. This was the estimate for such costs in relation to basic foundation work for a home with only a 5-foot crawlspace, a level lot and no blasting;
b) if additional site/foundation work was required all such additional work was to constitute an approved extra on a time and material basis;
c) it was anticipated to be the case right from the start that additional site/foundation work would be required, as some of the lots had steep grades and rock protruding above the surface;
d) the parties acknowledged that the site had problematic and uneven rocky subsurface conditions that would remain largely unknown from an engineering standpoint until construction started, and therefore highly variable site/foundation costs were anticipated that were not conducive to any fixed prices.
[140] In assessing the role that the estimate should have in this case, it is significant that the building began when the understanding was that the base budget was $20,000 higher than that contained in each Contract. There is no question that the Contracts are clear with respect to the budgeted amount. However, the circumstances in which the higher budget amount was given, and then relied on by both parties when Infinity was given the green light to proceed with construction in late October 2012, is a relevant factor to consider. It forces the obvious conclusion that budget overruns must be evaluated in this case from the standpoint that Skyline and Infinity were both aware that the lower base construction budget was not what the parties were reasonably expecting to achieve. These facts act to broaden, in other words, the “bounds of reasonableness” between the budget in the Contracts and the final amounts.
[141] Skyline argues that the fact that it approved and paid the costs on the first six homes is irrelevant. I disagree. It is a clear acknowledgement that Skyline accepted as reasonable the invoiced amounts. It is a clear acknowledgement that it understood and agreed that extras would be charged on a time and material basis under this cost-plus contract, and that: 1) the prices discussed by Infinity and Skyline staff were reasonable for those extras, and 2) Skyline had approved all extras in advance. Again, there is no evidence predating the litigation in this matter that Skyline was displeased with the amounts charged by Infinity. It must be remembered that the 10 cottages were built in stages. If Skyline had any serious issues with the costs that came in on the first six, it had opportunity to work with Infinity to attempt to save costs on the later construction. There is no evidence that anything like this took place. In fact, Infinity was hired to do even more work, as the general contractor on the Copeland project. I infer from this that Skyline did not find the prices charged by Infinity in 2013 and 2014 to get in the way of its ongoing relationship.
[142] This case cannot be compared to the situation in Patel, where the court found that a range of plus or minus 5% to be reasonable but recognized that the “bounds of reasonableness” will be situation specific. The court in Patel found that the contractor never informed the owner that the estimate changed by reason of the events on site or of the changes and revisions being made: para. 120. As I have found, that was not the case here.
[143] Although this was Skyline’s first time undertaking a residential development, it cannot be characterized as an unsophisticated consumer. Skyline is in the business of owning and developing resorts and hotels, undoubtedly having more complicated and larger construction budgets than the ones in question here. The Contracts made clear that Skyline was undertaking to bear the risk of costs exceeding the budgets, and Skyline did not introduce evidence that it ever conveyed to Infinity that its base budgets were critically important.
[144] On the facts of this case, it would not be commercially reasonable to hold Infinity to an arbitrary percentage above its estimate. The defendants seek to have the court do so in a manner that it itself did not do during Infinity’s performance of its contractual obligations.
[145] The amounts invoiced, paid and alleged to be outstanding, contrasted to the budget, are summarized in the chart attached as Appendix A to these Reasons.
[146] With respect to the one invoice that remains in dispute for the additional work done at Horseshoe Resort, being invoice no. 2016-143, this relates to work done by Infinity to clean up and demobilize the site. I find that this work is covered in the General Conditions at GC 3.14 Cleanup. It is part of the work to be performed by Infinity; “Work” is defined as the total construction and related services required by the Contract documents. There is no dispute about whether that the services listed in the invoice were carried out and therefore I find that it should also be paid.
[147] With respect to when interest should run, I agree that interest should be calculated from five days following when the contractor invoices were provided, which was May 24, 2016, in accordance with the contractual terms.
[148] Addressing Skyline’s arguments about the applicable interest rate, I find that the delay in invoicing should affect the total interest recoverable, but not the interest rate. Any financial repercussions from the liens should have been dealt with in costs at the time that the liens were vacated. Finally, as I have found, the accounting could have been addressed in part from July 2014 forward, and certainly from May 24, 2016. In short, none of the arguments raised by Skyline provide reason for the court to exercise its discretion to apply the Courts of Justice Act prejudgment interest rate. This case bears no resemblance to the cases relied on by Skyline: Bank of America Canada v. Mutual Trust Co., 2002 SCC 43, [2002] 2 S.C.R. 601; Canada (Attorney General) v. Bitove Corp.,1996 CarswellOnt 780 (Ont. Gen. Div.) (rev’d on other grounds 1998 CarswellOnt 2651); Robert McAlpine Ltd. v. Woodbine Place Inc., 1998 CarswellOnt 2490 (ONSC).
[149] One of the most significant reasons for not exercising the discretion to disregard the contractual interest rate is the admission by Skyline that it has known that it owes Infinity a large sum of money for years. Skyline provided no persuasive explanation for its failure to pay out the amounts known to be owed. The court is left to conclude that the sole reason for this was as alleged by Infinity: to force a smaller company to settle on economically favourable terms. That it would deliberately withhold between $600,000 and $700,000 is not conduct that will be rewarded with a more favourable interest rate.
Order
[150] For all of the foregoing reasons, the issues in this litigation are answered as follows:
The amount owed to Infinity by Skyline is $1,188,853.81
The applicable interest rate is the contractual interest rate of 5% above prime.
Interest should run from May 29, 2016.
[151] This Court orders that judgment is granted to the plaintiff in the amount of $1,188,853.81, plus the contractual interest rate of 5% above prime calculated from May 29, 2016. Infinity’s counsel indicated that the final amount of the judgment would be calculated by an accountant once the applicable interest rate and term was determined.
[152] As counsel will know, the amount that was in dispute at the time of closing arguments was a topic of some debate between counsel. If I have mistaken the final understanding reached between counsel, this will need to be addressed. If counsel have any difficulty coming to an agreement on the final number to be included in a judgment, they may arrange through my judicial assistant to speak to the matter by conference call.
[153] If the parties are unable to reach an agreement on costs, they are to provide written submissions no longer than three pages in length, plus a Bill of Costs and any offers to settle, on a reasonable timeline to be agreed on between counsel. The final submission must be received, however, by no later than January 31, 2020. All material is to be submitted to the office of the judicial assistants in Barrie.
HEALEY J.
Released: January 6, 2020
Appendix A
Lot
Model built
Budget
Amount invoiced
Overage
Amount paid
Amount outstanding
Sale price
11B
Carnoustie with crawlspace
$353,019
$402,625
$49,606
$384,345
$18,280
$487,687
12B
Carnoustie with crawlspace
$361,453
$378,660
$17,207
$358,026
$20,634
$533,870
4
Carnoustie with basement, loft and garage
$539,535
$591,342
$51,807
$570,700
$20,642
$733,295
21
Gleneagle with basement
$438,502
$474,902
$36,400
$469,724
$5,178
$589,357
32
Carnoustie with crawlspace, garage and loft
$379,756
$457,848
$78,092
$437,844
$20,004
$552,005
11
Carnoustie with crawlspace
$297,573
$356,552
$58,979
$350,321
$6,231
$520,408
2
Carnoustie with basement and loft
$436,569
$529,420
$92,851
$198,258
$377,488
$619,140
20
Carnoustie with basement, garage and loft
$502,359
$535,065
$32,706
$227,451
$350,646
$800,417
22
Carnoustie with basement and loft
$452,937
$611,059
$158,122
$337,520
$311,274
$655,380
15
Carnoustie with crawlspace and garage
$323,932
$366,729
$42,797
$152,502
$215,227
$603,211
*All figures inclusive of HST