COURT FILE NO.: CV-17-585106

DATE: May 26, 2021

ONTARIO

SUPERIOR COURT OF JUSTICE

IN THE MATTER OF the Construction Act, R.S.O. 1990, c.C.30

BETWEEN:

ARCTIC LAWN, LANDSCAPING & CONSTRUCTION INC.

Plaintiff

Ronald Lachmansingh, for the plaintiff, Tel.: 416-599-8080, Fax: 416-599-3131.

SADAF SHAKORI

Brian Sherman for the defendant Tel.: 416-241-8426, Fax: 416-247-3704.

Defendant

HEARD: December 4, 8, 9 and 11, 2020.

Master C. Wiebe

REASONS FOR JUDGMENT

I. INTRODUCTION

[1] This reference concerns the claim for lien of contractor, Arctic Lawn, Landscaping & Construction Inc. (“ALLC”), in the amount of $81,803.84 registered on a residential lot owned by the defendant, Sadaf Shakori, known municipally as 101 Brookside Avenue, Toronto (“the Property”).

[2] ALLC also asserts a claim for breach of contract damages in the amount of $43,902.86 bringing the total claimed to $125,706.70. In preparing these reasons, I noticed that the ALLC damage claim for management fees did not account for the HST on the paid management fees of $66,000 that is in the claim for lien. Adjusting the claim accordingly produces a damage claim of $8,805.60 for management fees and $26,517.88 for profit, and a total damage claim of $35,323.46 and a total claim of $117,127.32.

[3] Ms. Shakori denies this claim and asserts a counterclaim for breach of contract damages in the amount of $214,160.10. This figure includes $58,706.25 for alleged deficiency correction work, $101,611.10 for alleged excessive payment to ALLC, and $53,835.54 for other costs such as delay.

II. BACKGROUND

[4] I begin with a summary of the facts of this case that are undisputed.

[5] Ms. Shakori graduated from Ryerson University in 2014 with a bachelor’s degree in civil engineering. On January 29, 2016 she purchased the Property for $610,000 with the intent of building a new home. She was 27 years old. She obtained some of the funds for the purchase from her father.

[6] The principal of ALLC is Mohammed Mehdi Haj-Shafiei, who I will refer to as Mr. Shafiei. ALLC is not registered with Tarion. It was undisputed that an owner acting as a contractor is exempt from Tarion registration.

[7] Ms. Shakori met Mr. Shafiei through a real estate agent. After inspecting the site and showing Ms. Shakori pictures of a house he had built, but without any drawings or specifications, Mr. Shafiei drew up a contract document dated March 6, 2016. The contract was for the demolition of the existing house and the construction a new house by ALLC on the Property for a fixed price of $440,000 plus HST. The price was based on a cost of $220/square foot over an area of 2,000 square feet excluding the basement.

[8] The contract specified a detailed payment plan that included a 15% deposit up front. It stated that the work would be based on drawings and specifications prepared by “the consultant, architect and engineer.” It required that the work be done by January 31, 2017. The parties signed the document on March 6, 2016, and Ms. Shakori paid the deposit of $66,000. The work on the Property will be called “the Project” This contract will be called the “Original Contract.”

[9] Plans were prepared by consultant, Joseph Battaglia. Mr. Battaglia stated that he was retained by ALLC. The plans were submitted to the City of Toronto in July, 2016. They showed an increase in the size of the new house. Committee of Adjustments approval was required. Hearings took place, which Mr. Shafiei attended. There was opposition, particularly from the immediate neighbor at 99 Brookside Avenue, Lindsay Selland. The approval was obtained and the permit was issued on January 18, 2017. This all meant that the work did not take place as originally planned.

[10] In the meantime, Mr. Shafiei and Ms. Shakori entered into a broader business relationship. Mr. Shafiei worked closely with Jeffrey Hou, the principal of a company called Arton General Contracting Inc. (“Arton”). In the fall of 2016 Ms. Shakori, Mr. Hou, Mr. Shafiei’s wife, Mercedeh Karkhanchchi (“Mercedeh”) and Mr. Shafiei entered into a partnership to buy and develop homes. In November, 2016 the three persons, Mr. Hou, Ms. Shakori and Mercedeh, established a new company, 2545740 Ontario Inc. (“254”) and signed a shareholders’ agreement that divided the shares in 254 equally between the three of them. The plan was to use Mr. Shafiei’s other company, Delbrook Homes Inc. (“Delbrook”), as the contractor to do the construction since Delbrook had Tarion registration. Arton would be the subcontractor. Mr. Shafiei and Ms. Shakor would jointly manage the projects and share the management fees.

[11] Pursuant to this arrangement, 254 purchased a residential property at 86 Brookside Avenue in September, 2016 (closing in 2017), with each of Mr. Hou, Ms. Shakori and Mercedeh contributing equally to the purchase price. A construction mortgage was obtained. 254 also eventually purchased a lot at 140 Watson Avenue, Toronto.

[12] The Battaglia permit drawings for the Project dated January 18, 2017 include a Site Plan page that shows the total square footage of each floor. The Site Plan page also shows the building footprint excluding the basement as being 2,477.21 square feet.

[13] On February 8, 2017 ALLC and Ms. Shakori signed an Amendment to the Agreement concerning the Project (“Amendment Agreement”). This agreement amended the Original Contract. A term that was negotiated was the term that specified that Ms. Shakori would be “voluntarily involved in project activities.” The agreement specified that the “final decision” on activities would be made by ALLC “in consultation with the Owner.” There was a clause that specified that ALLC would issue its invoices to Ms. Shakori based on subcontractor invoices, that the profit would be shared between ALLC and Ms. Shakori equally, and that the profit would be the difference between the “hard cost of construction” per square foot and $220/square foot as set out in the Original Contract. The agreement also specified that work should begin as soon as weather permitted and be completed in 30 weeks.

[14] Ms. Shakori obtained construction financing from Vault Mortgage Corporation (“Vault”). On April 27, 2017 Vault delivered a budget for the Project to Ms. Shakori which showed at the top the square footage for the new house as being 2,487 square feet.

[15] The work commenced in April, 2017. ALLC used Arton as its primary trade. There was no soil testing. Arton did the demolition, excavation and the foundation. It built construction fencing.

[16] A major problem was encountered in the initial stages of construction. ALLC was surprised to find out that the soil was sandy, namely not load bearing. Backfill and compaction was used to create support. The width and depth of excavation expanded.

[17] There was a divisional fence between the Property and 99 Brookside Avenue. It was at risk of collapsing. Ms. Selland also had interlocking that was being damaged. Ms. Selland refused to have the fence replaced with a temporary fence. She complained to the Ministry of Labour and the municipal building department. An inspector visited the site on April 24, 2017.

[18] On April 28, 2017 the City issued an Order to Comply stopping work until a shoring system (designed and supervised by an engineer) was installed to protect the neighbouring property. Ms. Shakori retained engineer, Reza Saeedi. Mr. Saeedi issued a report on May 3, 2017 outlining options for dealing with the fence and interlocking problem. He stated that the depth of the excavation for areas other than the rear walkup, which he described as being four feet, did not require shoring. He said it was the unanticipated instability of the soil that created the requirement for shoring. He designed a shoring system, which was built by Arton.

[19] The shore braces interfered with the existing foundation work. There was too much congestion. As a result, Mr. Saeedi designed a change to the foundation that changed it from poured concrete to concrete block. Mr. Saeedi notified the City of this structural change by letter dated May 12, 2017. It was approved.

[20] The Order to Comply was lifted on May 25, 2017. Work resumed after about a six-week delay. Ms. Shakori made changes to the work. Arton worked on the backfilling, footings, foundation, waterproofing and weeping tile system. Argo Lumber supplied lumber and New Look Framing framed the house and the roof. Best Concrete & Drain installed the interior drains. By the end of July, 2017 the basement floor, garage floor, rear walkup, front porch and steps were still outstanding.

[21] On July 5, 2017 Ms. Selland sued Ms. Shakori and Delbrook in the Small Claims Court for damages of $25,000 alleging property damage. On July 27, 2017 Ms. Shakori delivered her statement of defence. On August 3, 2017, Delbrook delivered its statement of defence. The case was settled with a payment of $7,000 by the defendants to Ms. Selland. Ms. Shakori and Delbrook contributed equally to the $7,000 payment.

[22] On August 9, 2017 Ms. Shakori sent Mr. Shafiei a lengthy email called a “notice” wherein she complained about eight issues: the damage to 99 Brookside Avenue and the lawsuit that ensued; the stop work order of April 24, 2017; the poor access to and delays in the rear walkup work due to the interference caused by the shoring; the footings for the rear walkup and front porch not being constructed in accordance with the drawings; the waterproofing terminating below grade; the post and framing in one location wrongly sitting on the footing; the delay in getting the glazing contract; the Arton subcontract not being fixed price; the north wall foundation having two setbacks contrary to the drawings. She said she was concerned about the work progress and that she reserved her right to be compensated for additional costs and losses.

[23] At this point Ms. Shakori’s friend, Elvis Xhameni, became involved in correspondence with Mr. Shafiei. There was a series of emails between the two. On August 11, 2017 Ms. Shakori emailed Mr. Shafiei stating that she had stopped payment until the parties could meet. She indicated she would be bringing her lawyer to the meeting.

[24] On August 15, 2017 Ms. Shakori and Mr. Shafiei exchanged emails setting up a meeting on August 16, 2017 to discuss the issues. When Ms. Shakori reiterated that she would be bringing her lawyer, Mr. Shafiei cancelled the meeting.

[25] On August 16, 2017 Mr. Shafiei emailed Ms. Shakori complaining that she had hired trades on her own initiative that were working on the site. He stated that there were “serious consequences” to this conduct. He complained about not being paid.

[26] On August 18, 2017 Mr. Sherman wrote Mr. Shafiei a formal letter concerning all three properties including the Property. He indicated that Ms. Shakori had lost hope that he, Mr. Shafiei, and “his associates” could correct their construction errors and amend their ways of attempting to “railroad” her. He stated that because Mr. Shafiei and his associates were in substantial breach of their contractual arrangements, Ms. Shakori “has decided to terminate all contractual arrangements immediately.”

[27] On August 27, 2017 ALLC registered its claim for lien in the amount of $81,803.84. Ms. Shakori vacated the claim for lien with cash on September 28, 2017. ALLC purported to perfect its lien by commencing this action on October 24, 2017. In addition to its claim for lien, ALLC claimed breach of contract damages of $150,000. Ms. Shakori delivered her Statement of Defence and Counterclaim on November 3, 2017. Her counterclaim was against ALLC and others for $500,000 in breach of contract damages plus $100,000 in punitive damages. On December 15, 2017 she discontinued as against the parties other than ALLC.

[28] Using a company she established in March, 2017, Sash Build Design & Consulting Inc. (“Sash Build”), Ms. Shakori managed the completion of the construction. She used her own trades to do the work. The house was completed by June, 2018. Ms. Shakori sold the house over two years later on September 1, 2020 for $1,840,000.

[29] On October 17, 2017 Ms. Shakori sued 254, ALLC, Delbrook, Mr. Shafiei, Arton, Mercedeh, Mr. Hou and a company named Arctic Construction Inc. in a Commercial List action for damages and injunctive relief concerning the entirety of the relationship between the parties. This claim included 101Brookside Avenue. The pleadings in this action were closed in May, 2018.

[30] On September 26, 2018 in its lien action ALLC obtained a judgment of reference from Justice Stinson. On October 25, 2018 and November 8, 2018 ALLC obtained an order for trial from Master Short. I became seized of the reference at the first trial management conference on July 8, 2019. Counsel assured me that I could manage and try the lien action without regard to or concern for the Commercial List action, which I proceeded to do.

[31] The parties exchanged productions, prepared a Scott Schedule, conducted examinations for discoveries and served expert reports, all as ordered. I conducted another trial management conference on January 20, 2020. At the third trial management conference on February 3, 2020 I scheduled a five-day summary trial to take place in December, 2020, and double-booked the trial over a July, 2020 trial in another matter.

[32] Because of the suspension of in-person court operations and other problems created by the COVID 19 pandemic and at the request of counsel, I convened a trial management conference on April 1, 2020. I suspended my trial preparation directions and vacated the double-booked July, 2020 trial dates. On June 19, 2020 I ordered a settlement conference for July 16, 2020. It failed. With trials resuming, at the trial management conference on August 6, 2020 I set a new schedule to make the trial hearing for the scheduled December, 2020 trial dates possible.

[33] The trial hearing was a videoconference hearing that took place on December 4, 8, 9 and 11, 2020. ALLC called four witnesses - Mr. Shafiei, Mr. Hou, Sandro Soscia and in reply, Mr. Battaglia. Ms. Shakori called six witnesses – Ms. Shakori, Mr. Xhameni, Ashin Souzankar, Diego Friguglietti, Marcello Montalto and Luis Decorte.

III. ISSUES

[34] Based on the evidence and submissions, I believe that the following issues are the ones to be determined:

a) What sort of a contract did the parties have?

b) Was there a repudiation of the contract, and, if so, by whom?

c) What are the damages that result?

IV. WITNESSES

[35] Before I analyze the issues, I will comment on the credibility of the witnesses.

[36] The two major witnesses were Mr. Shafiei for ALLC and Ms. Skakori, the defendant. I found Mr. Shafiei the more credible of the two. I had concerns about some of the evidence of Mr. Shafiei, He was voluble and constantly argumentative. As the principal of ALLC, he had a stake in the outcome of the case. He also gave inconsistent evidence about whether ALLC retained Arton. ALLC retained the other trades. In his affidavit, Mr. Shafiei stated that ALLC retained Arton, which accorded with Mr. Hou’s evidence. At discovery, however, he said Ms. Shakori had retained Arton.

[37] But on the critical evidence of the agreements, Ms. Shafiei gave a credible explanation for the Amendment Agreement, namely that the key conditions underpinning the Original Contract had changed: the house was significantly larger in size; construction costs had increased; and, with a real prospect of ALLC nevertheless making a profit, Ms. Shakori wanted to save money by taking a stake in the profit and a supervisory role to control costs. Ms. Shakori’s explanation was less convincing. She said that Mr. Shafiei convinced her to sign in part to help her save money, but also to give her an incentive to invest in his other projects. The project at 101 Brookside was funded entirely by Ms. Shakori with money from her father and a loan. It was her first project. One would expect that her primary driving motive was saving money.

[38] Mr. Shafiei was also forthright in discussing the key issue of the sandy soil. He made admissions against interest. He admitted not getting advance soil testing, not planning on shoring (anticipating a depth of no more than 4 feet) and digging deeper and wider than initially anticipated due to the sandy soil and the need to backfill and compact. This wider footprint led directly to the problems with Ms. Selland’s divisional fence. He admitted that the rear walkup work should have been done before the shoring. He also admitted not being on site every day.

[39] This frank evidence was supported by Ms. Skahori’s own affidavit. It was undisputed that excavation of less than 4 feet did not require shoring. Ms. Shakori appended to her affidavit the Ministry of Labour (“MOL”) Field Visit Report dated April 24, 2017 wherein a MOL inspector noted that all four walls of the excavation were deeper than 4 feet. There is no indication as to how this conclusion was reached. The inspector was not called. This Report led to the stop work order on April 24, 2017. It was undisputed that in response to the MOL Report and at the direction of the MOL Ms. Shakori hired Reza Saeedi, a professional engineer, to do a detailed assessment. This more detailed assessment was embodied in Mr. Saeedi’s report dated May 3, 2017 that was sent to the MOL and the City of Toronto. It is appended to Ms. Shakori’s affidavit. In this report Mr. Saeedi stated that the excavation in all areas other than the rear walkout was less than 4 feet and that there would therefore have been no need to provide shoring if the soil was not sandy. Mr. Saeedi was also not called. I note that subsequent emails from the City did not directly address the Saeedi statement about the excavation depth. Therefore, at minimum, based on these events alone, the Saeedi report of May 3, 2017 lends credence to Mr. Shafiei’s position an anticipated excavation depth and shoring. As for the sandy soil, there was no expert opinion evidence, including from Ms. Shakori’s expert, Afshin Souzankar, that advance soil testing should have been done.

[40] Mr. Shafiei’s evidence had other features that gave it more credibility. Mr. Shafiei showed that he has considerable experience in residential construction in Ontario, having been a contractor and project manager for fifteen years. He also pointed out that under Delbrook he had seven homes registered with Tarion. This added to his credibility on the issue of deficiencies. He made further frank admissions against interest, such as his admission of cash payments Ms. Shakori alleged but had no corroboration for.

[41] Ms. Shakori was less credible for several reasons. In addition to the fact that she has a stake in the outcome of this case and her lack of experience as a builder, Ms. Shakori’s evidence on key issues was unreasonable, not corroborated and contradicted by other evidence.

[42] First, there was her insistence that she believed all along that her house was no more than 2,000 square feet in size (except for the basement). This was simply not credible. The Site Plan in the permit drawings clearly shows the footprint of the house excluding the basement as being 2,477.21 square feet. Ms. Shakori and Mr. Xhameni insisted that Ms. Shakori did not have the knowledge and skill to read drawings at least to the point of detecting this information. That was not credible. Ms. Shakori has a civil engineering degree. Also, the information on the Site Plan about footprint size does not require skill to understand. Without assistance I understood it. Furthermore, the Committee of Adjustment hearings in 2016 were the result of the increase in size of the house as indicated in the drawings. Ms. Shakori attended these meetings. How she could have done so without understanding that the house footprint was significantly greater than 2,000 square feet is beyond belief. Finally, Ms. Shakori’s own lender sent her a budget on April 27, 2017 that clearly showed the house size as being 2,487 square feet. Yet Ms. Shakori insisted that he remained ignorant of the real house size until the litigation. This position significantly undermined her credibility.

[43] Second, there was her evidence that she had no site supervisory function. She insisted that she did not have the knowledge, skill or intention to do this. But the other evidence contradicted this position. It was undisputed that ALLC did not have Tarion registration and did not need it as Ms. Shakori was to be an owner/builder on the project. Therefore, some level of involvement in the project by Ms. Shakori was necessary. Furthermore, Ms. Shakori admitted entering a business arrangement with Mr. Hou, Ms. Karkhanchchi and Mr. Shafiei in late 2016 wherein she assumed a site supervisory function with Mr. Shafiei on other projects. Therefore, she did have the skill and knowledge to do that work. It only makes sense that she would apply that skill and knowledge to her own house in order to save costs.

[44] Furthermore, the Amendment Agreement itself contradicts Ms. Shakori’s position. Mr. Shafiei’s initial draft shows Ms. Shakori as being the sole site supervisor. Ms. Shakori got this changed. The emails between the parties show that Ms. Shakori’s primary concern was her liability as site supervisor, not her lack of skill. The final version of the Amendment Agreement does not, however, remove all site supervisory function from Ms. Shakori. It simply says that she will participate in project activities “voluntarily.” It goes on to state that final decisions will be made by ALLC “in consultation with” Ms. Shakori, that Ms. Shakori is not an employee of ALLC and that Ms. Shakori should get her own insurance. This shows a form of shared supervision that was comparable to what Ms. Shakori had with Mr. Shafiei on other projects, which makes sense.

[45] What significantly undermined Ms. Shakori’s credibility on this issue though was her work through her company, Sash Build. She admitted establishing that company in early March, 2017 to do residential construction management. This was about a month after signing the Amendment Agreement. Later, after she terminated the contract with ALLC on August 18, 2017, Ms. Shakori did not hire a construction manager to complete the project. She did the work herself using Sash Build. This shows a significant level of knowledge and sophistication about construction. Ms. Shakori also created LinkedIn pages for Sash Build wherein she described herself a “project manager” since April, 2016 delivering “full supervision.” She created a website for Sash Build wherein she featured the construction on the Property prominently and stated that she “was consulted every step and was involved with every decision made with respect to finishes.” In cross-examination she tried to dismiss these statements as “just advertising.” This meant that she was either not telling the truth in these statements or that her evidence was not truthful. Her credibility suffered as a result.

[46] There were other parts of her evidence that similarly undermined Ms. Shakori’s credibility. In cross-examination, she was confronted with her statement of defence in Ms. Selland’s Small Claims Court action, the pleading wherein she supports Mr. Shafiei’s present position about the divisional fence issue. She described the pleading as “half true/half false” and a product of “imperfect knowledge.” She wavered in her evidence about ALLC abandoning the project in early August, 2017 when she was confronted with pictures of ALLC forces working on August 8 and 10, 2017. She insisted that she gave Mr. Shafiei “verbal notices” to correct deficiencies when she was confronted with the absence of any evidence of written deficiency notices. She came across as one capable of massaging the truth to suit her interests.

[47] ALLC called two other fact witnesses, Jeff Hou and, in reply only, Joseph Battaglia. Mr. Hou, the principal of Arton, signed an affidavit for his evidence in chief that was in clear and lucid English. But in cross-examination Mr. Hou showed no ability to converse in English. He used an interpreter for his oral evidence and there was no evidence as to how the affidavit was created. This left me wondering as to what extent Mr. Hou in fact created his affidavit. In cross-examination Mr. Hou also seemed to waver on his evidence on key points. He said at one point that the Artcon contract with ALLC was fixed price, but then said it was time and material and later he said he did not remember. In his affidavit he said that the wider footings were the result of the confined site conditions. In cross-examination he said he “could not remember.” In fact, he ended up saying that he “could not remember” in answer to many questions. I had trouble giving Mr. Hou’s evidence any weight as a result of this confusion.

[48] Mr. Battaglia’s affidavit concerned the increased size of the house and the Committee of Adjustments hearings. In cross-examination, he admitted that he was hired by ALLC and that he never discussed the house size directly with Ms. Shakori. Mr. Battaglia’s evidence was honest and credible, although limited in scope.

[49] Ms. Shakori called three other fact witnesses, Diego Friguglietti, Luis Decorte and Elvis Xhameni. Mr. Friguglietti, the principal of New Look Framing Ltd., was the framer. He swore an affidavit wherein he stated that Ms. Shakori was not the site supervisor and that Mr. Shafiei was rarely on site. He discussed certain alleged deficiencies including ones pertaining to his own work, framing. He said he introduced Ms. Shakori to another framer, Marcello Montalto. In cross-examination, he admitted his memory was “hazy.” He said that he finished his work and that ALLC owed him money. I found Mr. Friguglietti to be not entirely forthright about his own work and too interested in blaming the plaintiff and helping the defendant. His hazy memory was also an issue.

[50] Luis Decorte stated in his affidavit that he was hired by Ms. Shakori after the contract termination to correct deficiencies. He stated that he worked on clearing the basement, protecting the basement stud walls and finishing the footings and foundation for the walkout. In cross-examination he said he noticed the problem with the weeping tile being below grade. He described Ms. Shakori as “innocent” and lacking understanding. He admitted much of his work was just unfinished work. In discussing his work Mr. Decorte seemed balanced and reasonable, but in describing Ms. Shakori’s involvement he seemed unduly slanted in her favour obviously as she was paying for his services.

[51] Mr. Xhameni, Ms. Shakori’s boyfriend, stated in his affidavit that he was a project manager with Pomerleau Inc., a large builder, and had no experience in residential construction. He said that, after his relationship with Ms. Shakori started in October, 2016, he tried to stay out of her business affairs. Yet, he said that he objected to Ms. Shakori’s up-front payment of fees, got her to change the Amending Agreement, pointed out deficiencies and objected to the time and material bills she received. In short, he indeed injected himself into her affairs. The affidavit was also full of hearsay evidence. In cross-examination, he insisted that Ms. Shakori could not read architectural drawings despite her education as an AutoCAD designer. No doubt, this was to support her position on the larger house footprint shown in the permit drawings. I have criticized this position. That Mr. Xhameni wholeheartedly adopted it showed me his bias in favour of Ms. Shakori. He also repeated Ms. Shakori’s assertion that she verbally notified Mr. Shafiei of deficiencies and that her August 9, 2017 email “implied” a requirement to correct deficiencies, when it did not. He insisted that, despite his professed limited involvement in Ms. Shakori’s business, her trades were being paid. He admitted not knowing about Ms. Shakori’s broader business relationship with Mr. Shafiei. In the end, Ms. Xhameni came across as a meddling boyfriend with limited knowledge intent on disrupting the contract and biased in favour of Ms. Shakori. I gave his evidence little weight.

[52] The parties called two expert witnesses. Ms. Shakori called Afshin Souzankar. Mr. Souzankar was retained by Ms. Shakori in September 2017 to provide an opinion on existence of deficiencies and the state of completion. He was then later retained by Mr. Sherman in January, 2018 to update his report and provide more detail. He is a professional engineer with a degree in structural engineering earned in Iran. I found him qualified to give his opinion on these topics. He said he made notes on drawings and other paper which were not produced. This troubled me. In his reports, Ms. Souzankar identified what he called deficiencies, but he did not assess the costs to correct these deficiencies. In his affidavit he also assessed the state of completion but only as a percentage of the contract price breakdown for the work done adjusted to incorporate the larger building footprint.

[53] In general, I found Mr. Souzankar to be the more credible expert. He was careful to limit his opinion to his instructions and expertise. For instance, he did not assign blame for the deficiencies and did not assess the costs of correction. In cross-examination he openly admitted differing in opinion with Mr. Saeedi as to whether shoring should have been anticipated due to the depth of excavation. But he also frankly admitted that soil tests were not necessary. He admitted that some of what he called deficiencies were uncompleted items or simply items of increased costs, such as the footings. He avoided commenting on whether ALLC should have been given a chance to correct the deficiencies. In the end, I found Mr. Souzankar’s opinion evidence, while credible and important to the framing of the issue of deficiencies, of limited value to the overall case.

[54] ALLC called Sandro Soscia to respond to Mr. Souzankar’s evidence. Mr. Soscia has some 30 years of experience as a professional engineer and project manager. He went through Mr. Souzankar’s list of deficiencies and identified items that he considered to be uncompleted work instead. He was less credible. During the qualification voir dire Mr. Sherman rightfully pointed out that Mr. Soscia did not identify the factual assumptions on which he based his opinion, a critical aspect of any expert evidence. Mr. Soscia also never attended the site. In cross-examination, it came out that many of Mr. Soscia’s factual assumptions came from Mr. Shafiei, such as his statement that Ms. Shakori was the sole site supervisor. Mr. Soscia’s credibility suffered as a result.

[55] Based on my assessment of credibility I gave Mr. Shafiei’s evidence the most weight where it conflicted with other evidence, particularly that of Ms. Shakori. I gave the other factual witnesses consideration on an issue by issue basis as needed. To the extent expert evidence was important, I preferred the evidence of Mr. Souzankar to that of Mr. Soscia.

V. ANALYSIS

a) What sort of a contract did the parties have?

[56] ALLC alleges that the contract between the parties was entirely a cost-plus contract and that the site supervision was agreed to be shared. This was, so the argument goes, due to the Amendment Agreement. Ms. Shakori on the other hand alleges that the contract between the parties was at all times in accordance with the Original Contract, namely fixed price with ALLC responsible for all supervision and Ms. Shakori simply being a “curious owner.”

[57] The parties gave me no authorities on contract interpretation. In my decision in The Gatti Group v. Zuccarini, 2020 ONSC 2830 at paragraphs 74 and 75 I referred to the decision of the Supreme Court of Canada in Creston Moly Corp. v. Sattva Capital Corp., 2014 SCC 53 (S.C.C.) which gave guidance on contract interpretation. In paragraph 47 the Court stated the following: “The overriding concern is to determine “the intent of the parties and the scope of their understanding. . . 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.” The Court explained the use of surrounding circumstances to interpret contracts and the parole evidence rule. Concerning the use of surrounding circumstances, the Court stated in paragraph 57 that, “while the surrounding circumstances will be considered in interpreting the terms of a contract, they must never be allowed to overwhelm the words of that agreement . . . . The goal of examining such evidence is to deepen a decision-maker’s understanding of the mutual and objective intentions of the parties as expressed in the words of the contract.” The Court added in paragraph 58 that the evidence of surrounding circumstances must be objective evidence of the background facts, namely knowledge that was or reasonably ought to have been within the knowledge of both parties at the time of the contract.

[58] In this case the words of the contract documents are remarkably clear despite the fact that non-lawyers prepared, negotiated and signed the documents. I did, however, use extraneous evidence to some degree to understand the “intent of the parties.”

[59] Having reviewed the evidence, I conclude that the contract remained a fixed price contract, but with costs as the basis of ongoing compensation plus profit sharing in the end, and with the site supervision responsibilities being shared.

[60] That the Amendment Agreement superseded the Original Contract to the extent of any conflict between the two seems clear on the face of that Amendment Agreement. Clause 8 of the Amendment Agreement specifies that “all other matters” in the Original Contract remain valid.

[61] Concerning compensation, the Amendment Agreement introduced cost as the basis for ongoing compensation of ALLC and a profit-sharing scheme determined by the cost per square foot of building the house. The profit was stated to be the difference between the “actual hard cost of construction per square foot” and the $220 cost per square that is stated in the Amendment Agreement to have formed the basis of the fixed price in the Original Contract. That original fixed price was $440,000.

[62] Did the parties agree to retain a fixed price arrangement? I find that the wording of the Amendment Agreement makes it clear that they did. The key is the use of the word, “profit,” in clause 5 as opposed to “cost.” In a pure cost-plus contract, profit is a function of cost. In this contract, there was clearly a contemplation of profit being earned in addition to “cost.” That means a fixed price, namely an entitlement to payment at a fixed amount regardless of costs.

[63] Did the parties agree to retain the old fixed price of $440,000? I find that they did not. By not reasserting the original fixed price of $440,000, I find that the parties accepted in the Amendment Agreement that the $440,000 fixed price was dated and that there should be a new “fixed price” based on the expanded size of the house and the original costs per square foot benchmark. By February 8, 2017 the planned house size other than the basement had increased to 2,477.21 square feet. This was 477.21 square feet larger than the 2,000 square feet originally assumed. That increase in size was the subject matter of the Committee of Adjustments hearings that are expressly mentioned in the Amendment Agreement. The permit drawings clearly showed the increased size. As stated earlier, I find that both Mr. Shafiei and Ms. Shakori were aware of this increase in house size. To hold that the parties agreed to hold ALLC to the original fixed price and expect it to make a profit given the increased size, as Ms. Shakori asserts, is commercially unreasonable. I do not accept that interpretation of the Amendment Agreement. I find that the parties agreed to a new “fixed price” of $220 per square foot x 2,477.21 square feet = $544,986.20.

[64] How was ALLC to be paid on an ongoing basis? I find that the Amendment Agreement replaced the milestone scheme of compensation in the Original Contract with one based on ALLC’s ongoing costs. The document stated that the measure of the profit was “the actual hard cost of construction” and that ALLC would issue invoices to Ms. Shakori “based on actual invoices of subtrade (sic).” Also, there was to be a management fee of 15% of “the total Hard/Soft Construction Cost” for Mr. Shafiei’s services, and that the $66,000 Ms. Shakori had already paid was to be applied to that fee. These features are consistent with a cost-plus contract, but one where the costs would be compensated only up to the “fixed price” total.

[65] How would the profit sharing work? The Amendment Agreement stated that should the “actual hard cost of construction” be less than the “$220 per square foot” fixed price, ALLC and Ms. Shakori would share this profit equally. This means that ALLC would in addition to its hard costs be paid up to the fixed price if the costs were less than the fixed price, with the proviso that the additional amount, the profit, be shared equally with Ms. Shakori. It was implicit in this arrangement that the profit accounting would be done at the end of the project, as that is when the total actual hard cost of construction would be known. It was also implicit that if the costs of construction exceeded the fixed price, ALLC would absorb those excess costs. The reason for the cost-plus compensation was undoubtedly to identify this profit. Both Mr. Shafiei and Ms. Shakori admitted that this profit sharing was a major objective of Ms. Shakori in the Amendment Agreement.

[66] Concerning supervision. I find that the Amendment Agreement also contemplated some level of site supervision by Ms. Shakori. I have discussed this issue at some length in my discussion about credibility. The initial draft of the Agreement specified that Ms. Shakori was to be the sole site supervisor for the project with day-to-day control of the job site. Out of a concern about liability, she had those clauses replaced with a clause that specified that her involvement in site activities would be “voluntary.” But the clause that required that ALLC consult with Ms. Shakori about all “final decisions” on job site activities remained. That she had the skill to be involved was clear from her business agreement with Mr. Shafiei concerning other projects wherein she agreed to do site supervision with Mr. Shafiei, and from her activities with her company Sash Build, all as previously discussed. Ms. Shakori’s sharing of site supervision only makes sense to me as the profit-sharing aspect of the Amendment Agreement gave her an interest in reducing costs and maximizing profit.

[67] Mr. Sherman argued that this analysis does not explain why Mr. Shafiei was to be paid a fee for site supervision under the Amendment Agreement. Why would Ms. Shakori agree to pay him a fee for site supervision if she was to share in that responsibility? Mr. Shafiei had a simple answer to that question, which I accept. Mr. Shafiei had the established relationships with the trades that Ms. Shakori did not have. Ms. Shakori was just starting out in the construction business. Mr. Shafiei’s relationships with the trades had considerable value to Ms. Shakori as he was able to get the trades and avoid up-front deposit requirements from them. This was particularly important concerning Arton and the lumber supplier, Argo Lumber, which had an established relationship with Arton. But it was also the case with the framing and plumbing trades. Ms. Shakori had funding from her father and Vault and was clearly concerned about saving or deferring costs. This, in addition to Mr. Shafiei’s experience in residential construction, would have made a fee for his services worthwhile.

[68] In addition to the wording of the Amendment Agreement, the conduct the parties supports my interpretation of the contract. The trades billed ALLC, and ALLC billed Ms. Shakori based on those trade invoices. ALLC did not submit bills in accordance with the milestones in the Original Contract. Furthermore, Ms. Shakori participated in site activities and decisions from the beginning of the project. Mr. Shafiei’s initial affidavit attached minutes of a February 1, 2017 site meeting showing that Ms. Shakori was responsible for several items of work particularly concerning utility connections. Mr. Shafiei also stated that he attended the site every other day, whereas Ms. Shakori was there every day.

[69] I find that the contract between the parties was a fixed price contract with the fixed price being $544,986.20, and with the ongoing compensation to ALLC being based on its costs and an eventual sharing of profit should that materialize. I also find that it was also agreed that site supervision responsibility would be shared. The scope and schedule were not in dispute.

b) Was there a repudiation of the contract, and, if so, by whom?

[70] On August 18, 2017 Mr. Sherman sent a letter to Mr. Shafiei concerning the Project and the work at 86 Brookside Avenue and 140 Watson Avenue. He stated that Ms. Shakori had abandoned all hope of having “you and your associates correct your construction errors and amend your various ways of attempting to “railroad” her, to her loss and your gain.” The letter did not provide more detail. It went on to say that Ms. Shakori was alleging that “you and your associates have substantially breached contractual arrangements in several respects” and that she had decided to “terminate all contractual arrangements immediately.” As it pertained to the Project, this was a formal termination of the contract. The main question in this case is whether this termination was proper.

[71] It is well settled law that for a contract termination by the owner to be proper the owner has the onus of showing that there was a substantial contract breach by the contractor that amounted to a repudiation of the contract; see Dirm 2010 Inc. v. Ontario (Minister of Infrastructure), 2017 ONSC 2174 at paragraph 306 and 311. In Dirm, op. cit., are paragraph 307, Master Albert quoted from a leading case on this issue, Guarantee Co. of North America v. Gordon Capital Corp., 1999 3 S.C.R. paragraph 40, which quote provides an excellent summary of the law of contract repudiation:

Repudiation occurs by word or conduct evincing an intention not to be bound by the contract . . . [S]uch an intention may be evinced by a refusal to perform, even though the party refusing mistakenly thinks he is exercising a contractual right . . . The effect of the repudiation depends on the election made by the non-repudiating party. If that party treats the contract as being in full force and effect, the contract remains in being for the future on both sides. Each (party) has a right to sue for past and future damages. . . If, however, the non-repudiating party accepts the repudiation, the contract is terminated, and the parties are discharged from future obligation.

Indeed, repudiation is what Ms. Shakori alleged in her August 18, 2017 letter by saying that ALLC had “substantially breached” the contract. If the owner fails to prove that the contractor repudiated the contract, the obvious result is that the owner’s contract termination would amount itself to a contract repudiation.

[72] The August 18, 2017 letter indicates that the primary reason Ms. Shakori had for terminating the contract was “construction errors,” namely deficiencies. That point was reiterated in argument. For deficiencies to form the basis of a proper termination, the owner must prove that the alleged deficiencies are indeed deficiencies, and that the contractor was given notice of the deficiencies plus an opportunity to correct them that was not taken; see Dirm, op. cit., paragraph 310(b). In short, the owner must prove a contract breach.

[73] But that is not enough. The owner must then prove that the contract breach was a substantial failure of performance by the contractor. Concerning deficiencies, the owner must prove that the deficiencies are “so bad” as to amount to a denial of the owner of the substance of the benefits of the contract; see C. S. Bachly Builders Ltd. v. Lajlo, 2008 CarswellOnt 6542 (SCJ) at paragraph 84.

[74] In Dirm, op. cit., paragraph 310 Master Albert outlined four factors to be considered in determining whether a contract breach amounted to a fundamental breach. She referred to the decisions of the Court of Appeal in 968703 Ontario Ltd. v. Vernon (2002) 2002 CanLII 35158 (ON CA), 58 O.R. (3d) 215 (OCA) and Spirent Communications of Ottawa Ltd. v. Quake Technologies (Canada) Inc. (2008) 2008 ONCA 92, 88 O.R. (3d) 721 (OCA). In these two decisions, the Court of Appeal outlined five factors to be considered in determining whether a breach of contract amounts to a substantial failure of performance; (1) the ratio of a party’s obligation not performed to that party’s obligation as a whole; (2) the seriousness of the breach to the innocent party; (3) the likelihood of repetition of the breach; (4) the seriousness of the consequences of the breach; and (5) the ratio of the part of the obligation performed to the whole obligation. I will apply these principles to the issue of whether Ms. Shakori has proven that ALLC fundamentally breached the contract concerning deficiencies.

b.1) Sandy soil

[75] I will now deal with the various allegation of ALLC deficiencies.

[76] First, there is the sandy soil issue. ALLC did not do soil testing and did not anticipate shoring the sides of the excavation. That was admitted by Mr. Shafiei. The undisputed evidence showed that, when Arton began excavating, the larger footprint of the house within the already constricted space of the Property combined with the unanticipated sandy soil to create several significant problems. The divisional fence and interlocking at 99 Brookside Avenue, the property owned by Ms. Selland, were affected. Ms. Selland notified the MOL in mid-April, 2017, which led to the stop work order of April 24, 2017. This stop work order remained in effect until May 25, 2017, during which time the Project was suspended. During this time, at the insistence of the MOL, a shoring system designed by Mr. Saeedi was constructed to support the excavation sides. This shoring system required a re-design of the foundation in order to accommodate the shoring. Mr. Saeedi created a re-design that changed the foundation from poured concrete to concrete block. The shoring also interrupted access to the rear walkout where the excavation was unfinished. Machines could no longer get access to the rear because of the shoring. The rear excavation had to be completed by hand. This caused a significant slowdown in the rear excavation with attendant increase in costs. Finally, Ms. Selland ended up suing Delbrook and Ms. Shakori in the Small Claims Court for damages because of these events, which suit ended up in a settlement in early August, 2017 whereby Ms. Shakori and Delbrook each paid Ms. Selland $3,500 in settlement.

[77] This was a significant interruption to the Project. Both parties agreed that the Project work was suspended by at least four weeks and that Ms. Shakori’s relationship with her neighbor was soured. The significance of this interruption to Ms. Shakori was reflected in her email to Mr. Shafiei of August 9, 2017. She described this email as “a formal notice.” In this email, Ms. Shakori raised eight issues that she said “prejudiced” her rights as an owner. The first three all pertained to this issue of the sandy soil, namely the damages done to 99 Brookside Avenue, the shoring construction, the one month Project delay, and the slowdown in the excavation at the rear walkout. Of all the issues, this one had the potential to be a substantial failure of contract performance.

[78] I am not prepared, however, to find that Ms. Shakori has met her onus of proving that this was a deficiency. As stated earlier, there was no evidence, including no expert opinion, that ALLC should have conducted soil tests in advance of the excavation. Mr. Shafiei stated that soil tests are not typically done with residential construction involving an existing house, and I accept that evidence given his experience in this area. That means that the sandy soil could not reasonably have been anticipated.

[79] Furthermore, as stated earlier, there was evidence that the shoring requirement also could not have been anticipated. Also as stated earlier, it was undisputed that excavation below 4 feet requires shoring. The MOL inspector reported in his Field Visit Repot of April 24, 2017 that the entire excavation was below 4 feet. However, later Ms. Shakori’s own professional engineer, Mr. Saeedi, charged with the responsibility of assessing the site and determining a course of action, stated in his May 3, 2017 report that he found that the excavation was above 4 feet in all areas except at the rear walkout and that the need for shoring should not have been anticipated if there was no sandy soil. Neither the inspector nor Mr. Saeedi were called as witnesses. As stated earlier, I find in the circumstances, based solely on these events, that Mr. Saeedi’s May 3, 2017 report lends credence to ALLC’ position that shoring should not have been anticipated, particularly since there was no obligation to do soil testing. In any event, it is Ms. Shakori’s onus to prove that the absence of shoring at the outset was a deficiency and at minimum the Saeedi report left this issue in serious doubt. I note as well that while Mr. Souzankar stated that he preferred the finding of the MOE inspector to that of Mr. Saeedi, he gave no explanation for his preference.

[80] I, therefore, find that Ms. Shakori has not met her onus of proving that this was a deficiency in ALLC’s work. The sandy soil and shoring requirement were conditions that ALLC could not reasonably have anticipated prior to the commencement of the Project. As a result, they represent a change in site conditions that entitles ALLC to extra compensation, not a deficiency in ALLC’s work.

b.2) Footing size

[81] I will next review the other issues that Ms. Shakori raised in her August 9, 2017 “formal notice” email. The first is the footing size. Ms. Shakori alleges that the footings constructed by ALLC were larger than specified.

[82] It was undisputed that the wider footings gave the house more support. Mr. Shafiei explained the wider footings as being the result of the constricted site conditions. He said it was more cost effective in these circumstances to pour the wider footings. Given his experience in residential construction and his credibility, I accept that evidence. I note that the City approved of the larger footings in the end.

[83] In his initial report of October 23, 2017 Mr. Souzankar in fact noted that the permit drawings were misleading as they showed the wider footings in the wall cross section on one drawing. A noted detail pointed to the narrower size. Given this evidence, I find that Ms. Shakori has not proven that this item was a deviation from the contract requirements. ALLC installed footings that were shown on part of the drawings, that best suited the site conditions, and that enhanced the building support.

b.3) Waterproofing

[84] Another complaint in the August 9, 2017 notice letter was the waterproofing. There was evidence that ALLC installed the waterproofing around the house foundation about 6 inches below grade when it should have been 6 inches above grade. This was not disputed by Mr. Shafiei. However, I do not find that this deficiency amounted to a fundamental contract breach. Ms. Shakori stated that she later paid a contractor only $2,500 to correct this problem.

b.4) Post and framing sitting on footing

[85] Another complaint in the August 9, 2017 notice letter was about the stud walls in the basement. There was evidence that stud walls were installed directly onto the footings in one area of the basement. This was undisputed. Mr. Shafiei explained that this was temporary support for the basement stair landing and would have been replaced with permanent stud walls.

[86] Given my view of Mr. Shafiei’s credibility, I accept that explanation. Also leaving a stud wall resting on footings would not be something an experienced residential contractor like Mr. Shafiei would have allowed as completed work. That would have meant allowing the stud walls to be submerged in the concrete slab. I find that Ms. Shakori has not met her onus of proving that this was a deficiency. This was unfinished work.

b.5) Setbacks on the north wall

[87] Another complaint in the August 9, 2017 notice letter was the setbacks in the north foundation wall. It is undisputed that the permit drawings called for the north foundation wall to be one continuous line. Instead ALLC constructed two recesses in the foundation wall to accommodate two windows.

[88] Mr. Shafiei explained this as being the result of Ms. Shakori’s decision to have the two windows installed above the foundation on that side. He said that zoning required a minimum window setback from the property line of 4 feet. He said that the recesses in the foundation were constructed to support for the walls and windows above which were set back.

[89] Ms. Shakori did not deny that she authorized the installation of the windows. She was also present when the recesses were built and did not complain. She was present on site every day. Given his experience in residential construction and his credibility, I accept Mr. Shafiei’s explanation. The explanation also makes sense. Why would a contractor go to the extra trouble of installing recesses if they were not required? I find that Ms. Shakori has not met her onus of proving that this was a deficiency.

b.6) Knee wall

[90] This was an issue that was raised by Ms. Shakori after the contract termination. It was not in the August 9, 2017 formal notice letter. It was raised by Mr. Souzankar. The permit drawings showed that the top of the foundation wall would be built of wood, namely what is called a “knee wall.” It ended up being built entirely of block.

[91] Mr. Shafiei had a simple explanation for this issue. As stated earlier, Mr. Saeedi did a redesign of the foundation in order to deal with the shoring braces. The redesign required that the foundation be entirely of block and did not include wood. This was therefore another byproduct of the sandy soil issue I discussed above. I, therefore, find that this was a change necessitated by site conditions, not a deficiency.

b.7) Ledge on west exterior wall

[92] This was another issue that was raised by Ms. Shakori after the contract termination. It was raised by Mr. Souzankar. Ms. Shakori complained that ALLC failed to install a ledge on the west exterior wall for the installation of stone and brick on the facade. The evidence contains photographs, however, that confirm that stone was installed on that façade. Therefore, as Mr. Shafiei asserted, the ledge was installed. This is a non-issue and further undermines Ms. Shakori’s credibility.

b.8) Higher floor elevation

[93] This was another issue that was raised by Ms. Shakori after the contract termination. It was raised by Mr. Souzankar. Ms. Shakori complained that the main floor elevation was 2 centimeters higher than required by the permit drawings.

[94] Mr. Shafiei did not dispute this issue. He said this issue was probably the result of the switch of the foundation from poured concrete to block. He also stated that the deviation was “within existing tolerances” and that the City would probably have accepted the deviation without requiring a drop in the landing. He gave no support for these statements.

[95] I find that this was a deficiency. However, Ms. Shakori stated that she paid only $1,440 to have the landing dropped. I do not find that this issue amounted to a substantial failure by ALLC to perform the contract.

b.9) Anchorage of stud walls

[96] This was yet another issue that was raised by Ms. Shakori after contract termination. It was raised by Mr. Souzankar. Ms. Shakori complained that ALLC misaligned the anchorage of the bottom plates connecting the stud walls to the foundation walls. She said that they were off center.

[97] Mr. Shafiei did not dispute this item but said that it was minor and could have been fixed by ALLC. I note that Ms. Shakori stated that she paid only $650 to have this item corrected in the end. I find that this was a deficiency but not one that amounted to a substantial failure by ALLC to perform the contract.

b.10) Block at garage door

[98] This was yet another issue that was raised by Ms. Shakori after contract termination. It was raised by Mr. Souzankar. Ms. Shakori complained that the concrete block at the garage door entrance and the entrance from the garage to the main floor was higher than the finished floors causing issues with entering cars and extra steps from the garage to the basement.

[99] Mr. Shafiei did not dispute this issue. Ms. Shakori said in her affidavit that she hired contractors to correct this problem. I find that this was a deficiency, but that Ms. Shakori has failed to show that it amounted to a substantial failure by ALLC to perform the contract.

b.11) Brick ledge around the house

[100] This was yet another issue that was raised by Ms. Shakori after contract termination. It was raised by Mr. Souzankar. Ms. Shakori complained that ALLC “without my knowledge nor consent” installed an extra ledge around the house for the installation of brick and stone. This when the permit drawings called only for stucco.

[101] Mr. Shafiei stated in his affidavits that ALLC received Ms. Shakori’s consent. Indeed, Ms. Shakori eventually installed brick. I accept Ms. Shafiei’s evidence. For Ms. Shakori to allege that she did not approve of this change when she was present on sight every day and eventually took advantage of the change to install brick further significantly undermines her credibility. I find that this was a change. Ms. Shakori has not met her onus of proving that this was a deficiency.

b.12) Connection of weeping tile

[102] This was yet another issue that was raised by Ms. Shakori after contract termination. It was raised by Mr. Souzankar. Ms. Shakori complained that the weeping tile system were terminated in two locations and that the hole in the foundation to connect the weeping tile to the drain had not been created.

[103] Mr. Shafiei stated that this was unfinished work not a deficiency. It seems obvious to me that this was unfinished work from a mere description of the item. I find that this was not a deficiency. That Ms. Shakori would raise this as a deficiency shows her desperation and undermines further her credibility.

b.13) Block anchorage

[104] This was yet another issue that was raised by Ms. Shakori after contract termination. It was raised by Mr. Souzankar. Ms. Shakori complained that the retaining walls for the rear walkout were created by block and not by poured concrete as shown on the permit drawings, and that the block was not anchored to the building. The change from poured concrete to block was previously discussed. I find that to be a change, not a deficiency.

[105] As for the anchorage issue, Mr. Shafiei stated in oral evidence that this was unfinished work. This makes sense to me, as such support would have been an essential part of the construction that an experienced contractor such as Mr. Shafiei would have done. I find that Ms. Shakori has not met her onus of proving that this was a deficiency.

b.14) North side window location

[106] This was yet another issue that was raised by Ms. Shakori after contract termination. It was raised by Mr. Souzankar. One of the north side windows was not located as indicated in the permit drawings.

[107] Again, I do not accept this as a deficiency, however. Ms. Shakori was present every day, shared site supervision responsibility, and should have checked the window location issue. She did not raise it until Mr. Souzankar pointed it out. I find that Ms. Shakori has failed to meet her onus of showing that this was a deficiency. I find that it was an accepted change.

b.15) Clearances

[108] This was yet another issue that was raised by Ms. Shakori after contract termination. It was raised by Mr Souzankar. There was evidence that the building was not built out to the minimum zoning clearance limits on all sides. In short, it was a little smaller than allowed by the zoning.

[109] I had trouble understanding this as a deficiency issue. There was no allegation that ALLC had not complied with the permit drawings in this regard. Therefore, I find that Ms. Shakori has not met her onus of showing that this was a deficiency item.

b.16) Point loads

[110] After the contract termination Ms. Shakori raised an issue about point loads in the structural drawings not being transferred down to the basement. This issue was raised by Mr. Souzankar. In his January 22, 2018 report, Mr. Souzankar described the issue as follows: “It appears that point loads shown on structural drawings were not transferred and completed down to the basement.”

[111] Mr. Shafiei did not challenge this evidence. Based on Mr. Souzankar’s description of the issue, namely that the point loads were not “completed” down to the basement, I am unclear as to whether this really was unfinished work. As a result, I find that Ms. Shakori has not met her onus of showing that this was a deficiency.

b.17) Other uncompleted work

[112] There were several items that were raised by Ms. Shakori and Mr. Souzankar that clearly concerned uncompleted work: the unfinished slab on grade in the basement; the unfinished garage slab; the unfinished front porch; the unfinished rear walkout; the unfinished underground plumbing; and the unfinished basement framing. At minimum, I find that Ms. Shakori has not met her onus of proving that these were deficiencies.

b.18) Conclusion and notice of deficiencies

[113] Therefore, I find that Ms. Shakori identified only four deficiencies in ALLC’s work: the waterproofing issue; the higher floor elevation; the anchorage of the stud walls; and the concrete block in the garage. None of these individually were serious enough to amount to a substantial failure of contract performance by ACCL. I also find that these four considered collectively were not serious enough to amount to a fundamental contract breach. There was also no evidence that these deficiencies would be repeated.

[114] There is another issue to be considered, particularly if I am wrong in my assessment as to deficiencies. At common law ALLC was entitled to notice of deficiencies and an opportunity to correct them; see Dirm, op. cit., paragraph 310(b). That right can be viewed as a part of the common law of contract damages concerning proper mitigation by the owner; see Beta Construction Inc. v. Chiu 2015 ONSC 5288 at paragraph 32, 86 and 87. Without that notice and proof of an opportunity given to the contractor to correct the deficiencies, an owner cannot sustain a claim that the contractor is in breach of contract on account of deficiencies.

[115] In this case, there was no credible evidence that Ms. Shakori gave proper or any notice of deficiencies to ALLC. The “formal notice” email of August 9, 2017 was not a proper notice to correct deficiencies. It simply outlined a series of complaints Ms. Shakori had against ALLC and reserved her right to claim damages.

[116] In cross-examination, Ms. Shakori was asked whether she had given ALLC any other notices of deficiencies to ALLC. She insisted that she had given Mr. Shafiei many “verbal notices.” I do not find this statement to be credible. It was self-serving and uncorroborated. Had Ms. Shakori considered the deficiencies to be as serious as she claims, it is only reasonable to expect that she would have made a formal email demand on ALLC accordingly. She did not. I also note that Mr. Xhameni contradicted her on this point and stated that Ms. Shakori did not give notices of deficiencies before the August 9, 2017 “formal notice” email.

[117] I, therefore, find that Ms. Shakori did not give ALLC proper or any notice of deficiencies and an opportunity to correct them. Therefore, concerning the deficiencies she has proven, Ms. Shakori cannot sustain a claim that ALLC was in breach of contract for failing to correct deficiencies.

b.18) Other issues

[118] Ms. Shakori raised other issues. Presumably these are the issues Mr. Sherman meant by the word “railroad” in his August 18, 2017 letter.

[119] Ms. Shakori alleged that ALLC had abandoned the project by early August, 2017. The credibility of this claim was quickly undermined. First, the evidence contained pictures of the site taken on August 8 and 10, 2017 showing the presence of ALLC forces. Ms. Shakori in cross-examination questioned the date stamps on the digital photographs; but then she diluted her claim by saying that “maybe” ALLC abandoned the project in early August, 2017. Second, there was no mention of this alleged abandonment in any contemporaneous correspondence. This includes the “formal notice” email from Ms. of August 9, 2017. Had there been an abandonment by ALLC it only stands to reason that this would have been a hot topic of contemporaneous correspondence. There was none. I find that this allegation lacks credibility and I do not accept it.

[120] Ms. Shakori alleged that Mr. Shafiei failed in his obligations as site supervisor. She alleged that he was the sole supervisor, that he was not present every day and that he was often hard to reach when issues arose. Mr. Shafiei openly admitted that he was on the site only “every other day.” He said that this was consistent with what the contract as amended by the Amendment Agreement required of him. I have already interpreted the contract between the parties in this regard. I have found that the Amendment Agreement required a form of shared site supervision between Mr. Shafiei and Ms. Shakori. Messrs. Friguglietti and Decorte gave evidence supporting Ms. Shakori’s claim that she was just a “nosy owner.” I have already discussed my view of the questionable credibility of that evidence. Therefore, I find that Ms. Shakori has not established that ALLC was in breach of contract for failing to provide the required site supervision. Certainly, she has failed to prove that there was a failure by ALLC of site supervision amounting to a substantial failure of contract performance.

[121] In closing argument, Mr. Sherman also argued that Ms. Shakori had grossly overpaid ALLC at the time of contract termination. Ms. Shakori alleged that she paid ALLC a total of $213,331.10. Ms. Souzankar included in his January and July, 2018 reports his assessment of the state of completion at the time of contract termination. He used the price breakdown and payment milestones in the Original Contract to do so. The Original Contract specified that 30% of the original contract price of $400,000, or $120,000, would be assigned to demolition and excavation (10%), footings, foundation and other concrete related work (10%), and framing (10%). Under the contract payment would done at those percentage when those milestones were reached. Mr. Souzankar assessed the state of completion of ALLC’s as a function of these percentages, namely 6.5% for demolition and excavation, 6% for footings, foundation and other concrete related work, and 8% for framing, for a total of 20.5%. Mr. Sherman used the new fixed price of $544,940 and argued that Mr. Souzankar’s 20.5% meant a total value of only $111,712.70. This meant, according to Mr. Sherman, that Ms. Shakori had overpaid ALLC $101,618.40, namely almost double the value of what ALLC had actually done.

[122] I do not accept this argument. First, I have found that the Amendment Agreement turned the contract into a cost-plus contract up to a new fixed price. There was no evidence as to what extent the milestones in the Original Contract reflected accurately the costs of those milestones. Second, there is no doubt that the excavation, footings and foundation attracted much more cost than originally anticipated due to the sandy soil issue. Both Ms. Shakori and Mr. Shafiei stated that the shoring costs alone were almost $25,000. There were other costs associated with the sandy soil issue such as those associated with the over one-month delay caused by the stop work order. Furthermore, as I have noted, there were several other changes to the scope that would have added costs. Mr. Souzankar openly admitted that his analysis was just on the state of completion, not on costs. Third, there is an issue as to the payments Ms. Shakori made, about which more will be stated later in the reasons. Suffice it to say here that Ms. Shakori provided no corroboration for her claimed payments of $213,331.10. Mr. Shafiei alleged that Ms. Shakori paid only $126,901.27.

[123] I do not find that ALLC or Mr. Shafiei attempted to “railroad” Ms. Shakori.

b.19) Repudiation

[124] Therefore, I have concluded that Ms. Shakori has not met her onus of proving that ALLC was in fundamental breach of the contract. She primarily failed to prove a breach of contract. If I am wrong in that regard, any contract breach she may have proven did not qualify under the Dirm factors as amounting to a fundamental breach. The breaches were not serious enough or likely of repetition. As a result, it was Ms. Shakori who was in fundamental breach of contract when she terminated the contract. She had no good reason to do so.

[125] The question then turns to whether and when ALLC accepted Ms. Shakori’s repudiation and brought the contract to an end. There was limited evidence on this issue. Mr. Sherman’s letter of August 18, 2017 required immediate delivery of all “property” and information concerning the project. Ms. Shakori had already hired a roofer six days earlier on August 12, 2017. She stated that she started hiring other trades after the August 18, 2017 letter. I draw the inference from this evidence that ALLC was barred from the site as of August 18, 2017.

[126] There was little ALLC could do at that point about keeping the contract alive once it was barred from the site. It proceeded to register its claim for lien on August 29, 2017 with the scope unfinished. I find that that act amounted in the circumstances to an acceptance of the contract repudiation, thereby bringing the contract to an end.

c) What are the damages that result?

[127] Ms. Shakori claims damages in her set-off and counterclaim as follows: $58,706.25 for alleged deficiency correction work, $101,611.10 for alleged excessive payment to ALLC, and $53,835.54 for other costs concerning delay. Given my analysis of the alleged deficiencies, I do not accept the deficiency correction claim. As stated earlier, I found most of the alleged deficiencies not to be deficiencies in fact, and for those that were, there was no notice given to correct them. Also, where an owner wrongfully terminates a contract on account of deficiencies without allowing the contractor to complete the work and correct deficiencies, the owner cannot claim rectification costs; see C.S. Bachley Builders Ltd., op. cit. at paragraph 87 and Brock Doors & Windows Inc. v. Rosemary Klotz, 2017 ONSC 5117 at paragraph 48.

[128] The other Shakori damage claims are also denied. Concerning the alleged overpayment, as stated earlier, I have found that this claim has not been proven. More will be said about this issue below. Concerning the delay costs, Ms. Shakori alleged in her affidavit several delays that she said cost her damage. There was the delay stemming from the sandy soils issue, which claim I deny as I have found that that was a change in site conditions that could not have been anticipated. The other claims stemmed from the contract termination and claim for lien. Ms. Shakori claims increased lending costs and rental costs on account of what she said was a six month delay in completion. None of these alleged damages were corroborated. Most importantly, Ms. Shakori cannot claim damages for delay that resulted from her wrongful repudiation of the contract.

[129] Therefore, I deny the entirety of Ms. Shakori’s set-off and counterclaim.

[130] On the other hand, as the innocent party, ALLC has the right to sue Ms. Shakori for its damages on account of her contract repudiation. There are three parts to the ALLC claim:

1. Lien: $81,803.84;

2. Management fees: $8,805.60;

3. Profit share: $26,517.88;

Total: $117,127.32.

c.1) ALLC’s lien

[131] The onus rests on ALLC to prove its claim for lien. The claim for lien has two components; $73,223.84 for unpaid accounts; $8,580 unpaid HST on the $66,000 payment for management fees. Ms. Shakori did not challenge the latter claim. I will, therefore, focus on the alleged unpaid accounts.

[132] Consistent with the contract as amended by the Amendment Agreement, ALLC bases its claim for lien on evidence of the cost it incurred that has not been paid by Ms. Shakori. Mr. Shafiei’s first affidavit lists the subtrade and supplier invoices that were rendered to ALLC concerning the project, and that were passed along to Ms. Shakori. It lists what invoices were paid and were not paid by ALLC. The total of these invoices is $201,707.11. Mr. Shafiei stated in his affidavit that he paid or caused to be paid all of these invoices with the exception of the last invoice from New Look Framing for $5,405, which he said he promised Mr. Friguglietti would be paid once Ms. Shakori paid ALLC.

[133] Ms. Shakori did not challenge the billing evidence from Mr. Shafiei. She challenged this evidence based on the analysis of the state of completion done by Mr. Souzankar. As stated earlier, I do not accept that analysis as a fair reflection of the ALLC cost.

[134] Mr. Shafiei’s first affidavit also attaches a chart showing the above noted invoices and the payments ALLC concedes Ms. Shakori made. The chart shows that Ms. Shakori paid ALLC $126,901.27 leaving a balance of $74,805.84. Mr. Shafiei says in his affidavit that he deducted a credit to Argo Lumber of $1,582, which brought the net total to $73,223.84. Ms. Shakori challenges the evidence about her payments.

[135] The chart in Mr. Shafiei’s original affidavit allocated the admitted Shakori $126,901.27 worth of payments to the trade and supplier invoices. This chart shows that, according to ALLC, the invoices that were not paid by Ms. Shakori were those from Modu-Loc Fence Rental, Nature’s Call, Arton, Argo Lumber, New Look Framing and Best Concrete & Drain. ALLC purported to render an invoice to Ms. Shakori on October 1, 2020 showing these alleged outstanding invoice amounts and the Argo Lumber credit credit, and the net balance of $73,223.84. There was minimal corroboration of the Shakori payments. I note that Mr. Shafiei’s affidavit contain copies of only four cheques from Ms. Shakori totaling less than $25,000.

[136] Ms. Shakori created a chart that she attached to her affidavit and that she said in her affidavit shows the payments she made to ALLC. The chart shows a total of $213,331,10. There was no corroboration for the entries in this chart.

[137] The Shakori chart shows had Ms. Shakori made three cash payments totaling $44,450 for demolition, excavation, shoring, footings and foundation work. Mr. Shafiei in his reply affidavit and in cross-examination conceded the two cash payments totaling $15,000. Mr. Lachmansingh in closing submissions asserted that these two cash payments were acknowledged in the produced ALLC accounting records that form the basis for the claim for lien; but I saw no evidence in support of that submission.

[138] Concerning the one cash payment of $29,450 for Arton’s work on the footings and foundation, Ms. Shafiei’s evidence was equivocal. He said that officially he “did not acknowledge receipt” of this cash, but then added that Ms. Shakori may have made the cash payment to Arton or its forces for the labour on Arton’s invoice 117-120 dated June 24, 2017 for footing and foundation work. He attached to his second affidavit the original Arton invoice number 117-120 dated June 24, 2017 issued directly to Ms. Shakori in the amount of $60,402.53 and a second invoice from Arton to Ms. Shakori with the same number, 117-120, and the same date but in the much lesser amount of $25,525.49. Mr. Shafiei conceded that Ms. Shakori may have paid Arton the labour portion of that invoice in cash to reduce her HST liability. Given this evidence, I am not satisfied that ALLC has met its onus of showing that this cash payment of $29,450 was not paid.

[139] There remains a discrepancy between the parties as to payment. Adding the $126,901.27 payments originally conceded by ALLC and the $44,450 cash payments I now find should be added produces a total of $171,351.27 in payments. Yet, Ms. Shakori alleges that she paid $213,331.10. This leaves a discrepancy of $41,979.83.

[140] I have decided to find in favour of ALLC on this issue. While ALLC has the onus of proving its claim for lien, there is an evidentiary onus shift on this issue to Ms. Shakori. She no doubt has the proof of the payments she alleges she made, and she made no effort to produce that corroboration. On the other hand, I am impressed with the detail and work Mr. Shafiei went to in creating an accounting record. As a result, I draw an adverse inference against Ms. Shakori on this issue and find that she does not have the corroboration for the alleged $41,979.83 in payments. Furthermore, as stated earlier, I find generally that Ms. Shafiei was a more credible witness than Ms. Shakori.

[141] As a result, I find that Ms. Shakori made $171,351.27 in payments to ALLC or on ALLC’s account, that ALLC’s cost to its trades and suppliers totaled $201,707.11, and that the balance is $30,355.84. This amount plus the $8,580 of unpaid HST on the paid management fee produces a claim for lien of $38,935.84.

[142] I find that ALLC has a lien in the amount of $38,935.84.

c.2) Management fees

[143] As for non-lien damages, ALLC claims the future management fees it says it would have received had it completed the work. Damages for breach of contract include what the innocent party would reasonably have expected to receive had there not been a contract breach; see LDR Contracting Inc. v. Filion,1996 CarswellOnt 2862 (OCJ Gen. Div.) at paragraph 67. ALLC has the onus to prove these damages.

[144] Under the Amendment Agreement, ALLC would have been entitled to receive 15% of “the total Hard/Soft Construction Cost.” In cross-examination, Ms. Shakori conceded that her total construction cost (hard and soft costs) was $491,950.48. ALLC claims 15% of that figure, plus the HST on the result, less the $66,000 for the management fees already paid. Given Ms. Shakori’s admission, I find that ALLC has established a reasonable expectation to compensation for management fee at the rate of 15% of $491,950.48 plus the HST less the fee already paid.

[145] The ALLC calculation of these damages is an issue. As stated at the beginning of these reasons, I believe that ALLC did not properly account for the $8,580 of HST on the paid management fees included in the claim for lien. Therefore, I find that the calculation of the damage for management fees is as follows: $491,950.48 x 0.15 = $73,792.57; $73,792.57 x 1.13 = $83,385.60; $83,385.60 – ($66,000 + $8,580) = $8,805.60.

[146] I find therefore that ALLC is entitled to damages for management fees in the amount of $8,805.60.

c.3) Profit share

[147] Under the Amendment Agreement ALLC is entitled to a half share of the profit defined as the difference between the “actual hard cost of construction” and $220 per square foot of the footprint of the house (other than the basement). Of course, the assumption was that the actual costs would be less than the $220 per square amount.

[148] I have found that that footprint of the house as contemplated by the Amendment Agreement is 2,477.21 square feet, and that the following is the fixed price from which the profit is to be calculated: 2,477.21 x 220 = $544,986.20.

[149] As stated earlier, Ms. Shakori conceded in cross-examination that her total construction cost (hard and soft) was $491,950.45 (excluding the basement). ALLC would be entitled to dissect that figure to determine the “hard cost” component only in order to be consistent with the Amendment Agreement. It did not do so in ALLC’s submissions. ALLC relies instead on the gross total cost of $491,950.45, which is a position contrary to ALLC’s interest and favourable to Ms. Shakori. I, therefore, adopt ALLC’s position without further analysis. As a result, the calculation of the ALLC profit share is as follows: ($544,986.20 - $491,950.45)/2 = $26,517.88.

[150] I find therefore that ALLC is entitled to damages for lost profit in the amount of $26,517.88.

VI. CONCLUSION

[151] In conclusion, I find that ALLC has a lien in the amount of $38,935.84, and that it is also entitled to a personal judgment for damages in that amount. ALLC is also entitled to a personal judgment for damages for expected management fees of $8,805.60 and profit of $26,517.88. The total of these entitlements is $74,259.32. I dismiss the Shakori counterclaim.

[152] As to costs and interest, I required that the parties deliver cost outlines for the reference including the trial hearing. They did so.

[153] On December 11, 2020 ALLC delivered a Bill of Costs that appears to show a total of $124,354.17 in partial indemnity costs, $157,850.86 in substantial indemnity costs, and $173,353.90 in full indemnity costs. On December 11, 2020 Ms. Shakori delivered a Costs Outline that shows a total of $54,270.11 in partial indemnity costs, $82,140.17 in substantial indemnity costs, and $96,075.19 in full indemnity costs.

[154] If the parties cannot otherwise agree on costs and interest, ALLC must deliver written submissions on costs of no more than five (5) pages on or June 7, 2021. Ms. Shakori must deliver written submissions of no more than five (5) pages on or before June 21, 2021. Any reply written submissions cannot be longer than two (2) pages and must be delivered on or before June 24, 2021.

[155] These written submissions must in addition to any issues the parties may wish to raise, deal with the following issues:

• the costs for the reference that should be awarded, and the basis for doing so;

• the settlement discussions between the parties; and

• the prejudgment and post-judgment interests that should be applied.

[156] If the parties are unable to agree on the form of my final report, an attendance may be required to settle the report.

Released: May 26, 2021 __________________________

MASTER C. WIEBE

COURT FILE NO.: CV-17-585106

DATE: May 26, 2021

ONTARIO

SUPERIOR COURT OF JUSTICE

In the matter of the Construction Act, R.S.O. 1990, c. C.30

BETWEEN:

Arctic Lawn, Landscaping & Construction Inc.

Plaintiff

• and -

Sadaf Shakori

Defendants

REASONS FOR JUDGMENT

Master C. Wiebe

Released: May 26, 2021