COURT FILE NO.: CV-19-618119 DATE: March 18, 2022

ONTARIO

SUPERIOR COURT OF JUSTICE

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

BETWEEN:

DARIUS GIBOWIC and VIOLETA GIBOWIC Plaintiffs

AND:

MICHELLE SHOLZBERG-TSILKER, EDWARD TSILKER and THE BANK OF NOVA SCOTIA Defendants

COUNSEL: Andrew Ostrom for the plaintiff, Tel.: 416-268-7433, Email: andrew@debousquet.com, Christine Jonathan and Daniel Litsos for Michelle Sholzberg-Tsilker and Edward Tsilker; Tel.: 416-364-3325; Email: cjonathan@msmlaw.ca.

HEARD: October 6, 7, 8 and November 10, 2021.

Associate Justice C. Wiebe

REASONS FOR JUDGMENT

I. INTRODUCTION

[1] This reference concerns this one action wherein the plaintiffs, Darius and Violeta Gibowic, claim a lien and damages for breach of contract in the amount of $151,424 plus delay damages in the amount of $10,000. The defendants Michelle Sholzberg-Tsilker and Edward Tsilker deny these claims and assert a counterclaim for damages that is now in the amount of $106,327.45. The action as against the Bank of Nova Scotia has been dismissed.

II. BACKGROUND

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

[3] In August, 2017 Edward Tsilker and his wife, Michelle Sholzberg-Tsilker, were living in a house on Brunswick Avenue, Toronto. They wanted to custom-build a new home. Together they will be called “the Tsilkers.”

[4] Their realtor, Joan Potter-Smith, found a listing for a property in Etobicoke, 30 Thompson Avenue (“the Property”). The listing price was $2,850,000. The listing contemplated the demolition of the existing home and the construction of a custom-built home by the sellers.

[5] The Property was owned by Violeta Gibowic, whose husband Darius Gibowic is a builder. The Gibowics, who resided at another residential address, 244 Grenview Boulevard South, Etobicoke (“Grenview”), had already obtained permits and architectural drawings for the project at the Property. Mr. Gibowic was to run the project.

[6] Ms. Potter-Smith approached the realtor for the Gibowics, David Oey. On September 17, 2017, the Tsilkers had a walk-through of two residential renovation projects Mr. Gibowic had done, Grenview and 4 Hunthill Court, Etobicoke (“Hunthill”).

[7] The Tsilkers were interested. They met Mr. Gibowic in their Brunswick Avenue home in late September, 2017. Ms. Potter-Smith was present. There was a discussion about features, fixtures, colours and appliances. It was understood that the construction cost would form part of the purchase price of the Property.

[8] The two realtors exchanged emails and came up with an arrangement which would give Mr. Gibowic advances from the purchase price to fund the construction. The arrangement involved a collateral second mortgage (there was an existing first mortgage) in the amount of $800,000 in favour of the Tsilkers. This collateral second mortgage was never registered.

[9] On September 27, 2017 Mr. Gibowic sent the Tsilkers a draft building contract under the name of his construction company, Luft Construction. This draft specified a construction budget of $900,000. On September 28, 2017 Mr. Gibowic sent the Tsilkers a draft construction budget totaling $862,000.

[10] On September 29, 2017 the Tsilkers sent the Gibowics an agreement of purchase and sale (“APS”) that provided for a purchase price of $2,850,000 and had a closing date of June 15, 2018. It contained a Schedule A that required the parties to execute a separate construction contract. It contained a Schedule C specifying features the Tsilkers wanted.

[11] On October 1, 2017 the Gibowics signed this APS. On the same day both parties signed the construction contract (“the Luft Agreement”).

[12] Work proceeded. Mr. Gibowic used primarily his own forces. Significant issues arose concerning lighting, the audiovisual equipment, tiles and appliances. There was one instance where the Tsilkers signed off on a change in advance, namely the change to cathedral ceilings on the second floor. This was paid for.

[13] Starting February, 2018 Mr. Gibowic started sending Mr. Tsilker budget sheets comparing the budget breakdown with what Mr. Gibowic said were the costs to date associated with each budget item. The first budget sheet was dated February 2, 2018. It showed a budget breakdown total of $811,860 and the costs to date for each budget item. The $811,860 total remained in future budget sheets.

[14] Mr. Gibowic sent the next budget sheet on May 20, 2018 showing finished items in colour. This sheet indicated that some items were finished at cost below budget for those items, and some above budget for those items. The total was below the budgeted total.

[15] There was a delay. The closing was extended on consent to September 28, 2018.

[16] On June 14, 2018 Mr. Gibowic sent his third budget sheet. The shown total cost to date that was less than the budget total.

[17] On July 10, 2018 Mr. Gibowic sent his fourth budget sheet. It continued to show a total cost to date that was less than the $811,860 budget total. Again, as before, finished items were coloured and they varied between cost that exceeded the budgeted amount and cost that were less than the budgeted amount.

[18] On September 8, 2018 Mr. Gibowic sent his fifth budget sheet. For the first time, it showed a total cost to date that exceeded the $811,860 budget total. The amount of the excess was $9,984. Again, as before, finished items were coloured.

[19] Construction was not done by September 28, 2018. There was another agreed upon extension of the closing to October 10, 2018. In the meantime, the Tsilker sold their Brunswick Avenue home with a closing contemplating this date.

[20] In October, 2018 Mr. Gibowic began insisting on being paid extra money. He demanded $80,000. Mr. Tsilker said that he was surprised by this demand.

[21] The construction was still not done by October 10, 2018. Nevertheless, the sale closed on October 10, 2018. At the Tsilkers’ insistence $50,000 was held back from the purchase price on account of the uncompleted work and concerns about deficiencies. There was a statement of adjustments at the closing that showed the $50,000 holdback but not any seller entitlement to further payment. The Tsilkers stayed in a hotel for three days before moving into the Property.

[22] Work continued, although Mr. Gibowic was largely absent due to health reasons. Some of his forces carried on. On October 20, 2018 Mr. Gibowic sent his sixth budget sheet. It showed a gross overage of $86,084.

[23] Mr. Gibowic ceased working in early January, 2019. On January 16, 2019 Mr. Gibowic sent his seventh and final budget sheet. It showed total construction costs of $961,424 and a gross overage above budget of $149,564.

[24] On February 27, 2019 the Gibowics registered a claim for lien in the amount of $161,424. Mr. Gibowic takes the position that the final agreed upon construction budget amount was $860,000. The claim for lien amount is the difference between the alleged total cost of $961,424 less this $860,000, $101,424. Added to that is the $50,000 holdback and the $10,000 in claimed delay costs, producing the lien amount of $161,424.

[25] On April 15 2019 the Gibowics purported to perfect the lien by commencing this action and on April 16, 2019 registering a certificate of action. On May 9, 2019 the Tsilkers served a Statement of Defence and Counterclaim. A Reply was served on May 30, 2019.

[26] On September 12, 2019 the Gibowics obtained a judgment of reference from Justice Cavanagh referring this action to a Toronto Associate Justice. There was an order for trial on October 2, 2019. I became seized of the reference when I held the first trial management conference on February 10, 2020. I gave orders and directions for necessary interlocutory steps. I held trial management conferences on August 5, 2020 and September 14, 2020.

[27] At the trial management conference on September 14, 2020 I scheduled a three-day trial to take place on March 10, 11 and 12, 2021. There was a trial management conference on January 25, 2021 when, due to issues concerning Ms. Jonathan, I adjourned the trial to October 6, 7 and 8, 2021. At the trial management conference on September 13, 2021 I added the November 10, 2021 trial date.

[28] The trial hearing took place on October 6, 7, 8 and November 10, 2021. The Gibowics called as witnesses Mr. Gibowic, Wojciech Radzikowski (the project supervisor), Darek Herbus (the electrician), Mr. Oey and an expert, Drago Banovic. The Tsilkers called as witnesses Mr. Tsilker, Ms. Potter-Smith, Ms. Sholzberg-Tsilker, Joe Caporrella (the Tsilkers’ completion contractor), Derek Zaretsky (the Tsilkers’ appliance supplier), Galina Zbrizher (the Tsilkers’ lighting designer) and Adam Mastromartino (the Tsilkers’ landscaper).

[29] Another affidavit sworn by one Sergio Zeppieri was filed by the defendants. However, this person did not appear and at the end of the defendants’ evidence on October 8, 2021 I struck his affidavit. After filing written closing submissions, the parties made closing arguments on November 10, 2021.

III. ISSUES

[30] Based on the evidence and submissions, I find that the following are the issues to be determined:

a) What type of construction contract did the parties have? b) Are the plaintiffs entitled to extras? c) Are the defendants entitled to back-charge for deficiency correction? d) Are the defendants entitled to back-charge for uncompleted work? e) Are the plaintiffs entitled to delay damages? f) Was the claim for lien registered in time?

IV. WITNESSES

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

[32] Mr. Gibowic is a party to this action and therefore had an understandable bias that must be considered. What gave him some credibility was his admissions of obvious weaknesses in his case, such as the absence of backup for labour costs due to cash payments and the absence of written approvals for extras as required by the Luft Agreement. But this was offset by the general lack of corroboration for his evidence. For instance, Mr. Gibowic’s assertion as to what was included in the base scope for the contract suffered from a lack of backup. He said he relied on his experience in renovating Hunthill and Grenview in preparing the base scope for the Property, but he provided no evidence as to what those projects entailed.

[33] The evidence of Mr. Gibowic’s project management showed a general lack of concern about accountability. There were the absences noted above, namely the absence of backup for labour costs and the absence of written advance approval for extras. Critically, he insisted he got advance verbal approvals from Mr. Tsilker for what he, Mr. Gibowic, would be charging extra. But there was no solid corroboration for this assertion in the correspondence. This showed that Mr. Gibowic was at minimum sloppy in creating a paper trail in support of his cost claims. At worse, it left me wondering whether Mr. Gibowic could be believed at all. In the end, Mr. Gibowic came across as a builder who did not take care in following his own contract and in accounting for his claims. This significantly and adversely affected his credibility.

[34] Mr. Radzikowski, the project manager, is a longtime contractor for Mr. Gibowic and, therefore, had a natural bias in his favour. Mr. Radzikowski worked on several projects for Mr. Gibowic such as the nightclub project that was going on at the same time as this project. He gave evidence concerning the completion of the work and the defendants’ deficiency claim. A large part of his evidence was hearsay. It was also lacking in corroboration. I noted that he became defensive at times. I found his evidence of limited value.

[35] Mr. Oey, the Gibowic realtor, gave limited evidence primarily about the creation of the APS. He got a key part of his affidavit wrong, namely that no budget was discussed at the time of the initial meeting between the parties on September 17, 2017. This lapse affected his credibility.

[36] Mr. Herbus, the principal of H.D. Electric Inc., gave evidence about the electrical work he did on the project. He spoke through an interpreter. He admitted having a long history working with Mr. Gibowic, which suggested a bias in his favour. In cross-examination Mr. Herbus’ evidence changed somewhat. He initially insisted that he had experience working with the lighting system the defendants wanted. Then he admitted that he was not a Creston installer and that this project was more complex than previous projects he had worked on. He said that his increase in cost was due to this complexity and then said it was due to changes and delay. These changes affected his credibility.

[37] The final witness for the plaintiff was the expert, Drago Banovic. He was qualified to give opinion evidence on the issues of deficiencies, state of completion and delay. He said he attended at the site on June 25, 2020 well after the project. He was only given the pleadings and the Scott Schedule; none of the evidence on record. He took photographs and got information from Mr. Gibowic. In his report he went through the Scott Schedule and gave his opinion on each item raised by the plaintiffs. Because of this limited evidentiary foundation, Mr. Banovic struggled to go beyond general commentary. Most interesting were his comments on the state of completion he observed. He in fact identified continuing deficiencies. This gave his evidence credibility, but the issue was the limited scope of his relevant opinion.

[38] The defendants’ primary witness was Mr. Tsilker. As a party, Mr. Tsilker had an understandable bias. During an effective cross-examination, Mr. Tsilker was also caught in several inconsistencies. For instance, in his affidavit Mr. Tsilker stated that he hired his audio-visual equipment supplier when it became clear that Mr. Herbus could not install it. At discovery, on the other hand, Mr. Tsilker said he always planned to use his own supplier. In his affidavit, Mr. Tsilker insisted that baseboards were always in the scope; but text messages put to him showed that there had been a change to baseboards during construction. His insistence that the construction cost was $900,000 conflicted with emails he received at the time of the APS negotiation showing construction payments totaling $800,000. At times Mr. Tsilker became haughty in tone. This all gave Mr. Tsilker the look of one capable of exaggeration.

[39] The defendants’ next witness was Joan Potter-Smith, the defendants’ realtor. She gave evidence about the negotiation of the APS. She frankly admitted that the budget for the construction was $800,000 with an additional $100,000 deposit. Critically, she went on to say that the $800,000 was not “a construction number,” and that it was what the Tsilkers could afford. She admitted not knowing much about Schedule C and the Luft Agreement. Ms. Potter-Smith was the most credible witness. She was measured and careful in her tone and evidence, despite the limited scope of what she addressed.

[40] The defendants’ next witness was Michelle Scholzberg-Tsilker, the other defendant. Her affidavit evidence was limited and repeated much of what Mr. Tsilker said. She conceded that it was Mr. Tsilker who dealt with Mr. Gibowic concerning project “minutiae.” She stressed the importance of not exceeding the APS price. Noteworthy was her statement in cross-examination that Mr. Gibowic was building to a “budget” and that there would be extra payment if his net costs in the end exceeded the budget. This was a potential statement against interest that enhanced her credibility.

[41] The defendants called witnesses who worked on the project. There was Galina Zbrizher, an accomplished lighting designer and Mr. Tsilker’s aunt. She gave evidence on the various lighting designs she made. As a relative of Mr. Tsilker, Ms. Zbrizher had an understandable bias in favour of the defendants. For instance, she insisted that despite making six sets of lighting designs, there were no major changes and none that would cost the defendants more. She was quick to blame Mr. Gibowic and Mr. Herbus for installation issues. I treated her evidence with caution.

[42] Trades were called. Joe Caporrella was the completion contractor for the Tsilkers who worked on alleged deficiencies and uncompleted work. He frankly admitted he prepared his estimate of deficiency costs based on Mr. Tsilker’s list of deficiencies. He admitted he did not have an answer for the hardwood flooring issue. Darek Zaretsky was the appliance sales manager chosen by Mr. Tsilker to sell Mr. Gibowic the appliances for the project. He gave evidence on the appliance pricing. Adam Mastromartino was the landscaper who completed the landscaping for the Tsilkers. None of these witnesses had a stake in the outcome of the case. They gave their limited evidence in a straight-forward and credible manner.

[43] Given this analysis, I made no general conclusion on credibility, as each side had issues. The exceptions were Ms. Potter-Smith and the Tsilkers’ trades. I assessed credibility on an issue-by-issue basis.

V. ANALYSIS

a) What type of contract did the parties have?

[44] A critical issue in this case was whether the construction portion of the APS was a fixed price agreement or a cost-plus agreement. A fixed price contract is where the contractor commits to building a defined scope at an agreed to fixed price and takes the risk of getting the price wrong. A pure cost-plus contract is where the contractor commits to building a scope and is compensated for its costs of doing so without a limit.

[45] The plaintiffs’ position was initially unclear. In closing, Mr. Ostrom argued that there was an enforceable contract and that it was a mixture of fixed and cost-plus contract. I tried to understand this position. In the end it appears that the plaintiffs acknowledge that the non-construction portion of the APS was fixed price, and that the construction portion was cost-plus. The plaintiffs’ claim for lien is based on the final total in Mr. Gibowic’s running budget of construction costs adjusted to account for the alleged final budget limit of $860,000, namely $101,424. The evidence was clear that these budget totals purported to reflect the plaintiffs’ net cost position on the project.

[46] The defendants, on the other hand, take the position that the construction portion of the APS was always fixed price and that that fixed price portion was $900,000.

[47] The law of contract interpretation seems to have changed to some degree. It used to be the case that the court would look into evidence of surrounding circumstances and the intentions of the parties only if the face of the contract was ambiguous; see Shewchuk v. Blackmont Capital Inc., 2016 ONCA 912 (Ont. C.A.) at paragraph 39. In Sattva Capital Corp. v. Creston Moly Corp., 2014 SCC 53, [2014] 2 S.C.R. 633 at paragraph 47 the Supreme Court of Canada held that the guiding principle should be determining “the intent of the parties and the scope of their understanding.” In the same paragraph the Court stated the following: “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.”

[48] The extent to which this is a change is an open question. In Sattva in paragraph 57 the Supreme Court stated that surrounding circumstances “must never be allowed to overwhelm the words of [the] agreement.” As to what surrounding circumstances can be considered, the Court was specific in paragraph 58 in limiting those to “objective evidence of background facts at the time of the execution of the contract . . . , that is, knowledge that is or reasonably ought to have been within the knowledge of both parties at or before the date of contracting.” I will apply these principles to this issue.

[49] I start with the wording of the APS. In my view, it quite clearly shows a fixed price arrangement for the construction portion of the APS. First, Schedule A to the APS includes a commitment by the plaintiffs to build the home in accordance with the Luft Agreement, which is then attached. The only reference to construction pricing appears in the Luft Agreement. It states that “the cost for construction and material as described above will be $900,000.” This figure is not described as a “budget” or as an “estimate.”

[50] There is then a description of how this “cost of construction” is to be paid: $350,000 is to be paid at the time of the contract on October 2, 2017 with $100,000 of that amount to be held by Harvey Kalles in trust; the remainder, $550,000, is to be paid in equal $110,000 installments on specified dates every month starting December 15, 2017. The only reasonable interpretation is that this is a fixed price “cost” to the defendants for the project to be paid in installments. Nowhere in the APS (including the Luft Agreement) is there reference to the cost to the defendants being dependent on the plaintiffs’ cost.

[51] Second, and most importantly, it is undisputed that the construction “cost” forms a part of the overall price of the APS, namely the $2,800,000. The base document of the APS is the OREA standard form of agreement of purchase and sale. It obviously contemplates a fixed price arrangement for the sale, which is not surprising as the court can take judicial notice that most sales of residential real estate are done by way of fixed price. Parts of the standard form underscore this arrangement. There is reference to “adjustments” to be made to the purchase price at closing. These adjustments are stated to be for specific items such as mortgage interest, rents and utility charges. There is no reference here to increases or decreases in the plaintiffs’ construction costs. Also, in Schedule C there is the statement that the buyer will pay the “balance” (after deposit) of the purchase price to the seller on closing subject to these adjustments and any credits for loans from buyer to seller. Again, there is no reference here to increases or decreases in the plaintiffs’ construction costs.

[52] As to the reason Mr. Gibowic proceeded this way by embedding the construction project and cost into the sale of the Property, I was not given an explanation. However, I note that Mr. Gibowic admitted in cross-examination that he remitted no HST to the government on this project. He also admitted paying for his labour in cash and not remitting tax in that regard.

[53] Third, the only parts of the APS that contemplate a change in the price relating to construction are in two places. In Schedule C there appear in bolded print the words, “any upgrades in construction will be provided at builders’ cost.” Then in the Luft Agreement there are the following key words: “No work will be done on this property other than that specified in this Contract without additional charges and without written authorization of owners.” Owners here refer to the Tsilkers. These two clauses indicate that there will be extra charges if there is an upgrade or work that is outside the scope of the contract. This is entirely consistent with the concept of fixed price contract as the fixed price pertains to a defined scope. If the scope changes, there should be an entitlement to an adjustment in the price.

[54] The idea of a fixed price contract was also consistent with the evidence of what the parties expected in the APS at the time of the contract. Controlling construction costs was a key part of the contract negotiation. Ms. Potter-Smith, who was present during the negotiation of the APS, indicated in her affidavit that the Tsilkers could only afford $800,000 plus the $100,000 deposit. She said she advised Mr. Oey that the Tsilkers could not pay more than $800,000 in construction costs. In cross-examination she reiterated that the $800,000 was “not a construction number” as this was the limit of what the defendants could afford. Both Tsilkers stated that they were very concerned about money. They recalled that during the negotiation with Mr. Gibowic on the APS price Mr. Tsilker spoke out of turn and agreed to the listed price of $2,850,000 on condition that the defendants would not pay more, including the cost of construction.

[55] The plaintiffs’ evidence indicated that Mr. Gibowic accommodated this concern. Mr. Gibowic admitted telling the Tsilkers that he carried a “budget” of $800,000 for the construction and that he would only charge them extra should the “choices” they made about design and finishes exceed that budget. Mr. Oey, the other realtor involved in the negotiation, was less subtle. He said in his affidavit that Mr. Gibowic advised the Tsilkers that he had a construction budget of $800,000 and that he would charge extra for changes, namely the concept of a fixed price contract.

[56] What Ms. Scholzberg-Tsilker admitted in cross-examination must be placed into the context of these discussions and the words of the APS. She does not have extensive construction experience. What she called “cost overruns” could very well have meant changes that increased the costs of construction and that could be offset by “costs savings,” namely changes that decreased the costs of construction. This interpretation is consistent with the concept of a fixed price contract that appears in the APS.

[57] Mr. Ostrom made the argument that the scope of the contract was uncertain. He argued that a fixed price contract is formed only when the scope of the contract is solidified or there is a mechanism whereby the costs of changes can be incorporated into the price. He referred me to the decision of Justice Conlan in Georgian Flooring Centre Ltd. v. Goslin & Goslin, 2018 ONSC 560. In this case, the court held that an oral fixed price contract had been formed that differed from the scope in the contractor’s estimate. In my view, this case stands simply for the proposition that there must be a meeting of the minds as to the scope and a mechanism to incorporate changes. Mr. Ostrom referred me to my decision in The Gatti Group Corp. v. Zuccarini, 2020 ONSC 2830. In this case, I found in paragraph 84 that there was no agreement as a scope but that there was an agreement as to as mechanism to defining the scope and changes to the scope once the final design was produced. I found that this was sufficient to create a contract.

[58] I agree with these propositions. But they do not assist the plaintiff. I find that there was enough detail in the APS to create a defined scope, despite considerable uncertainty. Mr. Gibowic indicated that he had prepared a design and obtained permits before listing the Property for sale. He said that this design was based on his work on Hunthill and Grenview. There was no evidence as to what was done on those projects, and the Tsilkers only saw those other properties briefly.

[59] Nevertheless, the evidence showed that there was a defined scope to the construction. Ms. Scholzberg-Tsilker admitted knowing and accepting that Mr. Gibowic’s base design was grounded on his earlier work. Indeed, Schedule A of the APS states that the house was to be completed in accordance with the materials, finishes and quality of Hunthill. Furthermore, and most importantly, significant discussion about the scope happened when the parties met at the Tsilkers’ residence on Brunswick Avenue and when they negotiated and signed the agreement. There was considerable detail in Schedule C, the Luft Agreement and the attached David Small architectural drawings. To these were added several handwritten entries created by the parties during negotiation. This satisfies me that considerable detail about the scope was discussed and agreed upon.

[60] There were indeed many aspects of the written specifications that were open-ended. For instance, Schedule C stated that “Purchaser shall have the option of fully customizing the interior.” In the Luft Agreement it says the following: “Provide opportunity to involve lighting designer in the project.” With these open-ended clauses and with the Tsilkers limited knowledge of Mr. Gibowic’s original underlying design, the APS created many opportunities for changes. But this leads to my second and most important finding.

[61] As in Georgian and Zuccarini, I find that there is a mechanism in the contract in this case whereby changes would be incorporated into the price. This is the provision that prohibited changes to the scope “without the written authorization of owners.” I find that this clause explicitly or implicitly required that Mr. Gibowic, the one with the knowledge of his original design and with the knowledge of what was in his “budget,” had the onus of getting the Tsilkers’ prior written approval for all changes for which he would be charging them extra. Given the many “grey areas” in the contract scope and the Tsilkers’ limited knowledge of Mr. Gibowic’s original design, this onus was a heavy one indeed. Mr. Gibowic should have abided by the Luft Agreement in this regard.

[62] There is a final issue concerning the construction contract, namely whether the fixed price agreed to was $900,000 as the defendants allege. In my view, the contract indicated that the fixed price agreed to was $800,000. As stated above, the $900,000 “costs for construction and material” in the Luft Agreement clearly included the $100,000 deposit for Mr. Oey’s commission that was to be held by his firm Harvey Kalles pending the completion of the sale. This $100,000 up-front payment of commission and the holding of same by Harvey Kalles was referred to in the first page of the APS and at length in Schedule B. The $800,000 figure was the figure Ms. Potter-Smith referred to in her evidence as being the figure the Tsilkers could afford to pay for construction. Furthermore, during the contract negotiation the two realtors discussed setting up a second mortgage in favour of the Tsilkers in the amount of $800,000 to secure their construction payments. These efforts were reflected in an email Ms. Potter-Smith sent to Mr. Oey on September 28, 2017. The second mortgage never came to fruition, but these discussions confirmed what was indicated in the Luft Agreement, namely that the price for the construction work was $800,000. That is what I find.

[63] One final note on this issue. It is undisputed that this fixed price was changed in the course of construction on consent to $860,000.

b) Are the plaintiffs entitled to extras?

[64] A critical question in the case is whether the plaintiffs have established an entitlement to the claimed extra charges. They have the onus of proving this claim.

[65] To reiterate, the Luft Agreement incorporated by reference into the APS specified that there would be no charges for work outside the scope of the contract without the “written authorization of the owners.”

[66] As to whether Mr. Gibowic ever obtained the “written authorization of the owners” for changes, he said this in his affidavit: “I did not prepare written change orders for the various changes requested by the Tsilkers. Although the APS provides for this, in practice I find it inconvenient to prepare paperwork each time one of my clients requests a change.” This was a fateful decision by Mr. Gibowic given the Tsilkers limited knowledge of Mr. Gibowic’s underlying original design and the open-ended nature of many of the scope items in the APS.

[67] There is one telling exception to this statement that is undisputed. Mr. Tsilker stated throughout his affidavit that the Tsilkers signed off on the change to cathedral ceilings on the second floor and paid for that change. Mr. Gibowic did not dispute this statement. This evidence is in effect an affirmation of the process for signing off on changes as mandated by the APS.

[68] Despite this evidence, Mr. Gibowic maintained in his affidavits and Mr. Ostrom argued in closing that Mr. Tsilker verbally approved changes and agreed to pay extra for them. This would have been an amendment to the contract by conduct. Mr. Tsilker was firm in his affidavit and cross-examination that he never gave such approval either verbally or through emails and texts.

[69] Did this verbal approval happen? There was no evidence of such approvals in relation to specific alleged changes other than Mr. Gibowic’s uncorroborated recollection, a recollection that Mr. Tsilker denied.

[70] Mr. Gibowic’s best other evidence for these verbal approvals was his periodic budget documents concerning his construction costs. He sent these budget documents on seven occasions starting on February 2, 2018. He asserted that these documents formed the basis for the verbal discussions he said he had with Mr. Tsilker and showed that Mr. Tsilker approved of payment for cost “overages” for changes. Mr. Tsilker in cross-examination denied this. He said that these budgets contained Mr. Gibowic’s own calculations and that the only budget item he ever agreed to was the original one that appeared in the Luft Agreement, $900,000.

[71] Having considered the evidence, I do not find these budget documents to be proof of verbal approvals by the defendants for extra charges for changes. First, they were documents that were created after the fact, namely after the completion of the work and the incurring of the costs. They did not show advance approvals of any kind for changes.

[72] Second, they were documents that tracked all costs, not costs as related to changes in the scope. I have found that the underlying contract was a fixed price contract. That means that there would be an entitlement to increased cost only with a change in scope, not just an increase in cost over budget. These budget documents tracked all costs. In a fixed price contract, simple cost overruns over budget without a change in scope is a risk born by the contractor.

[73] Third, the baseline budget total shown on these documents was not what I have found to be the fixed price for the construction portion of the APS, namely $800,000. It was another figure, namely $811,860, which Mr. Gibowic described as his own “proper initial budget.” This just shows that the budget was indeed Mr. Gibowic’s own internal tracking system that did not correlate to the construction contract price. This is exactly what Mr. Tsilker alleged.

[74] Mr. Gibowic alleged that Mr. Tsilker was constantly concerned about budget items being exceeded, thereby showing that the defendants had in fact agreed verbally to pay for costs overages as shown in the budget documents. Mr. Tsilker denied this. There was no credible corroboration for this assertion. There were emails from Mr. Tsilker where he inquired about budget items. For instance, on February 6, 2018 Mr. Tsilker send an email questioning why Mr. Gibowic had spent $6,000 on kitchen millwork as shown in his first budget. This was just an inquiry, not a concern. There were texts showing that Mr. Tsilker made inquiries as to what work was included in the budget. For instance, on April 20 and 21, 2018 Mr. Tsilker sent texts asking as to whether wiring and stone were included in the budget. This is evidence of a concern about scope, not budget. On June 28, 2018 Mr. Tsilker sent texts discussing “savings” in the vanity budget. This email and the kitchen millwork email noted earlier were not expressly addressed by Mr. Tsilker. Nevertheless, I do not accept them as proof that the defendants had agreed to pay for the cost overages shown in the budget. They can just as easily be viewed as evidence of the defendants’ concern about assisting Mr. Gibowic in meeting his budget to avoid a crisis in project completion. After all, in late June, 2018 the parties were in the middle of a closing date extension.

[75] Mr. Gibowic asserted that Mr. Tsilker “pressed” him to increase the budget from $811,860 to $860,000 to reduce the defendants’ risk of cost overage payment. Mr. Gibowic asserted that Mr. Tsilker promised to pay any of Mr. Gibowic’s costs that exceeded this new figure. While it is undisputed that this change in “budget” happened, there is no corroboration for the assertion that Mr. Tsilker “pressed” him to do this or promised to pay costs that exceeded this figure. This is Mr. Gibowic’s uncorroborated recollection. Mr. Tsilker, on the other hand, stated in his affidavit that this new figure came from Mr. Gibowic’s admission that the original budget number was too low. I note that there was an April 6, 2018 email from Mr. Gibowic wherein he states that the old budget figure of “$811K” had changed “with contingencies” to between “$850K and $860K.” This supports Mr. Tsilker’s evidence.

[76] There was the argument that changes took place in the project that should have created a reasonable expectation in the defendants to pay extra for the changes. Mr. Ostrom made the argument that where an owner knows changes are taking place and acquiesces in the work, the owner has been found to have impliedly approved the changes and the extras; see D & M Steel Ltd. v. 51 Construction Ltd., 2018 ONSC 2171 at paragraph 60.

[77] I accept the legal point, but do not find that it applies here. I reiterate that the project originally specified in the APS was based on Mr. Gibowic’s underlying design that the Tsilkers had limited knowledge of. There were also several open-ended clauses concerning big items that could have created a reasonable expectation with the Tsilkers, and did, that all work in those areas was covered by the fixed price. For instance, there was the option to go with Wolf and Subzero appliances. There was statement that all cabinetry was to be custom designed by the owners. There was the statement that Mr. Gibowic was to give the owners the opportunity to involve their own lighting designer. There was the statement that the owners had a selection of specified tile. With all of these “grey areas” in the contract scope, it was incumbent on Mr. Gibowic to follow strictly the change order mechanism in the Luft Agreement to create an entitlement to payment for extras. He did not.

[78] Furthermore, there was in this case no pattern of payment for extra work that was orally approved as there was in Colautti Construction Ltd. v. City of Ottawa, a pattern that caused the court in that case to find an implied approval for the disputed extras.

[79] Finally, I emphasize the undisputed evidence that there was one change that was paid by the Tsilkers in this case, and it was because it was approved in writing in advance, namely the change to cathedral ceilings on the second floor. This is evidence of the pattern that was followed, namely the process specified in the Luft Agreement for extras. This evidence plus the wording of the Luft Agreement in the APS made it clear that written change orders were critical to an entitlement to payment for extras.

[80] In his affidavit Mr. Tsilker addressed another perspective on the issue of the defendants’ reasonable expectations. The APS specified that only scope changes that increased Mr. Gibowic’s costs would be paid at his cost. Whether Mr. Gibowic incurred additional cost from changes was not clear to the Tsilkers. Mr. Tsilker said that some changes should have had minimal cost impact. In this regard, he talked about the removal of the TV niche, the relocation of the wine room and the change in layout of the main washroom. The last two items he said were done before much work in those areas had started. He said that the millwork was specified in the APS. The movement of the shower head he said was a deficiency issue. In the end, I do not find that the Tsilkers impliedly approved extras.

[81] I make a final comment about what happened at the sale closing on October 10, 2018. The Gibowic budget of September 8, 2018 showed an overage of almost $10,000. The budget dated October 20, 2018 showed an overage of just over $86,000. Mr. Tsilker swore in his affidavit that in October, 2018 Mr. Gibowic started demanding payment for extras in the amount of $80,000. This assertion was corroborated by a Gibowic text message dated November 5, 2018 wherein Mr. Gibowic demanded payment of $80,000 in extras. But at the closing on October 10, 2018 these demands were not raised in the closing documents. Mr. Gibowic said in his affidavit that this was because the accounting was not completed.

[82] The doctrine of merger is not relied upon by the defendants; but it is curious that the parties agreed to have the Tsilkers’ hold back $50,000 on account of uncompleted work that they both agreed was the case, but that they made no provision for Mr. Gibowic’s demands for extra payment. This is further evidence that the Tsilkers had not agreed to pay extras as Mr. Gibowic alleges.

[83] As a result, I find that the plaintiffs have not met their onus of proving an entitlement to extra payment.

c) Are the defendants entitled to back-charge for deficiency correction?

[84] As stated above, at the closing on October 10, 2018, the parties agreed to allow the defendants to hold back $50,000 to secure completion of the work including the deficiency correction work. This holdback was reflected in the statement of adjustments at the closing.

[85] The Tsilkers subsequently took $39,840.93 from the holdback to pay for what they assert are 15 items of deficiencies and uncompleted work they paid for. They want those withdrawals confirmed.

[86] In closing argument, the plaintiffs conceded the claimed back-charges against the holdback concerning eight items totaling $7,529.59. The plaintiffs also concede “some” of the following two items: the Coachwood work on a plumbing leak; and the North Beach landscaping work. The plaintiffs accept a total back-charge against the holdback of $10,000, which would leave the plaintiffs with a lien for $40,000 concerning the holdback.

[87] Concerning notices of deficiencies, in her written submissions Ms. Jonathan referred me to documents in the joint document book in this regard that had not been made a part of the evidence of any witnesses. However, there was no issue raised as to inadequate notice.

[88] In her closing argument, Ms. Jonathan made concessions reducing the defendants’ claim against the holdback to what she said was $35,274.72. I had trouble following all her submissions in this regard. The defendants nevertheless want the unpaid remainder of the holdback as well.

[89] The following are the issues I noted from the closing argument. The defendants have the onus of proving these claims.

c.1) Plumbing leak: $1,994.45

[90] Mr. Caporrella stated in his affidavit that he repaired damages from a leak due to improper installation of the braided supply line running to the shower head in the master bedroom, completed installation of a fan in the mechanical room, replaced a cracked hose bib, and installed a receptacle. He charged the Tsilkers $1,994.45 for this work.

[91] Neither Mr. Gibowic nor Mr. Radzikowski dealt with this item. As stated above, Mr. Ostrom stated in closing argument that the plaintiffs accepted “some” of these charges but did not specify how much.

[92] I find that the defendants have proven entitlement to this claim either on account of deficiency correction or uncompleted work.

c.2) Landscaping: $10,712.40

[93] Mr. Mastromartino stated in his affidavit that he found the landscaping unfinished or substandard. He said that there was no sodding or seeding and that the grading, if done, was improper as there was an unacceptable slope and height to the yard. He said he found buried debris. He described the repair and completion work he did. He billed the Tsilkers $12,718.15. The Tsilkers claim $10,712.40 of this bill for the landscaping repair work.

[94] Again, the plaintiffs accept “some” of this item, but do not specify how much. Mr. Radzikowski stated in his affidavit and in cross-examination that he completed the grading and sodding. Obviously, that was not the case.

[95] I find that the defendants have proven an entitlement to this back-charge.

c.3) Wine room racking: $2,458.88

[96] It is undisputed that the APS included a wine room. Mr. Tsilker stated in this affidavit that this room was not finished as it had no shelving. He purchased the shelving from Rosehill Wine Cellars for $2,458.88 and produced an invoice as proof.

[97] Mr. Radzikowski alleged in his affidavit that there was an “argument” between Mr. Tsilker and Mr. Gibowic about whether Mr. Gibowic should do the wine room shelving. He said that he did not complete the shelving as a result, but that he finished the remainder of the wine room.

[98] There is no corroboration for the assertion that the wine room shelving was to be supplied by the Tsilkers. As a result, I accept that the defendants have proven an entitlement to this back-charge.

c.4) Wine cellar: $3.430.77

[99] The Tsilkers paid Mr. Caporrella to work on the wine room. In his affidavit Mr. Caporrella stated that he supplied and installed the millwork and wall panels and the racking system Mr. Tsilker bought. There was a defective ventilation sensor that Mr. Caporrella said he replaced. Coachwood charged the Tsilkers $3,430.77 for this work.

[100] Again, all Mr. Radzikowski said in response was that he completed the wine room other than the shelving. Obviously, that was not the case given Mr. Caporrella’s credible evidence.

[101] I find that the Tsilkers have proven an entitlement to this back-charge.

c.5) Appliance handles: $861.06

[102] Ms. Jonathan referred me to an order form to Best Brand for $861.06 dated December 21, 2018 concerning the supply of three Sub-Zero and Wolf appliance handles. This document appears in the joint document book. None of the witnesses referred to this document.

[103] However, Mr. Tsilker and Mr. Zaretsky discussed the appliance issue at length in their evidence. The Sub-Zero and Wolf appliances were specified in the APS. As a result, I am prepared to conclude that Mr. Gibowic did not complete the installation of the appliances to the extent of installing the handles.

[104] I find that the Tsilkers have established an entitlement to this back-charge.

c.6) Lighted mirrors: $6,533.61

[105] The Tsilkers claim a back-charge in this amount for the alleged failure by Mr. Gibowic to pay for lighted mirrors. Ms. Jonathan referred me to an invoice in the joint document book from Lumidesign dated April 16, 2018 concerning mirrors. April 16, 2018 was during the Gibowic work. She said Mr. Gibowic paid a deposit of $3,000 for these mirrors when he should have paid the entire amount. None of the witnesses discussed this document or this issue. I could not find this item in the APS. Therefore, I am not prepared to grant this back-charge as I am uncertain as to whether this item was in the contract scope. I deny this back-charge.

[106] Adding these figures produces the following total: $7,529.59 + $1,994.45 + $10,712.40 + $2,458.88 + $3.430.77 + $861.06 = $26,987.15. I find that the Tsilkers have a proven entitlement to back-charge the holdback in the amount of $26,987.15.

[107] That means that the plaintiffs have a lien concerning the holdback in the amount of $50,000 - $26,987.15 = $23,012.85.

d) Are the defendants entitled to back-charge for uncompleted work?

[108] The Tsilkers claim $46,931 on account of work they allege was in the contract scope that Mr. Gibowic did not complete. This amount includes the above noted appliance handle issue and therefore I reduce the figure to $46,069.94.

[109] The items claimed are seven in number: the uninstalled barbecue station; exposed steel beams; absent stone round the porch; absent metal panels; uninstalled outdoor fireplace; phantom screens and their installation; and an uninstalled humidifier. This work has not been done. Indeed, it has not been started. The figures claimed to do this work come from an estimate Mr. Caporrello gave to Mr. Tsilker in January, 2019.

[110] Curiously, the Tsilkers rely on the evidence of the plaintiff’s expert, Mr. Banovic. In his report dated June 25, 2020, Mr. Banovic stated that he visited the site on that day, 1 ½ years after Mr. Gibowic ceased working, and made observations concerning the Scott Schedule, including observations about the items of deficiencies raised by the Tsilkers. He noted several unaddressed deficiencies and uncompleted work: uninstalled phantom screens; uninstalled stone around the porch; the absence of a built-in barbecue station; the exposed steel beams; the need for painting and plaster touch-ups; an absent outdoor heater; and the non-repair of the metal coping.

[111] Other evidence muddied the waters of this back-charge. Messrs. Radzikowski and Gibowic asserted that the outdoor fireplace and barbecue station were removed from the contract scope, and that the metal panels were replaced with stucco. This was not contested. Indeed, Ms. Potter-Smith confirmed that she gifted the outdoor fireplace to the Tsilkers. There was no evidence that Mr. Banovic was made aware of these arrangements.

[112] On the other hand, in the Scott Schedule the plaintiffs essentially admit not installing the phantom screens. They do not address the exposed steel beams. The plaintiffs also assert that the stone was put around the porch, but this contradicts what Mr. Banovic said he saw. I find Mr. Banovic credible in reciting what he saw. The plaintiffs also do not deny the points Mr. Banovic made about the painting, plaster and heater.

[113] What troubles me about this back-charge is that the Tsilkers have lived in the house now for well over three years and there was no evidence that they have taken steps to address these issues. This despite the fact there is money remaining in the holdback fund. As Mr. Ostrom argued, one can draw a reasonable inference from this that the Tsilker have accepted these issues.

[114] Ms. Jonathan suggested in closing argument that I apply the present remaining funds in the holdback, $10,159, to this back-charge. Given the muddied nature of the evidence about this back-charge and Mr. Caporrello’s estimates of the costs to complete the items that the plaintiffs should have completed but did not, I have decided to apply a more modest back-charge of about half that figure, $5,000.

e) Are the plaintiffs entitled to delay damages?

[115] The plaintiffs claim $10,000 in delay damages. Essentially, this delay claim concerns the delays in closing from June 10, 2018 to September 28, 2018 and then to October 10, 2018. These delays in closing arose directly from the delay in the project, as the Tsilkers needed to get to 90% of completion to get their financing to close. It was undisputed that the project was not at 90% completion by June 10, 2018.

[116] The delays in closing caused additional running costs for the plaintiffs concerning property taxes and mortgage interest on the Property. Mr. Ostrom argued that the monthly totals for these two items was $3,277 and that the total for the entire delayed closing period was $13,108. The plaintiffs claim $10,000 acknowledging that they have some responsibility for the delay.

[117] Ms. Jonathan disputed this quantum. Using the method suggested by Mr. Banovic in cross-examination, she compared the mortgage discharge statement issued by the mortgagee as of June 10, 2018 with the mortgage discharge statement as of mortgage maturity on October 1, 2018. That difference was $10,572.94. She argued that the plaintiffs in fact paid more on closing and that the difference was only $9,285. She argued in her written submission that the parties were equally responsible for the delay and that the plaintiffs should only get half that amount, $4,642.50.

[118] There was no corroboration for the statement about what the plaintiffs actually paid on closing. I am also not prepared to accept Ms. Jonathan’s calculation in general given the prepayment of the property taxes shown on the June 10, 2018 discharge statement. This is not a fair comparison. I accept the $13,108 figure from the plaintiffs.

[119] The first delay in closing was triggered by an email Mr. Gibowic sent on April 6, 2018 wherein he suggested an increase in the “budget number” to $850,000 to $860,000. He suggested that the delay was due to delays in the electrical work, millwork and tiles. He said that if there were no further delays, he could finish by the end of August, 2018. The parties agreed to extend the closing as was their right in the APS.

[120] The project did not finish by the end of August, 2018. Indeed, although obviously beyond 90% completion, the project did not completely finish by the time of the extended actual closing on October 10, 2018. The Tsilkers had to stay in a hotel for three nights at a cost of $2,093.23. Mr. Radzikowski continued working after the Tsilkers moved in.

[121] As Mr. Ostrom stated in closing argument, the plaintiffs accept some responsibility for the failure to meet the extended closing dates of September 28, 2018 and October 10, 2018. These failures, the plaintiffs accept, were due to some extent to Mr. Gibowic’s diminishing health in the late summer and fall of 2018.

[122] I also note the admission by Mr. Radzikowski in cross-examination that he was heavily involved in another large, restaurant/nightclub building project for Mr. Gibowic in the summer and fall of 2018. He also admitted working on other projects for Mr. Gibowic at that time. The project leadership was indeed diminished in the late summer and fall of 2018.

[123] I make one last comment here as well about the original delay that caused the closing to be extended from the original closing date of June 10, 2018. The evidence indicates that a major contributor to this delay was the issue of Ms. Zbrizher’s lighting design. Ms. Zbrizher provided six designs; but her evidence was clear that Mr. Herbus should have had most of the information he needed from the first design. Mr. Herbus continued to have problems. He admitted in the end to finding the work on this project more complex than on previous projects. I conclude as a result that the plaintiffs contributed to the initial delay as well due to the lighting issues.

[124] I agree with Ms. Jonathan’s suggestion that responsibility for the delayed closings should be divided equally between the parties. The Tsilkers created complexities to the project that Mr. Gibowic could not have entirely anticipated when he set the closing date schedule.

[125] Half of $13,108 is $6,554. I find that the plaintiffs are entitled to $6,554 in damages for the delayed closings.

[126] Mr. Ostrom argued that some of the delay damages, namely the payment of the property taxes, added value to the improvement and, therefore, should be lienable under the authority of Krupp Canada Inc v JV Driver Projects Inc., 2014 ABQB 259 in paragraph 151. I do not agree, and I was presented with no authority that such payments have such a nexus to the improvement as to give rise to lien rights.

f) Was the claim for lien registered in time?

[127] The claim for lien was registered on February 27, 2019. The old Construction Act applies to this case. That means that the plaintiffs must have either “completed” or “abandoned” the project work on or after January 13, 2019 for the claim for lien to be registered in time. Did that happen?

[128] I am satisfied that the project work was not “completed” by January 13, 2019. That is obvious from my discussion above concerning the uncompleted work that the Tsilkers did. This work exceeded in value the $1,000 threshold under the old Construction Act for deeming the work completed. The issue is, therefore, whether the plaintiffs abandoned the work on or before January 13, 2019.

[129] The defendants allege that after November, 2018 Mr. Radzikowski ceased new construction and that he attended at the site only to correct deficiencies. Deficiency correction work does not extend the running of the lien period: see Micon Interiors General Contractors Inc. v. D’Abbondanza Enterprises Inc. at paragraphs 48 and 49. The defendants also argue that the claim for work during this period was somewhat suspicious and of the “bootstrapping” kind referred to in Urbacon Building Groups Corp. v. The Corporation of The City of Guelph, 2012 ONSC 81 at paragraph 4.

[130] Mr. Radzikowski testified in his affidavit that he attended with his crew at the site on January 16, 2019 to complete various tasks including the installation of the back steps. He also said that he and his crew attended on May 16, 2019 to perform various tasks including parging of window wells and installing a step. Most importantly, attached to Mr. Radzikowski’s affidavit were text messages between Mr. Tsilker and Mr. Radzikowski showing that on December 21, 2018 Mr. Tsilker asked Mr. Radzikowski to attend to drill hand towels and selves for the mudroom. The texts also show that on January 16, 2019 Mr. Radzikowski and his crew attended at the site to install a valance. These texts continued well after January 16, 2019 and all concerned Mr. Radzikowski returning to the site to perform work. The items discussed do suggest deficiency corrections. However, the entirety of this evidence satisfies me that the plaintiffs continued some new construction and had not “abandoned” the project work on or before January 13, 2019.

[131] I, therefore, find that the claim for lien was registered in time.

VI. CONCLUSION

[132] In summary, I find that the plaintiffs have a lien in the amount of $23,012.85, being the remainder of the holdback after the set-off for deficiency correction work done by the Tsilders. The Tsilkers are also personally liable to pay the plaintiffs this amount.

[133] I also find that the Tsilkers are personally liable to pay the plaintiffs breach of contract damages in the net amount of $1,554 being the difference between the plaintiffs’ entitlement to damages for delay, $6,554, and the Tsilers’ entitlement to damages for completion costs, $5,000.

[134] I directed that the parties file costs outlines concerning this reference. The plaintiffs filed a bill of costs that showed a total of $39,433.01 in partial indemnity costs, $56,320.30 in substantial indemnity costs and $61,949.39 in actual costs. The Tsilkers filed a bill of costs that showed $74,779.49 in partial indemnity costs, $103,876.49 in substantial indemnity costs and $113,575.49 in actual costs.

[135] If the parties cannot agree on a costs award, all those seeking costs must serve and file written submissions on costs of no more than three pages on or before March 30, 2022. All those responding to these costs submissions must deliver responding written submissions on costs of no more than three pages each on or before April 11, 2022. Any reply written submissions of no more than two pages must be served on or before April 14, 2022.

[136] Please note that these written submissions must address the prejudgment and post-judgment interest to be calculated and paid on the judgment amounts.

Released: March 18, 2022

ASSOCIATE JUSTICE C. WIEBE