Gregor Homes Ltd. v. Woodyer et al.

BRACEBRIDGE COURT FILE NO.: CV-18-00000159

DATE: 20220711

ONTARIO

SUPERIOR COURT OF JUSTICE

BETWEEN:

Gregor Homes Ltd.

Plaintiff

– and –

Julianne Christine Woodyer and Steven John Nikifork

Defendants

COUNSEL:

Judith Turner, for the Plaintiff

Neil Abbott and Erica Johnston, for the Defendants

HEARD: February 1, 8-12, 16, 17 and 26, 2021 and January 13-14, 2022

REASONS FOR Judgment

MCKELVEY J.:

Introduction

[1] This action arises out of a contract for the construction of a new home by the defendants. The construction was governed by the terms of a contract which provided for cash allowances for a number of items covered under the contract. During the course of construction a number of the cash allowances were exceeded. The defendants were billed and paid for the amounts in excess of the cash allowances. Upon completion of the contract, the plaintiff sent a request for payment of the hold-back. The defendants refused to pay the hold-back amount which resulted in this claim by the builder. The homeowners have counterclaimed and claimed a set off for the amounts which are in excess of the cash allowances. They also claim damages for work which is alleged to have been defective.

Interpretation of the Construction Contract

[2] Article 2.1 of the construction contract provides as follows:

Subject to the inclusion of any upgrades pursuant to paragraph 2.4 of this Agreement, the owner shall pay the builder the sum of ($506,901.45) plus HST at 13% (the “contract price” $572,798.64).

[3] Paragraph 2.2 (a) of the contract provides as follows:

Any and all design changes, inclusions or extras (collectively, the “upgrades”) which are requested by the owner, subsequent to the owner executing this Agreement, must be acknowledged in writing by both the owner and the builder and the appropriate amendment(s) shall be made to the contract price.

[4] Under section 2.4 of the contract:

The builder acknowledges the right of the owner to retain a construction lien hold-back from the final payment as required by the Construction Lien Act. The owner agrees that any such hold-backs shall be released to the builder on the forty-fifth (45th) day following the date of payment for substantial completion of the builder’s contractual obligation.

[5] Under Article 1.1, the builder agreed to perform all of the work as required to construct the home in a good and workman-like manner in accordance with the plans and specifications attached as schedules. Schedule A sets out a list of specifications for the new home. For eleven items, Schedule A sets out that, “a cash allowance has been included for this item”. Under Schedule C, cash allowances are set out. For example, $10,000 is allocated for a well. $20,000 is set out for a septic system. $7,500 is set out for the driveway. $10,000 is set out for stairs and railings, including staining.

[6] As it turned out, the cost for a number of the cash allowance items went substantially over budget. On those items the defendants take the position that this was a fixed price contract and they are not responsible for any overages above the cash allowance price. The defendants rely on the fact that none of the changes were requested by them and they did not, therefore, constitute “upgrades” to which they are liable under the contract.

[7] The issues raised by the defence on the cash allowance issue involve the following:

1. The construction of the septic system;
2. The construction of the driveway and lot clearing;
3. The construction of a well;
4. The construction of stairs and railings in the home;
5. The construction of a fireplace in the home;
6. The construction of garage doors;
7. The staining of the house;
8. The backsplash in the kitchen; and
9. The purchase of locks and handles for exterior doors.

[8] In addition to the above, the defendants claim for repairs to the roof and an air vent that were installed as part of the construction. The defence also claims for the additional cost of an air conditioning unit which was purchased after the home was completed. Further, the defendants claim for the cost of certain deficiencies in failing to paint some of the interior walls and problems with the exterior stairs, the alleged failure to properly grade the back of the house, and a failure to replace the kitchen cupboards and doors, as well as cracked newel posts. Finally, the defendants’ claim for the cost of staining the home following the completion of its construction. They assert that this cost was included in the price of the contract.

Background

[9] The home in question was constructed in Muskoka on Sparrow Lake. The plaintiff Gregor Homes Ltd. (“Gregor Homes”) is a local builder. The defendants lived in Toronto and purchased a 15 acre property on Sparrow Lake in 2009. In 2017, they decided to move from their residence in Toronto. Their plan was to sell their Toronto home, build a new home on Sparrow Lake, and use the remaining proceeds from the sale of their home in Toronto to finance the education of their son who was 16 at the time and also to build a nest egg for retirement. The defendants became interested in purchasing a pre-fabricated home from Timber Block Homes. The particular model of home they were interested in was called the “Labrador” Model Home.

[10] Timber Block Homes, as the manufacturer of the pre-fabricated home was not responsible for the actual construction of the home. Instead they recommended that the defendants contract with Gregor Homes for the actual construction. The defendants followed up with Gregor Homes and had a number of meetings with James Bazely who was the president of the company. During their discussions with Mr. Bazely, they emphasized that they were on a very tight budget and that they could not afford any financial surprises. In the meetings with Mr. Bazely, there were some draft budgets prepared which set out the work that was to be done and itemized costs allocated for the work.

[11] Prior to the signing of the contract, Mr. Bazely was provided with an email from the defendants dated February 16, 2017. This email set out details of what they were hoping to build. For example, in the great room, it was specified that they wanted a floor to ceiling fireplace clad in cultured stone, with raised hearth and a large timber mantel. They also wanted a wood burning fireplace insert with a blower suitable for heating.

[12] In the kitchen, they specified they were looking for mission style cabinets with glass in at least some of the uppers. In this email they also raised a number of questions based on their budget. For example, they asked,

We would like to consult with you further about the exterior cladding on the walkout basement. We really like the cultured stone, but doubt our budget would support it. Instead of full cultured stone, wondering what the cost savings would be to cover only the bottom three to four inches of wall space with stone with the rest of the wall above it in wood siding.

[13] The parties entered into a construction contract dated May 25, 2017. Under paragraph 4.2 of the Agreement, it states,

This Agreement supersedes all prior negotiations, representations, warranties or agreements, either written or oral, relating in any manner to the construction of the home on the property, and can only be amended in writing signed by both parties.

[14] During the course of the construction the defendants signed off on overages for a variety of costs which exceeded the cash allowances.

[15] On August 27, 2018, after completion of the construction the defendants wrote to the plaintiff. They reviewed the cost overages and noted that, “the total cost overrun for these and other items that Gregor Homes negligently underquoted or failed to provide is $74,096 plus HST”. The defendants noted that as lay people they had no way of knowing the cost of allowance items, that they provided details of exactly what they wanted in advance of the contract and relied upon the expertise of Gregor Homes to exercise due diligence when providing estimated costs for these items. They also refer to the fact that they were very clear that their budget was tight and that they could not afford any financial surprises. They refer to the fact that Mr. Bazely assured them that he would include “healthy” amounts for all allowances to ensure there were no surprises so long as they did not make any material changes. In the letter the defendants make it clear that they would not be making the final hold-back payment and that they would hold Gregor Homes financially responsible for the difference between the value of the final draw and the amount of their “damages”.

The Issues to be Resolved in this Case

[16] According to the defence submissions there are five issues to be resolved in this case. They are as follows:

1. Did the parties enter into a fixed price contract that only allows for an increase in price in accordance with section 2.2 thereof?
2. Does an overage of the cash allowance values described in Schedule “C” to the contract result in an increase in price if no upgrade is made by the homeowners in accordance with section 2.2 thereof?
3. If an overage in the cash allowance changes the contract price, does the negligence of Gregor Homes in determining the cash allowance and/or the negligent misrepresentation of Gregor Homes in repeatedly telling the home owners that the cash allowance was “healthy and generous” relieve the home owners from liability for any overage?
4. Notwithstanding the foregoing did the home owners waive the fixed price in the contract by signing various subtrade estimates and quotations and/or the two change orders from Gregor Homes?
5. If the home owners are entitled to set off and counterclaim against the claim of Gregor Homes, what is the appropriate amount of damages?

The Interpretation of the Contract in Relation to Cash Allowances

[17] An important issue in this litigation is the proper interpretation of the construction contract and whether the provisions with respect to cash allowances allowed the builder to increase the cost of the contract when the cash allowances have been exceeded. The defence position is that this was a fixed price contract and that unless there was an “upgrade” as defined under paragraph 2.2, they have no obligation to pay any overage.

[18] I start from the proposition that the goal of contractual interpretation is to ascertain the objective intentions of the parties. It is a fundamental principle of contractual interpretation that a contract must be construed as a whole. These principles are clearly set out in the Supreme Court of Canada decision in Sattva Capital Corporation v. Creston Moly Corporation, 2014 SCC 53 (see paras. 55 and 64).

[19] Further, the Supreme Court of Canada decision in Sattva makes it clear that the surrounding circumstances will be considered in interpreting the terms of a contract, although 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 parol evidence rule does not apply to preclude evidence of the surrounding circumstances. Such evidence is consistent with the objective of finality and certainty because it is used as an interpretive aid for determining the meaning of the written words chosen by the parties, not to change or overrule the meaning of those words. The interpretation of a written contractual provision must always be grounded in the text and read in light of the entire contract.

[20] The nature of the evidence that can be relied upon under the heading of surrounding circumstances will necessarily vary from case to case. However, it should consist only of objective evidence of the background facts at the time of the execution of the contract, that is, knowledge that was or reasonably ought to have been within the knowledge of both parties at or before the time of contracting. The parol evidence rule precludes admission of evidence outside the words of the written contract that would add to, subtract from, vary or contradict a contract that has been wholly reduced to writing. The parol evidence rule does not, however, apply to preclude evidence of the surrounding circumstances. Such evidence is consistent with the objectives of finality and certainty because it is used as an interpretive aid for determining meaning of the written words chosen by the parties, not to change or overrule the meaning of those words. The surrounding circumstances are facts known or facts that reasonably ought to be known to both parties at or before the date of contracting. Therefore, the concern of unreliability does not arise (see paras. 57-61 of the Sattva decision).

[21] In considering the contract in this case, I have concluded that the provisions of Articles 2.1 and 2.2 must be read in conjunction with the provisions of Schedule A which identify that certain items are subject to a cash allowance which has been included for the item. The cash allowance is set out under Schedule C. So, for example, under Schedule A it talks about the design and installation of a septic system and notes that, “a cash allowance has been included for this item”. The cash allowance identified under Schedule C for a septic system is set at $20,000. I interpret this provision to mean that if the cost of a septic system exceeded this amount, the cost overage would be the responsibility of the defendants.

[22] The defendants argue that the contract for construction of their home is a “fixed price” contract and that there is no provision for increases in the price they are required to pay unless there is an “upgrade” requested by them. The defendants rely on Article 2.1 of the contract which as noted previously states, “subject to the inclusion of any upgrades pursuant to paragraph 2.4 of this Agreement the owners shall pay the builder the sum of $572,798.64”. The applicable provision with respect to “upgrades” is found in Article 2.2 (as opposed to 2.4 of the Agreement). Article 2.2 provides for a definition of upgrades as follows: “Any and all design changes, inclusions or extras (collectively, “the upgrades”) which are requested by the owner, subsequent to the owner executing this Agreement, must be acknowledged in writing by both the owner and the builder and the appropriate amendment(s) shall be made to the contract price.” [Emphasis Added.] It is apparent from the wording of the contract that “extras” are to be added to the contract price. Schedule C sets out a series of cash allowances. The cash allowances are referenced in Schedule A which deals with the house specifications. For example item 6 of Schedule A refers to a “rough in driveway”. A cash allowance has been included for this item. It is apparent that the cash allowance represents the anticipated cost for this item but that it is subject to increase or decrease based on the actual cost. I base this conclusion on the fact that most items under Schedule A are not covered by a cash allowance and that the term in its ordinary meaning suggests that an amount has been “allowed for” in the context of any cash allowance item and that the exact cost is to be determined at a later time.

[23] The defendants argue that they did not “request” any “upgrades” and that these extra costs were in fact passed on to them by the builder. However, for each of the cash allowance items, they were signed off by Mr. Nikifork. He clearly approved of any cost overages on the cash allowance items. By doing so I have concluded that he was requesting the extra in question. The defendants were clearly aware of the implications of signing off on an additional quotation for a cash allowance item. This is reflected in Mr. Nikifork’s email dated August 9, 2017 when he responded to the quotation from Robinson Haulage for the new septic system which was a cash allowance item and which came in above the cash allowance price. He states in his email:

Approved.

Also, we were expecting a quote on pushing in the driveway from Rob. Can you please provide us with a status on that estimate as well?

[24] I infer from this email that Mr. Nikifork was approving the additional charge over the original cash allowance for the septic system.

[25] Similarly, the defendants signed off or approved all the other items where there was a claim in excess of the cash allowance.

[26] As noted by the Court of Appeal in Soboczynski v. Beauchamp, 2015 ONCA 282, at para. 60, it is clear that the subsequent actions of the parties may be admissible to explain the true meaning and intent of the agreement.

[27] All of this leads me to conclude that there was a clear commitment on the part of the defendants to pay to Gregor Homes any amounts which they approved on the cash allowance items. All of the cash allowance items in issue were approved and paid for by the defendants as the construction proceeded.

[28] This conclusion is further supported by the email written by the defendants at the conclusion of the construction and when they advised the plaintiff that they were not prepared to pay the final contract amount. In this email, the defendants stated,

As lay people, we have no way of knowing the cost of allowance items. Therefore, we provided details of exactly what we wanted in advance of the contract and relied upon the expertise of Gregor Homes to exercise reasonable care and skill (due diligence) when providing the estimated costs for these items. Additionally, James walked the property in early May, prior to the contract being signed, so he personally saw that the property was heavily forested, required clearing, and a 500 foot driveway (a detail also provided in writing prior to our first meeting).

[29] I infer from this paragraph that the defendants were well aware as to how the cost allowance system worked under the contract. There is in fact no claim in this email that the defendants did not understand how the cost allowance system worked. Instead, their claim was based on a claim of alleged negligence by Gregor Homes in quoting on the allowance items. This is reflected in the final paragraph of the August 22, 2018 email where the defendants state,

Given that Gregor Homes was negligent by ignoring the details we provided when quoting on the allowance items, and given that our contract, written by Gregor Homes, notes that, “the parties agree that each shall be responsible to the other for negligence and that each shall reimburse the other for any damages sustained by reason of the negligence of the other party, his, her or its agents, servants, employees or anyone acting on his or her behalf”, we hold Gregor Homes financially responsible for our damages; the cost overruns incurred during the build where no changes to the specifications had been requested. We look forward to Gregor Homes reimbursing us the difference between the value of the final draw and the amount of our damages.

[30] It is apparent when the defendants first advised of their refusal to pay the hold back amount, that their claim was not based on a failure to understand the cost allowance system but rather on an alleged claim in negligence by the defendants for failing to exercise reasonable diligence in calculating the cash allowances referenced in the contract.

[31] To the extent that there is any ambiguity in the terms of the provision, it is clear that the cash allowances were discussed in advance of the signing of the contract. The evidence of both Mr. Bazely and Ms. Woodyer were in agreement that the cash allowance provisions in the agreement were subject to a discussion prior to the signing of the contract. Mr. Bazely recalled that this discussion took place at the time of signing the Agreement, whereas Ms. Woodyer testified that this discussion took place in a parking lot following a meeting at the Timber Block premises. Ms. Woodyer testified that she did not really understand what a cash allowance was, but stated that Mr. Bazely assured them that if they provided detailed information he would develop a budget including the allowances. Mr. Bazely testified that he explained the cash allowance system to the defendants before the contract was signed.

[32] There is, therefore, a significant difference between the evidence of Mr. Bazely and Ms. Woodyer. On this issue I prefer the evidence of Mr. Bazely that he fully explained the operation of cash allowances under the proposed contract. I found Mr. Bazely to be a credible witness on this issue. He gave his evidence in a straightforward manner. Generally he did not hesitate to acknowledge evidence which went against his own interest. For example, he readily acknowledged having been told by the defendants that they were on a tight budget and that he also told them his cash allowances would be generous and healthy. He also acknowledged that the defendants told him that they were in financial distress as a result of the overages.

[33] On the other hand I found Ms. Woodyer’s evidence about not being told as to how the cash allowances work to be unpersuasive. There would be no reason for Mr. Bazely to mislead Ms. Woodyer about how the cash allowances worked. In addition, in an email dated August 16, 2017 from Ms. Woodyer to the plaintiff, she stated,

Thank you Melissa, but we would still like to have all the invoices any of the items that are within the cash allowance schedule. James told us up front that is the way he works so the savings fall back to us and there are no misunderstandings. Am I missing something, I can’t understand why this would be a problem since we are responsible to pay any overages or benefit of savings in those items.

[34] As is apparent, Ms. Woodyer has correctly summarized how the cash allowance system works. If all the cash allowance is not used up entirely, then the balance returns to the client. However, if the cost goes over, the owner is responsible for paying any overage.

[35] Ms. Woodyer was cross-examined about this email in her evidence. She maintained that this only applied to cash allowances where a higher cost of product was selected (for example, on the cost of flooring which was included as a cash allowance at $6/sq. ft). She referred back to the earlier email from a representative of the plaintiff where Ms. Almonte, the project coordinator for Gregor Homes stated, “The clearing in the driveway was a cash allowance item as the exact costs were unknown at the time of quoting. Just like the other cash allowance items in the contract. For example, we do not know yet what flooring you will put in, so right now your allowance is $6/sq. ft. If you pick something that is $7/sq. ft., you will pay an additional $1/sq. ft. If you pick something that is $5/sq. ft., you will be credited $1/sq. ft.”. It is readily apparent that the email from Ms. Almonte did not restrict the subject of cash allowances to items such as flooring.

[36] Further, there is an email from February 6, 2018 from Ms. Woodyer to Ms. Almonte where she requests copies of actual invoices and receipts. In the email she states,

I recall you sent us the invoices from suppliers for other items we requested when they went beyond the contract amount. Such as the driveway and clearing etc. Also invoices for other items that went beyond what was quoted in the contract.

As you know the driveway, clearing, septic and fireplace were way underestimated resulting in us going over budget by nearly $30,000 so far and cash flow remains tight, so we just want to see what we were paying for, in case there is some additional cost savings to be had. This item is also over budget, so I just want to review it like we did with the others.

[37] This is further evidence that the defendants were proceeding on the understanding that they were responsible for payment of overages where the cash allowance on a specific item was exceeded. I reject the defendants’ evidence that they did not understand what a cash allowance was or that they believed that they were not to be responsible for any increased costs associated with the cash allowance system which they signed off on.

[38] All of this leads me to conclude that the cash allowance provisions of the construction contract were intended by the parties as an estimate with respect to the cost for the cash allowance item and that the client would receive a credit to the extent that the cash allowance was not exhausted, but would also be responsible for any overage on that item.

[39] I accept at the same time that the defendants were legitimately upset by the cost overruns on the contract. They had made it clear to Mr. Bazely that they were on a tight budget and the cost overruns caused a significant financial hardship on them. This leads me to consider a further defence raised by the defence. They argue that Gregor Homes misrepresented the quote of what it would cost to build the home and that in any event, Gregor Homes was negligent in preparing the cash allowance amounts included in the contract.

[40] With respect to the negligent misrepresentation argument, Article 4.2 of the Agreement provides that the “Agreement supersedes all prior negotiations and representations, either written or oral, relating in any manner to the construction of the home.”

[41] I recognize that there is some controversy in the law over how these entire agreement clauses which specify that the written text agreed to by the parties constitutes the whole contract and excludes all representations made outside of the document. It is noted by Geoff Hall in his text: Canadian Contractual Interpretation Law (4th ed. 2020),

The main difficulty with entire agreement clauses is that fundamental principles of contractual interpretation pull in polar opposite directions when they are at play. On the one hand, the primary goal of contractual interpretation is to give effect to the parties’ intentions. Thus, if the parties express the intention to exclude everything outside of the contextual context, that intention should be respected and enforced. On the other hand, since the rise of the factual matrix in the 1970’s, the courts have eschewed a purely textual approach to contractual interpretation. Entire agreement clauses point towards a purely textual approach, thereby serving to exclude the very evidence that court’s want to consider in order to achieve interpretive accuracy. This fundamental tension remains unresolved in the caselaw meaning that there is little predictability to the enforcement of entire agreement clauses.

[42] In Soboczynski, the Court of Appeal noted that an entire agreement clause is generally intended to “lift and distill the parties’ bargain from the muck of negotiations”. In that case the court found that the entire agreement clause only covered representations made prior to or during the negotiations leading up to the signing of the contract. It did not apply to representations made after the agreement was signed. As noted in this case, all of the alleged misrepresentations pre-date the signing of the contract.

[43] There is some suggestion, however, that entire agreement clauses will not exclude misrepresentations which induced entry into the contract. This conclusion is based on a British Columbia Court of Appeal decision in Zippy Print Enterprises Ltd. v. Pawliuk, 1994 CanLII 1756 (BC CA), 100 BCLR (2d) 55 (BCCA). In that case the court stated,

A general exclusion clause will not override a specific representation on a point of substance which was intended to induce the making of the agreement unless the intended effect of the exclusion clause can be shown to have been brought home to the party to whom the representation was made by being specifically drawn to the attention of that party, or by being specifically acknowledged by that party, or in some other way.

[44] Mr. Bazely testified that he went through the contract in a detailed way with the defendants before it was signed. However, there is no evidence before me as to whether Article 4.2 of the Agreement was specifically brought to the attention of the defendants. Nevertheless, the substantive part of the Agreement is only four and half pages long and the provision in question is governed by a headline entitled “Entire Agreement”.

[45] There is a further issue with respect to the proper interpretation of Article 4.2 of the Agreement. In Beer v. Townsgate Ltd., 1997 CanLII 976 (ON CA), the court was dealing with a case of negligent misrepresentation where the purchase and sale agreement contained a clause similar to the one in issue here that there was, “no representation, warranty, collateral agreement or condition affecting this agreement or the real property or supported hereby other than as expressed herein in writing whether contained in any sales brochures or alleged to have been made by any sales representatives or agents.” In that case, the court noted that the existence of a contractual relationship between the parties does not preclude a claim in tort. In the decision, Justice Brooke stated, “I am not convinced that the wording of para. 24 precludes a claim in tort.”

[46] I have therefore come to the conclusion that the “Entire Agreement” clause would not preclude a claim for negligent misrepresentation.

[47] Having said that, the proper interpretation of the “Entire Agreement” clause would appear to be moot in light of Article 3.7 of the Agreement which provides as follows:

The parties agree that each shall be responsible to the other for negligence and that each shall reimburse the other for any damages sustained by reason of the negligence of the other party, his, her, or its agents, servants, employees or anyone acting on his, her or its behalf.

[48] The defendants assert that Gregor Homes was negligent in its calculation of the cash allowances and that they are therefore entitled to claim damages for the cash allowance overages which they incurred. The defendants argument is that the plaintiff negligently misrepresented the actual amounts which would be incurred in the cost allowances and that they are therefore entitled to claim damages for the cash allowance overages which they incurred. This therefore raises the same issue with respect to the alleged negligent misrepresentations of the plaintiff.

[49] The Supreme Court of Canada decision in 1688782 Ontario Inc. v. Maple Leaf Foods Inc., 2020 SCC 35, concludes that the manner in which pure economic loss is said to have occurred does not signify that the defendant whose negligence caused that loss owes the plaintiff a duty of care. The relevant “category” for purposes of supporting a duty of care is that of the proximity of the relationship.

[50] In the Maple Leaf Foods decision, at para. 21, the Supreme Court notes that pure economic loss may be recoverable in certain circumstances. One of these circumstances is a negligent misrepresentation or performance of a service. On the surface, therefore, it would appear that pure economic loss caused by a negligent misrepresentation is recoverable.

[51] As noted by the Court of Appeal in the Beer decision, there are five elements of the tort of negligent misrepresentation as set out in Queen v. Cognos Inc., 1993 CanLII 146 (SCC). These elements are as follows:

(1) there must be a duty of care based on a “special relationship” between the representor and the representee;

(2) the representation in question must be untrue, inaccurate, or misleading;

(3) the representor must have acted negligently in making said representation;

(4) the representee must have relied, in a reasonable manner, on said negligent representation; and

(5) the reliance must have been detrimental to the representee in the sense that damages resulted.

[52] At para. 32, of their decision in Maple Leaf Foods, the Supreme Court notes that in cases of negligent misrepresentation two factors are determinative of whether proximity is established. These factors are the defendant’s undertaking and the plaintiff’s reliance. Specifically, where the defendant undertakes to provide a representation in circumstances that invite the plaintiff’s reasonable reliance, the defendant becomes obligated to take reasonable care.

[53] I accept in the present case that the duty of care factor has been satisfied by the defendants. As noted previously, the defendants made it clear to Mr. Bazley that they were on a tight budget and that cost overruns would cause a financial hardship to them. The defendants provided details of exactly what they wanted in the home in advance of the contract and relied upon the expertise of Gregor Homes to exercise due diligence when providing estimated costs for the cash allowance items. The defendants had no reasonable way of ascertaining whether the cost allowances were reasonable and relied on Gregor Homes to come up with cash allowances which were reasonable. In these circumstances I am satisfied that there was a “special relationship” between the parties which created a duty of care.

[54] The second requirement is that the representation in question must be untrue, inaccurate or misleading. There is no doubt that in this case a significant number of the cash allowances were inaccurate and seriously under estimated the true cost of the work that was needed to be done.

[55] The next requirement is that the representor must have acted negligently in making the said representation. In connection with the alleged negligence, the defendants did not introduce any evidence before the court that Gregor Homes breached a standard of care in calculating the cash allowance estimates. While it is certainly clear that the estimates for the cash allowances were inaccurate, often by a large margin, there was no evidence introduced by the defendants that Gregor Homes acted negligently. While it is clear that the defendants impressed upon Gregor Homes that they were on a tight budget and the defendants also provided Gregor Homes with details of what they wanted for their new home, what is missing is evidence from the defendants to document in what manner Gregor Homes breached the standard of care. The plaintiff’s position generally was that they used historical data to develop the cash allowances. There was no evidence introduced by the defendants to challenge the plaintiff’s evidence in this regard or which would support a conclusion that the plaintiff was negligent in preparing the cash allowance schedule. In the end, while I was suspicious of the efforts made by Gregor Homes to come up with realistic estimates for the cash allowances, the defendants have not met the onus of establishing that Gregor Homes was in fact negligent in preparing its Schedule C estimates. For the above reasons, I have concluded that the defendants allegations of negligent misrepresentation must, therefore, be dismissed.

[56] A further issue which I have concluded would defeat the allegations of negligent misrepresentation is promissory estoppel. The principle of promissory estoppel was definitively spelled out in the 1991 Supreme Court of Canada decision in Maracle v. Travellers Indemnity Co. of Canada, 1991 CanLII 58 (SCC). This decision held as follows:

The party relying on the doctrine of promissory estoppel must establish that the other party has, by words or conduct, made a promise or assurance which was intended to affect their legal relationship and to be acted on. The representee must also establish that, in reliance on the representation, he acted on it or in some way changed his position.

[57] In the present case, the conduct of the defendants which is relied upon by the plaintiff is the defendants’ authorization agreement to pay the additional amounts for the cash allowance items and the subsequent payment for these cash allowance items. The plaintiff’s maintain that it was in reliance on the defendants’ representations that they proceeded to do the work.

[58] I agree that the doctrine of promissory estoppel precludes the defendants in the present case from arguing that they are entitled to claim damages for the cost overages on the cash allowance items. Their authorization of those charges constituted an unequivocal promise to pay those charges and it was clearly acted on by Gregor Homes who performed the work authorized by the defendants. It is significant to note that in a number of situations the defendants did not agree to pay for an item which would have involved an overage charge. For example, the defendants contracted with another contractor for the installation of the fireplace.

[59] In (Re) Med-Chem Health Care Inc., [2000] O.J. No. 4009, the court refers at para. 8 to the Ontario Court of Appeal decision in Owen Sound Public Library Board v. Mial Developments (1979), 1979 CanLII 1624 (ON CA), 102 D.L.R. (3d) 685 (ON CA). The court states in that decision that the Ontario Court of Appeal,

emphasized the importance to the doctrine of promissory estoppel of finding an intention to affect legal relations. With respect to proof of that element Lacourciere J.A. stated, “Knowledge by the promisor that the promisee is likely to regard the promise as affecting their legal relations constitutes an appropriate basis from which the inference of the existence of a sufficient intent can be drawn (at 693)”.

[60] The defendants argue that by authorizing the overages in the cash allowances, they were not abandoning their rights to claim reimbursement for the extra costs. They refer to emails complaining about the extra costs and the financial pressures they were under. In one email dated February 22, 2018, Mr. Nikifork wrote to Gregor Homes and stated,

I would once again like to reiterate our dismay that the $10k allowance for the stairs and railing identified by Gregor Homes was less than 1/3rd the actual cost to build the stairs and railing as originally specified. We had relied on Gregor Homes’ perceived, and stated expertise as an experienced builder to provide us with an accurate estimate as to the finished cost of our home so that we could ensure it would fit within our budget, and if not, we would have made design changes to ensure the build could be completed within our budget envelope. This is why we provided Gregor Homes with detailed specifications on all of our allowance items including the railings and stairs. We had no reason to believe that Gregor Homes would instead ignore the detailed specifications supplied them and provide us with a figure based upon irrelevant “historical numbers” instead of the floor plan, and visual reference provided as to the style of the staircase expected. And, we took Gregor Homes at their word when repeatedly reassured by its owner that all Gregor Homes allowances were “generous” so as to avoid financial surprises and acrimony down the road.

[61] Later in the same email, however, Mr. Nikifork stated,

Now, in a state of financial duress, we find ourselves needing to make tradeoffs on the stairs and railing we would not otherwise have made. Out of financial necessity, and our desire to mitigate our financial harm, we will proceed with the quote from H&J Unique Wood Works for $22,630 with the walled-in stairs and closed risers in the basement (basement stairs and hand rail will still be stained oak) and stay with the open staircase and railing (with simple black metal spinals) on the main floor and loft as proposed and consistent with the look of the Timber Block model home. You will find the signed estimate attached.

[62] While Mr. Nikifork clearly expresses his displeasure in the email about the cost overage for the stairway, at no point does he indicate an intention not to pay for the cost overage on the staircase. In fact he approves the estimate which was provided to him.

[63] It was always open to the defendants to hire another contractor to do the work covered by the Schedule C estimates. As noted previously, they did this by hiring their own contractor to install the fireplace. They also elected to forgo any stone on the walkout to the home which resulted in a credit of $12,000 which to some extent reduced the impact of the cost overages.

[64] It was not until after the home had been substantially completed on August 27, 2018 that the defendants first advised Gregor Homes that it was holding it responsible for the cost overages which totalled $74,096 plus HST. I have concluded, however, that the doctrine of promissory estoppel precludes them from asserting this claim.

[65] A further defence raised by the defendants arises out of the provision in the contract under Article 4.1 which provides that in the event of any dispute between the parties as to the interpretation, application or administration of the Agreement, the parties shall make all reasonable efforts to resolve the dispute by amicable negotiations before a third party mediator. If the dispute has not been resolved within a period of 10 working days after the mediator was requested to assist, either party may, by giving notice to the other party, refer the dispute to be finally determined by a single arbitrator.

[66] At the commencement of trial this provision was raised before the parties and a mediation was arranged which ultimately was not successful in resolving the dispute. With respect to the issue of a mandatory arbitration, Section 4 of the Construction Act, R.S.O. 1990, c. C.30 (which was in effect at the relevant time), provides as follows:

An agreement by any person who supplies services or materials to an improvement that this Act does not apply to the person or that the remedies provided by it are not available for the benefit of the person is void.

[67] The provisions of the Construction Act provide for the creation of a lien and a judgment from a court. I have concluded that the commencement of a civil action by the plaintiff and their failure to refer the matter to arbitration does not disentitle them to bring this case before the court for adjudication.

[68] The contract provided for a series of progress draws which also included a construction lien hold back of 10% which was due and payable 45 days after substantial completion of the home. The 10% hold back of $57,279.86 plus HST was never paid by the defendants. The defendants accept the accounting calculations of the plaintiff, but deny the plaintiff’s entitlement to recover this amount on the basis that it is entitled to set off its damages for the errors which were made in estimating the cash allowances. In addition, the defendants claim for a number of deficiencies in the work which was done by Gregor Homes.

[69] With the above noted general principles in mind, I turn now to the individual items which have been identified by the parties in this action.

The Septic System

[70] The septic system was covered by a cash allowance in the sum of $20,000. The quotation received for installation of the septic system was for the sum of $23,200 plus HST. Mr. Bazely testified that $1,900 of the increased cost was due to the fact that the septic had to be installed at the side of the house at an elevation above the basement level. Locating the septic at the side of the house required a sewage pump to be installed to pump the sewage up from the basement of the house to the septic.

[71] Mr. Nikifork was advised of the estimate for the septic system. In his response dated August 9, 2017, he stated, “approved”. In addition, Mr. Nikifork signed off on the quote which included the septic system. In my view, for the reasons stated above, Gregor Homes is entitled to claim for the cost in excess of the cash allowance for the septic system.

Driveway and Lot Clearing

[72] The cost of constructing a “rough-in driveway” was included in the contract with a cash allowance of $7,500. A quote from Robinson Haulage Inc. also included the cost to clear the site of trees and to haul the stumps off the property. The cost of the driveway as per the quote from Robinson Haulage Inc. which was provided to the plaintiff was $15,750 plus HST. The cost to clear the site of trees was $7,200 plus HST and there was an additional cost to haul stumps off the property of $3,800 plus HST.

[73] In responding to Robinson Haulage Inc. and Gregor Homes, Mr. Nikifork wrote an email as follows:

Thank you for venturing out to our property again. I have signed back the estimate less the $3,800 for hauling away the stumps. As I had indicated in a previous email, our preference is that you simply push the stumps into a pile out of the way somewhere and I will cut them up and burn them over time.

[74] Mr. Nikifork also signed off on the Robinson Haulage Inc. quote with the condition noted under his signature, “approved with deletion of $3,800 for hauling away stumps”.

[75] It is significant to note that Mr. Nikifork did not raise any issue with respect to the issue of the allowances for the construction of the driveway, nor did he raise any issue with respect to the additional cost for clearing trees.

[76] I have concluded that the cost overage for the construction of the driveway as well as the cost of clearing the construction site (less the $3,800 of hauling away the stumps) over the allowance of $7,500 are both claims that are properly charged to the defendants.

The Well

[77] On May 4, 2018, Ms. Almonte from Gregor Homes wrote to the defendants advising that they had received a quote for the well which totalled $13,500 plus HST. This contrasted with the cash allowance for the well which was set at $10,000. Mr. Nikifork responded by commenting to Ms. Almonte,

I know you would be disappointed if I didn’t ask why again is the best estimate $3,500 over the $10,000 allowance established by Gregor Homes when we have not changed any of our requirements.

[78] This was followed up by a further email on May 6, 2018, from Mr. Nikifork to Ms. Almonte which read as follows:

Further to my email below, there is absolutely no reason that the estimate should be over the allowance as initially established by Gregor Homes. The requirements have not changed. If you did not do your due diligence before creating the allowance, it is not our responsibility. We have no more funding and will pay the $10,000 as per the original allowance. You will need to find out a way to economize on the well.

[79] Ultimately Gail Bazely wrote back to the defendants on May 7, 2018, responding as follows:

Julie, you have to remember that we priced your home over a year ago. We have no control of costs going up with our trades and suppliers. We base our cash allowances on historical data and have paid anywhere between $8,000-$10,000 in the past consistently for several years. We will however get a quote on one more company to see if it comes in lower. However, if the price comes in the same as the other three there is nothing we can do. Thanks so much for your understanding in this matter.

[80] In the end, the quote for the well did not come in under the figure of $13,500. Mr. Nikifork signed a change order form adding the additional $3,500 plus HST to the cost of the contract. For the reasons outlined earlier, I therefore conclude that the defendants are obliged to pay the additional cost for the well.

Stairs and Railings

[81] The cash allowance for stairs and railings was $10,000. Mr. Bazely testified that this was based on historical data from previous jobs. He testified that they had built a similar model of this home. Unfortunately, the initial estimate for the stairs and railings came in three times the allowance. In writing to the defendants enclosing a copy of the relevant quotes, Ms. Almonte proposed some alternatives which eliminated the need for the railing to go from the main floor to the basement and offered to build and drywall the walls to the basement at no cost to the defendants. In doing so, the defendants would save $4,500 off the quote. In the end, the defendants agreed to go with the revised plan. In an email dated February 22, 2018, Mr. Nikifork wrote to Gregor Homes and stated,

Had Gregor Homes fulfilled it fiduciary responsibility and provided us with a reasonably accurate estimate based upon the information supplied to them at the time (which for the record is no different than the information you have today) we would have changed our design to exclude the walk-out basement. For example, instead of compromising on the stairs and railing which is an integral element to the design and ambiance of the house. Now, in a state of financial duress, we find ourselves needing to make trade offs on the stairs and railing we would not otherwise have made. Out of financial necessity, and our desire to mitigate our financial harm, we will proceed with the quote from H&J Unique Woodworks for $22,630 with the walled-in stairs enclosed risers in the basement (basement stairs and handrail will still be stained oak) and stay with the open oak staircase and railing (with simple black metal spindles) on the main floor and loft as proposed and consistent with the look of the timber block model home. You will find the signed estimate attached.

[82] Consistent with my ruling on the other cash allowance items, I find that the defendants are obliged to pay the cost overage on the cost allowance for the railing and stairs.

The Fireplace

[83] The cash allowance for a wood burning fireplace in the great room of the home was $10,000. However, through inadvertence this was not included initially in Schedule C of the contract. It was however, subsequently added to the contract. The quotations for the fireplace came in significantly above this figure. Ultimately the defendants elected to contract directly with Napoleon for the installation of the fireplace. The involvement of Gregor Homes was limited to cutting out a space in the wall in the great room to accommodate the fireplace and to coordinate with Napoleon to install the fireplace itself and the chimney. In an email dated January 26, 2018, Mr. Nikifork set out the arrangements which had been agreed upon as follows:

I wanted to advise you that after some research we would like Gregor Homes Ltd. to proceed with the structural work required to install the fireplace and frame out the surround as per the pricing provided below: $3,175.50 (plus HST), but we will be engaging another contractor to do the finishing work in a bid to recoup some of our ballooning construction cost.

To be double certain on the scope of Gregor Homes involvement for the $3,175.50, Gregor Homes will:

• Appropriately cut out the wall between the great room and the Muskoka room to accommodate the fireplace.

• Coordinate with Napoleon to install the fireplace and the chimney. We will pay Napoleon directly for the balance outstanding on the fireplace unit and the chimney parts and installation.

• Properly insulate around the fireplace

• Frame out the surround front and back including the raised hearth area.

• Install cement board and any other sheeting materials required.

• Supply all of the materials required to complete the tasks as outlined above.

[84] The installation of the fireplace proceeded on this basis and a credit was given to the defendants for the balance of the cash allowance for the fireplace.

[85] In light of the agreement which was reached for the installation of the fireplace and the fact that the appropriate credit was subsequently given to the defendants as agreed upon, I find that there was no basis to assert any further claim against Gregor Homes in relation to the installation of the fireplace.

Garage Doors

[86] The cash allowance for the garage doors was $3,500. The defendants added garage door openers at a cost of $508. This was approved by Mr. Nikifork in a change order dated December 13, 2017.

[87] For the reasons previously given, I find that the defendants are responsible for paying this amount over and above the cash allowance.

Staining of the House

[88] The Timber Block product came with one application of stain on the outside of the building. The owner was expected to apply a second coating of stain after the home was constructed. Timber Block supplied the stain as part of the package. Gregor Homes took the position that staining of the home was not covered under the contract. In a note under Schedule A it states, “exterior stain not included”. The defendants were provided with a quotation from a painter to do the staining at a cost of $14,200 plus HST. This was based on six work men working for seven days according to an email from Ms. Almonte to the defendants dated March 16, 2018. The defendants’ position is that the use of the word “stain” excludes only the cost of the stain from the contract and that Gregor Homes was required to apply the stain. They refer to the fact that under Schedule C, the cash allowance for stairs and railings includes “staining”. Mr. Bazely in his evidence candidly acknowledged that he could have used clearer wording in the contract. I agree. Under Schedule A of the contract Gregor Homes is required as per item 16 for the,

Installation of Timber Block package, including subfloor, wall panels, roof shingles, windows, doors and wall trims (garage included).

[89] In my view, this would include application of the stain which was provided by Timber Block and which therefore formed part of the Timber Block package. As it has not been specifically excluded under the contract, Gregor Homes was required to apply the stain.

[90] In the end, the defendants elected to apply the stain themselves. They hired a family friend to help them apply the final coat of stain to the entire house in July 2018 and paid him a total of $5,000. They also rented a hydraulic lift on two occasions to allow the safe application of the stain at a cost of $1,680.20 plus HST. The evidence of the defendants is that it took them approximately three weeks to stain the outside of the home and that they took time off work without pay to complete the project. The defendants are seeking a labourer’s rate for their work of $20 per hour for a total of 240 hours or $4,800. When combined with their out of pocket expenses, the claim comes to a total of $11,698.62. I find that the defendants are entitled to set off this amount from what is otherwise owed to the plaintiff.

Backsplash in Kitchen

[91] In his evidence at trial, Mr. Bazely acknowledged that a kitchen backsplash would have been included as part of the cash allowance for cabinetry and counter tops. However, in an email dated May 23, 2018, from Ms. Almonte, she states,

Additionally, is there something in the contract I am missing? I cannot seem to find where we stated we would be completing the kitchen backsplash.

[92] As a result, the kitchen backsplash was never installed. As the cost of the kitchen cabinets exceeded the cash allowance, there is no basis to claim for the cost of material. However, there is a basis for the defendants to claim the cost of labour in installing the backsplash. The backsplash has not yet been installed and therefore we do not have a figure to cover the cost of the installation of a backsplash nor is there any estimate for the installation of the backsplash. These claims were abandoned during the course of final argument. Nevertheless, given that Gregor Homes was bound by the contract to install a backsplash I would encourage them to honour this obligation.

Locks and Handles for Exterior Doors

[93] The plaintiff claims the sum of $878.90 for the cost of locks on the exterior doors of the home.

[94] Exterior hardware was not provided by Timber Block Homes. Gregor Homes agreed to install hardware but insisted that the hardware itself be provided by the defendants. There is nothing in the contract which obliges Gregor Homes to provide exterior hardware. Their responsibility under Schedule A is to install the Timber Block package, together with other specific items, none of which require Gregor Homes to provide exterior locks for the doors. This claim is, therefore dismissed.

The Air Conditioning Unit

[95] As part of the Timber Block package, the defendants were entitled to the installation of an air conditioning unit. In order to trim costs, however, they made an agreement to delete the air conditioning unit and receive a credit of $2,500 plus HST. This was documented in an email from Ms. Woodyer to Ms. Almonte where she states,

Thank you Melissa, I think that given the financial duress we are under due to the other items that went so far over budget we will eliminate the AC and take the credit.

[96] In 2019, however, the defendants elected to install air conditioning in their home. The cost of the unit was $4,010 plus HST. The defendants claim the cost differential in this action. However, in my view, having reached an agreement with the plaintiff on the amount of the credit, there is no basis for this claim and it is, therefore, dismissed.

Repairs to the Roof

[97] The defendants testified that in December 2019 they experienced significant leaking of their roof that ran into the interior of the house. The defendants went to Sapphire Roofing who did the original roofing on the home. Sapphire Roofing took no responsibility for the deficiencies and provided the defendants with a quote for $3,819.40 to fix the roof venting and to re-flash around the chimney. It appears that a significant problem in the roof was created when Napoleon installed the chimney for the fireplace and that the chimney will need to be moved. This remains an issue for the defendants.

[98] To the extent that the roof problems are related to the installation of the chimney, this work was not done by Gregor Homes but rather by Napoleon. As noted previously, the defendants contracted separately with Napoleon for the installation of the fireplace and chimney. Gregor Homes is not responsible for dealing with that issue.

[99] With respect to the roof vents, the defendants did not make a claim with Gregor Homes for the problems they were experiencing. Under the contract, “all labour and materials supplied by the builder are guaranteed to be free of defect for a period of 24 months from the date of substantial completion”. As no claim was filed with Gregor Homes with respect to the alleged defects, they are not responsible for dealing with them. In addition, the contract provides that in order for the warranty provisions to apply, payment under the contract must be paid in full, which is not the case in this situation. Further, there is no evidence that the defendants have to date incurred any expenses for the repair of the roof. This claim is, therefore, dismissed.

Failure to Paint Certain Parts of the Interior of the Home

[100] The defendants testified that Gregor Homes installed drywall in the garage and around the stairs in the basement, but failed to prime the garage walls and did not paint any of the walls. Gregor Homes does not specifically deny this allegation but suggests that if this had been brought to their attention, they would have arranged for this issue to have been addressed.

[101] The responsibility of Gregor Homes was to complete the contract by performing the work required. There was no requirement for them to be notified about their failure to do the necessary interior painting. Because of the pandemic, the defendants were not able to obtain a written quote to complete the painting. They state, however, that they received a high level verbal quote for $1,800.

[102] This verbal quote is hearsay and is inadmissible for the truth of its contents. There is no evidence to suggest that the defendants have incurred any expense to paint this area. The defendants have failed to prove their damages on this item and this claim is, therefore dismissed. However, given that Gregor Homes was bound by the contract to paint these areas, I would encourage them to provide this service to the defendants.

Kitchen Cupboards

[103] It is acknowledged that some of the kitchen cupboards were installed upside down. New cupboards have been received from the manufacturer by Gregor Homes but have not yet been given to the defendants. Gregor Homes states that they are prepared to release the doors to the defendants and will arrange for their installation. The defendants have accepted their offer and an order will issue in accordance with the terms of the agreement reached by the parties.

Cracked Newel Posts

[104] The defendants testified that 13 of the 14 newel posts that support the stairs and railings have cracked. The damage was first noticed in March, 2020. The defendants are seeking a total of $2,925 to replace the 13 cracked newel posts.

[105] Article 3.2 of the construction contract provides that, “the builder shall not be responsible for the repair or rectification of any exterior work resulting from ordinary or natural settlement, including but limited to, driveway, paving, walkways, patio stones or sodded areas or for any damage to interior household improvements or décor caused by material shrinkage, twisting or warping”. [Emphasis added.] This would exclude the claim for damage to the newel posts. Further, it does not appear that this claim was submitted as a warranty claim within two years from the date of substantial completion of the home. Finally, there is no evidence that the problem is connected with the construction of the home, as opposed to the supply of material by Timber Block. This claim is, therefore, dismissed.

Exterior Stairs and Grading

[106] The defendants claim that water has been pooling against the south west corner of the house. In order to get a final sign off from the building inspector they dug a trench leading away from the house to drain the water away, but this has not been a permanent fix to the grading issue. They further complain about the height from the ground to the first step of the external stairway leading up to the deck in this same area. To remedy these deficiencies Mr. Nikifork removed the stairs from the landing and re-attached them slightly higher which made the gap from the bottom stairs to the ground larger.

[107] Article 2.4 of the Agreement provides that the contract price shall not include and the owner shall be responsible for landscaping features, haulage of fill, material or topsoil on or off the property and any other costs or expenses associated with obtaining the building permit or any lot specific costs. Further, Article 3.2 provides that the builder shall not be responsible for the repair or rectification of any exterior work resulting from ordinary or natural settlement, including but not limited to, driveway, paving, walkways, patio stones, or sodded areas. Finally, the warranty provisions in the agreement are limited to a period of two years from the date of substantial completion of the home. This aspect of the claim is therefore dismissed.

Conclusion

[108] Subject to the set off as set out in my Reasons, the plaintiff is entitled to a claim of $57,022.15 plus HST for a total of $64,434.78. From that amount the defendants are entitled to a set off for the amounts set out in my Reasons. The net amount owed is a lien on the defendants’ property in accord with the terms of the Construction Act.

[109] If there are any issues that remain outstanding as between the parties with respect to the issues in this litigation, I may be spoken to.

[110] If counsel are not able to agree on costs, then an appointment may be taken out through the trial coordinators office within 30 days of the release of these Reasons to set a date for an attendance before me to deal with the issue of costs. In the event that an attendance before me is necessary to deal with costs, then the parties should at least two days prior to that hearing, submit brief written submissions on the issue of costs.

Justice M. McKelvey

Released: July 11, 2022

ONTARIO

SUPERIOR COURT OF JUSTICE

BETWEEN:

Gregor Homes Ltd.

Plaintiff

– and –

Julianne Christine Woodyer and Steven John Nikifork

Defendants

REASONS FOR JUDGMENT

Justice M. McKelvey

Released: July 11, 2022