Court File and Parties

COURT FILE NO.: CV-19-618119-0000 DATE: 20230406 SUPERIOR COURT OF JUSTICE - ONTARIO

RE: Darius Gibowic and Violeta Gibowic AND: Michelle Sholzberg-Tsilker, Edward Tsilker and the Bank of Nova Scotia

BEFORE: J.T. Akbarali J.

COUNSEL: Andrew Ostrom, for the plaintiffs Christine Jonathan and Inna Feshtchenko, for the defendants Sholzberg-Tsilker and Tsilker

HEARD: March 30, 2023

Endorsement

Overview

[1] The plaintiffs and the defendants, Dr. Sholzberg-Tsilker and Mr. Tsilker, were parties to an agreement of purchase and sale whereby the plaintiffs agreed to sell a property to the defendants with a house the plaintiffs would custom build for them. The agreement of purchase and sale eventually closed, but issues remained between the parties with respect to the construction. The plaintiffs registered a claim for a lien and commenced this action. The defendant Bank of Nova Scotia is no longer in the action.

[2] The action was referred to Associate Justice Wiebe, who conducted a trial, and thereafter issued Reasons for Judgment and a report dated June 10, 2022, holding that a net amount of $1,237.39 was payable by the defendants to the plaintiffs, and ordering the plaintiffs to pay the defendants $25,000 in costs.

[3] The plaintiffs move for an order refusing confirmation of the Report of Associate Justice Wiebe dated June 10, 2022.

[4] The Associate Justice found that the contract between the parties was a fixed-price contract, and that extras would only be owing for changes to the scope of the contract that were approved by the defendants. The plaintiffs do not challenge this finding on this motion.

[5] The plaintiffs raise the following issues:

a. Did the Associate Justice misapprehend the evidence in relation to approvals for extra spending on certain aspects of the project? The plaintiffs argue that the Associate Justice erred by not finding that certain extra spending was known to, and approved by, the defendants in advance.

b. Did the Associate Judge err in failing to give effect to “admissions” made by the defendants? The plaintiffs refer to the defendants’ acceptance of two items set out in the Scott Schedule.

c. Did the Associate Judge err in his interpretation of the contract by crediting the defendants for certain deficiencies and uncompleted items that were beyond the scope of the contract?

d. Did the Associate Judge err in assessing the relative success of the parties for costs purposes?

Standard of Review

[6] The parties agree that the standard of review on a motion brought under Rule 54.09 of the Rules of Civil Procedure, R.R.O. 1990, Reg. 194, as this one is, is consistent with the standard of appellate review from a trial judgment; that is, findings of fact cannot be overturned absent palpable and overriding error, while questions of law are reviewable on a correctness standard: D & M Steel Ltd. v. 51 Construction Ltd., 2018 ONSC 2171, at para. 64; Housen v. Nikolaisen, 2002 SCC 33, at paras. 8, 12, 21.

Did the Associate Justice misapprehend the evidence in relation to approvals for extra spending on certain aspects of the project?

[7] As I have already noted, the Associate Justice found that the contract between the parties was a fixed price contract.

[8] The contract was made up of an agreement of purchase and sale (“APS”) under which the plaintiffs agreed to sell and the defendants agreed to purchase the property for $2,850,000, a price which included the cost of constructing a custom-built home. The APS included several schedules, including Schedule A, which documents a commitment by the plaintiffs to build the home in accordance with the “Luft Agreement” which is attached thereto. The Luft Agreement is the only place where there is reference to construction pricing; it states that the cost for construction and material will be $900,000. In addition, the APS includes Schedule C, which set out certain features and plans for the custom-built house which the parties negotiated for.

[9] The Associate Justice found that the cost of construction was $800,000, with an additional $100,000 deposit as set out in the Luft Agreement. He found that the parties had later agreed to increase the cost of construction to $860,000. These findings are not challenged.

[10] The Associate Justice also found that the only parts of the APS that contemplate a change in price relating to construction are in Schedule C, which provides that “any upgrades in construction will be provided at builders’ cost”, and in the Luft Agreement, which states that “[n]o work will be done on this property other than that specified in this Contract without additional charges and without written authorization of [the defendants]”. The Associate Justice thus concluded that there would be extra charges if there was an upgrade or work outside the scope of the contract.

[11] The Associate Justice concluded that there was enough detail in the APS to create a defined scope of the contract, despite considerable uncertainty in Schedule C and the Luft Agreement. He found that many aspects of the written specifications were open-ended (for instance, Schedule C provided that the “purchaser shall have the option of fully customizing the interior”, and the Luft Agreement provided the opportunity for the purchaser to involve a lighting designer in the project.) The Associate Justice noted that the APS created many opportunities for changes. However, he concluded that the contract required written authorization of the defendants to incorporate changes into the price. He found that in one instance – changing bedroom ceilings to cathedral ceilings – the defendants provided written authorization for the change, but they did not do so with respect to other changes for which the plaintiff claimed extra costs.

[12] The plaintiffs allege that the Associate Justice erred by failing to find that the defendants orally requested extra work outside the scope of the contract for which the plaintiffs should be compensated. They argue that in certain specific areas, the defendants authorized work they knew was outside the scope of the contract, and they were aware of the costs before the costs were incurred.

[13] To support this argument, the plaintiffs rely on budgets that Mr. Gibowic periodically sent to Mr. Tsilker that set out different construction items, their budgeted costs, and their actual costs (some over budget, and some under budget). The plaintiffs argue that when the defendants chose to spend more money than was available under certain budget categories, they ought to be taken to have approved those amounts, and they point to text messages and emails indicating that the defendants knew the cost of certain items, which were over the budgeted amount.

[14] The Associate Justice considered the D & M Steel case on which the plaintiffs rely. He accepted the legal proposition that, where an owner knows changes are taking place and acquiesces in the work, the owner may be found to have impliedly approved the changes and extra charges. However, the Associate Justice found that the legal point did not apply in this case. Rather, due to the open-ended nature of certain items in the contract scope, he found it was incumbent on the plaintiffs to follow strictly the change order mechanism in the Luft Agreement to create an entitlement on the part of the defendants to pay for extras.

[15] The Associate Justice properly directed himself to the relevant law. The question is whether he made any palpable and overriding errors of fact with respect to certain specific categories of extra expenses the plaintiff claimed. I describe each of these below:

a. First, the plaintiffs argue that the contractor handling automation and audio-visual wiring was directly retained by Mr. Tsilker, who knew what it would charge. Although the budget provided to Mr. Tsilker clearly allocated $1,800 to miscellaneous wiring, a $3,000 deposit was required for the contractor to begin the work.

b. Second, the plaintiffs argue that Mr. Tsilker specifically requested payment to him by the plaintiffs so that Mr. Tsilker could pay a supplier $3,000 for LED mirrors for the bathrooms. The amount on the budget for bathroom accessories was $1,500.

c. Third, the budget allocated $5,000 for light fixtures, but Mr. Tsilker requested a payment to him for lighting in the amount of $15,700.

d. Fourth, $10,000 had been allocated for bathroom fixtures on the budget. Mr. Tsilker obtained a quote for fixtures in the amount of $27,416.06. The amounts were subsequently updated. The final spend on bathroom fixtures was over the amount shown in the budget by $27,377.

e. Fifth, the budget included $8,000 for tiles. The tiles chosen by the defendants exceeded that cost significantly. Mr. Gibowic and Mr. Tsilker had discussions about the cost of the tiles, with Mr. Gibowic expressly raising concerns about the amount by which the tiles exceeded budget. Some changes were made, but notwithstanding those changes, the tiles came in $15,656 over budget.

f. Sixth, $30,000 had been budgeted for appliances. The appliances chosen by the defendants resulted in an overage of $12,281.

[16] I accept that there is evidence that the defendants knew about the cost of these items, and the fact that they were above the allocated amounts in the budget, before the costs were incurred. The Associate Judge did not focus on the timing of when the defendants knew these particular costs were above the budget. However, he did not make an error in not addressing that point specifically.

[17] Rather, in rejecting the claim for extras, the Associate Judge relied on the following:

a. There was no pattern of payment for extra work that was orally approved;

b. One change was paid by the defendants, for the change to the cathedral ceilings that had been approved in writing;

c. The budget was not proof of verbal approvals for changes. Leaving aside items which only appeared on the budget as overages after the expense was incurred, the budget tracked costs generally, not costs related to changes in the scope of the contract. Cost overruns without a change in scope is a risk born by the contractor.

d. The baseline budget total was inconsistent with the Associate Justice’s finding with respect to the construction portion of the APS. The budgeted amount for construction was $811,860, which Mr. Gibowic described as his own “proper initial budget”. The Associate Judge found that Mr. Gibowic used the budget as his own internal tracking system, and it did not correlate to the construction contract price.

[18] All of the findings above are grounded in the record. The latter of these findings is consistent with the fact that the budget did not form part of the contract documents, and that the budget did not include all the items provided for in the contract; for example, although the contract provided for a wine cellar and a gym, the budget did not include amounts with respect to those items.

[19] The Associate Justice also took note of other inconsistencies, including, for example, that while the appliances selected by the defendants were over the amount Mr. Gibowic had budgeted, they were consistent with the contract documents which provided for Miele appliances, but gave the defendants the right to opt for Wolf and/or Sub-Zero appliances instead (which they did). The lighting may have been over Mr. Gibowic’s budget, but the contract gave the defendants the right to involve a lighting designer. In other words, the items the plaintiff raises are, at best, “grey”; that is, putting the plaintiffs’ argument at its highest, it was unclear whether the changes were, in fact, extras, as opposed to cost overruns for which the plaintiffs bore the risk. Given the open-ended nature of some of the items provided for in the contract, the Associate Judge found that it was incumbent on Mr. Gibowic to follow the change order mechanism to create an entitlement for payment of extras, but he did not do so.

[20] In my view, the Associate Justice was entitled to reach the conclusions he reached on the record. He made no palpable and overriding error with respect to extras.

Did the Associate Judge err in failing to give effect to “admissions” made by the defendants in the Scott Schedule?

[21] The plaintiffs allege that the defendants admitted liability for two charges in the Scott Schedule, and that the Associate Justice erred by not crediting the plaintiffs with respect to those items.

[22] I agree with the defendants that a Scott Schedule is not a sworn document or a pleading in respect of which the test for a formal withdrawal of an admission would be appropriate: Hobson v. Turner, 2021 ONSC 4407, at para. 46.

[23] In any event, on the Scott Schedule, the defendants made two concessions, one relating to drywall, and one relating to framing charges, the latter specifically relating to the request to change the design of the bedroom ceilings to cathedral ceilings.

[24] There was evidence in the record that the costs relating to the changes to the ceiling were paid for. The plaintiffs argue that they were not, but the issue does not appear to have been highlighted for the Associate Judge. In any event, given the evidence from Mr. Tsilker that he paid for those costs, there is no basis to conclude that the Associate Judge made any palpable and overriding error with respect to not crediting the plaintiffs for the charge relating to the framing.

[25] The defendants allege that, while they accepted the drywall item on the Scott Schedule, doing so did not relieve the plaintiffs of their obligation to prove increased costs relating to drywall.

[26] The description of the drywall charge was “Extra 5/8” drywall of ceilings to accommodate the lighting fixtures selected by the Defendants. Further the drywall needed to be re-patched and repainted on multiple occasions due to electrical modifications”. The cost associated with this charge was $4,500. The defendants’ comment on this item was “Owner is willing to accept this charge.”

[27] Even if the Scott Schedule is, as the defendants argue, a means to obtain, organize, and present evidence, there is no reason why the plaintiffs would have thought, in view of the concession made by the defendants, that they had to prove anything with respect to the drywall cost. What would the point be in conceding an issue if the plaintiff would have to prove it anyway? The defendants’ argument as to the meaning of their concession would render the concession useless, or at the very least, confusing.

[28] Moreover, the concession does not say, “Owner is willing to accept this charge subject to proof as to the amount”. It is simply a blanket acceptance of the charge.

[29] It does not appear that the Associate Justice’s attention was drawn to the drywall concession, and as a result, it was overlooked in his report.

[30] I thus conclude that the plaintiffs ought to be credited with the $4,500 that the defendants conceded in the Scott Schedule with respect to the drywall.

[31] However, as noted, there was a basis on which the Associate Justice could find that the defendants paid for the extra framing costs, and I find no error with respect to the failure to credit the plaintiffs for that amount.

Did the Associate Justice err in his interpretation of the contract by crediting the defendants for certain deficiencies and uncompleted items that were beyond the scope of the contract?

[32] The Associate Justice awarded $26,987.15 for deficiencies and $5,000 for uncompleted work to the defendants. On this motion, the plaintiffs challenge three items that fall under this category:

a. $4,271.40 in respect of landscaping, and specifically, grading;

b. $2,458.88 in respect of wine-room racking; and

c. $861.06 in respect of appliance handles.

[33] With respect to the grading charges, Schedule C required a “fully landscaped front and the back of the house, new sod, interlock/asphalt driveway with soldier course, sprinkler system”. The Luft Agreement provided that the plaintiffs would “Construct and finish as per Approved Plans including all landscaping finishes”. This included “Outside grounds will be finished by cleaning, grading, sod.” “Approved plans” appears to refer to the city-approved permitted plans.

[34] At trial, the Associate Justice accepted the evidence of the defendants’ landscaper who testified that he found the landscaping unfinished or substandard. He deposed that the grading was improper because there was an unacceptable slope and height to the yard, and he found buried debris; as a result, he had to re-grade the yard, or at least some of it. In contrast, the plaintiffs’ project manager deposed that he finished the grading in the yard. The Associate Justice concluded that the defendants’ landscaper was a credible witness. In contrast, the Associate Justice found the project manager’s evidence to be of “limited value” for a variety of reasons, including that much of his evidence was hearsay or uncorroborated, and that he became defensive at times. These were credibility assessments that the Associate Justice was entitled to make.

[35] In challenging the grading charges, the plaintiffs point to evidence of the landscaper on cross-examination to the effect that, in re-grading portions of the property, the landscaper would have been re-grading areas that, according to the city-approved plans, were to remain in their original condition. Thus, the plaintiffs argue that changes to grading contrary to the building permit were outside the scope of the contract.

[36] The evidence with respect to the grading is confusing. For example, the plaintiff’s expert concluded, after a site visit, that the grading completed by the defendants’ landscaper was identical to the grading that the plaintiffs had done. The Associate Justice found that the landscaper had, in fact, re-graded the property.

[37] However, there is no evidence that the grading done by the plaintiffs was consistent with the permit, and there is no evidence that the grading done by the landscaper was inconsistent with the permit. Rather, the evidence was that the grading done by the plaintiffs was unfinished and substandard, with an improper slope and height, and included buried debris, and that the re-grading completed by the defendants’ landscaper corrected those deficiencies or completed the work.

[38] In my view, there was sufficient evidence on the record to allow the Associate Justice to conclude that the plaintiffs had not completed the grading that fell within the scope of the contract, such that the defendants were entitled to credit for the amounts they paid to finish or correct the grading.

[39] With respect to the wine-room racking, the plaintiffs argue that there was no evidence that the wine racking was included in the contract scope, and that the Associate Justice wrongly reversed the onus when he found that there was “no corroboration for the assertion that the wine room shelving was to be supplied by the Tsilkers.” As a result, he concluded that the defendants proved an entitlement to the back-charge.

[40] I disagree that the Associate Justice should be taken to have reversed the onus when he found there was no corroboration for the assertion that the wine room shelving was to be supplied by the Tsilkers. In the very next sentence in the impugned paragraph, the Associate Justice specifically indicated that the defendants proved an entitlement to the back-charge, thus making it clear that he understood correctly who bore the onus.

[41] Moreover, the plaintiffs do not challenge on this motion the conclusion that they were responsible for completing the wine cellar, costs which include the installation of the racking system. If the plaintiffs accept that they were responsible for installing the racking system, without a specific carve-out requiring the Tsilkers to source the shelving, it cannot be an error to conclude that the plaintiffs also had to supply the shelving.

[42] The argument relating to the appliance handles is linked to the argument that I addressed earlier, where I found that the Associate Justice did not err in finding that the defendants had not agreed to any extra charges with respect to the appliances, and the appliances provided were within the scope of the contract in any event. The Associate Justice made no error in concluding that the supply and installation of the Sub-Zero and Wolf handles were part of the supply of appliances in the APS, and that the plaintiffs failed to complete the installation of the appliances to the extent of installing the handles.

[43] I thus would not give effect to any of the plaintiffs’ arguments with respect to charges for deficiencies and uncompleted work.

Costs

[44] The final issue the plaintiffs raise is whether the Associate Justice treated them differently than the defendants for the purpose of assessing relative success at trial for costs purposes.

[45] The plaintiffs focus in on one factor of many that the Associate Justice considered in his assessment of costs, that is, the amount claimed and the amount recovered by each side.

[46] Determinations of costs are discretionary and entitled to a high degree of deference. A court will only set aside a costs award on appeal if the trial judge has made an error in principle or if the costs award is plainly wrong: Hamilton v. Open Window Bakery Ltd., 2004 SCC 9, at para. 27.

[47] In this case, the Associate Justice considered the results of the motion, including his conclusion that the defendants succeeded entirely on the contested issues that consumed the bulk of the trial time. He also found that the defendants had limited success on their own claims, and as a result, significantly reduced the costs awarded to them.

[48] The Associate Justice then went on to consider a number of other factors, including offers to settle, the reasonable expectations of the unsuccessful party, and the quantum of costs claimed.

[49] The Associate Justice made no error in principle in his approach to costs. Even if one assumes that he incorrectly or inequitably assessed the mathematical percentage of recovery for each party, his ultimate conclusion that the defendants were successful on the issues that consumed the bulk of trial time, and had limited success on their own claims is unassailable, and drove his costs determination in significant measure. There is no basis to find that the Associate Justice’s costs award was plainly wrong.

[50] I thus would not vary the Associate Justice’s determination as to costs.

Costs of this Motion

[51] At the conclusion of the motion, I asked the parties to upload their costs outlines to CaseLines together with any offers to settle, clearly marked, and suggested that I would deal with costs on the basis of those written materials once I had determined the issues on this motion on their merits. The parties agreed with my proposal. That is the procedure I have followed, and now turn to determine costs of this motion.

[52] The three main purposes of modern costs rules are to indemnify successful litigants for the costs of litigation, to encourage settlement, and to discourage and sanction inappropriate behaviour by litigants: see Fong v. Chan (1999), 46 O.R. (3d) 330, at para. 22.

[53] Subject to the provisions of an act or the rules of this court, costs are in the discretion of the court, pursuant to s. 131 of the Courts of Justice Act, R.S.O. 1990, c. C.43. The court exercises its discretion considering the factors enumerated in r. 57.01 of the Rules of Civil Procedure, including the principle of indemnity, the reasonable expectations of the unsuccessful party, and the complexity and importance of the issues. Overall, costs must be fair and reasonable: see Boucher v. Public Accountants Council for the Province of Ontario (2004), 71 O.R. (3d) 291 (Ont. C.A.), at para. 38. A costs award should reflect what the court views as a fair and reasonable contribution by the unsuccessful party to the successful party rather than any exact measure of the actual costs to the successful litigant: see Zesta Engineering Ltd. v. Cloutier (2002), 21 C.C.E.L. (3d) 161 (Ont. C.A.), at para. 4.

[54] In this case, the plaintiffs have succeeded in obtaining an additional credit for $4,500, but have otherwise not succeeded in obtaining an order refusing confirmation of the Associate Justice’s report. While success is divided, the defendants are the more successful parties, and are presumptively entitled to their costs.

[55] The defendants’ costs outline indicates partial indemnity costs of $11,894.40, and actual fees of $19,775.02. In contrast, plaintiffs’ costs outline supports partial indemnity fees of $4,922.10, and actual fees of $7,905.30.

[56] Neither party has filed any offers to settle. There is no basis to award costs on anything other than a partial indemnity scale.

[57] In my view, the costs claimed by the defendants ought to be reduced for several reasons. First, given the amount spent by the plaintiffs, who had the bigger role on this motion, the defendants’ costs are outside the plaintiffs’ reasonable expectations. Second, the defendants put together a responding record that was, at least in part, duplicative of the material in the plaintiffs’ motion record, and thus an unnecessary expense. Third, there should be some deduction in the defendants’ fees to reflect the plaintiffs’ success on the issue relating to the drywall charges.

[58] In my view, costs of $4,000 are appropriate in the circumstances.

Conclusion

[59] In summary I make the following orders:

a. The report of Associate Justice Wiebe is confirmed except that the plaintiffs shall be entitled to an additional payment of $4,500 from the defendants with respect to the drywall charges.

b. The plaintiffs shall pay to the defendants their costs of this motion, fixed at $4,000.

J.T. Akbarali J. Date: April 6, 2023