REASONS FOR JUDGMENT

COURT FILE NO.: CV-20-74204

DATE: October 27, 2023

SUPERIOR COURT OF JUSTICE - ONTARIO

RE: Newfore Inc., Plaintiff/Defendant by Counterclaim

AND:

BCHQ Barton Holdings Inc., Defendant/Plaintiff by Counterclaim

BEFORE: MacNeil J.

COUNSEL: A. Hora – Lawyer for the Plaintiff

G. Mallia and N. Aresta – Lawyers for the Defendant

HEARD: February 13, 14, 15, 16, and 17, 2023

INTRODUCTION

[1] This is a lien action brought by Newfore Inc. (“Newfore”), a general contractor, against BCHQ Barton Holdings Inc. (“BCHQ”), a property holding company, stemming from a construction contract.

[2] Newfore was contracted by BCHQ to renovate eight residential apartment units located in a mixed residential/commercial building located on Barton Street East in Hamilton (the “Project” or “the Building”). Newfore claims BCHQ failed to pay invoices tendered for goods and services rendered by Newfore on the Project, totalling $258,453.04.

[3] BCHQ has counterclaimed against Newfore for $116,912.55 alleging that it breached the parties’ construction agreement by performing deficient work and by failing to complete the Project on time. BCHQ also seeks damages in the amount of $30,000.00 for lost revenue in renting the apartment units because of the delay.

[4] A trial was held. Newfore’s Director, Seif El-Sahly (“Mr. El-Sahly”), was the Plaintiff’s sole witness at trial. William Curran (“Mr. Curran”) is a principal of BCHQ; he was the Defendant’s sole witness at trial. Mr. Curran is also a principal of Thier + Curran Architects Inc. (“TCA”), the architect on the Project.

[5] Written closing submissions were subsequently received from the parties.

[6] For the reasons that follow, the claim by Newfore is granted, in part, and the counterclaim by BCHQ is dismissed.

FACTS

[7] The parties entered into a construction contract on or about July 14, 2019. The contract consists of Newfore’s Proposal Letter dated July 14, 2019, the CCDC-2 Stipulated Price Contact, an addendum to the CCDC-2 documents, and the construction drawings (“the Contract”). The base cost under the Contract was $1,115,185.70 (inclusive of HST). Construction was to last about 8 months, commencing on August 27, 2019 with substantial performance to be attained by April 30, 2020. A construction schedule outlining the key dates for completion of the work was provided by Newfore.

[8] BCHQ retained TCA as the Project’s “Consultant” under the Contract, and Mr. Curran was the primary decision maker and point of contact between the parties on the Project. Under the Contract, GC 2.2 – Role of the Consultant provided, in part:

2.2.1 The Consultant will provide administration of the Contract as described in the Contract Documents.

2.2.2 The Consultant will visit the Place of the Work at intervals appropriate to the progress of construction to become familiar with the progress and quality of the work and to determine if the Work is proceeding in general conformity with the Contract Documents.

2.2.5 Based on the Consultant’s observations and evaluation of the Contractor’s applications for payment, the Consultant will determine the amounts owing to the Contractor under the Contract and will issue certificates for payment as provided in Article A-5 of the Agreement – PAYMENT, GC 5.3 – PROGRESS PAYMENT and GC 5.7 – FINAL PAYMENT.

2.2.8 Matters in question relating to the performance of the Work or the interpretation of the Contract Documents shall be initially referred in writing to the Consultant by the party raising the question for interpretations and findings and copied to the other party.

2.2.9 Interpretations and findings of the Consultant shall be consistent with the intent of the Contract Documents. In making such interpretations and findings the Consultant will not show partiality to either the Owner or the Contractor.

2.2.15 The Consultant will prepare Change Orders and Change Directives as provided in GC 6.2 – CHANGE ORDER and GC 6.3 – CHANGE DIRECTIVE.

[9] Despite the anticipated August 27, 2019 start date, Newfore did not commence work on the Project until early September 2019.

[10] Throughout the Project, Mr. Curran expressed concerns about a lack of staffing and/or lack of progress in several email exchanges with Mr. El-Sahly and/or Hasib Khan (“Mr. Khan”), who was Newfore’s Project Coordinator. Newfore responded in a timely manner to each of the emails sent. BCHQ disputes that all of the responses were satisfactory.

[11] Also throughout the Project, BCHQ requested and Mr. Curran approved several changes to the scope of Newfore’s work and the accompanying costs. Those changes were summarized by Newfore in change order requests (“CORs”), along with the proposed/estimated change in cost and time. In total, 14 CORs were prepared, being:

COR-001 Additional demolition

COR-002 AH units substitution and carpet common areas

COR-003 Structural repairs

COR-004 Masonry repair and steel stairs demolition

COR-005 Credits for items removed from base scope

COR-006 Railing around lightwell

COR-007 Bridging at 431 Barton joists 2nd level

COR-008 Window design revision

COR-009 Commercial unit renovation

COR-010 Spray foam perimeter walls and 435 deck underside

COR-011 Additional drywall and strapping at perimeter walls around joists

COR-012 Insulation in ceilings between 2nd and 3rd floors

COR-014 Front foyer and all remaining un-invoiced changes

[12] The Contract contained a number of provisions relating to a requested change in work, including:

6.2.1 When a change in the Work is proposed or required, the Consultant will provide the Contractor with a written description of the proposed change in the Work. The Contractor shall promptly present, in a form acceptable to the Consultant, a method of adjustment or an amount of adjustment for the Contract Price, if any, and the adjustment in the Contract Time, if any, for the proposed change in the Work.

6.2.2 When the Owner and Contractor agree to the adjustments in the Contract Price and Contract Time or to the method to be used to determine the adjustments, such agreement shall be effective immediately and shall be recorded in a Change Order. The value of the work performed as the result of a Change Order shall be included in the application for progress payment.

6.3.1 If the Owner requires the Contractor to proceed with a change in the Work prior to the Owner and the Contractor agreeing upon the corresponding adjustment in Contract Price and Contract Time, the Owner, through the Consultant, shall issue a Change Directive.

6.3.2 A Change Directive shall only be used to direct a change in the Work which is within the general scope of the Contract Documents.

6.3.12 If the Owner and the Contractor do not agree on the proposed adjustment in the Contract Time attributable to the change in the Work, or the method of determining it, the adjustment shall be referred to the Consultant for determination.

6.3.13 When the Owner and the Contractor reach agreement on the adjustment to the Contract Price and to the Contract Time, this agreement shall be recorded in a Change Order.

[13] In various of the CORs, Newfore estimated time extensions totalling 19 weeks as being needed to complete the work set out therein. TCA did not agree that that much time was needed, however, and so it did not approve of those contract time changes.

[14] Monthly invoices were delivered by Newfore to BCHQ by way of applications for payment. The applications set out information including the original contract sum, net change by change orders, total base scope and total change orders completed to date, retainage, and current payment due; they also attached a summary of the changes in work approved by BCHQ. TCA approved Newfore’s Invoices 1 through 10, which included changes to work set out in COR-001 through COR-012, and certified payment of those invoices up to June 30, 2020. BCHQ fully paid Newfore’s approved Invoices 1 through 10.

[15] In early June 2020, Mr. Curran was telling Mr. El-Sahly that Newfore needed to be finished, given how late the Project’s completion was taking. By early July 2020, the relationship between the parties was strained.

[16] On July 8, 2020, in response to a status update from Mr. El-Sahly on some gas work being done in the commercial space, Mr. Curran emailed Mr. El-Sahly: “Get ALL the work in the Dawson space 100% DONE as you had promised was done months ago.”

[17] On July 13, 2020, Mr. Curran emailed Mr. El-Sahly writing, among other things: “Please confirm that all work will be completed and you will be cleaning and removing all tools, equipment and turning over keys this week.”

[18] On July 16, 2020, Mr. Curran emailed Mr. El-Sahly, writing:

Seif,

No schedule to completion was submitted with the current Invoice, as you know the Contract requires.

You have not responded to my request below for a critical schedule update.

You are committed to be completed by Mon. July 19.

Confirm the schedule to completion ASAP!

Payment will NOT be released without it.

I am again cautioning you that your schedule performance to date has been unacceptable.

You were committed to Substantial Performance by April 30, an 8 month construction period.

You are now approaching being 3 month or a 40% overage on your scheduled time period, while changes have only been 13% of contract value.

This is a clear disconnect. We have repeatedly noted our schedule concerns.

You should be cautioned that if your continuing non-performance costs the owners lost revenue they will be seeking compensation.

Lost rental income is at least $15,000 per month, and the apartments need to be rented by now for August 1 occupancy.

[19] On July 20, 2020, Mr. El-Sahly responded to Mr. Curran’s July 16th email. Among his comments:

Hi Bill,

I’ve attached a schedule for your review – the date included for the electrical service is estimated since we are not the ones completing this work. Once we have power, we will come back to hook up the feeds within 3 days then commission and test all equipment within 5 days.

At this stage, it is not beneficial discussing the schedule impact again. I’ve already responded to this in previous emails. Cost and schedule impact are not correlated – we’ve sent the cost and schedule impact associated with each change order as the work progressed. As you’ve seen, many of our change orders have a cost impact and no schedule impact. The building cannot be rented on Aug 1, there is no power yet because of the seized disconnect which needs to be replaced (we brought up in early March 2020).

I’m happy to say that the project is over 98% complete. Though I can’t say we are substantially complete yet, because the building has no power – the remaining work is minor and summarized below …

[20] In reply, on July 20, 2020, Mr. Curran emailed Mr. El-Sahly advising that the schedule was incorrect and incomplete, and detailing numerous items that Mr. Curran described as incomplete or missing. Mr. Curran also asked a number of questions regarding the status of various items. Mr. Curran ended his email by demanding that Newfore complete the work and get out of the building “ASAP”, failing which BCHQ would “bring in other forces to complete all the work”. On July 22, 2020, Mr. El-Sahly responded to Mr. Curran and provided a status update or comment to each of the items listed in his July 20th email.

[21] On July 23, 2020, Mr. Khan emailed Mr. Curran providing an update on the anticipated completion of the 8 residential units and requesting clarification on new work that was requested by BCHQ, including renovations to the front foyer and installing new mailboxes, and asking whether or not new flooring and a new light fixture would be needed. Mr. Khan also asked Mr. Curran to confirm that Newfore was doing the new work on a “time and materials basis”. On July 23, 2020, Mr. Curran responded with answers to Mr. Khan’s questions that directed Newfore to proceed with the foyer work.

[22] Numerous emails were exchanged between Mr. Curran and Mr. El-Sahly and/or Mr. Khan from July 23, 2020 into early August 2020 concerning items and deficiencies identified by Mr. Curran and Newfore’s responses to same.

[23] By August 4, 2020, Newfore was doing final touch-ups and work on the common elements and completing the new work in the front foyer. Newfore had tested and commissioned the equipment in the apartments and found 2 defective parts, which it then ordered from the manufacturer.

[24] By email sent to Mr. El-Sahly and Mr. Khan, dated August 5, 2020 at 10:39 AM, Mr. Curran identified some deficiencies existing as of that date, writing:

Some Deficiency issues:

• Round ducts have open ends in Apartments, looks poor.

• Pipe condensation dripping into bar. Is piping not insulated?

• Gas meter wall penetrations not sealed.

• Gas equipment manuals not on every unit (per Union Gas tech).

• Floor drain not per spec: awaiting response.

• Laundry drains: I warned you to check your guys opened the right caps

• Non functional HVAC units in several apartments

[25] On August 5, 2020 at 10:43 AM, Mr. El-Sahly emailed Mr. Curran and asked him to confirm his availability for a pre-delivery inspection (“PDI”) walkthrough, stating: “We are tentatively scheduled for Friday. We will make note of these deficiencies but the proper way to address all this is through a PDI walkthrough. We can’t do all deficiencies through email.” By email that same date, August 5, 2020, at 11:27 AM, Mr. Curran replied as follows to Mr. El-Sahly’s request:

1. First of all: Do your Deficiency List and submit it to me. It should have been done weeks ago and been tracked. Don’t wait for the consultants. We need you done and out of the building asap !

2. Refer to CCDC-2, sentence: 2.4.1: ‘The Contractor shall PROMPTLY correct defective work…..’ I’m raising to you Deficiencies when I notice them, so you get them resolved PROMPTLY.

3. If I tell your Site Super about a Deficiency, it is enough, I’m not going to spend the time to also tell you. You need a Site Super who can identify, track and resolve Deficiencies.

The Mechanical Engineer is reviewing tomorrow, I’ll confirm when the Electrical will be by.

[26] By email sent to Mr. Curran on August 6, 2020 at 8:02 PM, Mr. El-Sahly responded to Mr. Curran’s August 5th list of deficiencies. The exchange reads, in part, as follows with Mr. El-Sahly’s responses shown in italics:

Some Deficiency issues:

• Round ducts have open ends in apartments, looks poor. These were custom order but haven’t come in yet. There will be a grill installed there.

• Pipe condensation dripping into bar. Is piping not insulated? Investigated today and will insulate pipe in the bar.

• Gas meter wall penetrations not sealed. Sealed today.

• Gas equipment manuals not on every unit (per Union Gas tech). Not in the mechanical room but in the kitchen drawers (except for the ones in our office as part of the close-out binder).

• Floor drain not per spec: awaiting response. We installed standard floor drain caps in the laundry room [sic] that serve the same purpose as the one in the spec. If there are any specific issues or differences in function, let us know. We are checking the heights of all these drains tomorrow and will make sure they are flush to the finished floor.

• Laundry drains I warned you to check your guys opened the right caps. This is always done by the plumbers who do the appliance finishing work but we will do this for you tomorrow nonetheless.

• Non-functional HVAC units in several apartments. Correct, one AHU and one HWT have a defective part. We only found this out after commissioning and have already contacted the manufacturer. The parts are covered under warranty and are on route.

[27] Mr. Curran sent another email to Newfore on August 6, 2020 at 11:44 AM. In that email, Mr. Curran repeated many of the same deficiency issues he had listed in his prior email. (As of that point in time, Mr. El-Sahly had not yet responded to Mr. Curran’s August 5th 10:39 AM email.) He also added a new deficiency: “Extend the hoses on the two stoves where they are short?” and stated: “Any work after tomorrow will be completed by other forces and backcharged.” Mr. El-Sahly responded on August 6, at 8:15 PM. His response, in part, is found in italics below:

Extend the hoses on the two stoves where they are short? We checked this and the rough-in is not short. Your appliance installer connected the ranges directly to hard pipe. This is a major infraction. I highly recommend using a licensed gas installer to install these ranges. They should be using an appliance connector which come in all sorts of sizes (typically 36”).

Any work after tomorrow will be completed by other forces and backcharged. No base scope work remaining.

As you know, you issued your last schedule commitment of July 19 and we cannot have this work continue indefinitely. All work complete with the exception of defective equipment parts. We could only find out the defective equipment parts after commissioning this week and as you know our commissioning had to be postponed until we had power (which was completed by your electrician). If we had completed the service work as we brought up in March, we would have completed commissioning months ago. Regardless, the manufacturer are shipping out replacement parts.

***Please confirm a PDI date so we can properly walk-through the units. We have never delivered a project with emails as such.

[28] By email dated August 7, 2020 at 12:30 PM, Mr. Curran wrote to Newfore as follows:

Please have the garbage bin removed today and all tools and materials removed from the exterior stair.

Once we received our engineers’ field review reports we will send them along, with our final architectural review.

Please prepare to turn over all keys today also, I’ll drop by to pick them up or if your guys leave before I get there they can leave them with the Mosaic bartender.

Access after today for deficiencies can be arranged in advance.

[29] Following some further email exchange, Mr. El-Sahly wrote to Mr. Curran as follows on August 7, 2020:

Ok – as I’ve already said, tools and material have already been removed but there is warranty work on the equipment that is scheduled as well as the fire alarm verification.

As requested here is our work scheduled in advance:

• Aug 8/9: Front foyer painting and tile work (extra work). no access to building required.

• Aug 10: Enercare to replace inspect deficient equipment between 12PM-4PM and general photos.

• Aug 11: Fire alarm verification.

• Aug 12: Fire alarm verification.

[30] In response to this, Mr. Curran emailed on August 7, 2020 at 4:12 PM:

We have multiple rental viewings tomorrow and Sunday so your guys need to give them free access as needed.

Have Enercare contact me to arrange access. Not sure it will work Monday for my schedule.

We are confirming if our other forces will do the fire alarm verification.

[31] Mr. El-Sahly responded to Mr. Curran on August 7, 2020 at 4:59 PM:

I’ve removed everyone cc’d on this email. We are under contract to complete this work and we will be seeing this work through to 100% completion. All the work remaining is solely due to service work being scheduled far too late.

We will cancel the front foyer work for this weekend at your instruction but keep in mind we’ve mobilized far too many times for this small amount of work due to missing material, paint spec and now tenant showings.

You instructed us to rectify mechanical issues immediately and we’ve done so. The Enercare technician is already scheduled for 12-4PM on Monday, if they don’t have access, additional service fees will be applied and backcharged. The tech is only there to verify the fault in equipment on Monday.

Fire alarm verification is already booked as of 2 weeks ago (when you confirmed the completion date for you [sic] electrician’s service work). The verification is also paid for and non-refundable. If we don’t have access then we will be backcharging the verification cost of $1,500.

Once again, lets [sic] stop with these emails – the project is done. You can show the units in parallel with technicians figuring out a few faulty parts from the manufacturer. All keys should be at our office by EOD today, they are being picked up from site and organized.

[32] Mr. Curran replied to Mr. El-Sahly’s August 7th email on August 10, 2020 at 9:33 PM, as follows:

Seif,

You have repeatedly claimed to be Substantially Complete for two months now.

Your last Schedule committed to [be] Substantially Complete by July 14, excluding electrical deficiencies and deficiencies done by July 29.

You promised in an email on July 29 to be 100% Complete on July 30, which never happened.

You claimed in a Saturday text to be 100% Complete, which is frankly ridiculous.

We specifically requested but you did not return our building keys on Friday, nor this morning as promised. We need them ASAP delivered to our office !!

The locks and lockboxes have been changed. If anyone tries to access our building for any reason it will be trespassing and the police will be called.

As I mentioned below, we are out of patience for you completing the work in a timely manner, we need to move residents in and simply cannot wait any further for you to fumble through this, make excuses and continue to miss commitments. We need to move on with other forces to get done and occupied.

We were clear that we needed you to meet the deadline to be completed by Friday August 7 after missing your July 14 commitment.

Your work on the project is terminated.

A random selection of some of the incomplete work is:

• The exterior entrance tile and painting remains incomplete, your staff never showed up to complete it on Sunday as promised, nor today;

• The fire alarm system is incomplete and not functional;

• Mechanical closets in each Apartment have not been cleaned of construction dust and debris;

• We have stoves touching combustible cabinets;

• Gas stove hoses left too short in two Apartments;

• Pipe condensation leaking into the Bar;

• Gas meter wall penetrations not sealed (per Union Gas tech);

• Gas equipment manuals not attached to every HVAC/HWH unit (per Union Gas tech);

• Water observed in some HVAC/HWH drain pans;

• HVAC is not working in Apartments 301 and 302 and the service call today (requested at least a month ago), is still unresolved;

• There are still your materials and equipment on site (Ladder, bins, garbage, materials, tools, a refrigerator in Apt. 203, a closet full of cleaning supplies);

• Corridor drywall and painting is poor, incomplete and cleaning is incomplete;

• The exterior pad where the garbage bin was and the bsmt. stair roof under the exterior stair were never cleaned of construction debris;

• You did not remove your lockbox on the wood fence and return all our keys;

• Replace all Type B light fixtures with correct ones;

• Door bottom at Second Floor corridor south end, east door jam exceeds 1” and must be less than ¾” by Code.

Critical items outstanding for Occupancy that we never received:

• ESA Final Approval;

• Fire Alarm Verification Report, (system remains incomplete and corridor dust covers are still in place);

• a letter from the contractor stating that the Emergency lighting has been tested for min. ½ hr.

We need to confirm that the self-closing hinges on the Apartment and Stair doors meet the OBC.

The latest Mechanical and electrical field review reports are attached.

A formal electrical report and architectural report will follow shortly fyi.

Once we complete the work and deficiencies, and determine those costs, we can resolve them against your unbilled completed work.

You can prepare your final draft of the costs now.

Thanks,

Bill

[33] On August 11, 2020, Mr. Curran sent an email to Philip Quick (“Mr. Quick”), a co-owner of BCHQ, and to a named City building inspector, copying Mr. El-Sahly, attaching the latest field review reports for the interior renovations and a deficiency list dated August 11, 2020. In his email Mr. Curran also advised: “Please note that we are changing contractors to complete the project, fyi.”

[34] On August 12, 2020, Newfore sent BCHQ its Invoice 11, dated July 30, 2020, seeking payment of $88,533.95 for work completed to that date.

[35] On August 13, 2020, Newfore sent BCHQ a Certificate of Substantial Performance and Invoice 12, dated August 12, 2020, requesting release of the holdback balance of $115,077.15 plus HST, totalling $130,037.18.

[36] Also on August 13, 2020, Newfore filed a claim for lien in the amount of $258,453.04.

[37] On August 17, 2020, Newfore sent to BCHQ a revised Invoice 11, dated July 30, 2020, seeking an increased payment amount to capture additional work set out in COR-014, that was previously missed.

[38] By email dated August 18, 2020, Mr. El-Sahly sent Mr. Curran the Project close-out documents, including all ESA permits, fire alarm verifications, testing and commission reports, warranty information and manuals. Mr. El-Sahly advised that the following items were still awaiting TCA’s action: (i) review and approval of close-out documents; (ii) pick up by TCA of apartment building keys; (iii) key handover form; and (iv) the signing of the substantial completion form.

[39] Subsequently, a further deficiency summary was prepared by Mr. Curran, dated August 27, 2020. It included additional items not identified on the August 10, 2020 deficiency list.

[40] On September 18, 2020, Mr. Curran signed a Form 1.1 – Owner Notice of Non-Payment (Subsection 6.4(2) of the Act) wherein BCHQ disputed Newfore’s two invoices dated July 30, 2020. The reasons for non-payment were described as follows:

#1 – Two different invoices with differing amounts submitted. The owner did not consent to the revised invoice and the contractor’s conduct resulted in lack of clarity of the invoice. First invoice not sent by contractor until August 12, 2020.

#2 – The Contactor filed a lien on August 13, 2020. The Owner claims a lien set off for losses related to poor performance by the Contractor. The currently known losses [sic] significant delay in the work resulting in lost earnings/financial expenses as a direct result of the poor performance of the contractor. These delays were caused by inadequate manpower implemented by the contractor and failure to provide a work schedule.

#3 – There is a further request for lien set off for major work deficiencies and errors resulting in substantial expense to correct the problems by the owner. The deficiencies include but are not limited to multiple Building Code and Gas Code violations, inoperative heating and cooling system, incomplete plumbing system, etc. Deficiencies are within the knowledge of the contractor and include deficiencies noted by the Mechanical Engineer, Electrical Engineer, Structural Engineer, Building Inspector and Architect.

#3 [sic] – Excessive claim for lien filed August 13 with damages under the Construction Act by the owner.

[41] Invoices 11 and 12, rendered by Newfore in August 2020, have not been paid by BCHQ and remain outstanding. By this action, Newfore is seeking damages in the total amount of same.

ISSUES

[42] The following are the main issues to be determined:

(a) Did BCHQ lawfully terminate the Contract?

(b) Should BCHQ’s counterclaim be granted?

(c) Is Newfore entitled to damages from BCHQ?

CREDIBILITY

[43] Credibility is not a significant issue in this case. However, it is still relevant to my consideration. I am not required to believe all or nothing of what a witness says; rather, I can determine that some of what a witness says is in accord with the balance of probabilities, and some is not.

[44] I found Mr. El-Sahly to be credible and candid in his testimony about the events in question and Newfore’s work on the Project. Mr. El-Sahly’s language and comportment remained professional and composed throughout his evidence in chief and cross-examination.

[45] I found Mr. Curran to also be credible, but less resolute in his testimony. There were gaps in Mr. Curran’s evidence, leaving me with many unanswered questions. I do not know whether this was because certain relevant documents did not exist or because they simply were not filed as exhibits. But, as a result, Mr. Curran was unable to provide or confirm necessary details (e.g., communication of change request decisions, and work/costs claimed to rectify deficiencies post-termination and payment of same). Mr. Curran was also prone to provide certain evidence in chief under questioning by his lawyer, yet when cross-examined, he would reply, “I am not sure” or “I hope so”. For example, he indicated in his evidence that BCHQ had paid the invoices relied upon in support of the counterclaim, yet on cross-examination he could not confirm payment of the majority of the invoices/quotes filed and was uncertain if some of them had actually been paid by BCHQ (as opposed to being paid by TCA, who is not a party).

[46] With some reluctance, I have also concluded that Mr. Curran lacked impartiality and objectivity in some aspects of his evidence in describing the nature and seriousness of the time extension requests and the alleged delays and deficiencies. My reason for arriving at this conclusion relates to the fact that he is a part owner of BCHQ with a financial stake in the Project. In a number of written communications with Newfore, he referred to “we” when expressing how the delay was costing him and his partners money. Given his intimate relationship with BCHQ, this leaves open to question his ability to remain objective. This was also demonstrated by the way he described certain of Newfore’s conduct, for instance, as “a lame excuse”, “malicious”, “nonsensical” or “bizarre”. At times, the tone of some of his testimony appeared to reveal a personal frustration with Mr. El-Sahly.

[47] To the extent that their testimony contradicted on facts and matters that arose between the two of them, I accept and prefer Mr. El-Sahly’s evidence as more objective and reliable than Mr. Curran’s evidence.

[48] I have considered the whole of the body of evidence, and determined what has been proven on a balance of probabilities as more likely than not.

APPLICABLE LEGAL PRINCIPLES

[49] In general, absent fundamental breach, mere bad or defective work will not entitle an owner to terminate a contract: see C.S. Bachly Builders Ltd. v. Lajlo, 2008 CanLII 57444 (Ont. S.C.J.), at para. 84.

[50] Terminating a contract for a fundamental breach is an exceptional remedy that is available only in circumstances where the entire foundation of the contract has been undermined. In other words, it applies to a situation where the very thing bargained for has not been provided: see Syncrude Canada Ltd. v. Hunter Engineering Co., 1989 CanLII 129 (SCC), [1989] 1 S.C.R. 426, 1989 CarswellBC 37 (S.C.C.).

[51] Repudiation is a type of breach that goes to the root of the contract. Repudiation occurs where one party breaches the contract in some very important way such that there is a substantial failure of performance. When repudiation occurs, if the other party “accepts” the repudiation, then the contract is over and the party accepting the repudiation may seek to recover damages for the breach: see Potter v. New Brunswick Legal Aid Services Commission, 2015 SCC 10 (S.C.C.), at paras. 144-145.

[52] In Potter, Cromwell J. discussed the requirements for an anticipatory breach of contract and indicated that such a breach could amount to a repudiation of the contract. Justice Cromwell noted that “when the anticipated future non-observance relates to important terms of the contract or shows an intention not to be bound in the future, the anticipatory breach gives rise to anticipatory repudiation”. At paragraph 149 of Potter, he stated:

... An anticipatory breach “occurs when one party manifests, through words or conduct, an intention not to perform or not to be bound by provisions of the agreement that require performance in the future”: McCamus, at p. 689; see also A. Swan, with the assistance of J. Adamski, Canadian Contract Law (2nd ed. 2009), at § 7.89. When the anticipated future non-observance relates to important terms of the contract or shows an intention not to be bound in the future, the anticipatory breach gives rise to anticipatory repudiation. The focus in such cases is on what the party’s words and/or conduct say about future performance of the contract. For example, there will be an anticipatory repudiation if the words and conduct evince an intention to breach a term of the contract which, if actually breached, would constitute repudiation of the contract.

[53] When most of the work under the contract has already been done, even though there are defects and on-going breaches, the breaches cannot be treated as repudiation going to the root of the contract: see Obad (c.o.b. Rockwood Drywall) v. Ontario Housing Corp., [1981] O.J. No. 282 (Ont. H.C.), at paras. 22 and 23.

[54] In D & M Steel Ltd. v. 51 Construction Ltd., 2018 ONSC 2171 (Ont. SC.J.), at paras. 49-53, Perell J. summarized the law regarding damages and quantum meruit claims for breaches of construction contracts by contractors and owners, as follows (citations omitted):

49 Owner breach: if the owner without justification ceases to make required payments under the contract, cancels it, or through some act without cause makes it impossible for the contractor to complete its work, then the owner has breached the contract and it has no claim for damages, and the contractor is justified in abandoning the work and the contractor is entitled to enforce its claim for lien to the extent of the actual value of the work performed and materials supplied up until that time, and the court may award the innocent contractor damages for breach of contract or damages on a quantum meruit basis in lieu of or in addition to damages for breach of contract.

50 In a quantum meruit claim, deficiencies in the work actually performed are deducted from the value of the work done, but no account is taken of the owner’s costs to complete.

51 Contractor breach: mere bad or defective work or insignificant non-completion will not, in general, entitle an owner to terminate a contract, but the owner will have an obligation to pay for the work and make a claim for damages for the defective work. An owner will not be able to terminate the contract because of some minor or inconsequential failure to complete, although the owner may have a claim against the contractor for damages for non-completion or for defective workmanship, which will generally be the cost of completing the non-completed items or remedying any defects. If the contractor breaches the contract, an owner who alleges that the work performed or the materials supplied are defective must provide proper evidence on the basis of which his or her damages can be assessed.

52 If there are defects in a contractor’s workmanship, but not enough to amount to a fundamental breach entitling the owner to terminate the contract, the contractor should be permitted to remedy the defects and failure by the owner to permit such corrections will disentitle or reduce the amount of damages the owner can claim to remedy the defects as a result of its failure to mitigate.

53 Contractor breach: if a contractor abandons the contract, repudiates the contract, fundamentally breaches the contract, or performs the contract in a way that it is so defective as to amount, in substance, to a failure or refusal to carry out the contract work, the owner is entitled to terminate the contract, to claim damages for breach of contract, and to be discharged from its obligations to pay including any obligation to pay on a quantum meruit or for work already performed.

[55] Perell J. provides the following guidance on the law as it relates to extras in construction contracts in D & M Steel Ltd., at paras. 57-58 and 60 (citations omitted):

57 A contractor is only obliged to perform and may only charge for work and material included in its contract with the owner. The term, “extra” refers to extra work outside the scope of the contract, for which an additional charge is made by the contractor or subcontractor; an item specifically provided for in the contract is not an extra.

58 A contract may provide that the owner may order extras and specify a manner of payment but in the absence of such a provision, there must be a new express or implied agreement covering any extras. A contractor or subcontractor may charge for an extra where the owner or contractor expressly or impliedly instructed the contractor or subcontractor to do the extra work or to supply the extra materials. If no price is fixed for the performance of the extra work, the court will imply a promise to pay a reasonable amount on a quantum meruit basis. Conversely, when the contractor or subcontractor does work or supplies materials not called for by the contract (plans or specifications) without instructions, express or implied or without the consent of the other contracting party, the contractor is not entitled to charge for the additional work or materials.

60 Notwithstanding that a contract may require formalities in relation to requests for extras, where an owner has acquiesced in the provision of extras, it may be found to have made an implied promise to pay for them. An owner or contractor cannot orally request extra work be performed outside the scope of a contract, and then not pay for the work by relying on the written terms of the contract requiring confirmation of extras in writing. Orally requesting extra work outside the contract constitutes waiver by conduct.

ANALYSIS

(a) Did BCHQ lawfully terminate the Contract?

Position of Newfore

[56] It is Newfore’s position that BCHQ unlawfully terminated the Contract without cause or proper notice, and that BCHQ further breached the Contract by refusing to pay Newfore’s outstanding invoices.

[57] Newfore submits that Mr. Curran was not as impartial in performing his role as the Consultant under the Contract as he was required to be. As a part owner of BCHQ, Mr. Curran was unable to make objective and unbiased decisions concerning Newfore’s performance and time extension requests due to his own personal and financial interests in the Project.

[58] Newfore disputes that it caused inordinate delay on the Project resulting in a late completion date. Newfore argues that there was cumulative delay that was caused by: the numerous changes in work requested by BCHQ; the impact of COVID-19, beginning in March 2020, on obtaining supplies and on the ability of trades to work together in the same space; and the need for electrical work to be done by a third party retained by BCHQ that was not completed until July 28, 2020. At trial, Mr. El-Sahly testified about the time extensions Newfore requested and needed to complete the Project, as a result of the changes and events that occurred.

[59] Newfore also disputes that there were major deficiencies with its work on the Project. When deficiency items were raised by Mr. Curran, Newfore would respond and address each item in a timely and reasonable manner.

[60] There was a written agreement between the parties and it required that BCHQ give notice to Newfore of a default in a timely manner. It also required that Newfore be given the opportunity and some time to remedy the default before termination could occur. Here, BCHQ failed to give notice of defaults in accordance with the terms of the Contract. At trial, BCHQ relied on 19 emails sent by Mr. Curran to Newfore as constituting the notice in writing required under Paragraph 7.1.2 of the Contract. However, none of those emails put Newfore on formal notice that BCHQ considered Newfore to be in default nor did those emails give Newfore formal notice that it had 5 working days to correct the defaults. Further, in his evidence in support of the termination of Newfore, Mr. Curran relied on deficiency lists he had prepared after Newfore had been terminated, and he cited reports that Newfore had never seen before.

[61] Termination of a contract is a most serious matter. BCHQ was obligated to take the steps required under the Contract before it could exercise any right to terminate Newfore: see Kingdom Construction Limited. v. Regional Municipality of Niagara, 2018 ONSC 29 (Ont. S.C.J.), at para 110; and Urbacon Building Groups Corp. v. Guelph (City), 2014 ONSC 3641 (Ont. S.C.J.), at para 157.

[62] Newfore submits that it did not breach its obligations under the Contract to warrant termination.

Position of BCHQ

[63] It is BCHQ’s position that Newfore breached the Contract through inexcusable delay and unremedied deficiencies and incomplete work, which gave BCHQ the right to terminate. Further, Newfore’s conduct and its failure to obey the terms of the Contract gave rise to an anticipatory breach permitting BCHQ to terminate the Contract.

[64] With respect to delay, BCHQ submits that the original terms of the Contract required that Newfore’s work be substantially performed by April 30, 2020. However, this date was not met. The Project was significantly delayed by Newfore’s own conduct prior to its first request to change the schedule. The evidence shows that the Contract called for framing, insulation, electrical, and HVAC work to be completed by December 3, 2019; as of April 13, 2020, these items were still incomplete.

[65] Mr. Curran acknowledged that, throughout the course of the Project, BCHQ sought additional work and changes to the scope of the work. Those were documented by CORs prepared by Newfore. TCA/BCHQ agreed to the changes in price for the CORs but did not agree to the changes in time estimated therein by Newfore. TCA/BCHQ disagreed with Newfore that the CORs reasonably required an additional 19 weeks to complete. Mr. Curran testified that, in his opinion, 5 to 7 weeks was a more reasonable estimate. Notwithstanding the CORs, however, the evidence shows that Newfore was significantly and continuously delayed in the completion of all facets of the Project. Newfore knew that this would cause loss to BCHQ because Newfore was aware that BCHQ was renovating the Building to rent the residential units.

[66] On July 20, 2020, Mr. Curran sent an email to Newfore providing a list of deficiencies to be completed and advising that, if Newfore did not correct the defaults as soon as possible, BCHQ would “bring in other forces to complete the work” (“the July 20th Email”). BCHQ submits that delivery of the July 20th Email was a proper and sufficient notice of default for the purposes of the Contract. The July 20th Email gave Newfore notice that it was in breach for failing to abide by the construction schedule and for failing to rectify deficiencies. Between July 20 and August 10, 2020, BCHQ provided additional lists of outstanding deficiencies in writing. By August 10, 2020, Newfore had failed to rectify the deficiencies in a prompt manner or at all. Given Newfore’s failure to rectify those ongoing issues of default in a timely manner, BCHQ was entitled to terminate the Contract on August 10, 2020. Newfore’s failure to rectify defects constituted a fundamental breach of the Contract.

[67] BCHQ summarized Newfore’s progression of work based on its invoices as follows:

Invoice

Date

Contract Value Complete ($)

Contract Value Complete (%)

Schedule Time Elapsed (%)

001

Sept 30/2019

$31,200.00

3.16%

12.50%

002

Oct 30/2019

$99,570.01

7.95%

25.00%

003

Nov 30/2019

$146,814.11

10.70%

37.50%

004

Dec 30/2019

$256,360.00

20.19%

50.00%

005

Jan 31/2020

$266,235.36

29.27%

62.50%

006

Feb 28/2020

$607,607.49

52.81%

75.00%

007

Mar 31/2020

$749,121.27

65.56%

87.50%

008

Apr 30/2020

$836,819.77

71.13%

100.00%

009

May 31/2020

$948,832.25

82.92%

100.00+12.50%

010

Jun 30/2020

$1,024,502.25

90.13%

100.00+25.00%

011

Jul 30/2020

$1,111,556.28

99.82%

100.00+37.50%

011-R

Aug 12/2020

$1,150,771.52

100.00%

100.00+50.00%

[68] BCHQ relies on the decision in Abco One Corporation v. Pomerleau Inc., 2019 ONSC 4852 (Ont. S.C.J.), at paras. 82-83, wherein the court provided guidance in determining whether or not a breach is a substantial breach justifying future non-performance of the innocent party’s obligations, and re-affirmed the following as the factors to be considered: (a) the ratio of the party’s obligation not performed to the obligation as a whole; (b) the seriousness of the breach to the innocent party; (c) the likelihood of repetition of the breach; (d) the seriousness of the consequences of the breach; and (e) the relationship of the part of the obligation performed to the whole obligation. As the court in Abco explained, at para. 84:

It is often not one or two things that justify a contract termination. In Shield Metal Manufacturers Ltd. v. Canadian Pacific Forest Products Ltd., 1993 CarswellBC 1176 (BCST) the court noted that it was the totality of several factors, such as crew incompetence leading to deficiencies, unsafe working conditions, lack of management and delays, that justified the contract termination. At paragraph 40 Justice Hutchison stated that the defendant rightfully found that “cumulative effect” all of these breaches amounted to repudiation as “the commercial purpose of the contract had been frustrated.” I take guidance from this decision.

[69] BCHQ argues that there were a multitude of breaches by Newfore on the Project and the cumulative effect of those breaches amounted to a repudiation of the Contract by Newfore. That is, as a result of the repeated and cumulative breaches by Newfore, from its incessant delay in the completion of the work to its failure to rectify deficiencies promptly when requested, Newfore demonstrated that it was not able to complete the Project according to the terms of the Contract. BCHQ relies on Spirent Communications of Ottawa Limited v. Quake Technologies (Canada) Inc., 2008 ONCA 92 (Ont. C.A.) in this regard, wherein the Court of Appeal discussed anticipatory breach of contract, at para. 37, as follows:

I would add this. When considering Spirent’s conduct, it was important to keep in mind that what was involved was an anticipatory breach of contract. An anticipatory breach sufficient to justify the termination of a contract occurs when one party, whether by express language or conduct, repudiates the contract or evinces an intention not to be bound by the contract before performance is due. See Pompeani v. Bonik Inc. (1997), 1997 CanLII 3653 (ON CA), 35 O.R. (3d) 417, [1997] O.J. No. 4174 (C.A.). To assess whether the party in breach has evinced such an intention, the court is to ask whether a reasonable person would conclude that the breaching party no longer intends to be bound by it. See McCallum v. Zivojinovic (1977), 1977 CanLII 1151 (ON CA), 16 O.R. (2d) 721, [1977] O.J. No. 2341 (C.A.). Having said that, when determining whether such an intention has been evinced, the courts rely on much the same analysis as they do in respect of claims of fundamental breach. That is, in determining whether the party in breach had repudiated or shown an intention not to be bound by the contract before performance is due, the court asks whether the breach deprives the innocent party of substantially the whole benefit of the contract.

Discussion

[70] The onus is on BCHQ, as the party alleging that Newfore breached or repudiated the Contract by delay or deficiencies, to prove that claim. BCHQ relies on the evidence of Mr. Curran; photographs of the state of the Building taken in July 2020, a month before termination; and various communications exchanged in July and August 2020 between the parties regarding BCHQ’s list of deficiencies.

[71] I find that BCHQ has failed to meet its onus and conclude that BCHQ’s termination of the Contract with Newfore was unlawful.

[72] Newfore was not in fundamental breach of its contractual obligations. Newfore’s conduct did not constitute a repudiation or an anticipatory repudiation of the Contract based on any delay or failure to correct deficiencies. At no point did Newfore act as if its obligations to BCHQ were over. It is clear from the communications between the parties in early August 2020 that Mr. El-Sahly was trying to maintain the relationship and have Newfore complete its work under the Contract.

[73] Newfore had no choice but to accept BCHQ’s termination of the Contract on August 10, 2020 since BCHQ ordered Newfore to stop work, vacate the property, return the keys, and not return. In Rocksolid v. Bertolissi, 2013 ONSC 7343 (Ont. S.C.J.), Smith J. found that a homeowner’s failure to pay a contractor’s necessary expenses and refusal to allow the contractor to complete its work amounted to a repudiation of the contract (paras. 73, 75 and 77). I find that BCHQ’s direction to Newfore to leave the property and not return went to the core of the Contract and amounted to repudiation by BCHQ. Newfore was then entitled to consider the Contract at an end, and to seek damages for breach of the Contract.

Delay

[74] BCHQ’s position on delay was that Newfore’s conduct in starting the demolition late, in not having the jobsite fully staffed at all reasonable times, in not pre-ordering supplies and fixtures, and in making slow progress on the staged work was the main cause of the delay in completion of the Project, and that this had a detrimental cascading effect. That is, if Newfore had kept to the original schedule and been better organized, the Project would have been so far along that, by the time COVID-19 hit in March 2020, it would not have had much of an impact at all since the Project would have been in the final stages. Based on the evidence at trial, I am not persuaded that this is the case.

[75] Mr. El-Sahly’s evidence was that, with respect to CORs 1 through 12, the parties would agree on scope and Newfore would give a costing but no formal Change Order would be sent back by Mr. Curran. Since Newfore did not want to delay progress, it would take those change items and include them in its invoicing sheet showing percentage completed. The invoices would be issued at the end of each month and would be given to Mr. Curran for review and for certification of payment. Newfore took this as an alternative way of Mr. Curran approving the CORs. Newfore was not receiving signed Change Orders but it was receiving payment for the CORs.

[76] Mr. El-Sahly testified that, while Newfore did not usually ever receive a refusal to its request for changes in relation to the cost impacts, at times it would receive a refusal based on the schedule impact but most often this occurred after the work was completed. With respect to COR-011, for instance, the changes requested and set out in that change order request were unique so it was difficult to estimate how much time they would take. The only way the changes could be made was on a time and materials basis. Newfore was told to proceed and the schedule impact ended up being 6 weeks. So the costs were accepted and paid for but the schedule impact was denied afterwards and no alternative schedule was suggested by Mr. Curran.

[77] Mr. Curran testified that he did not issue any Change Orders or Change Directives, despite the Contract requiring same. All work changes were addressed through texts/emails between the parties and tracked by way of Newfore’s invoicing. On cross-examination, Mr. Curran agreed that the Contract stipulated that if changes were to proceed without full prior agreement on the impact on contract price and contract time, then TCA was to record TCA/BCHQ’s disagreement in a form called a Change Directive. Mr. Curran admitted, however, that no formal Change Directives were prepared or used. He testified that BCHQ’s rejection of the COR impact delays to the Project schedule was done by way of “change directive emails”. Mr. Curran was able to point to only one example of such an email. When asked to identify others in the documentary evidence, Mr. Curran replied that he might have provided “verbal” change directives instead, for other occasions.

[78] Mr. El-Sahly testified that initially Newfore estimated that 19 weeks of extended time would be needed to complete the changes in work, as was reflected in the CORs prepared by Newfore during the course of the Project. On the other hand, Mr. Curran testified that, in his opinion, a more reasonable estimate for the COR changes was in a range of 5 to 7 weeks. He advised that his time estimate in that regard was not communicated to nor accepted by Newfore, however.

[79] In my view, it is unreasonable for TCA to have refused to formally approve any extensions of time for the completion of the additional work requested by BCHQ. I also find that it is unreasonable for TCA/BCHQ to hold Newfore to strict compliance with the Contract’s scheduling when TCA/BCHQ clearly acted informally and did not comply with their own obligations under the Contract, including by providing Change Orders or Change Directives, as defined in the Contract.

[80] It is evident from the Contract itself that the parties contemplated there could be delays in the performance of work on the Project, and they agreed that the contract time would be extended for a “reasonable time” to accommodate such delay. Paragraphs 6.5.1, 6.5.3 and 6.5.6 of the Contract set out the parties’ agreement on how they would handle delays. Those paragraphs read, in part:

6.5.1 If the Contractor is delayed in the performance of the Work by an action or omission of the Owner, Consultant or anyone employed or engaged by them directly or indirectly, contrary to the provisions of the Contract Documents, then the Contract Time shall be extended for such reasonable time as the Consultant may recommend in consultation with the Contractor. The Contractor shall be reimbursed by the Owner for reasonable costs incurred by the Contractor as the result of such delay.

6.5.3 If the Contractor is delayed in the performance of the Work by:

.4 any cause beyond the Contractor’s control other than one resulting from a default or breach of Contract by the Contractor,

then the Contract Time shall be extended for such reasonable time as the Consultant may recommend in consultation with the Contractor. The extension of time shall not be less than the time lost as the result of the event causing the delay, unless the Contractor agrees to a shorter extension. The Contractor shall not be entitled to payment for costs incurred by such delays unless such delays result from actions by the Owner, Consultant or anyone employed or engaged by them directly or indirectly.

6.5.6. If the Contractor is delayed in the performance of the Work by an act or omission of the Contractor or anyone employed or engaged by the Contractor directly or indirectly, or by any cause within the Contractor’s control, then the Contract Time shall be extended for such reasonable time as the Consultant may decide in consultation with the Contractor. The Owner shall be reimbursed by the Contractor for all reasonable costs incurred by the Owner as the result of such delay, including all services required by the Owner from the Consultant as a result of such delay by the Contractor and, in particular, the cost of the Consultant’s services during the period between the date of Substantial Performance of the Work stated in Article A-1 herein as the same may be extended through the provisions of these General Conditions and any later, actual date of Substantial Performance of the Work achieved by the Contractor.

[81] Given the nature of the extra work requested and approved by TCA/BCHQ, I prefer the evidence of Mr. El-Sahly regarding what a reasonable time extension is in the circumstances. I was not persuaded by Mr. Curran’s opinion that the extensions sought by Newfore were too long or unsupported. Mr. Curran did not provide any detailed analysis establishing where along the way Newfore’s time extensions were unreasonable or how the work could have been done in a shorter amount of time. Mr. Curran relied mainly on the formula of ratio of time compared to cost to justify his opinion. For instance, a 40% overage on the scheduled time period is not warranted when the changes only represent 13% of the contract value. However, I prefer the evidence of Mr. El-Sahly that cost and schedule impact are not directly correlated. Some changes will have a cost impact only, while others will have a cost and schedule impact. It is the nature of the changes requested that will determine this. Time is a finite resource so if BCHQ is giving additional work to Newfore, on top of work it already has to complete, it is only logical that Newfore’s workers will need additional time in order to complete all the work.

COVID-19

[82] In my view, some reasonable extension of time to the construction schedule ought to have been allowed by BCHQ for delay caused by COVID-19.

[83] Mr. El-Sahly sent an email to Mr. Curran on April 2, 2020, providing an update on the Project, and advising of an anticipated 3-week impact due to COVID-19 extending completion to the end of July 2020. Mr. El-Sahly testified that COVID restrictions slowed progress on the Project and that Newfore had to deal with supply chain issues, some closed vendors, Ministry of Labour directives, some improperly filled orders, a limited number of trades being permitted onsite, and some subcontractors not willing to work alongside other trades. He stated that Newfore also had to be cautious because the Ministry of Labour was active doing inspections and shutting down jobsites that were not following COVID directives.

[84] Mr. Curran’s testimony concerning the effect of COVID-19, as relied on by Newfore, was that it was a “lame excuse”. He testified that TCA was not made aware of any delays at the Project due to COVID-19 and stated that no time extension was requested by Newfore. TCA attributed no schedule impact to COVID restrictions as a result, and TCA did not consider COVID-19 to have a particular effect on the Project because there were so few workers onsite. Mr. Curran opined that worksite health and safety concerns could have been dealt with in a way so as to allow more tradespeople to attend onsite to keep the Project moving along (e.g., by opening a window).

[85] I find it unreasonable for TCA/BCHQ to refuse to acknowledge or agree that the COVID-19 pandemic caused any delay that should be fairly accounted for. The Contract provided that the contractor, Newfore, was responsible for health and safety on the jobsite. I accept the evidence of Mr. El-Sahly that 3 weeks impact due to COVID-19 was a reasonable estimate, as of the time of his communications to Mr. Curran in early April 2020.

Electrical work

[86] In my view, some reasonable extension of time to the construction schedule ought to have been allowed by BCHQ for the delay caused by the need for a third party to complete the electrical work for the Building relating to a seized disconnect switch.

[87] I accept Mr. El-Sahly’s evidence that Newfore was contracted to do a set base scope as listed in the drawings and that existing conditions were not as represented on the drawings. A disconnect switch had seized so Newfore could not safely cut into it. Newfore brought this up with Mr. Curran in March 2020 and asked if it should be added to Newfore’s scope. Mr. Curran refused as he initially took the position that the electrical work did fall within Newfore’s scope of work. However, BCHQ subsequently agreed to use a third party to do that work.

[88] TCA was advised of and knew about this electrical problem at least in April 2020 since Mr. Curran emailed the third party, Santino Electric, on April 30, 2020 about the work to be performed. For reasons unexplained, this third-party electrical work was not performed until July 28, 2020. Immediately thereafter, Newfore went in and did the testing and commissioning that was needed to be done on the equipment in the residential units. Newfore discovered two defective parts, affecting two apartments, and ordered replacement parts from the manufacturer. Newfore advised Mr. Curran of this information by email.

[89] I find the refusal of TCA/BCHQ to allow for any scheduling impact due to the delay in this electrical work being completed is unreasonable in the circumstances. This aspect of the work was solely within the control of BCHQ. Newfore estimated that it would need a week to perform its testing and commissioning upon completion of this electrical work. The evidence establishes that Newfore did go in immediately after Santino had completed its work and did the testing and commission, as it said it would. There was no delay by Newfore in this regard. Newfore could not have performed this work until after July 28, 2020.

Conclusion on delay

[90] On balance, taking into account the totality of the evidence, I find that the majority of the substantive delay in completion of the Project was caused by the changes to work requested and approved by TCA/BCHQ, the impact of COVID-19, and BCHQ’s failure to ensure that the third-party electrical work was completed earlier than July 28, 2020.

[91] It was Mr. Curran’s opinion that Mr. El-Sahly’s schedules gave a false picture of a substantial performance date and the steps that still needed to be taken for the Project to be completed. However, the evidence establishes that TCA approved and certified for payment all of Newfore’s invoices up to June 30, 2020, and that TCA approved the original Invoice 11 for base contract work as of July 30, 2020. On BCHQ’s own analysis of the status of the Project, by June 30, 2020, 90.13% of the work required by the scope and change orders had been completed; and by July 30, 2020, 99.82% of the Contract value had been completed.

[92] In any event, on cross-examination, Mr. Curran admitted that BCHQ “accepted” the extensions to the Project’s schedule, including moving the date of substantial completion from its original April 30, 2020 to July 17, 2020, and then to August 7, 2020. Mr. Curran testified that those extensions were “accepted in spirit”, not agreed to. He stated that, because of what was happening, “we had no choice” and “we were stuck with an unfinished building”. Mr. Curran agreed with the cross-examiner that, with a substantial completion date of August 7, 2020, it was fair to say that the full completion date would be 2 weeks later, being August 21, 2020.

[93] In light of those admissions, I find that BCHQ cannot purport to terminate the Contract for delay since it directed Newfore to keep working to August 7, 2020. As Broad J. held in Kingdom Construction, at paras. 115 and 120, if an owner takes no action within a reasonable time following passage of a specified rectification period and allows the contractor to continue working, the owner will be considered to have acquiesced in the contractor continuing to perform, and a subsequent termination will be found to be an unlawful repudiation of the contract.

[94] Even if I am wrong in this regard, I find that the anticipated delay in occupancy did not amount to a fundamental breach of the Contract on the part of Newfore since it did not deprive BCHQ of substantially the whole benefit of the Contract. Rather, the consequence of taking occupancy late and renting out the apartments on a later date was only that there would be lost rent and incurred financing and ancillary expenses, which are quantifiable and potentially compensable.

Deficiencies

[95] BCHQ seeks to validate the Contract’s termination based on deficiencies, for items it asserts were either not remedied or not completed by Newfore, that BCHQ alleges constitute, in law, a fundamental breach. In support of its claim in this regard, BCHQ relies on the evidence of Mr. Curran as to the condition of various items claimed. There was no expert evidence led by BCHQ in support of its contention that items were deficient.

[96] The evidence established that the relationship between Newfore and TCA had evolved to a more informal one by at least December 2019. Both Mr. El-Sahly and Mr. Curran testified that verbal statements followed by emails was the main way the parties communicated to address issues and concerns identified by Mr. Curran along the way. I accept Mr. Curran’s evidence that he identified deficiencies to Newfore via email on an ongoing basis. Many of those emails were entered into evidence. Responding emails were also in evidence wherein Mr. El-Sahly and, on occasion, Mr. Khan would respond to Mr. Curran and provide comments in terms of the status of the deficiency issues listed or Newfore’s position regarding same. In some cases, Mr. El-Sahly would ask for a telephone call or a meeting in order to resolve outstanding issues. While Mr. Curran testified that Newfore was not responsive and did not rectify deficiencies in a timely manner, I find that Newfore did communicate in a timely manner and responded in a reasonable manner to most of the issues raised by Mr. Curran.

[97] In support of its decision to terminate, BCHQ relies primarily on 19 emails exchanged between Mr. El-Sahly and Mr. Curran regarding deficiencies identified between July 8, 2020 and August 10, 2020. The difficulty is that many of the deficiencies identified in those 19 emails were being addressed by Newfore on an ongoing basis, as is clear from the parties’ exchanges.

[98] I accept Newfore’s evidence that, as of early August, it was completing work as per its scope and it was close to completion of the Project. Any work or deficiency being brought up was being addressed on a line-item basis. TCA had prepared a General Review Report on each of April 13, 2020 and June 5, 2020, neither of which noted any previous deficiencies. On July 12, 2020, Mr. Curran signed a Certificate of Payment, certifying the value of work performed and products delivered to the Project by Newfore, as of June 30, 2020, as totalling $1,024,502.25; the amount payable for that particular June 30th invoice was $76,956.39. On July 17, 2020, there was a further General Review Report prepared by TCA that listed only the following two deficiencies:

4.1 Temporary structural support removed on west wall upper floor window. Confirm structural problem has been rectified properly.

4.2 Remove large drywall enclosed plumbing shaft on east wall of Apartment 304. Minimize riser to just enclose stackpipe.

[99] I find that the evidence establishes a disconnect between the emails sent by Mr. Curran purporting to identify “fundamental breach” deficiencies in Newfore’s work and the General Review Reports that were prepared and delivered by TCA concerning Newfore’s work on the Project. I also find it hard to reconcile Mr. Curran’s testimony about Newfore’s unreasonable delay and deficient work when BCHQ continued to request that Newfore perform additional work and instructed Newfore to continue working into August of 2020. For instance, in or about May 2020, BCHQ retained Newfore to do the additional commercial unit renovation, set out in COR-009. Why would BCHQ engage Newfore to do this work if it was so behind schedule and its work product so poor? The schedule impact of that work was said to be two weeks. And then, by COR-011, dated May 31, 2020, a further change order request was made by BCHQ, including adding “strapping and drywall around perimeter walls” (cost $46,734.85) and “frame and drywall bathroom ceilings” (cost $2,908.88). The schedule impact of that work was estimated by Newfore to be six weeks. Still further, on July 23, 2020, Mr. Curran approved new work for Newfore to complete on a time and materials basis, involving the renovation of the front foyer of the Building. Given BCHQ’s requests and approvals of this additional work, including to the commercial portion of the Building, I infer that BCHQ was, in fact, satisfied with the quality of the work being performed by Newfore and the progress being made.

[100] Since Newfore was terminated by the August 10, 2020 email, any deficiencies identified thereafter ought not to be considered in weighing whether the termination of Newfore was justified on August 10, 2020. This would include any new items listed in “the latest Electrical, Mechanical and Architectural Field Review Reports” for the Project, attached to Mr. Curran’s email dated August 11, 2020 (which was sent to Mr. Quick and a City building inspector, copying others including Mr. El-Sahly). I find that those reports were not given to Newfore prior to termination and so Newfore was not given the opportunity to address or remedy the new items contained therein. Accordingly, no claim is warranted for those items.

[101] While Mr. Curran was frustrated by what he deemed to be unreasonable and unacceptable delay on the part of Newfore delivering a final product, especially given that BCHQ was needing to rent out the residential apartments as soon as possible, the evidence establishes that, as of August 10, 2020, the termination date, Newfore had provided a great deal of what had been bargained for. The eight residential units had been renovated and were in a substantially completed (some of them completed) state. The photos entered into evidence, taken August 7, 2020, show this. The bulk of the areas seen in the photos appear to be finished, cleared and orderly. There are some minor items noted, including some needed touch-ups and finishings, a missing bathroom mirror, and some debris and/or tools that need to be cleaned and removed. (Mr. Curran commented that he believed those photos were taken by a realtor for Newfore and so they presented the Building in a positive light. This may be a fair comment but, nonetheless, the apartments pictured therein do appear to be in a finished or a practically finished state, for the most part.)

[102] With respect to the deficiencies identified in Mr. Curran’s August 10, 2020 email, specifically, I find that none of them go to the root of the Contract. The deficiencies concerning painting, cleaning, and manuals are minor in nature and were in the process of being addressed by Newfore. The clearance for a door bottom is not major in nature. Newfore had already identified the HVAC problems and advised Mr. Curran that the parts had been ordered from the manufacturer. The removal of onsite materials and equipment, the removal of a lockbox, the return of keys, and the replacement of the light fixtures are minor in nature and straightforward to resolve. Mr. El-Sahly testified that the installation of gas pipes for the stoves, and the installation of the stoves themselves, was to be undertaken by BCHQ and was not part of Newfore’s scope. In his evidence, Mr. Curran agreed that the line-item concerning the gas hoses being too short did not fall within Newfore’s scope of work and so it should be removed as a deficiency and is not being relied upon by BCHQ as a deficiency. As well, Mr. Curran agreed on cross-examination that the self-closing hinges item was not a deficiency.

[103] With respect to the occupancy items listed in Mr. Curran’s August 10, 2020 email, Newfore had obtained Certificates of Inspection, dated July 31, 2020, from the Electrical Safety Authority (ESA) certifying that electrical inspections at the Project were conducted or deemed conducted on the described electrical installations. Newfore also obtained the Emergency Lighting and Exit Sign Declaration, dated August 12, 2020, and the Fire Alarm System Verification reports, dated August 12, 2020, for the Project. By his email dated August 7th, 2020, Mr. El-Sahly had advised Mr. Curran that Enercare was scheduled to attend on August 10 to replace and inspect deficient equipment; and the fire alarm verification was scheduled to take place on August 11 and 12. Therefore, the critical items listed had already been, or were in the process of being, addressed by Newfore as of the time of Mr. Curran’s August 10th email.

[104] On the whole of the evidence that I accept, I find that the deficiencies identified by BCHQ in Mr. Curran’s email of August 10, 2020 were not of a major nature and did not take away the very thing that BCHQ had contracted for, a renovated residential building. The evidence established that approvals needed for occupancy were obtained for Newfore’s work. BCHQ did not prove at trial any violations by Newfore of the Gas Code or the Ontario Building Code.

[105] The evidence establishes that Newfore was willing to complete the Contract and rectify the identified deficiencies at the time of the termination. There is no evidence that it was incapable or unable to remedy the deficiencies if given the opportunity to do so. Newfore gave no indication, by conduct or language, that it wanted to repudiate the Contract or that it did not intend to be bound by the terms of the Contract.

[106] In my view, there was a lack of impartiality in Mr. Curran’s views and opinions concerning the way to approach the deficiencies he had identified in his August 10, 2020 email. I find that this impartiality was due to the fact that he was a co-owner of BCHQ. In a number of his emails to Mr. El-Sahly, Mr. Curran comments using the term “we”. Certainly, as of July 2020, Mr. Curran’s patience with Newfore had run out and I find that he was no longer acting in as impartial and objective a manner as was required by the role of Consultant under the Contract’s terms.

[107] The evidence establishes that, up to and including August 7, 2020, Newfore had been onsite working on completing work on the Project. It appears there was some miscommunication between the parties, however, regarding the weekend of August 8/9 because Mr. El-Sahly indicated in his August 7th email that Newfore would “cancel the front foyer work for this weekend at your instruction” in response to Mr. Curran advising in his prior email, sent earlier that same day, that “We have multiple rental viewings tomorrow and Sunday so your guys need to give them free access as needed”. By his email, Mr. Curran had asked for unimpeded access only, and did not direct that no workers attend. In his August 7th email, Mr. El-Sahly also stated: “We are under contract to complete this work and we will be seeing this work through to 100% completion.” The next email in the chain looks to be Mr. Curran’s email of August 10, 2020 terminating Newfore from the Project.

[108] In Rocksolid, at para. 80, the court cited Don Pocock Construction v. Brady, [2004] O.J. No. 688, 2004 CanLII 13959 (ON SC), at para. 45, wherein Timms J. stated:

Although the Longwell decision is little more than a head note, it does appear to stand for the proposition that a builder who is ready and willing to complete the work required to make good the contract between it and the home owner, has the right of entry to the house to do so. In that case, it was held that a refusal to permit such entry amounted to repudiation of the contract by the homeowner.

Ultimately Smith J., in Rocksolid, held that the homeowner repudiated the contract by failing to give the contractor the opportunity to return to repair the deficiencies and, therefore, could not claim the cost to repair the deficiencies by another contractor. In the same vein, here, I find that BCHQ’s refusal to allow Newfore to return to remedy the deficiencies constituted a repudiation of the Contract by BCHQ.

Conclusion on deficiencies

[109] Taking all of this into account, I find that BCHQ was not entitled to terminate the Contract due to alleged defective work or deficiencies on the part of Newfore.

Inadequate notice of default given by BCHQ

[110] Since there was no fundamental breach by Newfore entitling BCHQ to terminate the Contract, it must now be considered whether BCHQ lawfully terminated Newfore pursuant to the termination provisions of the Contract itself. The relevant paragraphs are as follows:

7.1.2 If the Contractor neglects to prosecute the Work properly or otherwise fails to comply with the requirements of the Contract to a substantial degree and if the Consultant has given a written statement to the Owner and Contractor that sufficient cause exists to justify such action, the Owner may, without prejudice to any other right or remedy the Owner may have, give the Contractor Notice in Writing that the Contractor is in default of the Contractor’s contractual obligations and instruct the Contractor to correct the default in the 5 Working Days immediately following the receipt of such Notice in Writing.

7.1.3 If the default cannot be corrected in the 5 Working Days specified or in such other time period as may be subsequently agreed in writing by the parties, the Contractor shall be in compliance with the Owner’s instructions if the Contractor:

.1 commences the correction of the default within the specified time, and

.2 provides the Owner with an acceptable schedule for such correction, and

.3 corrects the default in accordance with the Contract terms and with such schedule.

7.1.4 If the Contractor fails to correct the default in the time specified or in such other time period as may be subsequently agreed in writing by the parties, without prejudice to any other right or remedy the Owner may have, the Owner may:

.1 correct such default and deduct the cost thereof from any payment then or thereafter due the Contractor provided the Consultant has certified such cost to the Owner and the Contractor, or

.2 terminate the Contractor’s right to continue with the Work in whole or in part of terminate the Contract.

7.1.5 If the Owner terminates the Contractor’s right to continue with the Work as provided in paragraphs 7.1.1 and 7.1.4, the Owner shall be entitled to:

.1 take possession of the Work and Products at the Place of the Work; subject to the rights of third parties, utilize the Construction Equipment at the Place of the Work; finish the Work by whatever method the Owner may consider expedient, but without undue delay or expense, and

.2 withhold further payment to the Contractor until a final certificate for payment is issued, and

.3 charge the Contractor the amount by which the full cost of finishing the Work as certified by the Consultant, including compensation to the Consultant of the Consultant’s additional services and a reasonable allowance as determined by the Consultant to cover the cost of corrections to work performed by the Contractor that may be required under GC 12.3 – WARRANTY, exceeds the unpaid balance of the Contract Price; however, if such cost of finishing the Work is less than the unpaid balance of the Contract Price, the Owner shall pay the Contractor the difference, and

.4 on expiry of the warranty period, charge the Contractor the amount by which the cost of corrections to the Contractor’s work under GC 12.3 – WARRANTY exceeds the allowance provided for such corrections, or if the cost of such corrections is less than the allowance, pay the Contractor the difference.

[111] By virtue of Paragraph 7.1.2 of the Contract, therefore, TCA as the Consultant was required to give “a written statement” to BCHQ and Newfore that sufficient cause exists and then BCHQ was to give Newfore notice in writing that Newfore is in default of its contractual obligations and instruct Newfore to correct the default within 5 working days. Paragraph 7.1.3 then provides that if a default cannot be corrected in the 5 working days (or other agreed upon deadline), Newfore will still be in compliance if it does the following: (a) commences the correction of the default within the specified time, and (b) provides BCHQ with an acceptable schedule for the correction, and (c) corrects the default in accordance with the Contract’s terms and with such schedule. It is only after this that Paragraph 7.1.4 applies such that, if Newfore fails to correct the default in the time specified or otherwise agreed upon, then BCHQ can take steps to correct the default on its own and either deduct the cost from any payment due to Newfore or terminate the Contract.

[112] Thus, Newfore was entitled to be given clear notice that it was in default of the Contract and given the prescribed time to correct the default before termination could happen. That is not what occurred in this case.

[113] Courts have recognized the necessity and importance of clear and proper notice of default in construction disputes. In Urbacon Building, at para. 157, MacKenzie J. held that an owner delivering a notice of default must accurately and clearly stipulate in the notice the deficiencies in the contractor’s performance upon which it relies and which the contractor is given notice to rectify or cure. And, in Kingdom Construction, at paras. 94 and 110-111, Broad J. held:

94 Thus, a notice of default which does not clearly and precisely communicate the nature of the default or defaults upon which the owner relies and which must be remedied within the time period specified in the contract, is not effective and cannot support a notice of termination delivered after expiry of the specified period, because the period for rectification never began to run.

110 Moreover, it was not necessary for Kingdom to establish by evidence that it was confused or did not fully understand the basis for the Region’s Notice of Default, nor for the court to embark upon an enquiry into that issue. The onus is on the Owner to clearly identify the breaches upon which it relies. It is not a required step in the analysis outlined in Pioneer Hi-Bred that the Contractor satisfy the court that it was not confused or did not understand the nature of the defaults relied upon by the Owner, in spite of the deficient nature of the disclosure in the Notice of Default. There is good reason for this. Given the seriousness of termination of a contract, it is important that the steps which must be taken by an Owner as a precondition to the exercise of a right to terminate be performed clearly and precisely, so as to minimize the potential for uncertainty and resulting costly litigation.

111 In my view, neither HMM’s “statement of sufficient cause” email dated October 1, 2014, nor the Region’s Notice of Default dated October 3, 2014 clearly and precisely communicated the nature of the default or defaults by Kingdom upon which the Region relied. The consequence of this, as indicated above, was that the 5 day period for correction of the alleged defaults never began to run. The Notice of Termination dated January 21, 2015 was therefore without foundation and the termination was wrongful.

[114] While I accept that BCHQ communicated information concerning issues and apparent deficiencies by way of the 19 emails sent by Mr. Curran to Mr. El-Sahly beginning July 8, 2020, as identified at trial, I do not agree with BCHQ’s contention that those emails constitute effective “notices in writing” of default in satisfaction of Paragraph 7.1.2 of the Contract. This is because the emails did not clearly and precisely communicate the nature of the default(s) and specify the time within which Newfore must remedy the default(s).

[115] On cross-examination, Mr. Curran admitted that no formal notice of default was sent and admitted that none of the 19 email exchanges refer to Part 7 - Default Notice of the Contract or use the words “default” or “termination” as advance warning of BCHQ’s intention to terminate the Contract.

[116] I conclude that BCHQ breached the Contract by failing to comply with Paragraph 7.1.2, as it did not give Newfore a proper notice of default and instruct that the default must be remedied within 5 working days. Accordingly, the rectification period never began to run for Newfore.

Conclusions

[117] I conclude that there was no fundamental breach by Newfore entitling BCHQ to immediately terminate the Contract.

[118] I conclude that it was BCHQ who repudiated the Contract and not Newfore.

[119] I conclude that BCHQ did not provide Newfore with proper notice in writing, as required by Paragraph 7.1.2, to support termination under the Contract.

[120] Therefore, BCHQ’s termination of the Contract on August 10, 2020 was unlawful.

(b) Should BCHQ’s counterclaim be granted?

Position of BCHQ

[121] BCHQ claims that it sustained damages for which Newfore is responsible. BCHQ states that, following the Contract’s termination, it had to retain other contractors to complete defective and incomplete work performed by Newfore. BCHQ submits that it subsequently discovered additional deficiencies that were required to be corrected.

[122] BCHQ seeks compensation in the amount of $116,912.55 for all work completed at the Project post-termination. Mr. Curran provided evidence of the various work that BCHQ alleges was required to address the outstanding and defective work.

[123] BCHQ also seeks compensation in the amount of $30,000.00 for lost rental income. Mr. Curran provided evidence regarding the months of vacancy of various of the apartments at the Building in 2020 and the rent being charged for each.

Position of Newfore

[124] Newfore submits that the counterclaim ought to be dismissed in its entirety. BCHQ has not filed written proof of payment for any of the counterclaim items aside from hardware store receipts totalling $718.68 and two invoices marked paid. Newfore also argues that Mr. Curran admitted on cross-examination that some charges were paid for by TCA, not BCHQ; therefore, BCHQ has no basis to claim for such amounts.

[125] BCHQ did not prove lost rent. Mr. Curran had limited knowledge and information about this claim. Other than a chart showing general information about the unit rentals, no further supporting documents were provided to support the claim. Newfore also contends that any claim by BCHQ for loss of rental income is untenable given the fact that BCHQ acquiesced to the Project’s schedule extensions.

[126] Finally, Newfore submits that BCHQ failed to properly mitigate and so is not entitled to damages.

Discussion

[127] As of August 10, 2020, BCHQ did not allow Newfore to return to the jobsite to complete its work and/or remedy any deficiencies. By refusing to allow Newfore access to the worksite, BCHQ made it impossible for Newfore to complete its remaining work and fundamentally breached the contract. Since it was BCHQ that repudiated the Contract, BCHQ is not entitled to succeed on its counterclaim: see 1088558 Ontario Inc. v. Musial, 2022 ONSC 5239 (Ont. S.C.J.), at para. 99; and D & M Steel, at para. 49.

[128] BCHQ also refused to pay the remaining balance that was due to Newfore under the terms of the Contract. By refusing to pay Newfore as required by the Contract, BCHQ further breached the Contract. BCHQ was not justified in refusing to pay what was owed to Newfore under the Contract. As a result, I find that BCHQ has no claim for damages: see Musial, at para. 133; and D & M Steel, at paras. 49-50.

[129] In the event that I am wrong in this regard, I find that BCHQ has not proven on a balance of probabilities that the expenses claimed after termination of the Contract were properly incurred to complete Newfore’s scope or to cure deficiencies in Newfore’s work. There was no expert evidence proffered by BCHQ. Nor was there any damage analysis of the extent to which the claimed costs related to Newfore’s work and why.

[130] Mr. Curran testified with respect to invoices that were submitted into evidence by BCHQ in support of work paid to rectify Newfore’s alleged deficiencies. By my count, only one of the invoices showed that it was paid, and many other of the documents filed were only quotes or estimates (not invoices). The largest invoice was from Mattina Mechanical, however, only one of the sixteen work orders that form part of that invoice was put into evidence by BCHQ, regarding the investigation and repair of a leak. It is not possible to ascertain from the evidence filed what aspects of Mattina’s work relates to any Newfore deficiencies or how; there is also no information from TCA that Mattina’s invoice is accurate. Other of the invoices relied on by BCHQ contain almost no details about the actual work performed, hours spent, or number of workers. One invoice was dated from 2018 and another from 2019, so they could not relate to work post-termination. One invoice, dated 2021-01-03, was for electrical site review of construction regarding the ground floor commercial which was not in Newfore’s scope of work. Other of the invoices submitted were dated September, October and December 2021, which are over a year after Newfore’s work on the Project stopped and were not proven to be directly related to any default by Newfore. Still other invoices were dated January, February, March and May 2022 and the evidence did not establish that they were the direct result of Newfore’s default.

[131] Most significantly, however, with the exception of the one invoice marked “Paid”, respecting an Enercare repair made on September 1, 2020 in the amount of $1,130.00, and two hardware store receipts, there was no probative proof of payment for the claimed costs. I draw an adverse inference against BCHQ in light of this failure. With respect to the Enercare paid invoice, the description reads: “Repaired leak. Pressure tested. Evacuated, charged and tested system. System running at this time. Compressor making abnormal noise but may go away. Drain pan for evap plugged”. Mr. Curran’s evidence on this item was that it related to fixing the air conditioning in one unit that was never functional. But Newfore had advised TCA/BCHQ that it found a problem with the HVAC equipment in two units when it did the testing and commissioning and that it had ordered the parts from the manufacturer as a result. Because of the termination, Newfore did not have the chance to fix the equipment problem. In my view, therefore, the evidence does not establish that this repair was incurred as a result of a default by Newfore.

[132] Finally, I conclude that BCHQ failed to properly mitigate its damages. As held by the court in Beta Construction Inc. v. Chiu, 2015 ONSC 5288 (Ont. S.C.J.), at para. 86, before an owner is entitled to damages for deficient work, in the absence of a fundamental breach by the contractor, “the owner must mitigate by informing the contractor of the complaint and allowing the contractor an opportunity to repair the item, call in the supplier on warranty items and rectify or otherwise complete the work that is the subject of the complaint”. No set-off is warranted for items where the owner has failed to so mitigate their damages: Beta Construction, at para. 89.

[133] Here, BCHQ did not give Newfore proper notice of default or the required time or opportunity to correct the default. By demanding that Newfore leave the construction site and not return, under threat of police involvement, TCA/BCHQ made it impossible for Newfore to cure the deficiencies. This represents a gross failure to mitigate by BCHQ. Given that Newfore was not in fundamental breach of the Contract, I am satisfied that it would have been reasonable for BCHQ to have allowed Newfore to repair the deficiencies in August. Permitting Newfore to address any legitimate deficiencies would have resulted in no added cost to BCHQ. I therefore find that damages would have been nil if BCHQ had accepted Newfore’s offer. Accordingly, BCHQ has failed to mitigate its damages.

[134] With respect to the claim for lost rental income, I find that this claim is untenable for a few reasons. First is the fact that BCHQ acquiesced to the Project’s schedule extensions to August 7, 2020 and the evidence was that two units were being rented in August 2020 and three in September 2020. Second, BCHQ failed to mitigate by allowing Newfore to rectify the deficiencies which could have enabled BCHQ to get all of the units on the rental market faster than what happened. And third, I adopt and rely on my earlier findings that BCHQ has failed to prove, on a balance of probabilities, that Newfore breached the Contract. By extension then, BCHQ has failed to prove on a balance of probabilities that it was Newfore’s breach specifically that resulted in BCHQ being unable to rent the apartments sooner than they were.

[135] For all these reasons, I deny the counterclaim.

(c) Is Newfore entitled to damages from BCHQ?

[136] The primary rule in breach of contract cases is that a wronged plaintiff is entitled to be put in as good a position as he would have been in if there had been proper performance by the defendant: see Michaels v. Red Deer College, 1975 CanLII 15 (SCC), [1976] 2 S.C.R. 324 (S.C.C.) at p. 330.

Invoice 11

Position of Newfore

[137] Newfore submits that it is entitled to be paid in full for all of its work on the Project and seeks payment of the two outstanding invoices, being Invoice 11 in the amount of $128,415.85 and Invoice 12 in the amount of $130,037.18.

[138] Invoice 11 is dated July 30, 2020 and requires payment for the final work completed within the main scope of the work, totalling $97,375.00; and for the additional work set out in COR-014 in the amount of $44,401.42 concerning the front foyer renovation and all remaining un-invoiced changes.

[139] Mr. El-Sahly testified that there were two Invoice 11s issued. The original invoice was for base contract work alone, whereas the revised invoice added the work set out in COR-014. The work identified in COR-014 includes additional framing and drywall costs in the amount of $23,667.89 that was a direct result from demolition work captured in COR-001, which reflected BCHQ’s decision to order extra demolition not shown on the original construction drawings. Mr. El-Sahly’s evidence was that the initial demolition was to remove only selective walls and lathe plaster and uncover the existing condition of the building. However, it was discovered that a proper build could not happen if some of the existing walls were left standing, due to their poor condition and finishes. Newfore raised the issue with TCA and Mr. Curran directed them to go ahead and do a complete demolition of the walls. But if walls are removed, they need to be reframed. Newfore never billed BCHQ for reframing and building those new walls. So when Mr. El-Sahly was preparing the final invoice, he created COR-014 and provided an exact bill of materials and attached the drawings and quantities, total materials and labour for that reframing work. On cross-examination, Mr. El-Sahly explained that the Home Depot invoice attached to COR-014, dated August 11, 2020, only has that date because the invoice was prepared to have a clean document. The order itself was made under an account and Newfore asked Home Depot to pull out all of the items that relate to COR-014. The order was not delivered August 24, 2020 despite a “scheduled delivery date” showing on the invoice; that date was a result of Home Depot’s record-keeping which Newfore has no control over. Newfore contends that, on cross-examination, Mr. Curran admitted that the walls taken down in COR-001 had to be put back up.

[140] With respect to the additional charge for bin fees in the amount of $13,135.40 set out in COR-014, Mr. El-Sahly testified that that charge related to demolition work Newfore carried out at the Project. He stated that it sometimes happens that missed charges come to light when a contractor is preparing the final paperwork for a project. He also commented that a bin charge is not unusual in the construction business and BCHQ paid similar charges earlier on without objection (i.e., COR-001 and COR-009). At the end of a project, Newfore does a complete tally of things for which it has been charged. Mr. El-Sahly states that Newfore was not required to submit receipts; it was only required to document amounts actually incurred by Newfore for the Project. Once the Project came to an end, Newfore billed the flat cost consistent with its base contract; when it ran over, there was a number that had to be seen to line up. He agreed there was no email to Mr. Curran advising of an additional bin charge in this amount.

[141] Newfore submits that, on cross-examination, Mr. Curran admitted that TCA had approved and certified the original version of Invoice 11, in the amount of $88,533.95.

Position of BCHQ

[142] BCHQ takes the position that the increased amount set out in Invoice 11 was not approved or authorized work. In his testimony, Mr. Curran confirmed that the original Invoice 11 amount was approved by TCA. But TCA rejected the revised Invoice 11 because of the addition of COR-014. When testifying though, Mr. Curran conceded that the first line-item of COR-014, being $2,490.00 plus HST for the front foyer work, was a valid charge. He continued to dispute the two other charges, however, relating to the drywall and framing and the bin fees.

Discussion

[143] Given Mr. Curran’s admissions that TCA approved the original Invoice 11 in the amount of $88,533.95 for work performed and completed by Newfore up to July 30, 2020, and that the $2,490.00 front foyer renovation charge set out in COR-014 is a valid charge, I grant Newfore’s claim to those amounts.

[144] With respect to the two remaining charges set out in COR-014, I find as follows.

[145] I accept and prefer Mr. El-Sahly’s testimony about the need for the additional framing and drywall and about the construction of the new walls to replace the walls that were demolished. I also accept that the issue was discussed with TCA and it had agreed to the full removal of the walls. Accordingly, I am satisfied that the additional framing and drywall charge in the amount of $23,667.89 is a reasonable cost for work completed by Newfore. While Mr. Curran stated that he believed this work was captured by COR-011, dealing with “strapping and drywall around perimeter walls”, I have trouble accepting that given that the drawings attached to COR-014 show internal walls making up the rooms inside the units. Mr. Curran did not direct me to anywhere else in the exhibits where added work replacing the internal walls was otherwise paid for by BCHQ. I also accept Mr. El-Sahly’s evidence explaining the preparation of the Home Depot invoice attached in support of COR-014 and that it reflects supplies and materials that went into rebuilding the walls. Accordingly, I accept the “additional framing and drywall work associated with additional demo” charge as valid and grant Newfore’s claim to that amount.

[146] Regarding the extra charge for bins in the amount of $13,135.40, however, I am not persuaded that that is a valid charge to be paid by BCHQ. The evidence did not convince me on a balance of probabilities that 15 additional bins were actually used for the Project, in light of the number of bins already paid for by BCHQ. I also find it questionable how such a line-item is missed for more than 10 months when the demolition stages of the Project had already been billed. I decline to award the additional bin charge in the circumstances.

[147] In the result, I order BCHQ to pay the amount of Invoice 11 minus the bin charge of $13,135.40 plus HST.

Invoice 12

Position of Newfore

[148] Invoice 12 is dated August 12, 2020. It seeks payment of the 10% holdback in the amount of $115,077.15 plus HST, for a total of $130,037.18, as retained by BCHQ.

[149] Newfore submits that since Invoice 12 is entirely comprised of the holdback amount, and since TCA had already certified payment for the work completed as of June 30, 2020 and approved the original Invoice 11 for the work completed by July 30, 2020, it should not be in dispute.

Position of BCHQ

[150] BCHQ takes the position that Newfore’s claim for lien is invalid and wilfully exaggerated. BCHQ alleges that the holdback is warranted in all of the circumstances and as required under the Construction Act, R.S.O. 1990, c. C.30. Newfore has been paid according to the terms of the Contract for the value of the work done and the payments made by BCHQ actually exceed the value of that work and the deficiencies that needed to be completed.

[151] If the holdback is to be released to Newfore, BCHQ claims a set off and/or a reduction for the amount of damages BCHQ incurred from the delayed and shoddy work performed by Newfore.

Discussion

[152] Paragraph 5.1 of the Contract relates to the payment of the holdback. It reads:

5.1 Subject to the provisions of the Contract Documents, and in accordance with legislation and statutory regulations respecting holdback percentages and, where such legislation or regulations do not exist or apply, subject to a holdback of TEN percent (10%), the Owner shall:

.1 make progress payments to the Contractor on account of the Contract Price when due in the amount certified by the Consultant together with such Value Added Taxes as may be applicable to such payments, and

.2 upon Substantial Performance of the Work, pay to the Contractor the unpaid balance of the holdback amount when due together with such Value Added Taxes as may be applicable to such payment, and

.3 upon the issuance of the final certificate for payment, pay to the Contractor the unpaid balance of the Contract Price when due together with such Value Added Taxes as may be applicable to such payment.

[153] For the purposes of the Contract, the term “Substantial Performance of the Work” is defined in the Definitions section to mean:

Substantial Performance of the Work is as defined in the lien legislation applicable to the Place of the Work. If such legislation is not in force or does not contain such definition, or if the Work is governed by the Civil Code of Quebec, Substantial Performance of the Work shall have been reached when the Work is ready for use or is being used for the purpose intended and is so certified by the Consultant.

[154] Mr. El-Sahly prepared a Certificate of Substantial Performance, dated August 4, 2020, for the Project. Mr. Curran stated that TCA did not certify substantial performance because Newfore filed the lien on August 13, 2020, before TCA received the certificate of substantial performance from Newfore. But he agreed that the Consultant’s obligations do not stop with the filing of a lien.

[155] I find that a substantial part of the improvement to be made under the Contract was ready for use for its intended purpose as of the date the Contract was terminated, both in terms of importance to BCHQ and percentage of the work. The rent chart filed by BCHQ shows that two units were being rented in August 2020 (i.e., 202 and 301) and three in September 2020 (i.e., 202, 301 and 302). BCHQ has had possession of the Building and been using it since August 2020. Therefore, Newfore is entitled to payment of the holdback amount (s. 2 of the Construction Act).

[156] Sections 26 and 27 of the Construction Act provide that an owner may pay the holdbacks without jeopardy “where all liens that may be claimed against that holdback have expired or been satisfied, discharged or otherwise provided for under this Act”. There was no evidence led at trial of any outstanding subcontractors, suppliers or subtrade lien claimants respecting the Project. (Mr. Curran did raise that, after termination of Newfore, he received a telephone call from a masonry contractor asking if monies from the holdback could be re-directed to them as a garnishment for a court order they had obtained against Newfore, which Mr. Curran agreed to do. However, Mr. Curran did not recall the exact amount and he testified that he did not know if the masonry work related to the Project. Mr. Curran stated that BCHQ was not claiming it as part of the deficiencies against Newfore.) As well, it was not established that BCHQ satisfied its obligations under s. 27.1 of the Construction Act by publishing a notice in the prescribed form so as to entitle it to refuse to pay the holdback amount to Newfore.

[157] Since I have found that BCHQ repudiated the Contract, I conclude that it is not entitled to set off or deduct from the holdback the price of services or materials that were required to remedy deficiencies or to complete the Project: see D & M Steel, at para. 52; and Beta Construction, at para. 89. In the event that I am wrong in this regard, I adopt and rely on my findings made in paragraphs 129 through 134, above, and conclude that BCHQ has failed to prove its damages, on a balance of probabilities, to support any set off or deduction.

[158] Accordingly, Newfore is entitled to payment of the holdback amount as claimed in Invoice 12.

Conclusion

[159] In the result, Newfore is entitled to be paid: (i) the amount set out in Invoice 11 minus the bin charge in the amount of $13,135.40 plus HST; and (ii) the amount set out in Invoice 12.

[160] As I have granted Newfore its damages based on breach of the Contract, its quantum meruit claim need not be decided.

DISPOSITION

[161] For the foregoing reasons, Newfore’s action is allowed, in part, and BCHQ’s counterclaim is dismissed.

[162] Newfore is entitled to a recovery of damages against BCHQ in the amount of $258,453.04 minus the bin charge of $13,135.40 plus HST, plus prejudgment interest and postjudgment interest thereon at the rate of 7.95% per year from August 10, 2020, excepting the first 60 days which are to be calculated at 5.95% pursuant to the Contract.

[163] Should the parties require further direction or clarification from the court to finalize the Judgment based on the foregoing rulings, submissions may be made in writing or an appointment made to appear before me for that purpose.

COSTS

[164] I would urge the parties to agree on costs. If they are unable to do so, then costs submissions may be made as follows:

(a) By November 17th, 2023, Newfore shall serve and file its written costs submissions, not to exceed three pages, double-spaced, together with a draft bill of costs and copies of any pertinent offers; and

(b) BCHQ shall serve and file its responding costs submissions of no more than three pages, double-spaced, together with a draft bill of costs and copies of any pertinent offers, by December 1st, 2023; and

(c) Newfore’s reply submissions, if any, are to be served and filed by December 8th, 2023 and are not to exceed two pages.

(d) If no submissions are received by December 8th, 2023, the parties will be deemed to have resolved the issue of the costs and costs will not be determined by me.

MacNEIL J.

Released: October 27, 2023