COURT FILE NO.: CV-19 -2785-0000

DATE: 2023 12 08

ONTARIO

SUPERIOR COURT OF JUSTICE

BETWEEN:

METTKO CONSTRUCTION LTD.

– and –

HAUSER REALTY CORP.

Paul J. Pape and Christina Senese, counsel for the Plaintiff/Defendant by Counterclaim

Emily Durst, counsel for the Defendant/Plaintiff by Counterclaim

HEARD: March 28, 29, 30, April 14 and May 29, 2023

REASONS FOR JUDGMENT

CHOZIK J.

OVERVIEW:

[1] The plaintiff, Mettko Construction Ltd. (“Mettko”) is a construction project management company. The defendant, Hauser Reality Corp. (“Hauser”) is part of a family owned and operated group of companies. One of the branches of Hauser’s business is the sale of high-end outdoor furniture.

[2] In June 2018, Hauser purchased a property in Burlington with the intention of renovating it to be its flagship retail store. It entered a contract with Mettko to provide pre-construction and construction services for the project. On April 22, 2019, before the main construction had started, Hauser terminated Mettko’s contract.

[3] This trial was about whether termination of the contract was justified. Mettko took the position that Hauser had no right to terminate the contract and is liable for Mettko’s damages. Hauser argued that the termination was justified because Mettko, by its words or actions, had repudiated the contract. Hauser submitted that Mettko: (i) failed to perform its core responsibilities under the contract, (ii) failed to meet the target budget and project completion date, and (iii) unilaterally changed the terms of the contract.

[4] I do not accept Hauser’s arguments. On the evidence before me, which was largely undisputed, there can be no doubt that Mettko continued to perform under the contract right up to the termination. The targeted budget and substantial completion date were not met for reasons unrelated to Mettko’s performance. Mettko did more work than the contract required of it. Changes to the contract were either accepted by Hauser or were otherwise necessary.

[5] I find that Hauser terminated the contract with Mettko without justification or cause. Hauser is therefore liable for Mettko’s damages.

[6] I am satisfied that Mettko’s damages are the profit Mettko would have made had it performed the contract ($225,000 plus HST) and out of pocket expenses owing ($23,978.34 plus HST). Therefore, the damages total $281,345.52, plus pre and post judgment interest.

[7] The parties negotiated an interest rate as part of their contract. I am satisfied that the contractual interest rate ought to apply to the damages award.

BACKGROUND:

Introduction:

[8] At trial, I heard the evidence of four witnesses: (a) Hope Birnie-Colbert, the lead project manager at Mettko, (2) Mo Ettehadieh, a principal of Mettko, (c) Don Pickett, the Treasurer for Hauser, and (d) Adam McCaughan, an architect who worked on the project for McCallum Sather Architects (“McCallum”). The parties put forward a comprehensive joint book of documents and an agreed upon chronology. Very little, if anything, about what happened is disputed.

[9] In June 2018, Hauser purchased the property at 1273 Plains Road West in Burlington, Ontario. Hauser hoped to renovate the existing building and turn it into its flagship retail location for outdoor furniture. Hauser hoped to have the renovations completed by March 1, 2019 so as to open the store in April, 2019 and take advantage of the spring and summer outdoor furniture market.

[10] At the outset, Stephanie Hauser took the lead on the design for Hauser. She came up with conceptual images and an inspiration board for the project. Hauser retained the services of an architectural firm, McCallum, as the prime consultant and architect. Stephanie Hauser’s brother, Drew Hauser, was one of McCallum’s principals at that time.

[11] There are at least three phases for a project like this: design, permitting, and construction. It is not disputed that McCallum’s role was: (1) to create the design, (2) prepare the required permit drawings and obtain the necessary permits, and (3) prepare the construction drawings. Construction drawings tell trades exactly what work is to be done and are ordinarily required for tendering such work. A construction manager also needs these drawings to manage construction.

[12] A project like this also has a pre-construction phase. On McCallum’s recommendation, Hauser engaged Mettko at the pre-construction phase. However, Mettko was hired only to consult at this early phase. Mettko could have provided more substantial pre-construction services, but Hauser chose not to retain Mettko for those.

[13] When Mettko was engaged in July of 2018, the project was in its infancy. There was no design, only some conceptual images. None of the usual due diligence had been done by Hauser or McCallum. For example, no structural studies, environment studies or inspections of the building had been done. It was known that the building was in very poor condition, but no one had gone inside to inspect it. The interior of the building was not accessed by the parties until November 2018.

Terms of the Contract:

[14] The parties entered a standard form contract for Construction Management Services during pre-construction and construction. The contract was put forward by Mettko in August 2018. There was an option in the contract for Mettko to provide pre-design services, but Hauser crossed those terms out. There were also options for a Stipulated Price contract and a Guaranteed Maximum Price contract, but Hauser did not opt for those. The contract was signed in October 2018.

[15] There is no dispute that Hauser received advice from McCallum, who was named as the “Consultant” under the contract, as well as independent legal advice, prior to entering the contract with Mettko.

[16] According to the contract, the “[t]otal Project Budget is $2,000,000” (Article 3.1). Mr. Pickett also wrote in that the “total construction budget is approximately $1,500,000 to be confirmed at predesign and tender” (emphasis added).

[17] The contract set out a schedule for the project as follows: “Solicitation of quotations from trade contractors, including analysis and recommendations – 8 weeks” and “Substantial Performance is required by March 1, 2019” (Article 3.1). Mr. Pickett wrote in: “Project to begin in November with commencement of roofing”.

[18] The list of documents that were expected to be part of the contract included “Construction Documents” (Article 4.1). It is not disputed that when the contract was signed, there were no “Construction Documents”. Construction documents are prepared once there is an approved design. There was no design approved in October 2018. There were also no permit drawings. Permit drawings usually precede construction documents or drawings. It is agreed, and the contract made clear, that Mettko was not responsible for preparing the design, obtaining permits or preparing construction drawings – McCallum was responsible for those services.

[19] The contract set out in Article A-5 that Mettko’s fees were made up of:

a. A fixed amount of $17,920.00. The undisputed evidence at trial was that fee was intended to cover limited pre-design services to be provided by Mettko. These limited services were attending at project meetings between Hauser and McCallum and providing advice to Hauser and McCallum with respect to construction and market conditions (Schedule A, Section 1, subsection 1.1).

b. A fixed fee of 15%, based on the “cost of work” in conjunction with the approved construction schedule based on a rate made of “overhead & profit: 10% + 5%”.

c. A co-ordination and supervision fee of $20,000/month[^1], which would kick in during the construction phase. Mettko estimated that construction would take six months.

[20] The scope of the project was described in the contract as: “Interior Renovation, Envelope Repairs and Alterations, and Site Work to convert existing building … to a New Hauser Furniture Store”. “Work” was defined in the contract as the total construction and related services to be performed by Mettko as required by the contract excluding “services”. “Services” was defined and set out in schedule A1, which listed services Hauser could chose from. These “services” were not construction costs. The contract also set out in schedule A2 reimbursable expenses for which Mettko could bill.

[21] Under the contract, Mettko was meant to apply for payment on the last day of every month. The application was to include reimbursable expenses, supported by invoices. The contract required Hauser to make payment and for McCallum to issue a certificate for payment. It was not disputed at trial that the parties did not follow this process strictly. Mettko applied for payment directly to Hauser, though McCallum was always copied on the emails, and Hauser paid Mettko.

[22] The contract provided that changes could be made to the contract for services, work and fees. These changes had to be in the form of a Change Order, to be prepared by McCallum and approved by Hauser and Mettko. Several Change Orders were created and submitted by Mettko and paid by Hauser.

[23] The contract contained a default provision. It required Hauser to give Mettko notice in writing if Mettko was in default of its contractual obligations. It also required Hauser to give Mettko an opportunity to correct the default. It is not disputed that prior to termination, Mettko was not given any notice of default or opportunity to correct the alleged default.

[24] The parties negotiated an amendment to the standard terms in respect of interest and termination costs (Schedule B). By virtue of this amendment, the interest rates the parties agreed to was 9% per annum above the prime rate for the first 60 days and 11% per annum above the prime rate after the first 60 days. This interest rate would apply should “either party fail to make payments as they become due under the terms of this Contract or in an award by arbitration or court” (emphasis added).

[25] The parties also negotiated and agreed to replace the standard termination costs with a clause that stated that the termination costs would be 25% of “the balance of the contract amount remaining” (emphasis in original). At trial, Mettko elected not to rely on this clause.

The Termination:

[26] Hauser terminated the contract on April 22, 2019. Mr. Pickett wrote in an email to Mr. Ettehadieh:

Due to recent changes and events unforeseen by either party, we regret to inform you that the project contemplated in the agreement between us dated October 17, 2018 is no longer viable. As a result, we are hereby terminating the agreement. Please stop all work immediately.

[27] It is not disputed that prior to this email, there were no conversations about Hauser’s decision to terminate the contact. Mettko did not receive a Notice of Default. According to Ms. Birnie-Colbert, Mettko did not stop performing services or work anytime prior to this date. Her evidence about this was not challenged or disputed.

[28] On April 22, 2019, Mettko accepted the termination, gave notice of the termination to its trades and on April 29, 2019 issued its final invoice.

[29] On May 14, 2019, Hauser wrote to Mettko stating that it had terminated the contract because Mettko did not meet Hauser’s construction budget of $1,500,000 and did not achieve substantial completion of the project by March 1, 2019. There was no mention in this letter, or at any time prior to its counterclaim, that Hauser was of the view that Mettko did not perform its core functions under the contract or that it repudiated the terms of the contract by changing its terms.

[30] On May 7, 2019, Hauser hired another construction management company on a fixed-price contract for the project. By that time, the design was finalized, permits had been obtained and drawings were prepared. Substantial completion of construction finished February 2020.

ANALYSIS:

Issue One: Did Mettko Repudiate the Contract?

[31] Hauser argued that Mettko repudiated the contract, that Hauser accepted the repudiation, and that they were justified in terminating the contract.

[32] Repudiation occurs when one party shows an intention not to be bound by the contract. Repudiation can occur by words or conduct and can be demonstrated by a refusal to perform: Guarantee Co. of North America v. Gordon Capital Corp., 1999 664 (SCC), [1999] 3 S.C.R. 423, at para. 40.

[33] The effect of a repudiation depends on the election by the non-repudiating party. If that party treats the contract as still being in full force and effect, the contract remains in force and effect for both sides. If the non-repudiating party accepts the repudiation, the contract is terminated, and the parties are discharged from future obligation. When a repudiatory breach occurs, the innocent party has the right to elect to terminate the agreement: Nicolaou v. Sobhani, 2017 ONSC 7602, 90 R.P.R. (5th) 97, at paras. 40-41; Norwood Construction Ltd. v. Post 83 Co-operative Housing Assn. (1988), 30 C.L.R. 231 (B.C.C.A.), at para. 19.

[34] The test for whether the way a party carried out its contractual obligations amounts to repudiation or fundamental breach is ‘substantial failure of performance’: Dirm 2010 Inc. v. Ontario (Minister of Infrastructure), 2017 ONSC 2174, at para. 306. Repudiation is an exceptional remedy that is available only in circumstances where the entire foundation of the contract has been undermined because the thing bargained for has not been provided: Dirm 2010, at para. 308.

[35] Where each party to a contract is alleging fundamental breach and repudiation by the other, the court must determine which party committed a substantial breach that amounts to repudiation: Kaplun v. Mihhailenko (2005), 43 C.L.R. (3d) 223, at para. 115. The test is objective. The intention by a party allegedly in breach to perform the contract is not necessarily conclusive. A party may be found to have repudiated a contract even when the party honestly believes it wants to continue with the contract to completion: Kaplun, at para. 115.

[36] Some of the factors to consider when determining whether the failure to perform is a ‘substantial failure of performance’ include how much of the contract was performed and how much remained to be performed, the seriousness of the breach and its consequences, and the likelihood of repetition of the breach: Dirm 2010, at para. 310.

[37] Hauser takes the position that Mettko fundamentally breached the contract by:

a. Not performing its core duties under the contract;

b. Not meeting the $1,500,000 budget;

c. Not meeting the March 1, 2019 project completion date;

d. Unilaterally changing the terms of the contract.

[38] As a result, Hauser submits that Mettko repudiated the contract, and Hauser lawfully elected to terminate it. I do not accept Hauser’s arguments.

Failure to Perform Core Duties:

[39] I do not accept Hauser’s argument that Mettko failed to perform its core duties under the contract. The only evidence that Hauser can point to in support of its argument that Mettko was not performing its core duties is that of Mr. Pickett, who testified that there did not seem to be a lot of “progress” at the construction site.

[40] Visible progress on the construction site is not a measure of performance in this case. Before construction could begin, the design had to be finalized, permits had to be obtained, and construction drawings prepared. Only then could trades be engaged to do the construction work. In March of 2019, the project was still very much in the pre-construction phase. But this was not of Mettko’s doing.

[41] It was not disputed at trial that Mettko had, in July of 2018, secured the property and obtained fencing. In September, Mettko requested a Designated Substances Survey (“DSS”) report which was required by the Ministry of Labour before any work could commence. The “DSS” report is the owner’s responsibility, but Mettko reached out to an environmental consultant to get it done. The first work performed on the project was demolition: Mettko arranged to clear the building of hazardous material, which included mould and asbestos.

[42] At trial, the undisputed evidence established that during the contract, Mettko also obtained pricing and prepared budgets or forecasts for various versions of the design. It did so four times. It presented these budgets to Hauser and McCallum on October 11, 2018, March 6, 2019, and April 12 and 18, 2019. Each of these budgets was responsive to design changes and the changing site conditions. Each involved Mettko re-tendering the multiple design changes, engaging and re-engaging trades and obtaining pricing.

[43] The October 11, 2018, target value budget was delivered by Mettko prior to the contract being signed. It was intended as an informational budget, to help Hauser guide the design. The cost of building what Hauser had directed McCallum to design would be more than the $1,500,000 “aspirational” budget (as Mr. McCaughan described it). Subsequent forecasts also came back at more than the aspirational budget.

[44] Ms. Birnie-Colbert testified that the formal tendering practice required multiple steps. Part of her role was to ensure, when bids came in, that the values matched the scope of work. In other words, part of the construction manager’s job is to ensure the comparison of pricing was “apples to apples”. This required a detailed tender analysis, and sometimes post-tender clarification. There was no dispute at trial that Ms. Birnie-Colbert was exceptionally thorough in her work. Mettko performed this work each time the design was revamped because the costs of the design were too high.

[45] Under Mettko’s supervision, the roofing work, structural work, basic mechanical and electrical work were completed.

[46] Emails between Hauser and Mettko dated April 2 and April 5, 2019, clearly set out all of the work Mettko was engaged in right up to the time of the termination. Neither Hauser nor McCallum responded to Ms. Birnie-Colbert’s email dated April 5, 2019, that contained such details and a preliminary project schedule. When they testified, both Mr. Pickett and Mr. McCaughan confirmed that Mettko performed the services outlined in Ms. Birnie-Colbert’s email.

[47] Ms. Birnie-Colbert testified that the project involved significantly more work than what was initially anticipated and represented to Mettko. It was initially represented to Mettko as a “lipstick and mascara” renovation: a project that involved simple cosmetic changes. However, it turned out to be a major renovation, involving structural, environmental and conservation issues, as well as multiple re-designs.

[48] It was not disputed that neither Hauser nor McCallum had done any due diligence before embarking on the project. No one had inspected the structure of the building or its foundation. Environmental reports had not been obtained. Although it was known that the building was in poor condition, the extent of it was not known until the building was first accessed in November of 2018.

[49] Ms. Birnie-Colbert described it as five buildings that had been abandoned and “smashed” together. It had major water damage from a leaking roof. There was asbestos inside. Mould was discovered. Concerns arose that some of the wooden structural walls were rotten or damaged and might not be sufficient to carry the load of a new metal structural roof beam. A structural engineer had to be engaged to assess the structure before the roof work could begin. The hazardous material had to be removed before workers could go in.

[50] It was not disputed at trial that Mettko worked to address these issues, although due diligence was Hauser’s and McCallum’s responsibility, and it was not part of the scope of Mettko’s work under the contract. These would be pre-design and pre-construction services, which Hauser had declined to engage Mettko in.

[51] The property also backed onto conservation land. The Halton conservation authority became involved and conservation approval had to be obtained before any meaningful work could commence. This was not considered when Mettko was first engaged but would have been a factor that impacted the visible progress of the project.

[52] The chronology agreed to by the parties and the undisputed evidence of Ms. Birnie-Colbert establishes that Mettko was fully engaged and performing its function up to the termination on April 22, 2019. Further, if Hauser believed that Mettko was not completing the terms of the contract, they were required, by said contract, to notify Mettko. No notice of default was ever issued to Mettko.

[53] In light the overwhelming evidence of work Mettko performed right up to the termination of the contract, I find that the assertion that Mettko was not performing its core functions is a post-facto attempt to justify the termination. It is without evidentiary foundation.

[54] Hauser argued that Mettko stopped performing in March 2019, when Hauser communicated its concerns and frustrations regarding the rising cost of the project and the delays to Mettko. In response, Mettko issued three change orders seeking additional fees and payments. When Hauser questioned those additional fees, Mettko demanded that Hauser approve the fees, threatening to halt work if not approved and paid in accordance with Mettko's incorrect understanding of the payment terms under the contract. I do not accept this interpretation of the evidence. In an email dated March 25, 2019 to Email Don Pickett, Steph Hauser, and McCallum, Mr. Ettehadieh wrote:

"Hauser/MSA should note that given the magnitude of the monies owed and its disproportionate size compared to the project size and our company capitalization, we will cease all further services in order to fulfill our contractual obligations - that is - to mitigate our financial exposure"

[55] However, the other email correspondence between the parties shows that despite not being paid for work it had done, Mettko continued to perform under the contract. It did not carry through on its threat to stop performing. More importantly, the issues raised in that March correspondence were resolved. I accept the evidence of Ms. Birnie-Colbert and Mr. Ettehadieh, which was not contradicted, that Mettko continued to perform. Mr. Pickett did not disagree. He testified that at that point, he thought the only issues were the budget and the schedule.

[56] In light of the evidence of the work that Mettko did and Mr. Pickett’s evidence at trial, I am left with the impression that Mr. Pickett did not appreciate the scope and inherent requirements of the project. Mr. Pickett’s expectations for the project, both in terms of costs and time, proved unreasonable in the circumstances. The pre-construction work Mettko performed was essential. It had to be done before any construction work could commence on site and any “visible” progress could be made.

[57] I do not accept Hauser’s argument that Mettko failed to perform core functions under the contract. To the contrary, I find that Mettko was performing its core functions under the contract as required until April 22, 2019, and was fully engaged in the project when Hauser terminated the contract.

Mettko’s Failure to Meet the Budget:

[58] Hauser argued that Mettko repudiated the contract by failing to deliver a construction budget of $1,500,000. I reject this argument.

[59] The evidence at trial established that the budget for the project was driven by the design. This makes sense.

[60] The witnesses agreed that Mettko was only obliged to construct a design that Hauser approved. Mr. Ettehadieh testified, and I accept, that Mettko was prepared to build whatever was designed by McCallum. The evidence was that Hauser would only approve McCallum’s design if the cost of construction was $1,500,000 or less. The undisputed evidence was that McCallum could have designed the renovation to conform with Hauser’s budget but did not.

[61] The design was not Mettko’s responsibility, it was McCallum’s. Under the contract, Mettko was to take the design prepared by McCallum and approved by Hauser to market. It did so. It did so four times. Each time the market responded: the design would cost more than $1,500,000 to build.

[62] At this trial all the witnesses agreed: to meet the $1,500,000 target budget, the design had to change. For Mettko to deliver a budget of $1,500,000, McCallum had to deliver a design that could be built for $1,500,000. Mettko did not control pricing, the market did. Mr. Pickett fairly acknowledged that he understood that Mettko did not control the pricing and that McCallum had to redesign the renovation to come within that budget.

[63] It is clear from the plain wording of the contract that the construction budget of $1,500,000 was “aspirational”, as Mr. McCaughan described it. This was not a fixed price contract. This was not a guaranteed maximum price contract. Mr. Pickett understood this when he signed the contract on Hauser’s behalf and admitted this at trial. Both options were available but were not chosen by Hauser when the contract was signed. Rather, the construction budget was to be confirmed once the design and the tender processes were completed.

[64] As Hauser’s treasurer, Mr. Pickett would have liked a “turnkey” or “fixed price” renovation. In other words, Hauser would have liked Mettko to do the renovation McCallum designed in exchange for a lump sum. The lump sum Hauser had in mind was $1,500,000, or $2,000,000 if it included “soft costs”. However, when Mettko and Hauser entered the contract, McCallum had not yet designed the project.

[65] As I previously set out, the design was in its infancy. Over the next several months the design was still a work in progress. Without a design, there was no scope of construction work to which Mettko could assign a lump sum or fixed value. A “fixed price” for the renovation was not possible. When he testified, Mr. Pickett fairly acknowledged this.

[66] I find that Mettko did not repudiate the contract by failing to deliver a $1,500,000 budget. The budget was driven by the design, which was not in its hands. Hauser had an obligation to perform the contract in good faith. Hauser was obliged to permit McCallum to redesign the project until it could be constructed for $1,500,000 (or accept a more expensive design). I find that Hauser breached the contract by terminating it before McCallum could produce such a design.

Failure to Meet the Substantial Completion Date:

[67] Hauser argued that Mettko repudiated the contract by failing to meet the substantial completion target date of March 1, 2019. I reject this argument.

[68] This target date, while important to Hauser, became entirely unreasonable. Substantial completion could not reasonably be achieved by March 1, 2019 because of delays in finalizing the design, delays in obtaining permits and severe building conditions requiring unanticipated remediation. Mettko was not responsible for these delays. Mr. McCaughan confirmed this in his evidence.

[69] Ms. Birnie-Colbert and Mr. McCaughan’s evidence was that several issues concerning the building’s condition arose over the fall of 2018 and winter of 2019, which delayed the project’s timeline from the get-go. Specifically,

• The first on-site work to be done was remediation and demolition work. Neither could begin without the Designated Substances Survey (“DSS Report”), which was McCallum’s responsibility to obtain. The DSS Report was not obtained until September 14, 2018.

• Demolition work could not begin after the DSS Report was obtained because a municipal building permit was required by the City of Burlington. McCallum did not obtain the Demolition Permit until November 26, 2018.

• Demolition did not resume after the Demolition Permit was obtained because, at that point, rainwater was leaking into the building through the roof and creating an unsafe environment. As a result, McCallum and Mettko prioritized the roof replacement.

• The roof replacement could not proceed until McCallum obtain the Shell Permit. McCallum did not obtain the Shell Permit until December 21, 2018.

• The roof replacement did not begin after McCallum obtained the Shell Permit because Mettko’s structural steel subcontractor, Farid Ghorbani of Evotech, identified structural issues with the building, which required McCallum to revise the structural design. McCallum issued Site Instruction 1 on February 19, 2019 in order to address these issues.

[70] Permitting was entirely outside Mettko’s responsibility under the contract and outside its control. Mettko’s ability to meet any schedule depended on McCallum obtaining the necessary permits in time.

[71] Messrs. Pickett and McCaughan and Ms. Birnie-Colbert’s evidence was that there were numerous, unanticipated issues that arose involving the municipal and provincial permitting authorities, which made it impossible to achieve substantial completion by March 1, 2019. The witnesses testified that the project required three building permits and one permit from Conservation Halton..

[72] The internal demolition permit was not received until November 26, 2018. That permit was followed by a roofing permit, and then a permit for additional demolition, base mechanical, and electrical systems on December 21, 2018. Given that the property backed onto conservation lands, the Halton Conservation Authority became involved. Approval from the conservation authority was not received until January 24, 2019. The final or comprehensive permit for the interior fit out was not obtained by McCallum until March 21, 2019, well after the March 1, 2019 target substantial completion date.

[73] Mettko’s job was to get pricing for the construction and then manage construction. To get pricing for construction work, construction drawings are required. These had to be prepared by McCallum. Construction drawings are normally prepared after permit drawings. The evidence at trial established that the permit drawings lacked sufficient details for construction and some procurement. Construction could not begin until the required permits were obtained. McCallum was responsible for obtaining the permits.

[74] The contract set out that the construction procurement phase would take eight weeks. According to the unchallenged evidence of Ms. Birnie-Colbert, this phase could not, and did not, start until January 2019. In addition to the eight-week requirement to solicit quotes, Mettko estimated that the construction phase of the project would take six months. If the construction procurement phase could not start until January 2019, a substantial completion date of March 1, 2019 was clearly unreasonable.

[75] I find that the March 1, 2019 target substantial completion date was entirely out of Mettko’s hands. Given how the project unfolded, it also became entirely unreasonable. Mr. McCaughan agreed that the March 1 2019, target date was not reasonable. Once the final permit was obtained on March 21, 2019, Mettko estimated that substantial completion could be achieved by August 15, 2019. Mr. McCaughan agreed that this new date was reasonable.

[76] I also find that the multiple re-designs of the project contributed to the delay in Mettko’s ability to meet the target completion date. Each time the design was modified, Mettko repeatedly tendered it. This took additional time.

[77] In all of the circumstances, I find that Hauser’s argument that Mettko repudiated the contract by failing to meet the targeted substantial completion date of March 1, 2019 is without merit.

Changes to the Terms of the Contract:

[78] Hauser argued that Mettko repudiated the contract by demanding upfront and additional payment for work it was already contracted to do. I reject this argument.

[79] Mr. Ettehadieh testified that Mettko spent much more time than it was contracted to do. It did so to keep the project moving. Mettko decided to bill some of the extra time against the coordination and supervision line in an invoice. When Hauser and McCallum raised concerns about it, Mettko backed out of the invoice.

[80] Mettko also issued several Change Orders. On March 25, 2019, Mr. Ettehadieh wrote to Hauser and McCallum about the Change Orders. Mr. Ettehadieh testified that Mettko would, and did continue to, perform under the contract even if its request for additional compensation was denied. Ms. Birnie-Colbert confirmed this.

[81] On March 25, 2019, Stephanie Hauser forwarded Mr. Ettehadieh’s email to Drew Hauser of McCallum, who replied that “[i]t was a good email and well written. I see no issue with the information in the email as it is based on the contract and addresses some of their concerns as well as some of the items as issue in the project.”

[82] On March 26, 2019, Grant Taylor wrote on behalf of McCallum to Mr. Ettehadieh and Ms. Birnie-Colbert, confirming that the amounts claimed for additional pre-construction services would be backed out of Invoice 230 and resubmitted as a Change Order, and that “[a]ll other items noted in your March 25th email are clearly stated and in accordance with the requirements of the CCDC 5B.”

[83] Mr. Pickett’s evidence was that he agreed with the content of Drew Hauser’s email, and that, on March 29, 2019, Hauser approved Change Order 4 (Mettko’s General Conditions) and Change Order 6 (Additional Tendering Services) and gave the written instruction to Mettko to resume purchasing. Hauser never responded to Change Order 5. Mr. Pickett’s evidence was that as far as he was concerned, the issues about billing were resolved between the parties and the only issue of concern for Hauser was that the project was overbudget.

[84] At trial, Hauser took issue with some minor additional billing issues. I find that these were non-issues for the parties at the time. As Mr. Pickett said, concerns about billing were resolved by March 29, 2019. I do not accept that any of the alleged billing issues are evidence of Mettko’s repudiation of the contract. I find that Mettko performed, and was prepared to continue to perform under the contract, regardless of these billing issues.

[85] In conclusion, I find that there is no foundation in the evidence that would support Hauser’s assertion that Mettko was not performing under the contract. I find that that Mettko did not repudiate the contact and was not in breach of it. Hauser had an obligation to perform the contract in good faith. It failed to do so by terminating the contract without justification..

Issue Two: What Are Mettko’s Damages?

[86] The general measure of damages for breach of contract is the amount sufficient to place the plaintiff in the same position in which they would have been had the contract been performed: Fidler v. Sun Life Assurance Co. of Canada, 2006 SCC 30, at para. 27.

[87] In construction cases where a contractor establishes a breach of contract by an owner, the normal measure of damages is the contractor’s loss of profit caused by the breach: Fox Excavating & Grading Ltd. v. 2012299 Ontario Inc., 2020 ONSC 5196, at para. 65.

[88] Hauser argues that the measure of damages should be Mettko’s lost profits on the incomplete portion of the project, and that lost profits should be calculated as the amount of revenue earned under the contract less the cost of completing the work that remained unfinished: Naylor Group v. Ellis-Don Construction Ltd., 2001 SCC 58, at para. 73. I do not agree.

[89] There were several different ways in which Mettko calculated its damages. Initially, it relied on the termination clause, but Hauser argued it was too ambiguous. In the end, Mettko limited its claim for damages to the lost profits that made up the 15% overhead and profit it would have earned on the $1,500,000 construction costs. This lost profit amounts to $225,000 plus HST.

[90] Article A-5 of the Contract set out Mettko’s fee for work, which as I have already stated was 10% overhead + 5% profit on the “costs of work” (i.e. cost of construction) and a fee of $20,000 per month for the construction coordination and supervision fee.

[91] The evidence from all witnesses was that McCallum could have designed the renovation to conform with Hauser’s budget of $1,500,000.

[92] Mr. Ettehadieh’s uncontroverted evidence was that, if Hauser had not terminated the contract on April 22, 2019 and McCallum redesigned the project to bring it within Hauser’s budget of $1,500,000, then Mettko would have built the project and earned a profit of 15% of the $1,500,000, being $225,000.

[93] Hauser argued that any expenses associated with earning the 15% profit must be deducted in calculating damages. Again, I disagree.

[94] Mr. Ettehadieh’s uncontroverted evidence was that Mettko would not incur any expense to earn the fee of 15%. The “overhead” referred to in this section refers to “head office” overhead, which has no connection to the project. Mettko incurs head office overhead whether the project occurs or not. Mr. Ettehadieh’s evidence established that “project overhead” (Article 7) would be included in the costs of the construction as set out in the General Conditions. Mettko did not claim any project overhead. Had the contract been performed, no expenses would have been incurred by Mettko to earn the 15% profit on the $1,500,000 construction costs.

[95] Hauser was aware that Mettko was entitled to 15% on the cost of work, on top of its fees for pre-construction services ($17,920) and coordination and supervision ($20,000/month). On October 5, 2018, Mr. McCaughan wrote to Stephanie Hauser and Don Pickett with a breakdown of the amounts payable to Mettko under the (then proposed) Contract. He stated in that email:

The revised contract has incorporated our comments previously reviewed with Mettko. To summarize our conversation today:

1. Mettko’s fee of $17,920 is for services leading up to construction; they manage and advise;

2. Mettko’s fee of $24,000 a month is for construction management during construction. Their fee for acting as the general manager of construction is in addition to this and is based on actual costs from subtrades plus 15%.

A. Post meeting note: with an estimated construction cost of $1.7 million their fee would be approximately $225,000.

[96] As mentioned, Mettko also would have earned the site supervision fee of $20,000 per month for 6 months. At the conclusion of the trial, Mettko abandoned its claim for damages for this loss.

[97] Hauser takes the position that Mettko elected to accept Hauser’s termination and issued invoices for payments it claimed were owing under the contract, thereby bringing an end to any claims for future obligations, such as lost profits. According to Hauser, Mettko’s election to accept Hauser’s termination of the contract and commencing a claim for amounts owing under the contract is irrevocable: Dosanjh v. Liang, 2015 BCCA 18 at para. 33.

[98] Hauser also argues that at termination of the contract, there may have been amounts owing for expenses Mettko actually incurred, which Hauser would pay when they got supporting documentation.

[99] I do not accept these arguments.

[100] I find that, at a minimum, Mettko stood to earn 15% on the construction budget of $1,500,000. Mettko set aside the time and resources to perform this contract. Mr. Ettehadieh testified that when its contract with Hauser was terminated, Mettko could not fill the time it had set aside for the project with other work. His evidence in this regard is undisputed.

[101] Mettko did provide documents about expenses it incurred. Mr. Ettehadieh’s evidence that an invoice was outstanding for a total of $23,973.34 plus HST was not challenged. I accept his evidence and find that Hauser is liable for this invoice.

[102] Hauser is therefore liable for the lost profit of $225,000 and the outstanding invoice of $23,978.34, plus HST. The total damages are $281,345.52.

Issue Three: What is the rate of pre and post judgment interest payable on lost profits?

[103] As I set out, the parties negotiated an amendment to the standard term contract in respect of interest rates. Mr. Pickett testified that he had independent legal advice in respect of this amendment. He agreed to it.

[104] The parties do not agree whether this interest provision should apply to the damages assessed by this court. Hauser argues that since the damages are lost profits, the amended interest rate should not apply.

[105] I disagree.

[106] Mr. Ettehadieh testified that the reason for the increased interest rate provision is that Mettko pays an increased interest rate when it expends money to cover invoices or out of pocket expenses in respect of the project. For example, if Mettko paid a trade, then invoiced its client but there was a delay in payment, Mettko would have to borrow money to cover the invoice. To borrow money, Mettko pays a higher interest rate than the ordinary consumer. Hauser accepted the amendment.

[107] The contract states that the amended interest rate applies to invoices and to “an award by arbitration or court.” The damages are an award of the court. In my view, the pre-judgment and post-judgment interest negotiated by the parties therefore applies to the damages in this case.

CONCLUSION:

[108] In conclusion, I find that Hauser terminated Mettko’s contract without justification. Mettko had not, through words or actions, repudiated or breached the contract in any way. Hauser is therefore liable for Mettko’s damages.

[109] Those damages are the lost profits Mettko stood to earn had the contract been performed. Mettko stood to earn 15% on the costs of the construction. Had the contract been performed, this translated to $225,000 or 15% on a $1,500,000 construction costs, plus HST. It is also owed $23,978.34 for an outstanding invoice, plus HST. The damages total $281,345.52.

[110] Pre and post judgment interest on this award is payable at the rate negotiated by the parties contained in Schedule B of the contract.

[111] Hauser’s counterclaim against Mettko is dismissed as it is without merit.

COSTS:

[112] The parties are encouraged to agree on costs of this action. If the parties are not able to agree on costs, they may make brief written submissions to me (maximum two pages double-spaced, plus a bill of costs). Mettko may have 14 days from the release of this decision to provide its submissions, with a copy to Hauser; Hauser shall have a further 14 days to respond.

[113] If no submissions are received within this timeframe, the parties will be deemed to have settled the issue of costs as between themselves.

[114] If I have not received response submissions within the specified timelines after Mettko’s initial submission, I will consider that the parties do not wish to make any further submissions and I will decide based on the material that I have received.

[115] Rule 59.01 of the Rules of Civil Procedure provide that this Order is effective from the date it is made, that date being the date such order is made by the judge, whether such Order is contained in a signed endorsement, order or judgment.

Chozik J.

Released: December 8, 2023

COURT FILE NO.: CV-19 -2785-0000

DATE: 2023 12 08

ONTARIO

SUPERIOR COURT OF JUSTICE

METTKO CONSTRUCTION LTD.

– and –

HAUSER REALTY CORP.

REASONS FOR JUDGMENT

Chozik J.

Released: December 8, 2023

[^1]: The contract initially put forward by Mettko stipulated that this fee would be $24,000 per month, but it was negotiated by the parties to be $20,000 per month.