Ekum-Sekum Incorporated c.o.b. as Brantco Construction v. Lanca Contracting Limited, 2023 ONSC 7535

COURT FILE NO.: CV-18-1514-SR

DATE: 2023-06-09

ONTARIO

SUPERIOR COURT OF JUSTICE

BETWEEN:

Ekum-Sekum Incorporated c.o.b. as Brantco Construction

Plaintiff

– and –

Lanca Contracting Limited, Keith Oliver Lancaster, Linda Margaret Lancaster and Nathan Keith Lancaster

Defendants

COUNSEL:

Anthony J. Gabriele, Counsel for the Plaintiff

Dennis Touesnard, Counsel for the Defendants

HEARD: September 6, 8 and 9, 2022

The Honourable Justice SMITH

REASONS FOR JUDGMENT

Introduction

[1] The corporate defendant, Lanca Contracting Limited (“Lanca”), is a construction contractor in Brantford, Ontario. The plaintiff, carrying on business as Brantco Construction (“Brantco”), is an asphalt paving contractor with offices in Cambridge, Ontario. Lanca was hired in separate contacts to undertake two construction projects. On both projects, Lanca subcontracted the paving work to Brantco. When Brantco was not paid for its work on the first project, it took the position that it was unwilling to do the work it had agreed to do on the second project until it was paid for the first.

[2] Brantco seeks damages from Lanca in connection with the first project. Lanca agrees that some money is owed in connection with Brantco’s work on the first project but says that Brantco’s claimed damages are exaggerated and that Brantco seeks to be paid for work which was never authorized.

[3] Lanca goes further, however, saying that Brantco breached its contracts to undertake the paving, sidewalk and curb work on the second project and that its refusal to complete that work resulted in damages to Lanca. Lanca says that to the extent there are any damages owing to Brantco in connection with the first project, Lanca is entitled to set-off in the amount of the damages caused by Lanca on the second project.

[4] For its part, Brantco says that it did not breach the contracts on the second project and that Lanca is not entitled to set-off.

[5] Brantco also claims that Lanca and the individual defendants[^1] breached the trust provisions of the Construction Act, R.S.O. 1990 c.C-30 (the “Act”). Lanca says that the Act has no application in the circumstances of this case.

[6] Brantco claims damages in the amount of $94,008.84 plus pre-and post-judgment interest. Lanca claims set-off in the amount of $33,890.29.

[7] For the reasons which follow, I have determined (i) that Brantco is owed $84,983.91 for its work on the first project, (ii) that Brantco breached its contracts on the second project, (iii) that, as a result, Lanca incurred damages of $33,163.22 in connection with the second project, and (iv) that Lanca is entitled to set off those damages against the amount owing to Brantco. The result is that Lanca is ordered to pay Brantco $51,820.69 plus pre- and post-judgment interest.

Background

[8] In June of 2017, Lanca entered into a contract with Archmill House Inc. (“Archmill”) to construct a manufacturing facility in Ancaster, Ontario (the “Archmill project”). The contract for the project was a CCDC Stipulated Price Contract (the “Archmill prime contract”) which contained provisions requiring that any changes to the work contracted for be the subject of a change order, prepared by the consultant overseeing the costs of the project and signed by Archmill, and that any adjustment in price or timing of work caused by the change be agreed between Archmill and Lanca.

[9] The Archmill prime contract further provided for periodic payments to be made by Archmill to Lanca. Payments would be made upon application by Lanca to the consultant who could certify the payment sought by Lanca or some lesser amount. Archmill was to pay the certified amount to Lanca within 20 days of Lanca’s application (assuming it was certified by the consultant).

[10] Lanca entered into a contract with Brantco in October 2017, pursuant to which Brantco agreed to supply asphalt paving and related work for the Archmill project for the price of $53,000 plus HST (the “Archmill subcontract”). The Archmill subcontract incorporated the terms of the Archmill prime contract and required any changes in pricing to have Lanca’s written authorization. It further provided that Brantco would be paid when Lanca was paid by Archmill for Brantco’s work and that Brantco’s invoices would “not be processed for payment until such time that all current and appropriate paper work is in place.”

[11] Lanca was also hired to construct a fire station in Burgessville, Ontario (the “Burgessville project”). Brantco and Lanca entered into two identical subcontracts, one for the paving work and the other for the curbs and sidewalks at the Burgessville project (the “Burgessville subcontracts”). The general conditions of these subcontracts, which were signed by Brantco on August 9, 2018, are identical to the general conditions of the Archmill subcontract.

The Archmill Project

[12] Brantco commenced its work on the Archmill project in late May 2018. It says that it did the work provided for in the Archmill subcontract but that it also received instructions from representatives of Archmill and Lanca to complete additional work, which were referred to as “extras.” Brantco says that it did work on five extras for which it has not been paid.

[13] Lanca agrees that the base amount of the Archmill subcontract ($58,890 incl. HST) is owing to Brantco, and that full payment should also be made for two of the extras: extra #1 for $12,317 (incl. HST) and extra #3 for $2,569.62 (incl. HST). Lanca also submits that it should make a partial payment totaling $3,390 (incl. HST) in connection with extras #2 and #4 but denies being liable for the full amount of those two extras. It denies that it should have to pay anything for extra #5.

Undisputed Extras

[14] Extra #1 was for additional paving not contemplated in the original Archmill subcontract. This extra was finalized before Brantco began any of its work on the Archmill project. Lanca and Brantco agreed on a price for the extra word and Brantco secured a change order from Archmill as contemplated by the Archmill prime contract, which was provided to Brantco. As I have said, Lanca acknowledges that Brantco finished the work contemplated by extra #1 and that Lanca was paid for that work by Archmill.

[15] Neither is extra #3 contested by Lanca. In that case, Brantco was asked by Lanca to remediate the defective work done by another subcontractor.

Disputed Extras

[16] Brantco, through the evidence of its project manager, Joe Graci, says that it was asked by Lanca and by Archmill’s owner, Steve Buchan, to provide quotes for additional work, including paving a sodded area, saw-cutting some concrete, installing asphalt ramps at two drive-in doors, and some asphalt patching. Collectively, these pieces of work comprise extra #2. On May 24, 2018, Mr. Graci sent an email to Lanca’s project manager, Connie Martin, and provided estimates for each of these items of work. He also made reference to extra #3, which he said would be completed on a time and materials basis. Mr. Graci asked Ms. Martin to “confirm extra costs prior to scheduling of paving.”

[17] Mr. Graci said that Brantco began work on extras #2 and #3 that very day “in an effort to keep the Archmill Project moving and to avoid having Brantco’s crew re-attend the Archmill Project on another day.” This was so, even though no change order had been received. Indeed, Ms. Martin had not even responded to Mr. Graci’s email. Mr. Graci says, however, that Lanca’s site supervisor, Jeremy Pickering, was present as this work was being done and raised no objection.

[18] In an email the following morning, May 25, 2018, Mr. Graci followed up with Ms. Martin about extra #2, noting that he was also concerned about a soft spot in the project’s east laneway that was “unsuitable for paving.” The remediation of the east laneway became extra #4. Extra #5 was a fee charged by Brantco for the “remobilization” required to do the work on extra #4.

[19] Another Lanca employee, Kairin Roth, wrote to Mr. Graci to advise that Ms. Martin was away from the office but that he would work on a change order that day. He asked Mr. Graci “Are we able to keep the ball rolling in the mean time?” Mr. Graci responded, saying Brantco had some gravel it could work with and asked Mr. Roth to look into the soft area in the east laneway (extra #4) which was “our main concern.” That afternoon, Mr. Roth wrote to Mr. Graci and said that he was still waiting for instructions from Mr. Buchan and that “it looks like we will have to wait till Monday as I’m waiting for [Mr. Buchan’s] verdict.”

[20] In a separate email that same afternoon, Ms. Roth asked Mr. Graci for his estimate for extra #3. He responded that it would be roughly $2,500. Mr. Graci said that the work on extra #3 was done the previous day, May 24, 2018, and that Brantco eventually billed $2,274 plus HST for that work. As I have said, this extra is not disputed by Lanca.

[21] It is important to note here that at some point earlier during the construction, Brantco suggested that its work should depart from the drawings for the Archmill project. Specifically, Brantco offered the opinion that a swale provided for in the plans should not be constructed and that, instead, the driveway where the swale was to have been built should be angled. Mr. Buchan agreed to this proposal and the result was a significant reduction in Brantco’s labour costs. Reference to this change is made in the email correspondence.

[22] With respect to extra #4, there was email correspondence between Lanca and Mr. Buchan on May 25, 2018. Late that afternoon, a Friday, Nathan Lancaster, the president of Lanca, wrote to Mr. Graci and said that the work on the east laneway, which, like extra #3, involved the correction of work done by another contractor, needed to be completed. Mr. Lancaster wrote that Brantco should be able to complete the work for under $3,000 and that Lanca, Archmill and the other contractor had all agreed to fund the work by paying $1,000 each (a point confirmed in the testimony of Mr. Buchan of Archmill). Mr. Lancaster made it clear in his email that this budget was created bearing in mind the that “there should be a couple thousand dollars’ worth of savings” in the reduction of work created by the elimination of the swale. In other words, Mr. Lancaster was acknowledging that the work involved in extra #4 would cost more than $3,000 but that Lanca (and Archmill) were entitled to credit for the savings Brantco had achieved when it did not construct the swale. He wrote that he wanted to work with Brantco to get “these extras” completed for less than $3,000. Mr. Lancaster said that he hoped that Brantco could do the work on extra #4 the following Monday.

[23] On May 28, 2018, Mr. Graci responded, saying that Brantco could do the work on extra #4 on a time and materials basis only given that he was unable to determine the extent of the problem to be corrected, which depended on knowing how deep the soft area in question was. He asked Mr. Lancaster whether Lanca’s site contractor could do the work instead. Mr. Lancaster said that the site contractor was unavailable and that Lanca was digging test holes to determine the extent of the problem. He asked Mr. Graci to “stay tuned.”

[24] On May 30, 2018, a conference call was convened to discuss the extra #4 work. Mr. Graci participated in the call with Mr. Lancaster and Ms. Martin. There are no notes of the call in the record.

[25] Mr. Graci says that during this conversation he reiterated Brantco’s position that the work in question could be done only on a time and materials basis. He says that at no time did he agree to complete the remedial work on a budget of $3,000 and that, on the contrary, it was agreed on the call that Brantco would undertake extra #4 on a time and materials basis in accordance with Brantco’s standard rates, which he had provided to Lanca the day before. Mr. Graci says that he also advised Mr. Lancaster that Brantco’s costs would also include the remobilization fee to which I referred above (extra #5), which remobilization was necessary because the work on extra #4 would have to be executed in two stages. Mr. Graci says that Lanca agreed during the conference call to pay this fee.

[26] At his discovery, Mr. Graci said that he told Mr. Lancaster on the conference call that he “cannot guarantee we’ll be under three thousand.” He agreed with the suggestion that it was his belief that doing the work on a “time and materials basis” meant that Brantco could take as much time as it believed necessary to do the work and charge Lanca its stated hourly rates and that Lanca would be obliged to pay for it no matter the cost. He agreed that none of the steps which ought to have been taken with respect to the negotiation and approval of extras were taken in respect of extras #4 and #5.

[27] Mr. Lancaster says that he and Mr. Graci agreed during the conference call that this work would be completed at a cost of $3,000 or less. He said that he had previously established with Archmill and the contractor whose work was being corrected that the work could be completed on this budget. He said that he explained as much to Mr. Graci and that he was “adamant” about the $3,000 upper limit for the work. He says that Mr. Graci never objected, he simply wanted to bill on a time and materials basis. Mr. Lancaster was content with that as long as the total cost remained at or below $3,000. Mr. Lancaster initially denied that the remobilization fee for Brantco was discussed on this call, but later agreed that the topic had been broached. He maintained, however, that he never agreed to pay such a fee. Mr. Lancaster said that if Mr. Graci had told him that Brantco could not do the work for $3,000, it would not have been permitted to do the work. He said that he was surprised to receive an invoice for more than triple that amount and said that he would have expected Brantco to stop working when it realized that the budget was going to be exceeded.

[28] Ms. Martin, who was also a participant in the call, said that it was agreed that the work involved in extra #4 would be completed on a time and materials basis on the understanding that the time and material would not exceed $3,000.

[29] Notwithstanding that he understood that an agreement had been reached with Lanca, on June 8, 2018, Mr. Graci wrote to Ms. Martin to ask “have these extras been approved?” Ms. Martin responded as follows: “Extra as agreed between you and Nathan on our conference call.” Apart from this email, there is no documentary evidence of the agreement respecting extra #4.

[30] During the discovery process, Lanca undertook to advise whether Lanca ever advised anyone at Brantco to complete the work listed in Mr. Graci’s email of May 24, 2018 (which describes extras #2 and #3) and at what price. Lanca responded to this undertaking, saying that the extras were approved by Ms. Martin’s email on June 8, 2018, which was sent following a discussion between the parties wherein Lanca suggested that the extras would not exceed $3,000. I note that the June 8 email appears to refer only to extra #4 and that the work on extra #2, according to the Mr. Graci, was completed by June 5, 2018.

[31] In any case, Mr. Graci says that Brantco then undertook the work of attending to the soft areas of the east laneway. He said that on June 11, 2018, Brantco discovered additional soft spots that required correction. He wrote to Ms. Martin to advise her of this fact. She responded saying “can you itemize this remediation on your invoice?” In his evidence, Mr. Lancaster did not agree that this exchange evidenced an agreement that extra costs could be incurred. As he put it, Mr. Graci’s email did not tell him whether the newly discovered soft spot was the size of his foot or the size of his truck. He testified that he did not care about the newly discovered soft spot. He had given the instruction that the work be done for $3,000 or less and he expected that instruction to be followed. If Brantco had decided that the correction of the new soft spot was going to change the budget, Mr. Lancaster said that he would have expected Brantco to raise the issue so that it could be discussed. Ms. Martin testified that she expected that the new soft spot might entail some added costs, but she did not expect the budget to double. She said she was very surprised when the invoice was for $13,000 instead of $3,000. She said that if the scope of work increased by this much it should not have been done without authorization.

[32] Brantco completed the work on extra #4 on June 11 and 12, 2018, and later billed Lanca $10,086.66 plus HST for the labour, equipment and materials used to do so. The remobilization fee of $900 plus HST (extra #5) was billed separately.

[33] Brantco’s invoices for all of its work (the base amount of the Archmill subcontract plus extras #1 – 5) were delivered by email to Ms. Martin on June 19, 2018. On June 27, 2018, Ms. Martin asked for an explanation for the remobilization fee. Mr. Graci replied, saying that it was a fee for the remobilization of Brantco’s crew and that the “price was agreed between Nathan and myself, I believe during the conference call.” In her reply, Ms. Martin wrote “Ok thanks for the reminder Joe.”

[34] On August 14, 2018, Ms. Martin asked Mr. Graci for some further information respecting extras #3 and #4, which Mr. Graci provided. That same day Mr. Buchan advised Lanco that Archmill would not pay for extra #2. He wrote to Ms. Martin and, among other things, said:

I sacrificed the swales in the middle of the driveway as per the drawings, which would have saved the substantially more costs that the little bit of labour it would have taken then [sic] to grades [sic] those 2 ramped up areas, Brantco should consider this a wash.

[35] This email does not appear to have been forwarded to Brantco, but Mr. Graci did acknowledge that the change to the plans had been made (i.e., that Brantco had not constructed the swale) and that Brantco had not credited Lanca (or Archmill) for the resulting reduction in its costs.

[36] Thereafter, Brantco made periodic inquiries of Lanca about payment for its work on the Archmill project. Eventually, on October 5, 2018, a member of Lanca’s accounting staff advised that the invoices were “on Nathan’s desk for approval.” She added that “I hope to have an answer regarding payment soon.” Later that afternoon, Mr. Lancaster wrote to Mr. Graci and said that “These are currently in discussions with the owner.” During his testimony, Mr. Lancaster said that in discussing the issue with Mr. Buchan he was “going to bat” for Brantco but that those discussions were unsuccessful.

[37] As will be discussed further below, the failure of Lanca to pay Brantco affected Brantco’s willingness to complete the work it had agreed to do on the Burgessville project. On October 15, 2018, Brantco advised that it was putting its work on the Burgessville project “on hold” until payment was received from Lanca for the Archmill project. On November 28, 2018, this action was launched by Brantco.

Discussion

[38] Lanca does not dispute that the work comprising extra #2 was completed by Brantco (although there is some dispute about the quality of the work and/or whether it should have been as expensive as Brantco’s invoices reflect). There is some evidence that at least some of this work was required – although not necessarily that it was required to be completed by Brantco. There is conflicting evidence on whether the work was included in the Archmill prime contract and/or in the Archmill subcontract and therefore whether all or some of the work comprising extra #2 was properly characterized as an extra (or extras).

[39] Although there is no other documentary evidence of approval of the work comprising extra #2, Lanca’s answer to its undertaking suggests that this work was approved although at a price that included the work on extra #4, i.e., not more than $3,000.

[40] Mr. Graci conceded during his discovery that approval for the extra #2 work was not provided in writing before it was completed. Indeed, Mr. Graci’s email of May 24, 2018, was sent, as he said in discovery, at 10:50 a.m., well after the work had already begun. After that, none of the email correspondence refers to any of the extra #2 work. There is an exchange about the costs associated with extra #3, and an exchange about extra #4, but nothing respecting extra #2.[^2] At best, there is a reference to Mr. Roth working on a change order, followed shortly thereafter by an email saying that Mr. Buchan’s approval had not yet been given. To the extent that there is discussion about “keeping the ball rolling” while instructions were sorted out, the work which kept the ball rolling was the work on extra #3, which is not disputed.

[41] Mr. Lancaster conceded in cross-examination that sometimes in construction, which is a fast-paced industry, change orders are produced after the fact, but that work should only go forward where there is written confirmation in email correspondence that an agreement has been reached. Ms. Martin gave similar evidence. She said that one of the components of the extra #2 work might have been a proper extra if it had been approved by her in an email. There is no such email, but Lanca’s answer to its undertaking indicates that extra #2 was approved, although there is a difference of opinion about the price at which that work was to be done. The evidence of the Lanca witnesses is that Lanca was not paid by Archmill for the work on extra #2.

[42] With respect to extra #2, Brantco’s primary argument seems to be that Lanca – which had a site supervisor who was in a position to know what was going on – did not object to Brantco’s work and, indeed, acquiesced to the performance of that work. Further, Brantco says that Lanca cannot rely on the failure to abide by the formalities imposed by the contract to avoid paying for work (which included correcting the errors or omissions of others) that it asked to be completed and approved. This is especially so given that Lanca did not insist on strict compliance with the formalities even for work which is not disputed.

[43] In Colautti Construction Ltd. v. Corporation of the City of Ottawa (1984), 1984 CanLII 1969 (ON CA), 46 O.R. (2d) 236 (C.A.), Cory J.A. (as he then was), wrote as follows (at para. 30):

In these circumstances the parties, by their conduct, have varied the terms of the contract which require extra costs to be authorized in writing. As a result, the City cannot rely on its strict provisions to escape liability to pay for the additional costs authorized by it and incurred as a result of its errors.

See also D&M Steel Ltd. v. 51 Construction Ltd., 2018 ONSC 2171, at para. 60; 2016637 Ontario Inc. v. Catan Canada Inc., 2013 ONSC 4727, at para. 14.

[44] I am satisfied that Lanca asked for the work set out in Mr. Graci’s May 24, 2018, email to be completed. Mr. Graci’s initial email indicates that he was asked by Mr. Buchan and Lanca’s site supervisor to price the work. Moreover, as I have noted, it appears that the work was necessary to correct or complete the work of another subcontractor and that Brantco was on site and available to do the work. Further, Lanca’s response to its undertaking and Ms. Martin’s June 8, 2018, response to Mr. Graci’s email of the same date indicate that “these extras” were approved. This is also indicative of the fact that Lanca regarded the work as “extras” for Brantco. In other words, that this was not work covered by the Archmill subcontract.

[45] I cannot accept the position of Lanca (as reflected in its answer to its undertaking) that the cost of extra #2 was included in the $3,000 budget cap which Mr. Lancaster put on the work involved in completing extra #4. Nothing in the documentary evidence supports this suggestion. Mr. Graci provided estimates for the extra #2 work which totalled roughly $6,000 by themselves and Mr. Lancaster’s email of May 25, 2018, although it does refer to “these extras,” does not refer to any work other than extra #4.

[46] Further, I cannot accept Lanca’s argument that the cost of extra #2 is offset by the credit which Lanca and Archmill should have had by virtue of the elimination of the work involved in having Brantco construct the swale. Although Mr. Buchan refers to that credit in his email of August 14, 2018, in which he objects to Brantco’s claim for payment for extra #2 (“Brantco should consider this a wash”), that position was never taken with Lanca. On the contrary, Mr. Lancaster made it plain that the credit for the swale was being applied to work on the east laneway (extra #4). That is, in part, how he justified taking the position that that work should not cost more than $3,000.

[47] In all the circumstances, I am satisfied that the work comprising extra #2 was requested by Mr. Buchan, was approved by Lanca (which had full knowledge of Brantco’s estimates for the work), was completed by Brantco (to the knowledge of all concerned) and was not the subject of any complaint to Brantco until months after its work had been completed. With respect to extra #2, I agree with Brantco that in these circumstances, Lanca cannot rely on the niceties of the contract to avoid payment to Brantco. The parties have, by their conduct, varied the terms of the contract (Colautti Construction, supra) and Lanca has acquiesced in the provision of these extras, which it must have understood would entail additional expense (2016637 Ont., supra).

[48] I find that the amount involved by Brantco for extra #2, $6,033 plus HST, is payable by Lanca to Brantco.

[49] With respect to extra #4, although Lanca has taken the position that the $3,000 budget applied to both extras #2 and #4, I have found that it applied to extra #4 alone. Accordingly, Lanca will be liable to Brantco for at least $3,000 plus HST for extra #4. The question of whether any additional amount is owning for extra #4 depends on the nature of the parties’ agreement.

[50] The parties offer sharply divided accounts of what was decided and agreed. Mr. Lancaster (supported by Ms. Martin) says that a budget cap of $3,000 (which reflected the credit due to Lanca and Archmill for the elimination of the swale) was agreed to and that there was no agreement to pay for a separate mobilization fee (extra #5). Mr. Graci says that there was no agreement to abide by a $3,000 budget cap and that Mr. Lancaster agreed to pay the remobilization fee.

[51] I am satisfied that Mr. Lancaster’s account of the agreement is more reliable. It is corroborated by Ms. Martin’s testimony respecting the conference call and by his own email of May 25, 2018, in which he sets out the agreement which had been reached with Archmill and the other contractor to fund the work (which is, in turn, corroborated by the evidence of Mr. Buchan). Mr. Lancaster would not have entered into an agreement with Mr. Graci that departed from the agreement to split the cost of that work without first consulting with the other parties to that funding agreement.

[52] It is true that Mr. Graci’s account is also corroborated to some extent by the documents. His claim that Brantco could not do the work on anything but on a time and materials basis is articulated in his email before the conference call. But the conference call was convened precisely to resolve the differences between the parties on this point. I am satisfied that Archmill and Lanca were concerned about the cost of the work involved in extra #4, that they were not going to agree to a proposal which would depart significantly from the evenly split $3,000 to which they had agreed, and that Mr. Lancaster would not have agreed – at least not without further discussion – to a price that was more than triple what they had proposed, or to an uncertain budget that could lead to the same result. I am satisfied that the agreement achieved on the conference call was that Brantco would do the work on extra #4 for $3000 or less, plus HST, and I so find.

[53] It follows that I do not accept that Mr. Lancaster agreed to pay for a remobilization fee (extra #5) that would have increased the budget by roughly a third. Such an agreement would have been completely inconsistent which his insistence on keeping to a tight budget.[^3]

[54] Mr. Lancaster’s version of events also takes into account the credit to which Lanca and Archmill were entitled given that the scope of Brantco’s work was substantially reduced when it was agreed to forego the construction of the swale. Mr. Graci’s evidence, while acknowledging the savings created by this decision (which was made at Brantco’s request), would account for no credit being afforded to Lanca and Archmill.

[55] Brantco claims that its discovery of an additional soft spot on June 11, 2018, which reported to Lanca, and which Ms. Martin asked Mr. Graci to itemize on Brantco’s invoice, shows that the cost of the work on extra #4 could not be limited to $3,000. The discovery of additional problems, so it is argued, shows why Brantco could not agree to do the work on anything but a time and materials basis. Moreover, Ms. Martin’s reply shows that it must have been anticipate that the discovery of additional work necessarily implied additional costs.

[56] While there is some force to this position, a single email indicating that there is additional work to be done – without more – does not afford to the subcontractor carte blanche to undertake that work no matter the cost without securing an agreement on price. As Mr. Lancaster testified, if the discovery of the new problem was expected to involve a significant change to the budget, Brantco should have been explicit about that fact before undertaking the work. Moreover, I accept the evidence of Mr. Lancaster that even where work is done on a time and materials basis, a contractor will expect a subcontractor to stay within a budget.

[57] As I have found, that is what happened here. Lanca set a budget of $3,000 plus HST, which was agreed to on the conference call. Brantco’s failure to stay within that budget, without having first sought Lanca’s agreement to any additional cost, cannot be visited upon Lanca.

Amount owing by Lanca to Brantco for the Archmill project

[58] In accordance with the above, the amount owed by Lanca to Brantco is as follows (all figures including HST):

Base amount of the Archmill subcontract: $59,890.00

Extra #1: $12,317.00

Extra #2: $ 6,817.29

Extra #3: $ 2,569.62

Extra #4: $ 3,390.00

Total: $84,983.91

[59] I will turn below to the question of whether Lanca’s liability for this amount is offset by any damages it suffered on the Burgessville project.

The breach of trust allegation

[60] Section 8 of the Act provides that funds received by a contractor for the benefit of a subcontractor are trust funds. Pursuant to that section, as Lanca received funds from Archmill for work completed by Brantco, Lanca holds moneys owing to Brantco in trust for Brantco.

[61] Brantco claims that Lanca has breached that trust (and that the individual defendants, as officers and directors of Lanca, have assented to or acquiesced in that breach of trust (see s. 13 of the Act)), because the funds received from Archmill were deposited into a general account held by Lanca from which unrelated expenses are paid.

[62] I am satisfied that there has been no breach of trust in this case. Mr. Lancaster testified that the Archmill funds were placed into a general account, but that Lanca’s accounting software accounts for the funds held in trust for each construction project separately. This is what the legislation requires. Section 8.1 of the Act allows for trust funds to be commingled as long as records for each trust are maintained separately. That is exactly the arrangement Lanca employs. Mr. Lancaster testified that moneys received from Archmill which were owing to Brantco were held back and not paid to Brantco because of the disagreement about what was owed. In my view, this does not constitute a breach of trust.

The Burgessville project

The evidence

[63] As noted above, the Burgessville subcontracts were signed by Brantco on August 9, 2018. At that time, according to Brantco, payment for its work on the Archmill contract was already overdue by more than a week, having been payable on July 31, 2018. Brantco did not advise at the time of signing the Burgessville subcontracts that it would not complete the work contemplated by those subcontracts without payment of its Archmill invoices.

[64] The Burgessville subcontracts provided that Brantco would complete the work on the paving, curbs and sidewalks at a total cost to Lanca of $110,682.37 (incl. HST), and that the work would be substantially complete by October 31, 2018. The subcontracts also provided that:

• Brantco was required to attend site meetings as requested by Lanca;
• Brantco would commence work within 5 working days after receiving notice to start from Lanca and complete that work within the schedule set by Lanca;
• If Brantco failed to perform its work in a diligent and timely manner, Lanca could take any corrective or protective action to protect Lanca’s interests at the expense of Brantco;
• In addition, Lanca had the right to terminate the subcontracts on 72 hours’ written notice to Brantco;
• Lanca was entitled to recover from Brantco an amount by which the cost to complete the work exceeds the unpaid balance to Brantco; and,
• If Brantco failed to perform its work in a diligent manner and thereby caused delay, Lanca was entitled to deduct any damages or costs sustained by Lanca that were the result of that delay.
• Further, Brantco indemnified Lanca against all claims, suits, judgments and damages brought, recovered or extracted against Lanca through the actions of Branco.

[65] The Burgessville subcontracts did not afford Brantco any right to delay or terminate the agreements.

[66] On October 15, 2018, Ms. Martin of Lanca provided Brantco with the projected construction schedule for the Burgessville project. It contemplated Brantco installing sidewalks and curbs on October 17, 18 and 19, and laying down asphalt on October 25 and 26, 2018. These completion dates were well within the timeframe set out in the Burgessville subcontracts.

[67] Jessica Hergott, Brantco’s project manager on the Burgessville project, responded to Ms. Martin on the afternoon of October 15, 2018, and wrote as follows:

I have been informed by our general manager that all work with your company has been put on hold until our outstanding accounts have been paid.

Secondly, the only other project schedule I had received prior to today’s had us scheduled to pave in August and I have heard nothing from your office since. We have very limited availability left for this fall.

Once our accounts have been settled I can look into what availability is left for this year.

[68] Ms. Martin responded immediately, saying that she understood that Lanca had been in touch respecting the Burgessville project and that she would “follow up on accounts outstanding.”

[69] I note that Ms. Martin denies that she ever told Ms. Hergott that Brantco’s work would take place in August. Indeed, in an email dated July 19, 2018, Ms. Martin reported to Ms. Hergott that “we anticipate end of September for curbs/asphalt, maybe beginning of October.” Ms. Hergott replied, offering quotes on the work “provided that the work goes ahead in October.”

[70] In a reply from Lanca’s project coordinator later on October 15, 2018, it was noted that Brantco had been invited to regular site meetings where any questions Brantco had about the project could have been answered. It is an agreed fact between the parties that there were at least four such invitations. Brantco did not send a representative to those meetings as required by the Burgessville subcontracts. Each email inviting Brantco to a site meeting attached an agenda which indicated that part of the purpose of the meeting was “to review and evaluate schedules.”

[71] Ms. Hergott’s October 15, 2018, email was the first that Lanca had heard both that Brantco was linking its work on the Burgessville subcontracts to the payment issues it had with Lanca on the Archmill project, and that Brantco had any problem with the projected schedule for the Burgessville project. The email came at a critical time, not only because construction was about to begin, but because it is understood that in the construction industry contractors and subcontractors typically charge more for their work in the winter, which is understood to commence on November 1 of each year.

[72] Mr. Lancaster testified that Brantco’s “refusal to perform the Burgessville work was hugely problematic to Lanca – particularly with the November date looming.” Finding a replacement for Brantco would also increase costs because the replacement subcontractor would have to mobilize on short notice. The urgency of the situation also limited Brantco to choosing among those paving subcontractors who were available at the last minute. In all these circumstances, according to Mr. Lancaster and Ms. Martin, Lanca was billed more for paving, sidewalks and curbs than it had quoted to the owner of the Burgessville project and Lanca was, accordingly, not paid by the owner for that extra cost. Lanca absorbed the cost itself.

[73] Lanca says that it received a quote for the curbs and sidewalks on October 18, 2018, and for the paving on November 23, 2018, and that the cost to perform the work which Brantco should have completed on the Burgessville project was $33,890.29 greater than the cost of the Burgessville subcontracts. Moreover, some of the work was done after November 1 and some of it could not be completed until spring of 2019.

[74] On discovery, Mr. Graci conceded that nothing in the Burgessville subcontracts allowed Brantco to put its work on the Burgessville project “on hold” pending payment on the Archmill contract. He further conceded that it would be difficult for Lanca to find a replacement for Brantco on short notice and that Brantco knew that when it told Lanca that it was putting its work on hold. On cross-examination, Mr. Graci said that Brantco had other work lined up that it could do when the decision was made to put its work on the Burgessville project on hold.

[75] There is nothing in the evidence of any communication between Lanca and Brantco after October 15, 2018. As I have said, Brantco’s suit was launched on November 28, 2018.

Who terminated/breached the Burgessville subcontracts?

[76] Brantco says that Lanca terminated the Burgessville subcontracts but did not comply with the terms of the subcontracts for termination. Brantco further says that it continued to be willing and able to complete the Burgessville project as long as its accounts were paid on the Archmill project. It did not repudiate or breach the Burgessville subcontracts.

[77] Lanca says that it did not terminate the Burgessville subcontracts. On the contrary, the evidence shows that Brantco never intended to complete the Burgessville project and that it breached the subcontracts by failing to complete the work as agreed.

[78] On this point, I agree with Lanca.

[79] Whether Brantco repudiated or engaged in an anticipatory breach of the contract is determined on an objective test. I am required to consider whether a reasonable person would conclude that Brantco displayed an intention not to be bound by the Burgessville subcontracts (Spirent Communications of Ottawa Ltd. v. Quake Technologies (Canada) Inc., 2008 ONCA 92, at para 37). In assessing this question, it is important to take into account all the surrounding circumstances, including the nature of the contract, the motives of the parties, and the impact of one party’s conduct on the other (Remedy Drug Store Co. Inc. v. Farnham, 2015 ONCA 576, at para 46).

[80] Further, I am required to consider the following factors (see Spirent Communications, supra, at para. 36):

(1) the ratio of the party's obligations not performed to that party's obligations as a whole; (2) the seriousness of the breach to the innocent party; (3) the likelihood of repetition of such breach; (4) the seriousness of the consequences of the breach; and (5) the relationship of the part of the obligation performed to the whole obligation.

[81] As I have said, in my view, Brantco breached the Burgessville subcontracts. Indeed, there is some force to the Lanca’s argument that Brantco never intended to execute the work it had agreed to do on the Burgessville project: Brantco attended none of the Burgessville site meetings and arranged other contracts for the autumn of 2018 at the time it was supposed to be working on the Burgessville project, leaving it, to quote Ms. Hergott’s October 15, 2018 email, with “very limited availability left for this fall.”

[82] In any case, that email leaves little doubt about Brantco’s intention, or – more appropriately – lack of intention to honour the contract. At the eleventh hour, just as the work on the project was set to begin, Brantco told Lanca that it would not do its part of the work absent payment on a completely unrelated project and that it would not even consider scheduling the Burgessville work until payment was received. In the circumstances, including the impending commencement of the project, the need to co-ordinate the work of multiple subcontractors, and the imminence of winter (and the concomitant increase in costs), Brantco was signaling that it was not going to complete the Burgessville work, and certainly not in a timely and diligent manner.

[83] Brantco says that it was simply trying to get what it was owed on the Archmill project, that it had no idea why it was not being paid, and that it never indicated that it would not do the Burgessville work. I do not accept this argument.

[84] First, Brantco had no right under the Burgessville subcontracts to put that work “on hold,” as it expressly said that it was doing. Second, while it may be correct that Brantco did not know exactly why it had not been paid on the Burgessville project, it could not have concluded otherwise than that there was some difference of opinion about what was owed for the extras. Brantco knew that Ms. Martin had followed up with questions about the extras for which Lanca was invoiced. Further, Brantco knew that Lanca was discussing the outstanding payment to Brantco with Mr. Buchan of Archmill. That discussion could have been about nothing but whether the various extras would be paid for by Archmill. Moreover, there is no suggestion anywhere in the evidence that either Archmill or Lanca was insolvent, or acting in bad faith (a point to which I will return), or refusing to pay the base amount of the Archmill subcontract, or even for all the extras. In my view, it should have been obvious that the delay was caused by concerns about the cost of the extras. In any case, nothing prevented Brantco from asking what exactly the problem was. The fact that there is no email putting this question suggests that Brantco knew the nature of the problem if not its precise details.

[85] In any event, Brantco was well aware that by putting the Burgessville project “on hold” it was putting Lanca in an impossible situation, that Lanca was going to have to scramble to find alternatives, and that those alternatives – in the exigent circumstances which governed – were likely to result in added costs. Given that Brantco was refusing to schedule its work on the Burgessville project, Lanca had no choice but to find replacement subcontractors to do Brantco’s work. Brantco, as a reasonable participant in the construction industry, understood that this was so. It could not have reasonably believed that Lanca would simply put the Burgessville project on hold until the total owed to Brantco on the Archmill project, a completely unrelated matter, was sorted out.

[86] In sum, considering all the surrounding circumstances, Brantco’s conduct and its October 15, 2018, email to Lanca made it plain that Brantco was evincing an intention that it was not going to comply with important terms of the Burgessville subcontracts – especially the terms which required Brantco to complete its work in a timely and diligent manner (see Spirent Communications, supra, at para. 37). The work which Brantco evinced an intention not to do in a timely manner was the whole of its obligation to Lanca. This failure was a serious matter to Lanca, which required the work to be coordinated and executed in conjunction with many other aspects of the project being undertaken by many other subcontractors (see Spirent Communications, supra, at para, 36).

[87] Lanca acted reasonably in all the circumstances. Faced with a subcontractor who was refusing to schedule the work it had agreed to do, it set about finding a replacement or replacements to complete that work. The Burgessville subcontracts allowed them to do exactly that.

Lanca’s damages

[88] As noted above, Lanca says that the cost to perform the work which Brantco contracted to do on the Burgessville subcontracts cost $33,890.29 more than the total cost which Brantco would have been entitled to under those subcontracts. Accordingly, it is entitled to damages in this amount. I note that this sum includes a remobilization fee of $2,000.

[89] Brantco says that if it is responsible for the breach of the Burgessville subcontracts (as I have found), Lanca’s damages should be no more than the amount claimed in its amended statement of claim: $30,903.22, and that, in any case, the correct calculation of Lanca’s extra costs is $30,695.25 (incl. HST). Brantco says that there is no support for the claimed remobilization fee.

[90] While Lanca did say in its amended statement of defence that the additional expenses it incurred amounted to $30,903.22, it did also make a claim for the $2,000 remobilization fee. I do not agree with Brantco that this fee was unjustified. Mr. Lancaster testified that the fee was necessary because Lanca was unable to finish the project on time – having been delayed by virtue of Brantco’s breach. As I noted above, Lanca had to complete the work which Brantco was supposed to do in the fall of 2018 in the spring of 2019. Mr. Lancaster further testified as to the kinds of things which go into such a fee, and that it could have been a much greater fee. I accept that evidence. In my view, the claim for the remobilization fee was reasonable and is supported on the evidence.

[91] However, I do agree with Brantco’s calculation of Lanca’s other damages. In other words, the difference between the cost to Lanca of completing the paving, sidewalks and curbs at the Burgessville project was $30,696.25 (incl. HST). When one adds to that the remobilization fee ($2,260 (incl. HST)), Lanca’s total damages are $33,163.22.

Set-off

[92] Lanca says that it is entitled to equitable set-off such that whatever it owes to Brantco in connection with the Archmill project should be set off against the damages caused by Brantco’s breach of the Burgessville subcontracts.

[93] Brantco says that Lanca is not entitled to set off and relies on the statements of the law respecting set-off found in Algoma Steel Inc. v. Union Gas Ltd., (2003) 2003 CanLII 30833 (ON CA), 63 O.R. (3d) 78 (C.A.). There, Rosenberg J.A. quoted with approval the statement of the appropriate test articulated by Lord Denning in Telford and Federal Commerce & Navigation Co. v. Molena Alpha Inc., [1978] All E.R. 1066 (Q.B.):

We have to ask ourselves: what should we do now so as to ensure fair dealing between the parties? ... This question must be asked in each case as it arises for decision; and then, from case to case, we shall build up a series of precedents to guide those who come after us. But one thing is quite clear: it is not every cross-claim which can be deducted. It is only crossclaims that arise out of the same transaction or are closely connected with it. And it is only cross-claims which go directly to impeach the plaintiff's demands, that is, so closely connected with his demands that it would be manifestly unjust to allow him to enforce payment without taking into account the cross-claim [emphasis added by Rosenberg J.A.].

[94] Brantco says that the application of this test leads to the conclusion that Lanca is not entitled to set-off given the lack of connection between the two projects and given that Lanca has not come to court with clean hands.

[95] In my view, Lanca is entitled to set-off in the circumstances of this case. First, there is a certain irony in Brantco arguing that there is no close connection between the Archmill and Burgessville projects. It was Brantco which created the close connection between the two projects – and, therefore, between the two competing claims – by refusing to execute on the second project until being paid for the first.

[96] Second, while Lanca had not paid Brantco in connection with the Archmill project, there was nothing nefarious about that fact. Lanca had legitimate concerns respecting the extras, was not itself being paid by Archmill for some of them, and was seeking to explore that issue in good faith with Mr. Buchan. As Mr. Lancaster put it, he was going to bat for Brantco. Even where I have found against Lanca in connection with what was owed to Brantco on the extras, Lanca’s conduct was not unreasonable or taken in bad faith. In short, I do not agree that Lanca makes its claim for set-off having come to court with unclean hands.

[97] In the passage quoted above, Lord Denning makes clear that the foundational question in cases of claimed set-off is one of fairness. Here, fairness requires that Brantco be paid what it is owed for its work on the Archmill project ($84,983.91 (incl. HST)) less the damages it caused to Lanca on the Burgessville project ($33,163.22 (incl. HST)): $51,820.69.

Conclusion and Costs

[98] In summary, Lanca is ordered to pay $51,820.69 (incl. HST) to Brantco, plus pre-and post-judgment interest.

[99] If the parties are unable to agree on costs, which I urge them to do, the plaintiff may serve and file brief written submissions respecting costs within 10 days of the release of these reasons. The defendant may serve and file brief responding submissions respecting costs within 7 days of the service of the plaintiff’s costs submissions. The plaintiff may serve and file reply submissions, if any, withing 3 days of the service of the defendant’s costs submissions.

I.R. Smith J.

Released: June 9, 2023

[^1]: Excepting the named defendant Linda Lancaster, now deceased, who is no longer a party to this matter.

[^2]: Again, I note that Lanca’s answer to its undertaking suggests that Ms. Martin’s email of June 8, 2018, relates to extra #2. While I accept that the extra #2 work was approved (as the answer to the undertaking asserts), the June 8 email makes no reference to extra #2 and post-dates the completion of that work. In my view, that email relates to extra #4 alone.

[^3]: I also do not agree with Brantco that Ms. Martin’s email inquiry of June 27, 2018, in which she thanks Mr. Graci for reminding her of the remobilization fee, shows that there was an agreement to pay the fee. I accept Ms. Martin’s evidence that she was simply making inquiries about some of Brantco’s extras after having received its invoices. Mr. Graci’s response to her inquiry reminded her that the matter had been discussed.