Court File and Parties

Court File No.: CV-23-29-0000 Date: 2024/08/2 Superior Court of Justice - Ontario

Re: Jerry McLean, Plaintiff And: EDGAR LAVERGNE o/a LAVERGNE HOME IMPROVEMENT RENOVATIONS, a.k.a. LAVERGNE CONSTRUCTION INC., a.k.a. LAVERGNE HOME IMPROVEMENT RENOVATIONS INC., Defendant

Before: Holowka J.

Counsel: Matthew J.A. Benson, Counsel for the Plaintiff

Heard: August 2, 2024

Endorsement

Overview

[1] The plaintiff brings a motion for default judgment.

[2] The plaintiff contracted with the defendant to renovate his residence. $180,000 was paid by the plaintiff to the defendant but the vast majority of the work was not completed to a standard of reasonable workmanship. Efforts to have the defendant return to complete the work were unsuccessful. The plaintiff paid another contractor $146,775.63 to complete the work.

[3] A Statement of Claim was issued in this action on May 4, 2023, and service was made to the defendant on May 12, 2023. On June 8, 2023, the defendant was notified that they would be in default if they failed to respond or provide a defence. On February 21, 2024, the defendant was noted in default.

[4] The plaintiff seeks the following relief:

a. An Order for default judgment of $279,668.26 and pre-judgment interest at the Courts of Justice Act rate of $17,295. b. An Order for punitive damages of $15,000.00 c. An Order for costs of $5,000 for the motion and the action.

[5] There are three issues to be determined:

a. First, is the plaintiff entitled to default judgment, and if so, what is the quantum of damages? b. Second, is the plaintiff entitled to punitive damages and if so, in what amount? c. Third, what is the appropriate cost order?

[6] I am satisfied that the statement of claim supported by the affidavit evidence establishes a breach of contract by the defendant. The material filed on the motion amply entitles the plaintiff to a judgment of $146.775.63 and pre-judgment interest.

[7] Regarding punitive damages, I believe the order for compensatory damages is sufficient to achieve the objectives of retribution, denunciation and deterrence. I would not make an order for punitive damages.

[8] Concerning costs, it is just, reasonable, and proportionate to make an order to fix costs for this motion and the action at $5,000.

Analysis

Principles Applicable to Default Judgment

[9] The starting point in considering a motion for default judgment is rule 1.04(1) of the Rules of Civil Procedure, O. Reg. 575/07, s. 6(1). It states that the rules shall be liberally construed to secure the civil proceeding's just, expeditious, and least expensive determination on its merits.

[10] Rule 19.02(1) provides that a defendant who has been noted in default “is deemed to admit the truth of the allegations of fact made in the statement of claim.”

[11] Rules 19.05 and 19.06 provide for the process for a default judgment made by motion to a judge. The function of rule 19.06 is to clarify that although a defendant by their default is deemed to admit the truth of the factual allegations of the statement of claim, the plaintiff is not entitled to judgment unless these admitted facts entitle the plaintiff to judgment.

[12] Accordingly, on a motion for default judgment, the inquiry undertaken by the court is the following:

a. What deemed admissions of fact flow from the facts pleaded in the Statement of Claim? b. Do those deemed admissions of fact entitle the plaintiffs, as a matter of law, to judgment on the claim? c. If they do not, has the plaintiff adduced admissible evidence which, combined with the deemed admissions, entitles it to judgment on the pleaded claim?

Factual Basis For Default Judgment

[13] The statement of claim and affidavit materials establish the following:

a. The plaintiff contracted with the defendant for renovations at 1001 Diamond Street, Rockland, ON. The plaintiff paid the defendant $180,000 to complete the work. b. The specified date of occupation was December 2021. A multitude of defaults and deficiencies remained on that date. These deficiencies are detailed in the plaintiff's affidavit, dated July 22, 2024, and its exhibits. Exhibit “B” to the plaintiff’s affidavit sets out various building code violations and other deficiencies left as a result of work by the defendant. c. The Plaintiff made reasonable efforts to have the Defendant return and perform the repairs. The Defendant returned but did not perform meaningful repairs other than sprinkling grass seed on the lawn. d. In November 2022, the plaintiff hired Branton Construction Group. Branton Construction, the municipal building inspector, and an Electric Safety Authority inspector attended the Property and provided a report outlining the deficiencies. e. Following receipt of that report, the plaintiff, through counsel, attempted to correspond with the defendant, but the defendant’s only response was negative. f. The plaintiff retained Branton Construction to perform the repairs to address the deficiencies. The defendant paid Branton Construction $146,775.63 to do so. g. Of the $180,000 paid to the defendant for his work, $47,107.63 of that work did not need to be repaired, which leaves a balance of $132,892.63 which was overpaid to the defendant.

[14] The plaintiff has proved his claim concerning the breach of contract.

[15] Determining the quantum of damages is challenging. The evidence establishes that while much of the work done needed repairs, some of the work performed by the defendant did not require repairs. Specifically, the following items did not require repairs:

a. Frame walls and bulkheads. b. Supply and electrical throughout the basement (walls only) c. Relocate plumbing on the floor for the kitchen and bathroom (underground only) d. Plaster, sand, prime, paint. e. Build a custom dormer above the new front entrance, put a pot light in the center, flashing shingles, and f. Spray foam/removal of old insulation

[16] Other than items “e.” and “f.” listed above, the defendant’s invoice did not provide a line-item price breakdown.

[17] Ryan Branton, the owner of Branton Construction, analyzed the value of the work done by the defendant. The analysis is contained in Exhibit “B” of Mr. Branton’s affidavit, dated August 12, 2024. He priced the value of the defendant’s good work to be $47,107.37. The plaintiff paid $180,000 for this deficient work—effectively overpaying $132,892.63 in addition to the $146,892.63 paid to Branton Construction to carry out the remedial work.

Damages

[18] The plaintiff seeks damages for breach of contract, misrepresentation, negligent misrepresentation, and breach of the duty of good faith and honest contractual performance. The law regarding how damages are calculated in situations involving breaches of building or renovation contracts was not addressed in the oral or written submissions.

[19] There are different ways in which compensation for failure by a builder to supply the agreed services is determined. The Alberta Court of Appeal comments in Spence et al. v. Sunshine Enterprises Limited, 1988 Carswell NS 116 at para. 31 sets out the general approach that I find applies to the circumstances before me:

Hall J. in delivering the judgment of the Supreme Court of Canada in Miller v. Advanced Farming Systems Ltd., , [1969] S.C.R. 845, 5 D.L.R. (3d) 369, stated at p. 848 [S.C.R.]:

The correct measure of damage in a case such as the present one was stated by Lord Denning in Hoenig v. Isaacs, where from the principles laid down in H. Dakin & Co. Ltd. v. Lee he stated:

The measure is the amount which the work is worth less by reason of the defects and omissions and is usually calculated by the cost of making them good.

or as Pickford L.J. said in Dakin v. Lee, at p. 582:

... the case must go back ... in order that it may be ascertained what is the expenditure necessary, first, to put this underpinning right and make it accord with the contract both in regard to quality and quantity, and, secondly, to do the work which ought to have been done ...

Further, Ridley J., quoting Parke J. said in the same case at p. 571:

What the plaintiff is entitled to recover is the price agreed upon in the specification, subject to a deduction; and the measure of that deduction is the sum which it would take to alter the work, so as to make it correspond with the specification.

In my view the measure of the appellant's damage is the cost of making good the defects and omissions in the work which the respondent contracted to do.

[20] Howden J also adopted this approach in Simpson v. Hatzipetrakos et al., 2009 CarswllOnt 5260 (Ont. S.C.J.). This was a case where the plaintiff owner contracted for a hobby shop/garage to be built by the defendant. The plaintiff alleged that the defendant abandoned the project. Justice Howden stated the following regarding the correct approach regarding damages in the context of a building contract at para. 23-24.:

This is a case of a lump sum contract. The plaintiff is entitled to what he contracted for, no more and no less, for the price agreed upon. The method best suited to this case is the 'completion cost-contract price' approach. As stated in The Law Of Damages, by S.M. Waddams (Canada Law Book/Cartwright Group Limited, loose-leaf ed., mod'd to May/09) at p. 2-13,

The excess cost of procuring substitute services and materials over the contract price is the normal measure of damages.

This stems from the concept in contract law that a person who has made a bargain is one who has a present right to whatever benefits it provides him. Thus, the contract-breaker is bound to make good the loss caused by the breach and the loss is measured by the value of the performance promised. The Law of Damages, supra, p.5-1. A more intelligible way of expressing the approach to damages in this case comes from Wimmer J in Zam Homes Ltd. v. Sheppard, [1980] S.J. No. 793 (Sask. Dist. Ct.), at para 25 where he describes the principle as one which entitles the plaintiff to damages measured by the amount of the of completing the contract within its terms in excess of the contract price.

[21] Having considered the very detailed, substantial and uncontradicted evidence as to the conduct of the defendant, the deemed admissions and the details of the loss occasioned by their breaches, I have concluded that the plaintiff is entitled to recover judgment for damages in the amount of $146.775.63, and prejudgment interest based on that amount. This amount is based on the approach to calculating damages outlined earlier in Spence et al. v. Sunshine Enterprises Limited and Whiten v. Pilot Insurance Company. It reflects the excess cost of procuring substitute services and materials to complete the work promised by the defendant to a level of reasonable workmanship. The Branton Construction Group performed this work.

[22] I find that it is not appropriate to order damages for the additional amount of $132,892.63 sought by the plaintiff. Ordering this additional amount would mean that the plaintiff would obtain not only the performance of the work initially contracted but also a windfall of the original contract amount less the defendant’s performance.

Punitive Damages

[23] In addition to compensatory damages, the plaintiff also seeks punitive damages to be ordered against the defendant. The Court of Appeal held in Barrick Gold Corp. v. Lopehandia, that on a motion for default judgment, a judge has jurisdiction to make an award of punitive damages where there are the appropriate deemed admissions and an evidentiary record that justifies it.

[24] The Supreme Court of Canada in Whiten v. Pilot Insurance Company, 2002 SCC 18 at para. 94 set out the following factors to be considered when determining whether punitive damages should be awarded:

a. Punitive damages are very much the exception rather than the rule. b. Punitive damages are imposed only if there has been high-handed, malicious, arbitrary or highly reprehensible misconduct that departs to a marked degree from ordinary standards of decent behaviour. c. Where punitive damages are awarded, punitive damages should be assessed in an amount reasonably proportionate to such factors as the harm caused, the degree of the misconduct, the relative vulnerability of the plaintiff and any advantage or profit gained by the defendant having regard to any other fines or penalties suffered by the defendant for the misconduct in question. d. Punitive damages are generally given only where the misconduct would otherwise be unpunished or where other penalties are or are likely inadequate to achieve the objectives of retribution, deterrence, and denunciation. e. The purpose of punitive damages is not to compensate the plaintiff but to give a defendant retribution, deterrence, and denunciation of what has happened. f. Punitive damages are awarded only where compensatory damages, which to some extent are punitive, are insufficient to accomplish these objectives, and they are given in an amount that is no greater than necessary to rationally accomplish their purpose. g. While usually the state would receive any fine or penalty for misconduct, the plaintiff will keep punitive damages as a “windfall” in addition to compensatory damages. h. Judges and juries in our system have usually found that moderate awards of punitive damages, which inevitably carry a stigma in the broader community, are generally sufficient.

[25] I am satisfied that compensatory damages will effectively deter and denounce the defendant's conduct. While the defendant acted in a high-handed manner by failing to perform repairs to his grossly deficient work despite agreeing to do so, the conduct is captured by compensatory damages.

[26] I have considered the factors listed in Whiten, supra. Punitive damages are awarded only where compensatory damages, which to some extent are punitive, are insufficient to accomplish these objectives. I am satisfied that the compensatory damages are sufficient to carry out the role of deterring and denouncing the defendant's conduct.

[27] The case of Whiten, supra, involved the refusal by an insurance company to pay the plaintiff’s claim under a fire insurance policy, forcing the plaintiff through an 8-week trial, the costs of which put the plaintiff’s only remaining asset at risk. That conduct was found to be planned and deliberate and continued for over two years. The jury awarded the plaintiff punitive damages fixed at $1 million. The Supreme Court of Canada upheld the jury’s award, concluding that the plaintiff had been faced with harsh and unreasoning opposition from an insurer whose policy she had purchased for peace of mind and protection in such an emergency. I do not find that the defendant's conduct arose to the same level of protracted, planned and deliberate, intentional behaviour.

Cost Order

[28] I have reviewed the Bill of Costs provided by the plaintiff. I am satisfied that they are fair, reasonable, and proportional, considering the steps taken on the file. They are fixed at $5000.

Disposition

[29] I grant judgment in favour of the plaintiff against the defendant in accordance with the findings and conclusions I have set out above.

[30] The following orders shall be issued:

a. An Order for default judgment in the amount of $146.775.63 and pre-judgment interest at the Courts of Justice Act rate. b. An Order for costs of $5,000 for this motion and action.

Mr. Justice B. C. J. Holowka Date of release: September 13, 2024