Ivan's Renovations Ltd v Arabsky, 2014 ABQB 700

Court of Queen ’ s Bench of Alberta Citation: Ivan's Renovations Ltd v Arabsky, 2014 ABQB 700 Date: 20141126 Docket: 0903 08142 Registry: Edmonton Between: Ivan's Renovations Ltd. Plaintiff - and - Vitaliy Arabsky and Tetyana Arabsky Defendants _______________________________________________________ Reasons for Judgment of the Honourable Mr. Justice J.J. Gill _______________________________________________________ Table of Contents Introduction . 3 Overview .. 3 Issues . 5

1. What amounts, if any, are owed by the Arabskys to Ivan’s under the Construction Contract? 6 2. Did Ivan’s breach the Construction Contract? . 10 3) If Ivan’s breached the Construction Contract what damages, if any, were suffered by the Arabskys 17

Summary. 21 Introduction [ 1 ] This action concerns the construction of a new house. [ 2 ] The Plaintiff builder (“Ivan’s”) sued the Defendant owners (“the Arabskys) for the amount of $123,124.50, which it claims is owing under the contract. [ 3 ] The Arabskys deny that there are monies owing and have counterclaimed for damages arising from what they claim is deficient construction and uncompleted work. [ 4 ] The Arabskys, Mr. Ivan Tkaczuk (President of Ivan’

s) and Mr. Yarema Shulakewych, (Project Administrator of Ivan’

s) testified. There was also expert evidence from two Structural Engineers, a Quantity Surveyor and a Home Inspector. Overview [ 5 ] The Arabskys purchased a residential lot in Beaumont in 2005. Two years later they started to look for a builder and were introduced to Mr. Tkaczuk and in 2007 contracted with Ivan’s to build their house. [ 6 ] Prior to hiring Ivan’s, Mr. Tkaczuk showed the Arabskys a show home (“the Ozerna Street Show Home”). The Defendants were very impressed with the Ozerna Street Show Home, particularly as regards the quality of the construction and the very high standard of finishing.

After seeing the Ozerna Street Show Home the Arabskys decided to stop looking for a builder and hired Ivan’s to build what Mrs. Arabsky described as their dream home. [ 7 ] Prior to commencement of construction, Mrs. Arabsky visited a show home in Leduc with Mr. Tkaczuk. He told her that the finishing in their home would be better than that show home. [ 8 ] The Arabsky had house plans (“the House Plans”’) prepared and provided them to Ivan’s. The parties agreed to a contract price to build the house of $520,000.00, plus GST. [ 9 ] Mr. Arabsky was surprised at the $520,000.00 price.

There was a house across the street similar to the one they were going to build, selling for $550,000.00. That price included the lot, landscaping and a finished basement. Mr.

Arabsky assumed that they were paying more to Ivan’s for the construction of their house because it would be of superior quality. [ 10 ] The contract documents (collectively “the Construction Contract”) consisted of a two page Builder’s Contract, the House Plans and a three page “Building Outline Specification Form” (“ATB Specifications”) supplied by the Arabsky’s lender Alberta Treasury Branch. [ 11 ] It was agreed that the house was to be built according to the House Plans and the ATB Specifications. The ATB Specifications include a “cost allowance” for finishing such items as flooring ($11,745.00).

The ATB Specifications also included cost projections for such items as Kitchen Cabinets and Vanities ($26,000.00), basement development ($15,600.00), driveway steps and sidewalks ($20,800.00) and a 5% contingency ($26,800.00). [ 12 ] The payment

schedule under the Construction Contract required a deposit of 15% and then payment of the balance by way of four draws, with a 10% holdback at each stage. Ivan’s agreed to provide a Standard Structural Defect Warranty Coverage. [ 13 ] The Builder’s Contract was signed on April 20, 2007 and construction on the house started in May 2007. The Defendants took possession of the house at the end of September 2008. [ 14 ] After the construction started, changes were made to the House Plans and the specifications. Often these changes would arise as a result of a suggestion from Ivan’s.

These changes were documented by using “Change Orders”. Change Orders could also include credits for work that was no longer required. [ 15 ] Ivan’s would prepare the Change Orders. They would include a description of the work and a proposed price. There would be some further discussion and negotiation as to price. If agreed to, the Change Order would be signed or initialled by one of the Arabskys. In many cases the Change Orders were paid immediately by cheque. Copies of some those cheques were produced at trial. [ 16 ] The first Change Order was signed on May 17, 2007.

It confirmed that the Arabskys agreed to pay $5,000.00 to “Have basement (foundation) done in Polycore System with 8” styrene wall with metal studs.”

[ 17 ] Over the course of the construction there were approximately sixteen

(16) Change Orders generated by Ivan’s. The majority of the Change Orders were agreed to, signed and paid by the Arabskys. There are a number of unsigned Change Orders in dispute. [ 18 ] In addition to additional work or changes that were addressed by way of Change Orders, the evidence discloses there were other changes or additions which the parties discussed. These changes appeared to be of a more minor nature which may, or may not, have been part of the Contract, but clearly did not warrant a Change Order as Ivan’s did not prepare Change Orders for these items.

The parties had some general discussion and decided that these other items would be addressed when construction was finished. [ 19 ] These items were described by Ivan’s as “additional items”. Ivan’s generated various summaries containing a list of the additional items.

The Arabsky’s were not involved in generating any of these lists and, as discussed later in this judgment, I find that there was never any agreement between the parties as to whether there was to be an extra charge for these items, or whether they were already included in the Construction Contract. [ 20 ] The Arabskys took possession of the house in September 2008 after signing a Certificate of Possession, dated September 24, 2008. Attached to this Certificate of Possession was an addendum listing deficiencies and work to be completed (“the deficiency list”).

There is considerable disagreement as to the validity or legitimacy of the deficiency list. [ 21 ] Prior to taking possession, a number of inspections were carried out: • On August 26, 2008, there was an inspection by the National Home Warranty Program, which confirmed that the construction conforms reasonably with the National Building Code and that construction was accepted subject to correction of infraction or deficiencies listed.

It listed a number of deficiencies. • On September 9, 2008 the Town of Beaumont certified that the work complied with the intent of the Safety Code Act and applicable regulations. • On September 9, 2008 Superior Safety Codes Inc. issued a Site Inspection Report noting no deficiencies and commenting on “temporary guards” on upper guard rail and on basement steps. • On September 11, 2008 the ATB Financial inspector confirmed that the house was complete and ready for occupancy. [ 22 ] Subsequent to taking possession, disputes developed between the parties as to what amounts (if any) were owing, what deficiencies were outstanding and as to whether the quality of the construction was adequate.

In December 2008 the Plaintiff filed a Builders’ Lien, claiming an amount of $120,661.50. [ 23 ] The evidence clearly established that the house contained several significant structural deficiencies and many instances of poor workmanship and sub quality finishing. Some, if not most, of these deficiencies were not discovered until after the Arabskys had taken possession of the house. Issues [ 24 ] The issues to be decided are: 1. What amounts, if any, are owed by the Arabskys to Ivan’s under the Construction Contract? 2. Did Ivan’s breach the Construction Contract? 3.

If Ivan’s breached the Construction Contract, what damages, if any, were suffered by the Arabskys? [ 25 ] This case turns to a large extent on the credibility of the parties. Prior to analysing the claims, it is useful to comment on the credibility of the witnesses. [ 26 ] Mr. Shulakewych was the employee of Ivan’s primarily responsible for preparing the paperwork, including the Change Orders. I find Mr. Shulakewych’s evidence to be self-serving and not believable. [ 27 ] This finding in relation to Mr. Shulakewych’s evidence is based on a number of statements he made at trial which bordered on the ridiculous.

For example, he maintained that certain items in the ATB Specifications were something other than what was plainly stated in the document. He claimed the item described as a “5% contingency factor” on page 3 of the ATB Specifications (totalling $26,000.00) was actually Ivan’s “administration fee and profit”. Similarly, he claimed items 12 and 13 on page 3 of the ATB Specifications described as “driveway, steps and sidewalks” (totalling $20,800.00) was actually also part of Ivan’s “administration fee and profit”. [ 28 ] Mr.

Shulakewych also maintained that the heading “Additional work at no cost ” (emphasis added) in a document that he prepared in March 2008 (which items Ivan’s claimed were provided for, but not paid for) does not actually mean “at no cost”, but rather meant that the Arabskys had agreed to be charged later (emphasis added). [ 29 ] This evidence is totally implausible and undermines his entire testimony. [ 30 ] In contrast, I found the evidence of the Arabskys to be straightforward and believable. Ivan’s submitted that Mrs. Arabsky

was not credible as her evidence at trial was inconsistent with her evidence at questioning. I have reviewed these alleged inconsistencies and am satisfied that they are not significant and arose from her lack of proficiency in English. I found her evidence to be logical and detailed. She was a credible witness. Consequently, where there is a dispute on the evidence, I prefer the evidence of the Arabskys. 1.

What amounts, if any, are owed by the Arabskys to Ivan’s under the Construction Contract? [ 31 ] The Arabskys have already paid Ivan’s $582,032.75 pursuant to the Construction Contract and some of the Change Orders. [ 32 ] The Plaintiff claims there is $123,124.50 still owing, broken down into the following categories:

a) Invoice 5(A) – GST $5,525.00

b) Invoice 5(B) – holdback $11,050.00

c) Change Orders 2, 3 and 4 $4,000.00

d) Change Order 5 – (Piles) $11,718.00

e) Balance of unpaid Change Orders $15,750.00

f) Change Order 10 – (Basement) $35,941.50

g) Change Order 15 (Vinyl) $7,140.00

h) Additional items $40,000.00 to $96,531.47

i) Marble and granite Invoice $1295.43 a/b) Invoice 5(

A) for GST and Invoice 5(

B) for holdback [ 33 ] These two amounts total $16,575.00. They are unpaid progress payments. They were required to be paid under the Construction Contract. Ivan’s has proven that this amount was not paid and is owing, subject to any reduction or set off arising from the claims advanced by the Arabskys.

c) Change Orders 2, 3 and 4 ($4,000.00) The Change Order process [ 34 ] I find that the parties established a process whereby additional work (or credits) could be added (or subtracted) to the Construction Contract by way of Change Orders. However, before the work was done, the final price had to be agreed upon. The Change Order would be initialed or signed by both parties. The amounts owing on the Change Orders would be paid separately from the payments under the Construction Contract. [ 35 ] I find there was no agreement (as suggested by Mr.

Shulakewych) to pay additional amounts at a later date (for example, an additional 10% or 20% mark up for “profit or administration”). The only amounts payable under “Change Orders” were the amounts set out on the signed and initialled Change Orders. [ 36 ] The Plaintiff claims there is a total amount outstanding of $4,000.00 on Change Orders 2, 3 and 4. I am satisfied there are no monies owing under these Change Orders. [ 37 ] Change Order No. 2 related to increasing the basement height from 8 feet to 9 feet.

The proposed price was $8,500.00, but the evidence satisfies me that the amount agreed for this work was $7,000.00 and this was paid. [ 38 ] Change Order No. 3 concerned installation of the geothermal heating system; and Change Order No. 4 related to a rubber roofing system. In each case, the evidence satisfies me that the Plaintiff proposed a price, there was some negotiation concerning that price, which resulted in a reduction. The Change Order was initialled to reflect the agreed upon price and in each case a cheque was paid for the agreed upon amount. In fact, cheques were given in blank and Mr.

Tkaczuk filled in the payee. The amounts claimed are not owing and the claims are dismissed.

d) Change Order 5 – (Piles $1,171.80) [ 39 ] There is an amount claimed for $1,171.80. The original amount shown on this Change Order was $11,339.00. The Arabskys paid $9,661.95 which was the amount to be paid on this Change Order and it was circled and initialled by the parties on the Change Order. Ivan’s claims the amount of $1,171.80. [ 40 ] I accept the background to this invoice as explained by Mrs. Arabsky. Ivan’s told the Arabskys they could recover money from the Town of Beaumont.

Ivan’s claimed that there had been an error by the Town of Beaumont in permitting Ivan’s to build the foundation when the soil conditions did not permit it. However the Town of Beaumont were not liable. It was Ivan’s that had made the mistake, not the Town of Beaumont. Therefore the parties agreed that the Arabskys would only pay for the cost of the piles being $9,661.95 and not the full amount of this invoice ($11,399.00). There are no additional monies owing under Change Order No. 5.

e) Balance of unpaid Change Orders (Other than Change Order 10 and 15) [ 41 ] These unpaid Change Orders total $15,750.00. They were signed by both parties. Ivan’s has proven that these amounts were not paid and are owing, subject to any reduction or set off arising from the claims advanced by the Arabsky’s.

f) Change Order 10 – (Basement $34,230.00) [ 42 ] This Change Order is not signed. Ivan’s allege that the Arabksys agreed to the work detailed in the Change Order and were aware that the work proceeded. [ 43 ] This claim is dismissed. Ivan’s has failed to prove that there was any agreement relating to the basement, or that it actually carried out the work for which it is seeking payment. In coming to that conclusion, I rely on the following evidence. [ 44 ] Firstly, the Change Order relating to the basement was not signed.

As noted previously, the agreement between the parties required Change Orders to be signed, or initialled, before the work was done.

The evidence I accept is that the parties consistently signed and initialled Change Orders for work that was not covered by the Construction Contract. [ 45 ] I accept the evidence of the Arabskys that this was the agreed process in place and that Ivan’s was not authorised to do any extra work until there was agreement both on the scope of the work and the cost of the work. [ 46 ] The large amount of money claimed ($34,230.00) is also of significance and supports the conclusion that there was no agreement in relation to this Change Order.

I note throughout the construction process that Change Orders were required and signed for much lesser amounts. [ 47 ] Secondly, the evidence of the Arabskys in relation to the basement work is more credible than that of Mr. Tkaczuk and Mr. Shulakewych. The Arabskys’ evidence is that there was some general discussion concerning upgrading the basement in the fall of 2007. [ 48 ] In early 2008, shortly after the Christmas holidays, Mr. Arabsky dropped by the house and found a man working there (Dr. Arkiyde). Dr. Arkiyde told him that he had been asked to work there by Mr. Tkaczuk. He was installing metal studs. Mr.

Arabsky asked Dr. Arkiyde to get Mr. Tkaczuk to contact him. Mr. Arabsky and Mr. Tkaczuk met the next day, discussed the basement and work on the basement ceased immediately. [ 49 ] Thirdly, under the Construction Contract Ivan’s was required to do some basic work in the basement as set out in the ATB Specifications. Ivan’s also constructed a temporary office/lunchroom and washroom for their own use. This was not part of the Construction Contract and provided no value to the Arabskys. I find that this was the only work done in the basement by Ivan’s. In addition, I note Mr.

Arabsky had to repair most of the work that had been done in the basement, including replacing metal studs, insulation and wiring. [ 50 ] In

summary, I conclude that the Arabskys did not agree to any work in the basement other than the work described in the Construction Contract. This claim is dismissed.

g) Change Order 15 (Vinyl $6,800.00) [ 51 ] This Change Order was signed and approved by the Arabskys. Ivan’s has proven that this amount was not paid and is owing, subject to any reduction or set off arising from the claims advanced by the Arabskys.

h) Additional items: ($40,000 to $96,531.47) [ 52 ] Ivan’s claims there were numerous other what it describes as “additional items” that were added to the house without a formal Change Order being issued. Ivan’s maintains that there were such a large number of changes being demanded by the Defendants that the parties agreed to ignore, or skip, the Change Order process and to sit down at the end of the construction and negotiate a reasonable amount for all of these additional items.

Ivan’s assumed it would get paid for some of these additional items, depending on how the negotiations went. [ 53 ] Ivan’s estimates the value of the “additional items” to be between $40,000.00 and $96,531.47.

They are listed in Exhibit 2, Tab 58: ITEM AMOUNT Cost of Plans $1,368.98 Design Costs $4,200.00 Cold Storage Construction zero Double Black Paper $500.00 OSB Changed Plywood $1,728.52 Additional Cost for Subs (10% plus 10%) $32,784.65 Hard Nine Concrete (Garage) $500.00 High Quality Fans $200.00 Upgrade Garage Doors $441.00 Carrying Charges $5,498.96 Accompaniment to Stores $1,000.00 Additional Cabinet Work $500.00 Storage Area above Cabinets and Library $400.00 Glass Handrails $925.44 Electrical $17,987.12 Plumbing $1,000.00

Concrete $23,196.80 Plastic Laminate Counter $400.00 Bench Cost $500.00 Greenboard/Gypsum Board $400.00 Miscellaneous $500.00 Cabinets (Staining) $2,500.00 [ 54 ] Ivan’s alleges that the Arabskys did not live up to their agreement to discuss and resolve payment for additional items. Ivan’s acknowledges that some of the specific amounts authored above were not agreed to, but allege that these are reasonable estimates of the costs actually incurred. These amounts are the value of the items added to the house over and above what was agreed to in the Construction Contract and the Change Orders.

Accordingly, Ivan’s suggest that the Court should award $40,000.00 for these additional items on a quantum meruit basis. [ 55 ] I find that Ivan’s have not proven that any of the amounts claimed as “Additional items” are owing. Ivan’s have not proven that the parties agreed that these items were to be paid for in addition to what was to be paid under the Construction Contract. Nor has Ivan’s proven that these items were actually “additional” to what was required under the Construction Contract. [ 56 ] I come to this conclusion for the following reasons:

a) The wording of the original document prepared by Mr. Shulakewych listing these additional items states clearly “additional work at no cost ” (emphasis added). The attempt to now suggest that this was work to be paid for is just not believable.

b) I accept the evidence of the Arabskys that they were never told that these items would be the subject of additional charges and understood that these items were already included in the Contract price. I also find that much of the work that is included in the list of additional items clearly forms part of the Construction Contract. For example: the cabinets (staining), the concrete, the electrical and the greenboard (part of bathroom) are all expressly, or implicitly, contained in the ATB Specifications and the House Plans.

c) Most of the items claimed were provided at the time when the Change Order process was being used requiring approvals and signatures. If these items were legitimate additions or changes (particularly in view of the amounts claimed), one would have expected Change Orders to have been generated by Ivan’s.

d) Many of the items claimed as “additional items” are not plausible. For example, the claim for “Additional Cost for Subs (10% plus 10%)” which results in a claim for a profit “markup” of $32,784.65 profit to be charged at the end of the Construction Contract. There is no evidence to support that this was agreed to. It is not in the Construction Contract and is not documented elsewhere. Another example is the charge of $1,000.00 for Mr. Tkaczuk accompanying Mrs. Arabsky to stores to pick materials.

Not only was it acknowledged by Ivan’s that this potential charge was never raised with the Arabskys but, in fact, Mrs. Arabsky went to stores at Mr. Tkaczuk’s request to save him the extra time that would be involved to bring samples to show the Arabskys. On another occasion Mr. Arabsky took time off work, rented a trailer and took Mr. Tkaczuk to stores to pick up supplies. [ 57 ] In

summary, Ivan’s claim for payment for these additional items is dismissed. i. Claim for allowances exceeded [ 58 ] The Plaintiff claims an amount of $12,533.27 under the heading “Allowances Exceeded”. The ATB Specifications had specific amounts designated for the following items such as floors, doors, windows and trim, light fixtures and fireplace. Ivan’s allege that the actual cost of each of these items exceeded the allowances in an amount of $12,533.27. [ 59 ] Ivan’s has proven that this amount was due under the Construction Contract and was not paid. I find that this amount is owing subject to any reduction or set off arising from the claims advanced by the Arabsky’s.

j) Marble and granite Invoice - $1,295.43 [ 60 ] This is a claim for materials that were incorporated into the house. This claim was not part of the original Statement of Claim, but was asserted at trial. Mrs. Arabsky testified that she reimbursed Mr. Tkaczuk directly for this amount. I note payments were made directly to Mr. Tkaczuk for other items. In view of the delay in advancing this claim and the incomplete documentation, I accept Mrs. Arabsky’s evidence on this item. Ivan’s claim is dismissed. 2. Did Ivan’s breach the Construction Contract? [ 61 ] The Arabskys allege breach of the Construction Contract.

They point to the undisputed structural deficiencies and allege many instances of poor workmanship and sub quality finishing. [ 62 ] The Construction Contract does not provide an express description of the standard of work, or quality of materials required. I find, however, that there was an implied term in the Construction Contract that the house would be built to a superior standard being that of a show home. This superior standard would include a higher quality of finishing. [ 63 ] I come to this conclusion for several reasons. Prior to the Construction Contract being signed Mr.

Tkaczuk showed the Arabskys a show home (the Ozerna Street Show Home) that Ivan’s had built. This show home was finished to a high standard. By doing so, Ivan’s represented that this was the standard of home the Arabskys could expect. In addition, after visiting a show home in Leduc, Mr. Tkaczuk told Mrs. Arabsky that their home that would be of a superior quality.

[ 64 ] I note also that the price charged by Ivan’s to build the house was substantially higher than the cost of a similar house across the street. The Arabskys were surprised by the price, but assumed the higher price was due to the fact that they would be getting a superior product. In the circumstances of the case, this was a reasonable assumption [ 65 ] For these same reasons, I also find there was an implied term that Ivan’s would perform its work in a good and workmanlike manner. In Viper Concrete 2000 Inc. v. Agon Developments Ltd. , 2009 ABQB 91 , A.C.J.

Wittmann (as he was then) discussed the concept of “good and workmanlike manner”. Starting at paragraph 30: Good and Workmanlike Manner [30] In construction contracts, there may be an implied term that a contractor will perform its work in a good and workmanlike manner. [31] In I. N.

Duncan Wallace, Hudson's Building and Engineering Contracts , 11 th ed. (London: Sweet&Maxwell, 1995) at 4-124, the principle was described as follows: In the absence of any special term or direction in the contract specifying the manner in which work is to be done, there is an implied condition in all contracts for work and labour that the described work will be carried out carefully and skilfully or, as it is sometimes expressed, in a good and workmanlike manner. [citations omitted] [32] The level of skill required to meet the standard of good and workmanlike manner was discussed by Stephen Furst and Vivian Ramsey in Keating on Building Contracts , 7 th ed. (London: Sweet&Maxwell, 2001) at 3-51: Implication of "usual" terms – contractor Workmanship.

The contractor must do the work with all proper skill and care. It is suggested that this is a continuing duty during construction and not only upon completion. In deciding what degree of skill is required the court will, it is submitted, consider all the circumstance of the contract including the degree of skill expressly or impliedly professed by the contractor. [citations omitted] [33] These principles and their applicability in Canada was summarized in Halsbury's Laws of Canada , 1 st ed., vol.

"Construction" (Markham: LexisNexis Canada, 2008) at HCU-52: There is an implied term in a construction contract that a contractor will perform its work diligently and in a good and workmanlike manner. Absent agreement to the contrary, a contractor need not build to a standard of perfection, but only in a good and "workmanlike" fashion.

The workmanship obligation requires care and skill in the physical execution of the specified work. [ 66 ] Did Ivan’s provide the quality of construction and finishing that was an implied term of the Construction Contract, or perform the work with the requisite skill and care to conclude that it was performed in a good and workmanlike manner? [ 67 ] Based on the evidence of the experts and the Arabskys, I am satisfied that the Defendants have proven that the Plaintiff breached the Construction Contract as follows: 1. The house was not constructed to the agreed upon standard of a show home. 2.

The work was not performed in a good and workmanlike manner. [ 68 ] Examples of these breaches include that the house was not constructed properly and/or according to the design. Structural deficiencies include the garage wall, the deck and the deck stairs. Other major deficiencies include the fact that the house was noticeably not built “square”, the clearly substandard kitchen cabinets and the failure to install a functioning heating system.

There is also uncompleted work and numerous other more minor, but aesthetically important, deficiencies [ 69 ] Another way to characterise this case is to use the analysis by Trussler J. in Mangion et al. v. Managen Project Management Ltd et al., supra . That case also involved construction of a house. The Court found that the owners did not receive what they bargained for. It is obvious that the Arabskys did not receive what they bargained for and, as a result, the Construction Contract was breached.

[ 70 ] In coming to these conclusions, I rely upon and accept the expert evidence and the evidence of the Arabskys. [ 71 ] The relevant expert evidence was provided by Dr. Yao (expert witness for the Arabskys) and Mr. Snihur (expert witness for Ivan’s), who were both qualified as experts with respect to structural analysis and structural engineering; and Mr. Brian Bodez (witness for the Arabskys), who was qualified as an expert with respect to building inspections, building construction deficiencies and municipal building inspections and requirements. [ 72 ] Dr. Yao identified three major structural problems. 1.

The north garage wall was not constructed as per the design; 2. The floor of the deck on the west side of the house slopes towards the house; and 3. The deck stairs were not constructed as per the requirements of the Alberta Building Code . 1. North garage wall not constructed as per design [ 73 ] Dr. Yao, testified that the wall was not built in accordance with the drawings. There was an overhang over the grade beam of one to three inches, resulting in the possibility that the wall is not properly anchored to the grade beam.

An examination has to be done to ensure it is properly anchored and repairs will need to be carried out based on what the examination reveals. [ 74 ] Mr. Sinhur and Mr. Bodez agree that the garage is not constructed correctly. Mr. Sinhur’s proposal to repair this problem by creating additional support for the garage wall was accepted by Dr. Yao, as long as the garage wall was also opened up to determine if additional anchoring was appropriate. The vertical anchoring is a separate issue from the lateral support that was being addressed in Mr. Sinhur’s report. [ 75 ] Mr.

Bodez noted that the general contractor would clearly have known that the garage wall was not being built properly. 2. The deck [ 76 ] Both Dr. Yao and Mr. Sinhur agreed that the deck on the west side is built incorrectly as it slopes towards the house. To remedy the problem, the deck must be lowered. Dr. Yao suggested that one way to fix the deck would be to lower the tele-posts. If they cannot be lowered mechanically, they would have to be lowered by cutting and removing a

section of the posts. Mr. Arabsky has examined the tele-posts and they have already been adjusted to their lowest point. [ 77 ] Dr. Yao noted that there were signs that the subfloor of the deck was deteriorating and if the current condition continued, water would cause more damage to the house and deck framing. He suggested this rotten deck subfloor be replaced. 3. The deck stairs [ 78 ] Dr. Yao testified that the deck stairs were not constructed as per the requirements of the Alberta Building Code . They will have to be reconstructed as per the Alberta Building Code requirements. Mr.

Sinhur also indicated that both stairs will have to be replaced with new stairs that conform to the Alberta Building Code requirements. [ 79 ] Dr. Yao also expressed concerns about the quality of the attic construction and suggests it should be examined to ensure proper vapour sealing insulation and ventilation.

Although not an expert in costing repairs, based on his experience and consultation with others, he estimated the cost of the repairs needed to remedy the structural problems would be in the range of $30,000.00 to $50,000.00 Other deficiencies, uncompleted work and work done in an unworkmanlike manner [ 80 ] Mr. Bodez was qualified as an expert with respect to building inspections, building construction, deficiencies and municipal inspections and requirements. He conducted an inspection at the Arabskys’ house on February 12, 2011.

He made observations on 36 items and concluded as follows: The condition of the dwelling is not considered to be in conformance with the minimum requirements of the Alberta Building Code , 1997, or current industry standards. A significant amount of work must be completed to eliminate unsafe conditions and provide the type and quality of home expected in the price range. The majority of the defects identified are the responsibility of the building contractor and will affect the short and long-term performance of the dwelling, leading to unexpected maintenance costs .

Proper supervision and quality control by the building contractor would have prevented the majority of the issues identified. We recommend you insist the above-mentioned conditions be corrected by qualified tradesmen in a timely and workmanlike manner (emphasis added). [ 81 ] Mr. Bodez listed 36 items of various degrees of seriousness of poor workmanship and made a number of observations, including the following: a. Lack of alignment of the wood framed garage wall. b. Front entry sidewalk stair and landing affected by frost heaving and settlement. c.

Visible cracks in the stucco finish on the front entry exterior wall. d. The rear wood framed wall of the home is visibly out of square in relation to the roof overhang and rear deck structures. Similar wall framing concerns and some poor workmanship were prevalent throughout the dwelling. Correction of these conditions would

involve removal and reconstruction of major structural components and is considered very costly. But if left as is, the value of the home will be adversely affected. e. Moisture stains and the potential for moisture damage were noted on the stucco finish in various locations. f. The stairs from ground level to both levels of the rear deck did not conform to the requirements of the Alberta Building Code and were considered unsafe. g. The frame for the rear sliding patio door to the deck is bowed and out of square, preventing the screen from closing and latching correctly and allowing the entry of insects. h.

Moisture stains were visible on the face of the metal soffits where the North exterior is boxed out for the main floor bedroom. i. Drywall installation and painted finishes were found to be below industry standards in numerous locations and on various interior finished components seen randomly throughout the dwelling. j. There are several obvious patches or defects visible in the high ceiling finish about the library area. The colour and texture of the ceilings between the main floor bathroom laundry room and the remainder of the dwelling are visibly inconsistent. k.

The finishing carpentry had defects and features considered below industry standards. l. The wood flooring on the second floor is installed over approximately ¼ inch thick eps foam substrate. The wood flooring inside the master bedroom is sloping towards the library. m. The vapour barrier was missing within the floor joist space in the master bedroom. n. The tile work within the home presented several concerns. Some tiles were slightly loose and some had a lack of grout. The stone tile and metal trim on the fireplace did not appear to be installed by a skilled tradesman.

There was poor grouting in the laundry and kitchen transition areas. o. The kitchen cabinet work in terms of workmanship and quality of materials is not considered equivalent to kitchens normally observed in new home construction. The most obvious defect is the poor quality staining and the failure to have a matching grain pattern on adjacent door panels. The method of staining is inconsistent between exterior and interior surfaces. The kitchen cabinets and related features are expected to negatively affect the market value of the home. p.

Mechanical deficiencies found included the en suite tub was loose and not in contact with the subfloor and an electrical connection in contravention of the Canadian Electrical Code. [ 82 ] The Arabskys also provided detailed evidence of deficiencies and problems with the construction. Photographs they took in the spring of 2009 showing the problems were presented at trial. These photographs showed poor workmanship and deficiencies and confirmed Mr.

Bodez’s expert opinion that the house contains numerous deficiencies that will require a significant amount of work not only to eliminate unsafe conditions, but to bring the house up to the standard that one would expect in this type of house and in this price range. [ 83 ] The obvious examples of poor workmanship and finishing displayed in the Arabsky’s photographs included: Bowed walls; bowed windows; bowed doors; uncompleted wood trim; inconsistent trim; poorly finished trim; paint and stain splatter; poorly finished painting; missed caulking; joints and transitions improperly filled with caulking; tile joints too large and filled with grout; improperly cut and placed tiles; improperly cut granite; different ceiling finishes; evident ceiling patch; doors cut too short; finishing trim cut too short; doors that do not seal; a hole cut in the main door and filled with wood filler; exterior door not finished; exterior lights not sealed; interior lights not centered; decking spindles not spaced properly; and very poor staining of custom woodwork. [ 84 ] There was also evidence of uncompleted work including:

a) The bedroom on the main floor has no shelves or desk as required;

b) The staircase on the main floor was not fixed;

c) The staircase on the lower level was not completed;

d) The closet on the main floor has no shelving or curtain rods;

e) Glass partitions in the shower were not installed; and

f) The dining room doors were not installed. The geothermal heating unit [ 85 ] The geothermal heating unit that Ivan’s installed pursuant to a Change Order never worked properly. Ultimately it had to be replaced with a boiler system at a cost of $21,000.00. [ 86 ] In addition to paying $17,000.00 for the geothermal heating unit, they also paid Fortris $4,448.82 to upgrade the electrical system to accommodate the geothermal system. [ 87 ] The evidence I accept is as follows:

a) That the system was not working when the Arabskys moved into the house. The installer (PCI) had to come and replace theelectrical components. While the system was running, it was never capable of heating the house. The highest temperature the systemcould reach was 16 degrees. Typically the house only got to a temperature of 13 degrees in winter. This resulted in the Arabskys havingto live (and sleep) in the dining room near the gas fireplace for a substantial period of time.

b) At some point PCI told the Arabskys there was nothing more they could do to fix the system.

c) The Arabskys hired a Third Party, Threshold Energies Corporation, to review the system. It advised that it would likely cost$30,000.00 to get the system up and running.

d) After two winters trying to make the system work, the Arabskys decided to purchase a high efficiency boiler for $21,000.00.

e) Although the Arabskys may have acknowledged at the time of possession in September 2008 that the geothermal unit was “okay”,it was at a time that they thought it was working, or was capable of being fixed. The reality was that over time the system proved to bedeficient and unfixable. I find that Ivan’s is responsible for this failure, as it was clearly an implied term of the Construction Contract thatIvan’s would supply a system that would work to heat the house in winter. This system never worked. [88] Ivan’s maintained that the system did work and that they are not responsible for the cost of replacing it.

The evidence doesnot support Ivan’s position. I find as a fact that the geothermal system was deficient and did not function properly to heat the house,resulting in the Arabskys having to replace the system. [89] In

summary Ivan’s contracted to build a house to a superior standard comparable to a show home. I conclude from thisevidence that Ivan’s has clearly failed to do so. Ivan’s also failed to perform the work in a good and workmanlike manner. In addition tothe structural problems that are not in dispute, the quality of workmanship and finishing is below the standard that was contracted for andconstitutes a substantial breach of the Construction Contract.

The Significance of the Certificate of Possession and the various Inspection Reports [90] Ivan’s points to the Certificate of Possession signed by the Arabskys in September 2008 and the various Inspection Reports tosuggest that either the alleged problems with the house are not credible, or not as serious as alleged, or that Ivan’s liability or obligationunder the Construction Contract is reduced or eliminated. [91] I do not accept these arguments for a number of reasons. [92] Firstly, the structural problems and many of the deficiencies were not apparent or observable at the time the Certificate ofPossession was signed and, in fact, it was only after the Arabskys moved into the house the problems became apparent. [93] Secondly, I attach no weight to the “addendum of deficiencies” attached to the Certificate of Possession as I accept theevidence of the Arabskys that this was not the deficiency list that had been prepared and initialled by all parties when they did their“walk through” in September 2008.

That original list was in Ivan’s possession and has never been produced. [94] Thirdly, the various Inspection Reports do not address the structural problems and the numerous deficiencies that are thesubject matter of this action. Two of the reports (Town of Beaumont and Superior Safety Codes Inc.) are focused on safety issues andcompliance with safety regulations. The other two (National Home Warranty Program and ATB Financial) essentially just confirm thatthe house is ready to be occupied.

These reports do not shield Ivan’s from their contractual obligations or limit their liability, particularlyin view of the fact that many of the problems were only observed or developed after the Arabskys took possession 3) If Ivan’s breached the Construction Contract what damages, if any, weresuffered by the Arabskys [95] The Arabskys have proven that Ivan’s breached the Construction Contract. The next step is to assess what damages, if any,arise from the breach. [96] A useful

summary of the law concerning damages in these types of cases is set out in Viper Concrete 2000 Inc. v. AgonDevelopments Ltd., supra. Beginning at para. 50, Associate Chief Justice Wittmann (as he then was) stated: 50 The principle behind damages for breach of contract was set out by Laskin, J. in Red Deer College v.

Michaels, (SCC), [1976] 2 S.C.R. 324 at p. 330: o The primary rule in breach of contract cases [is] that a wronged plaintiff is entitled to be put in as good a position as he would havebeen in if there had been proper performance by the defendant ... 51 Thus, prima facie, Agon is entitled to have Concrete Work which enhances the aesthetics of the Property by its having been done ina good and workmanlike manner. 52 The measure of damages to be awarded is a question of fact in every case. See: G.H.L.

Fridman, The Law of Contract in Canada,5th ed. (Toronto: Thomson Carswell, 2006) at p. 759. 53 The onus is on the plaintiff to prove its damages on a reasonable preponderance of credible evidence. (See: 100 Main Street EastLtd. v. W.B. Sullivan Construction Ltd. (1978), (ON CA), 20 O.R. (2d) 401 (C.A.) at p. 422). The damages need not,however, be proven with mathematical accuracy. The Supreme Court of Canada emphasized this point in Penvidic Contracting Co.Limited v. International Nickel Co. of Canada Limited, (SCC), [1976] 1 S.C.R. 267 at p. 279-280, citing its earlierpronouncement of the same principle:

o When Wood v.

Grand Valley Railway Company, supra, reached the Supreme Court of Canada, judgment was given by Davies J. andwas reported in (SCC), 51 S.C.R. 283, where the learned justice said at p. 289: ▪ It was clearly impossible under the facts of that case to estimate with anything approaching to mathematical accuracy the damagessustained by the plaintiffs, but it seems to me to be clearly laid down there by the learned judges that such an impossibility cannot"relieve the wrongdoer of the necessity of paying damages for his breach of contract" and that on the other hand the tribunal to estimatethem whether jury or judge must under such circumstances do "the best it can" and its conclusion will not be set aside even if the amountof the verdict is a matter of guess work. [emphasis in original] 54 In Penvidic, the Supreme Court was considering a contract for laying a railway track.

The owner breached the contract by failing toprovide road beds that were properly graded and subbalasted and did not provide for hydro and railway crossings.

Although the Courtnoted that the trial judge found "the evidence was not as helpful as one would have expected and more records giving more particulars ofwhen and where different types of work were being done would have been very useful" (at p. 277), the Court nonetheless upheld the trialjudge's assessment of the damages based on the evidence that was before him, even though they were "fragmentary and probably mereestimations" (at p. 280). 55 The current state of the law was summarized by S.M.

Waddams in The Law of Damages, looseleaf (Toronto: Canada Law Book,2008) at para. 13.30: o In Anglo-Canadian law ... the courts have consistently held that if the plaintiff establishes that a loss has probably been suffered, thedifficulty of determining the amount of it can never excuse the wrongdoer from paying damages.

If the amount is difficult to estimate,the tribunal must simply do its best on the material available, though of course if the plaintiff has not adduced evidence that might havebeen expected to be adduced if the claim were sound, the omission will tell against the plaintiff.[citations omitted] Reasonableness of Costs of Removal and Replacement 56 The Supreme Court of Canada in Miller v. Advanced Farming Systems Limited, (SCC), [1969] S.C.R. 845 set outthe general test for calculating damages when substantial deficiencies are found in contracted work. The Court was considering acontract for concrete work.

The strength of the concrete was below specifications, the porosity of the concrete floors was too high, andthe finish on the concrete floors was inadequate. The Court awarded the cost of making good the deficiencies. The Court held at p. 848: o The correct measure of damage in a case such as the present one was stated by Lord Denning in Hoenig v. Isaacs [[1952] 2 All. E.R.176 at 181] where from the principles laid down in H. Dakin & Co., Ltd. v.

Lee [[1916] 1 K.B. 566] 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 costof making them good. Quantification of damages [97] Ivan’s essentially acknowledged that there were structural problems and other deficiencies, but assessed the value of thedeficiencies at an amount substantially less than the Arabskys. This court is required to come to a decision on the basis of the evidencepresented. [98] One of Ivan’s experts, Mr.

Norman Lux, is a Quantity Surveyor and was qualified as an expert in the evaluation ofdeficiencies. In his report he evaluated the cost to repair the 36 deficiencies he identified to be about $14,900.00. This included the deck($2,000.00) and the garage wall ($2,400.00). [99] I attach little weight to Mr. Lux’s evidence in relation to his estimate to repair the garage wall as he did not appear to take intoaccount the extent of the problems identified by Dr. Yao. When faced with this evidence he quickly readjusted his estimate from $2,400to $5000-6000.00. [100] Mr.

Lux’s assessment of the seriousness of other deficiencies was significantly different from that of Mr. Boddez. Mr. Lux’sestimates of the cost to repair these other deficiencies appeared unreasonably low. For example, his estimate to remedy the many areasthat needed repainting was $500.00, but acknowledged that it would cost $7,500.00 to paint the whole house. He attributed no value toobvious ceiling deficiencies, or the cost to repair the stairs.

He appeared to minimise obvious problems with the kitchen cabinets, despiteacknowledging the low quality of the staining and that doors might have to be replaced. [101] As a consequence, I consider Mr. Lux’s estimates as to the cost to rectify the deficiencies to be at best low or minimumestimates. Cost to repair the Structural problems (garage wall and back sloping deck) [102] The work needed to fix the structural problems is significant and the cost is likely to be substantial. The area under the deck willhave to be opened up and the tele-posts will have to be cut.

The deck area may have rotten wood that needs to be replaced. The garagewill need to be reinforced vertically in one of the ways described by Mr. Sinhar. In addition, as observed by Dr. Yao, the garage wall willalso have to be opened to determine if additional work is needed to secure the wall to the grade beam and to complete that work. [103] For the reasons mentioned, I do not accept the cost estimates of Mr. Lux. The best evidence of the potential cost to rectify thestructural problems relating to the garage and deck was provided by Dr. Yao.

While he acknowledged that he is not an expert on costing,he has been involved in over 500 failure analyses in his employment and has an understanding of the cost of work necessary to addressthese problems. His initial estimate was that the cost would be between $30,000.00 and $50,000.00. He reviewed these cost assumptions

with what he described as a company qualified to make the calculations and received an estimate of $40,000.00. I am going to accept thelower end of Dr. Yao’s range and set the damages for repairing the structural problems of the garage wall and sloping deck at$30,000.00. Finishing problems (not including the cabinets) and uncompleted work [104] The evidence of Mr. Boddez and the Arabskys convinces me that there is a substantial amount of repair required to bring thehouse up to an appropriate standard. Mr.

Arabsky provided evidence that he had obtained quotes from five or six companies to do thiswork, including a quote for $63,450.00, plus GST. [105] I find the Arabskys’ evidence as to the cost to repair these items was not that helpful. It did not convince me it will cost$63,450.00. In the absence of better evidence, I am left with the estimates in Mr. Lux’s report as a rough guide of the cost to repair theseother items. I begin with his estimate of about $10,000.00 for deficiencies (not including the garage and deck).

Since I consider hisestimates to be unrealistically low, and since he awarded zero for some categories, it is necessary to increase this amount. I award theamount of $20,000.00 for the finishing problems and uncompleted work. Replacement of the kitchen cabinets [106] The evidence of Mr. Boddez, the Arabskys (and Mr. Lux), have established that the kitchen cabinets are clearly substandard interms of workmanship and quality of materials. They are clearly not of the quality one would expect in a show home.

They cannot berepaired or upgraded. [107] The Arabskys received a detailed estimate from a cabinet company of $39,767.00 to remove the existing cabinets, replace thecabinets and patch any wall damage. I accept this evidence as credible and award the amount of $39,767.70. Geothermal system [108] The Arabskys paid $17,000.00 for a geothermal system and $4,448.82 to Fortis to upgrade the electrical system for thegeothermal system.

While the geothermal system operated, it never worked properly or performed its basic function of heating the house.After two (2) years of trying to get it repaired, the Arabskys spent $21,000.00 for a boiler system. Based on the evidence, this was areasonable course of action and they are entitled to be reimbursed for these expenditures. [109] In

summary, the Arabskys contracted and paid for a functioning heating system; Ivan’s did not supply a functioning heatingsystem. I award the amount of $42,448.82 to cover the cost of the original system and the cost to replace it with a heating system thatworked. General damages [110] The Arabskys are seeking general damages for other deficiencies where the cost of rectification is great in comparison to thenature or effect of the defect. The main deficiency in this category is the fact that the house was not built square. Mr.

Boddez in hisreport noted that he found similar problems with the wall framing throughout the house and it was his opinion that the value of the homeis adversely affected. To address this issue would require the reconstruction of the whole house. [111] In Viper Concrete 2000 Inc. v. Agon Developments Ltd., supra, Associate Chief Justice Wittmann (as he then was) addressedthe issue of rectification. Beginning at para. 58: 58 The Alberta Court of Appeal in Nu-West Homes Ltd. v. Thunderbird Petroleums Ltd. (1975), (AB CA), 59D.L.R. (3d) 292 (Alta.

C.A.), considered the Supreme Court's discussion in Miller and added at p. 307: It is, of course, obvious that there must be a restriction on such a rule. This restriction is that where the cost of rectification is great incomparison to the nature of the defect, the Court will not force a slavish following of the precise specifications of the contract. 59 The Court of Appeal cited with approval the discussion by the New York Court of Appeal in Jacobs and Young Inc. v. Kent 129N.E. 889 (N.Y. 1921) at p. 891: It is true that in most cases the cost of replacement is the measure. Spence v. Ham, supra.

The owner is entitled to the money which willpermit him to complete, unless the cost of completion is grossly and unfairly out of proportion to the good to be attained. [112] I agree with counsel for the Arabskys that since rectification is not practical, general damages should be awarded. TheArabskys are seeking general damages of $30,000.00. [113] In the Alberta Court of Appeal in Nu-West Homes Ltd. v. Thunderbird Petroleums Ltd. (1975), (AB CA),59 D.L.R. (3d) 292 (Alta. C.

A) the Court awarded $2,500.00 in general damages for a number of deficiencies that were not quantified orquantifiable, including items such as steel left out of the basement walls, improper engineering etc. [114] In this case, as noted by Mr. Boddez, the house is “visibly out of square”. I find that this deficiency is not minor but, in fact,reduces the value of the house and could negatively impact its future resale value. I award $20,000.00 in general damages to compensatefor that reduced value. [115] In

summary, I award the following damages to the Arabskys for breach of the Construction Contract:

Structural problems (garage wall and back sloping deck) $30,000.00 Finishing problems generally and uncompleted work $20,000.00 Replacement of cabinets $39,767.70 Replacement of geothermal heating system $42,448.82 General damages $20,000.00 TOTAL $152,216.52 [ 116 ] Ivan’s can set off against this award the amount of $44,858.27 consisting of the following: The amounts unpaid under Invoice 5A and Invoice 5B $5,525.00 $11,050.00 The amount for allowances exceeded $12,533.27 The amounts of the Signed but unpaid Change Orders (other than Change Order 10) $15,750.00 TOTAL SET OFF $44,858.27 [ 117 ] Ivan’s claim for the cost of vinyl on the deck ($6,800.00) is disallowed.

The wood on the deck is rotting and the vinyl will have to be replaced.

Summary [ 118 ] In

summary, I find that Ivan’s breached the Construction Contract and I award the Arabskys damages in the amount of $107,358.25. [ 119 ] If the parties cannot agree on costs they can speak to them in due course. Heard on the 29 th of September to the 3 rd day of October, 2014. Written submissions on October 14 th and 21 st , 2014 Dated at the City of Edmonton, Alberta this 26 th day of November, 2014 . J.J. Gill J.C.Q.B.A. Appearances: Mr. Nestor Makuch (Wheatley Sadownik) for the Plaintiff Mr. Todd A. Shipley (Reynolds, Mirth, Richards & Farmer LLP) for the Defendants