Swanby v Tru-Square Homes Ltd, 2016 ABQB 731

Court of Queen’s Bench of Alberta Citation: Swanby v Tru-Square Homes Ltd, 2016 ABQB 731 Date: 20161221 Docket: 1301 10836 Registry: Calgary Between: Craig Swanby and Georgina Swanby Plaintiffs - and - Tru-Square Homes Ltd., James Frederick Metcalfe, and Joyce Shirley Metcalfe Defendants Corrected judgment: A corrigendum was issued on February 8, 2018; the corrections have been made to the text and the corrigendum is appended to this judgment. _______________________________________________________ Reasons for Judgment of J.T. Prowse , Q.C.

Master in Chambers _______________________________________________________ [ 1 ] The plaintiffs (the “Swanbys”) retained the defendant Tru-Square Homes Ltd. to build a new family home on a country residential lot west of Carstairs, Alberta. [ 2 ] As a result of numerous construction deficiencies, the Swanbys commenced this action for damages against Tru-Square and its principal James Metcalfe. [ 3 ] Pre-trial steps are complete and a trial date has been set for April of 2019.

Metcalfe says that, while the claim against Tru- Square may need to proceed to trial (Tru-Square denies liability), it is clear that he has no personal liability, so he applies for pre-trial

summary dismissal of the action against him. [4] For the reasons which follow I decline to summarily dismiss the action against Metcalfe. Allegations against Metcalfe in the amended statement of claim [5] The Swanbys’ amended statement of claim alleges that: (

i) Metcalfe was the sole director and majority shareholder of Tru​Square, and was the directing mind of Tru-Square; (ii) Metcalfe advised the Swanbys that he was an experienced and capable general contractor with an extensive background in theconstruction of custom homes. (iii) the Swanbys placed complete reliance on Metcalfe and Tru-Square to use sound construction methods; (iv) the construction work done by Tru-Square and Metcalfe failed to meet the requirements of the building contracts or the standards of a reasonably competent builder, resulting in the home being uninhabitable. (

v) exterior stone work was not installed properly creating a risk of stone dislodging and falling from a significant height; (vi) electrical wiring was improperly mechanically protected behind a fireplace, creating a fire and shock hazard; (vii) inadequate or incorrect framing in the walk-out basement exterior walls resulted in a substantial deflection in the beam spanwhich rendered the home unsafe and uninhabitable; (viii) as a result of the deficiencies, the Swanbys’ home was unsafe and not fit for habitation. (ix) Metcalfe knowingly and surreptitiously using sub-standard materials and construction methods and breached his fiduciary dutiesto the Swanbys; (xii) Metcalfe engaged in a fraudulent effort to cover up the deficiencies by dry-walling over or otherwise obscuring and concealingimproper work.

He deliberately misrepresented the state of the project, assuring the Swanbys that the foundations, flooring, roof,framing, and other building components had been built properly so as to induce the Swanbys to make progress payments, and to avoidTru-Square’s obligation to correct the deficiencies. (xiii) the deficiencies are so numerous and pervasive throughout the entire house they could not be the result of error, negligence orincompetence but can only be the result of a deliberate plan to deviate from the building contract and to obtain the Swanbys’ fundswithout providing value. (xiv) the deficiencies breached the building contracts and relevant building codes and regulations, and, by failing to correct thesedeficiencies, Tru-Square and Metcalfe acted negligently and, furthermore, by concealing the deficiencies, they acted fraudulently.

The construction contracts [6] The Swanbys entered into three written contracts with Tru-Square for construction of the house. [7] The first of the three contracts with Tru-Square provided for construction of the house up to the stage of "lock-up", orthrough to the installation of interior drywall albeit excluding most interior finishings and certain external elements, for a total contractprice of $692,485.50. [8] The second contract with Tru-Square was nearly identical in nature.

It provided that the full cost of the completed housewould be $1,062,348.00. [9] These first two contracts were perfunctory. [10] The third contract with Tru-Square was a more standard form of construction agreement prepared by the Alberta New HomeWarranty Program. It provided for complete construction of the house through to possession for a total contract price of $1,062,348.00.

Conflicting evidence as to the construction deficiencies [11] A great deal of the affidavits and written arguments consist of contradictory factual assertions by the parties, even as towhether or not Tru-Square was acting as a general contractor. [12] Sorting out the facts after reviewing conflicting evidence is a function to be fulfilled by a trial judge. It is not something whichcan be resolved in chambers. [13] On a

summary judgment application, such as this application by Metcalfe, the standard approach is to accept the evidence ofthe non-moving party (the Swanbys) as being true for the purpose of the application: Clarke v Connell, (AB KB),1997 CarswellAlta 513, 10 C.P.C. (4th) 276 (Alta. Q.B.), at para 4; Goodfellow v Woody’s Hardwood Flooring Ltd., 2003 ABQB 162(Alta. Q.B.) at paras 20-21; Peters v Wilson Estate, 2011 ABQB 665 (Alta. Q.B.) at paras 6-7; Sherwood Steel Ltd. v OdysseyConstruction Inc., 2014 CarswellAlta 1750, 2014 ABCA 320 (Alta.

C.A.), at para 8; and 776826 Alberta Ltd. v Ostrowercha, 2015CarswellAlta 155, 2015 ABCA 49 (Alta. C.A.) at para 10. [14] Consequently, for the remainder of these reasons, I will accept the factual assertions of the Swanbys for the purpose of thisapplication.

Evidence as to construction deficiencies [ 15 ] The Swanbys say that Metcalfe led them to understand that construction was proceeding without any major problems through to May 2013, approximately three weeks prior to anticipated completion, when they discovered that the windows were leaking. This led to their discovery of numerous and significant deficiencies in the work. [ 16 ] Tru-Square disclaimed all responsibility for the leaking windows, and refused to take any remedial action.

It abandoned its contracts with the Swanbys after May 2013. [ 17 ] As of November 2015, the cost of remediation work undertaken to correct deficiencies in the work totalled $606,816.56 including GST, with some further remediation still required. [ 18 ] The Swanbys allege that some of the construction did not meet minimum requirements of the Alberta Building Code and posed a danger to occupants. [ 19 ] Following is a brief

summary of some of the evidence regarding deficiencies. (

i) The concrete foundation [ 20 ] The foundation was out of square by 3" (somewhat ironic given the name of the corporate defendant) which led to considerable difficulties with the framing work. [ 21 ] Tru-Square used architectural drawings providing for ICF forms to construct conventional (non-ICF) formed concrete walls.

This led to significant errors in framing of the house, such that the concentrated weight of the house structure was not adequately transferred to or supported by the foundation. [ 22 ] There is evidence that Metcalfe’s subcontractor brought the offset foundation to Metcalfe's attention when framing commenced in the fall of 2011 and suggested the foundation be repaired, but Metcalfe simply told him to "work with it”. [ 23 ] Metcalfe acknowledged that the foundation was out of square during questioning and suggested that “the cribbers must have used the wrong measurements somewhere there”.

He indicated that he had measured the foundation himself and was aware that “it was off”. At no time prior to abandoning the job did he disclose this to the Swanbys, and in fact he represented to the Swanbys that the foundations were good. (ii) Framing [ 24 ] Rather than repair the foundation as recommended by his subcontractor, Metcalfe directed his sub-contractor to frame the stud walls by affixing a piece of 2x4 dimensional lumber to the wood ladder framing cast so the walls would align with the offset foundation.

The 2x4 affixed to the wood ladder is unsupported by the foundation and therefore inadequate to disperse and support the weight of the house. [ 25 ] Tru-Square’s subcontractor framed the base of the perimeter walls by installing a layer of oriented strand board (OSB) material between the underside of the framed stud wall and the top of the concrete foundation walls. OSB materials are highly sensitive to and rapidly deteriorate when exposed to moisture and, accordingly, are not permitted to be installed in contact with concrete.

Metcalfe acknowledged during questioning that he had observed the wall framing during construction, and was aware that it was non-compliant with the Alberta Building Code. [ 26 ] A header beam installed above the walkout doors in the east wall of the basement displayed significant downward deflection, suggesting that it was inadequate to support the load above it. During questioning, Metcalfe confirmed that he had been made aware of deflection in the beam during construction "because there was something sliding on the door incorrectly". Metcalfe confirmed that nothing was done to correct it.

This defect in construction was concealed beneath the drywall and not disclosed to the Swanbys. (iii) kitchen flooring system [ 27 ] The architectural design plan provided for an upgraded flooring system (12” spacing) to accommodate the weight of decorative stone, granite countertops and two large granite islands in the main floor kitchen. [ 28 ] The as-constructed floor joist spacing (16”) was greater than the spacing identified on the plan and this undermined the integrity of the flooring system given the significant weight of the granite installations in the kitchen, resulting in an undesirable vibration response of the floor. (iv) Concrete piles [ 29 ] Concrete piles were to be excavated to a depth of 8 feet to support load-bearing posts or columns beneath the exterior deck of the house. [ 30 ] A number of the piles near the southeast

section of the deck were found to be only approximately 40" deep in unstable ground. [ 31 ] In many cases, the load-bearing posts were not centred on the piles and at least one post was sitting on the over-pour of concrete and not on the pile itself. [ 32 ] During questioning, Metcalfe confirmed that he had personally poured all of the concrete piles which he understood were required "to be a minimum 4 feet". Having personally poured the concrete piles, Metcalfe would have been aware that a number of the

piles were not excavated to the minimum depth required by the Code and that the deck posts were not centered on the piles. [33] After the deck had been framed, the plaintiffs noticed that it appeared to be leaning and pulling the step away from the houseand they brought this to Metcalfe's attention.

Metcalfe attempted to fix this by putting a 2x2 block underneath the step in disturbed soil. [34] Instead of performing a proper inspection or investigation to identify why the deck was pulling away from the house,Metcalfe simply placed the block beneath the bottom step (which ultimately washed away with the topsoil in the rain) and completed thedeck construction by installing the rest of the top decking material. (

v) Window leaks [35] The Swanbys state that, on May 23, 2013, they got a call from the contractor installing hardwood floors. It had been raining,and the windows were leaking in various areas of the house and there was significant water in the house. [36] The Swanbys received an opinion that the cause of the leaking was improper installation, which had been done by Metcalfe’ssubcontractor, but Metcalfe refused to accept responsibility. Issues which may lead to the personal liability of Metcalfe [37] The evidence adduced on this

summary judgment application persuades me that the Swanbys have an arguable position thatMetcalfe is personally liable to them on one or more of the following grounds. (

i) deficiencies resulting in dangerous premises [38] Some of the construction work arguably resulted in deficiencies which were dangerous and could result in injury to people.For example, there is evidence that there were numerous deficiencies in the deck construction causing it to be unstable and representing asignificant safety hazard. Depending on the particulars, Mr. Metcalfe could be held responsible, either because he personally performedthe work or because he failed to supervise the work done by Tru-Square’s subcontractors. [39] As indicated, Mr.

Metcalfe personally poured the concrete piles, which were supposed to support the deck, to an inadequatedepth. This led to them being in a dangerous condition, subject to collapse and personal injury. [40] There is evidence that electrical wiring was installed behind the fireplace too close to the heat source, leading to a risk of afire or electrical shock. [41] Mr. Metcalfe was aware during the construction of the deflection in the header beam installed above the walkout doors on theeast wall, but again did not mention it to the Swanbys or do anything about it.

This issue was not apparent because it was, in the ordinarycourse, drywalled over. [42] The exterior stonework was installed in a negligent fashion by Tru-Square’s sub-contractor, leading to a potential for a stoneto dislodge and cause personal injury. [43] A party does not have to wait until injury occurs to claim damages in negligence for repair costs against parties who may beresponsible, such as Metcalfe: Winnipeg Condominium Corp.

No. 36 v Bird Construction Co., (SCC), 1995CarswellMan 249, [1995] 1 S.C.R. 85, [1995] 3 W.W.R. 85. (ii) billing for work not done [44] It is one thing to submit progress payments for work done, even if the work turns out to be deficient, it is another whenprogress payments bill for work which was never done (as opposed to being done poorly). An example is the billing for insulation,which was never done and the absence of which was, due to drywalling over, not ascertainable. This may well constitute civil fraud forwhich Metcalfe may be personally liable.

See Sturrock v Ancona Petroleums Ltd., (AB KB), 1990 CarswellAlta132, 111 A.R. 86, 75 Alta. L.R. (2d) 216 for an example of a case where dishonest acts ostensibly by a corporation were grounds forpersonal judgment against the controlling mind of the corporation. (iii) no intention to provide the services in question [45] There is an arguable case, which ought to be taken to trial, that the facts in this case go beyond mere “shoddy” construction. Itis arguable that the whole job was so poorly done that Metcalfe never had a bona fide intent to provide the Swanbys the building forwhich they were paying.

The Swanbys have an arguable position that this occurred and would result in personal liability to Metcalfe (iv) misrepresentations as to qualifications [46] It is arguable that the job was so poorly done that Metcalfe’s assertions of his expertise and ability to carry out the project arearguably a pre-contractual fraudulent representation for which he is personally liable. (

v) bad faith inducing a breach of contract [47] There is evidence which could support the conclusion that Metcalfe was providing assurances that the work was going welland the house was being built in accordance with the plans. In retrospect, it is arguable that these assurances were at a minimum beingrecklessly made. It is arguable that he was deliberately misrepresenting the state of the project, assuring the Swanbys that thefoundations, flooring, roof, framing, and other building components had been built properly, so as to induce the Swanbys to make

progress payments, and to avoid the obligation to correct the deficiencies. [ 48 ] This gives the Swanby an arguable position that Metcalfe is personally liable to them for inducement of Tru-Square’s contract with the Swanbys. See Micro-Watt Control Devices Ltd. v Krohne Inc. , 2012 ABQB 503 , 2012 CarswellAlta 1490 which recognizes that knowingly inducing a breach is a separate cause of action from breaching the contract itself, and may ground a claim against a controlling shareholder for bad faith breach of the corporation’s contract.

Conclusion [ 49 ] Metcalfe will undoubtedly be disappointed with these reasons. He has put forward evidence contrary to the assertions made against him by the Swanbys, and during argument his counsel repeatedly referred to that contrary evidence. [ 50 ] When the matter comes to trial Metcalfe’s version of events may end up being accepted. But that is not the process we are involved in here. Metcalfe must accept the factual assertions of the Swanbys and argue that, even if they are true, the action against him should be dismissed. [ 51 ] In this

summary judgment application Metcalfe bears the burden of showing that, even accepting the Swanbys’evidence, his defences to personal liability are ‘unassailable’, meaning highly likely to succeed: Ghost Rider Farms Inc. v Boyd Distributors Inc. , 2016 ABCA 331 , 2016 CarswellAlta 2044 at para. 10 . [ 52 ] Metcalfe has failed to satisfy this evidentiary burden and accordingly I decline to allow his

summary dismissal application. [ 53 ] If the parties cannot agree on the costs of this application within 30 days then they are to arrange for a date to make submissions before me in that regard. Heard on the 29 th day of June and the 30 th day of November, 2016. Dated at the City of Calgary, Alberta this 21st day of December, 2016. J.T. Prowse, Q.C. M.C.C.Q.B.A. Appearances: Chad Babiuk and Ben Frenken Code Hunter LLP for the Plaintiffs Michael D. Keyes and Kelsey L. Lavery Warren Sinclair LLP for the Defendants _______________________________________________________ Corrigendum of the Reasons for Judgment

of J.T. Prowse Q.C. Master in Chambers _______________________________________________________ Paragraph numbers have been corrected.