Marcus Contracting Limited Plaintiff And: Team Mechanical Construction Limited Defendant And: Viking Fire Protection Inc. First Third Party And: The Dominion of Canada General Insurance Company Second Third Party And: Lloyd's Underwriters Third Third Party, 2018 NLSC 54

court crest IN THE SUPREME COURT OF NEWFOUNDLAND AND LABRADOR GENERAL DIVISION Citation : Marcus Contracting Limited v. Team Mechanical Construction Limited , 2018 NLSC 54 Date : March 13, 2018 Docket : 201301G0431 Between: Marcus Contracting Limited Plaintiff And: Team Mechanical Construction Limited Defendant And: Viking Fire Protection Inc. First Third Party And: The Dominion of Canada General Insurance Company Second Third Party And: Lloyd's Underwriters Third Third Party Before: Justice Gillian D. Butler Place of Hearing: St. John’s, Newfoundland and Labrador Date of Hearing: February 8, 2018

Summary: Application for

summary trial pursuant to Rule 17A. Held: The threshold test was met by the Plaintiff and, on conclusion of the

Summary Trial, the Court was able to make a fair and justdetermination of the issues. Appearances: F. Geoffrey Aylward, Q.C. Appearing on behalf of the Plaintiff Robert B. Andrews, Q.C. Appearing on behalf of the Defendant Jorge Segovia Appearing on behalf of the First and Third Third Party Bridget S. Daley Appearing on behalf of the Second Third Party Authorities Cited: CASES CONSIDERED: Dalley v. Northern Arm (Town), 2016 NLTD(G) 68; Marco v. Newfoundland Processing Ltd. (NL SC), 1995, 130 Nfld. & P.E.I.R. 317, 405 A.P.R. 317 (Nfld.

S.C.T.D.) RULES CONSIDERED: Rules of the Supreme Court, 1986, S.N.L. 1986, c. 42, Sch D, Rule 38 REASONS FOR JUDGMENT Butler, J.: facts [1] The Defendant (“Team Mechanical”) had a contract with Eastern Health to renovate a de-ionized water treatment system atthree sites, one of which was the Health Sciences Centre at St. John’s. The Defendant subcontracted the sprinkler system modification

portion of the contract to the First Third Party (“Viking”). [ 2 ] Team Mechanical was obliged by the terms of its contract with Eastern Health to obtain builder’s risk and commercial general insurance. The Second Third Party (“Dominion”) is the insurance company that provided the insurance coverage under two separate policies. The Builder’s Risk Policy (CCP 8432291) was in effect from March 14, 2011 to August 14, 2012 and the Commercial General Liability Policy (CCP 8428117) was in effect from February 3, 2011 to February 3, 2012. Hereinafter, I refer to the insurance coverage as the “Policy”. [ 3 ] On or about September 1, 2011, a flood resulted when a

section of piping from the sprinkler system became unglued. [ 4 ] Marcus Contracting Limited (“Marcus”) is a specialist contractor in the area of disaster response remediation services. Between September 1 and September 29, 2011, it did, on the request of the Defendant, provide remediation services on an emergency basis in response to the flood created. [ 5 ] On this request for

Summary Trial, Marcus seeks an order that Team Mechanical pay it the sum of $153,017.19 (being the invoiced amount of $193,017.19 less a payment of $40,000.00 received on November 14, 2011), plus pre and post judgment interest and costs. [ 6 ] While this action is a simple claim for monies allegedly due under the terms of an agreement between the Plaintiff and the Defendant for the remedial services, there are three other related actions. [ 7 ] In 201201G4408, Team Mechanical claims that Viking was neglectful in the modification of the sprinkler system.

In that action, Viking is being defended by Lloyd’s Underwriters. Dominion was added as a Third Party by Viking who claimed that it is an unnamed insured under the Policy. [ 8 ] In 201201G4868, YMAN Construction Limited (another subcontractor that responded to the Defendant’s request for remediation services) seeks payment of $35,077.52 from the Defendant. Viking, Lloyd’s and Dominion are Third Parties to that action. [ 9 ] In 201701G7466, Team Mechanical claims that Dominion is in breach of the Policy as a result of non-payment of legitimate claims. There are no third parties to this action.

Team Mechanical has filed its own Application for

Summary Trial and it is scheduled to be heard in June 2018. [ 10 ] 201201G4408 and 201201G4868 have been consolidated with the within action and are the subject of case management by my colleague, Faour, J. 201701G7466 is not subject to the case management order. [ 11 ] An Application was filed by Viking for determination of a preliminary question of law (whether the loss was covered by the Policy), pursuant to Rule 38 of the Rules of the Supreme Court, 1986 , S.N.L. 1986, c. 42, Sch. D (the “ Rules ”).

Justice Goodridge determined in the consolidated action on June 9, 2017 that the Builder’s Risk Policy issued by Dominion covered all areas of the Health Sciences Centre impacted by the water escape, and specifically property that pre-existed the March 2011 renovation. An appeal from this decision is to be heard by our Court of Appeal later this month.

summary trial – rule 17a The Threshold Test [ 12 ] Rule 17A states: 17A.01.

(1) A plaintiff or defendant may, after defence has been filed and at any time prior to the proceeding being placed on a trial list, apply to the Court with supporting affidavit material or other evidence for

summary trial seeking judgment on or dismissal of all or part of the claim in the statement of claim, as the case may be.

(2) A plaintiff may apply, without notice, for leave to serve an application for judgment under this rule, together with the statement of claim, and leave may be given where special urgency is shown subject to such directions as are just.

(3) Rule 17A applies with the necessary modifications to counterclaims and third party claims.

(4) Unless otherwise ordered, an application for

summary trial shall be served on all affected parties at least twenty clear days before a hearing. [ 13 ] In Dalley v. Northern Arm (Town) , 2016 NLTD(G) 68, at paragraph 24, I expressed my view on the threshold test to be met on a

Summary Trial Application as follows: 24 I prefer to state the nature of the enquiry at the threshold step as follows: 1. At the threshold step, the Applicant for a

summary trial must satisfy the Court that it has presented an appropriate evidentiary basis for either:

a) the claims made; or

b) the defences to the claims made;

in the affidavit and other documentary evidence presented by all parties (subject to the right to cross-examine deponents). 2. The second element of the threshold step is consideration of whether, at this preliminary stage, it would appear appropriate to deal with the issue in this

summary manner. 3. If the threshold step is not met, the Court may give directions, order the proceeding to proceed to trial in the normal course or order it to proceed by expedited trial. 4. If the threshold step is met, depending on the facts, the Court may give directions and/or address any requests for production of deponents for cross-examination. If the parties are ready and the Court has ample time available, the

summary trial hearing may proceed the same day. Alternatively, it may be set over to another date. In either case the

summary trial should be heard by the judge who determined the threshold issue.

The First Component of the Threshold Test [ 14 ] In support of the Application, counsel for Marcus Contracting Limited provided: • a draft Order; • an Affidavit of John Hynes, co-owner of, and supervisor for, Marcus; • an Affidavit of Erica Butler, office manager with Marcus; • excerpts from Discovery Transcripts of Shawn Barton, a supervisor with Team Mechanical and Derrick Kennell, a general manager with Team Mechanical, as well as from John Hynes. [ 15 ] The Affidavits of John Hynes and Erica Butler referenced comprehensive exhibits which included cost sheets for work, material and rentals from September 1 to 29, overhead and profit charges, and HST, a diagram indicating the flooded areas, a description of work performed, a daily list of hours, material and equipment utilized and installed, equipment charges from third party suppliers, materials supplied by third party suppliers, and an invoice and related documents prepared by Marcus for Team Mechanical for remediation of a separate unrelated flood also at the Health Sciences Center. [ 16 ] A supplementary Affidavit of John Hynes was filed later and in addition, counsel for Marcus filed its Memorandum of Fact and Law. [ 17 ] On this basis, I concluded that the Plaintiff/Applicant had satisfied the first component of the threshold test by presenting an evidentiary basis for the claim made.

The Second Component of the Threshold Test The Material Filed [ 18 ] As to whether it would appear appropriate, at the preliminary stage, to deal with the issue in this

summary manner, I considered the material filed by the Defendant and Third Parties in response to the Application. These were: 1. For the Defendant: • A Reply, supported by an Affidavit of Allan Kennell, principal of Team Mechanical sworn January 30, 2018; and • A Memorandum of Fact and Law filed February 7, 2018. 2. For Viking/Lloyd’s: • An Affidavit of Anthony G. Elliott, independent property loss adjuster sworn February 1, 2018; and • A Memorandum filed January 31, 2018. 3.

For Dominion: • An Affidavit of Jason Purdy, property claims adjuster filed January 31, 2018; and • A Memorandum of Law filed January 30, 2018. Potential Prejudice [ 19 ] The only substantive issue addressed by the Memorandums filed by Viking and Dominion was one of prejudice that could arise from a subsequent lower valuation of the Plaintiff’s claim in 201701G7466. In that litigation, the issue is the amount payable to Team Mechanical under the Policy’s indemnification provisions.

[ 20 ] Similarly, the Defendant maintained that “Team Mechanical has worked with Marcus for decades and, when the emergency occurred on the job, it was agreed between the parties that Marcus, and others performing remedial work, would accept whatever amount the insurance company paid to Team Mechanical in respect of the work performed.” [ 21 ] Thus, the Defendant asserted that Marcus’ claim was not a straightforward matter of payment due for invoices submitted.

The Defendant suggested that there was no point in proceeding with Marcus’ claim because it could be assessed for a lower valuation under the indemnification provisions of the Policy. If so, the Defendant suggested it would be unjust to Team Mechanical to have a judgment given now. [ 22 ] Viking/Lloyd’s agreed that it was inappropriate to proceed with the

Summary Trial because the valuation order following indemnification in 201701G7466 may be less than the $353,000.00 claimed by Team Mechanical (of which Marcus’ portion was $193,017.19). [ 23 ] To like effect, Dominion’s Memorandum of Fact and Law suggested that what the Plaintiff was really seeking was “what amount Team Mechanical is entitled to recover under the Policy”. [ 24 ] In support of their respective oppositions to

Summary Trial on this ground, all three counsel referenced paragraph 10 of the Plaintiff’s Memorandum of Fact and Law which reads as follows: For the purpose of this Application, Marcus limits its claim to the lesser of a. The amount owed by Team Mechanical in contract; b. The amount which would be payable Team Mechanical based upon the reasonableness of the charges work, material, equipment, administration and profit should the Court determine that there is a difference between the two amounts.

In other words, Marcus does not seek an amount greater than Team Mechanical would be entitled to receive based on a valuation under indemnification. [ 25 ] At the commencement of the hearing therefore, I enquired of counsel for Marcus what was meant by this paragraph. The explanation given was merely that “for purposes of this action only” his client was prepared to make this concession but without any acknowledgement that the agreement between the Plaintiff and the Defendant contained an implied condition to this effect.

Credibility/Implied Condition [ 26 ] No credibility concerns were raised by Viking or Dominion, however, paragraph 30 of the Defendant’s Reply stated: As evidence will be required to determine the reasonableness of the amounts charged by Marcus … such that a judge will have to assess credibility, weigh evidence and make findings of fact, the matter is not appropriate for

summary judgment. [ 27 ] It became clear during the hearing that the Defendant’s credibility concern is related to the indemnification issue. Team Mechanical suggests that it was an implied condition of its oral contract with Marcus that Marcus would accept the lesser of the amount invoiced or the amount subsequently assessed as owing under the indemnification provisions of the Policy. [ 28 ] I agree that determination of this issue may require testimony from the key witnesses and that assessment of credibility may be necessary. Conclusion on Threshold Test [ 29 ] As a result, it is clear that the opposition to

Summary Trial by Viking/Lloyd’s, Dominion and Team Mechanical on the basis of prejudice relates to the discrete issue of insurance coverage between Team Mechanical and Dominion. However, that issue was not placed before me on the

Summary Trial. [ 30 ] Further, the sole issue of credibility raised relates to the same question because it turns on whether there was an implied condition in the agreement between Marcus and Team Mechanical requiring Marcus to accept the lesser of the amount invoiced or the amount later assessed under the indemnification provision of Team Mechanical’s insurance Policy. [ 31 ] Following submissions from counsel, I determined that both concerns would be addressed if the Plaintiff was prepared to proceed with the

Summary Trial on the basis that enforcement of any judgment given, would be stayed pending determination of:

1. whether (as an implied condition of the verbal contract between the Plaintiff and the Defendant) the Plaintiff agreed to accept the lesser of the invoice or the amount assessed based upon a valuation of the Plaintiff’s services under the indemnification provisions of the Policy and, if so; 2. the claim in 201701G7466 between Team Mechanical and the Dominion of Canada General Insurance Company for the total remediation work, including Marcus Contracting’s portion. [ 32 ] Counsel for the Plaintiff acknowledged that he was prepared to proceed on this basis. I was satisfied therefore that both components of the threshold test were met and we continued with the hearing. the

summary trial hearing [ 33 ] Similar to the threshold step, at the

Summary Trial itself, there are two components to be met. The Applicant herein has the onus to establish that: 1) on the whole of the evidence, the Court can find the facts necessary to decide the question; and 2) that it would be just to do so.

The Evidence Presented [ 34 ] The Plaintiff’s exhibits, (supported by the two initial Affidavits) reflected meticulous record keeping noting: • all regular and overtime hours for both labour and supervisors; • precise accounting for all materials (as small as rolls of duct tape) and all rentals, on a daily basis; • a comprehensive description of the work done by corridor, and by room; • daily time sheets identifying employees by name and hours; • invoices from third party suppliers (such as Newfound Disposal Systems Ltd.); • records supporting similar rates of pay on a prior invoice for an unrelated flood also billed to Team Mechanical Limited. [ 35 ] On a

Summary Trial, all parties are required to put their best foot forward. I turn now to consider what evidence was presented to contest the invoices and records provided by the Plaintiff in support of its claim for judgment for $153,017.19 plus pre and post judgment interest. Team Mechanical [ 36 ] The Defendant admits having a good working relationship with Marcus who it acknowledges responded to a flood at a fully operational tertiary care hospital on the Labour Day weekend in 2011.

Rather than challenging the amount claimed, the Defendant, in fact, supports that, “The repairs and remediation, in addition to the normal work of construction trades, required specific skills, credentials and protocol for completion within the operating hospital setting, including asbestos removal, installation and monitoring of negative air systems and testing for mold and air quality”. [ 37 ] Marcus’ claim for $193,017.19 less the $40,000.00 received is therefore not actually disputed by Team Mechanical.

Its only challenge to the invoice appears at paragraph 26 where it states “…there have been questions raised by the insurer in respect of the supervision, hours and HST charged by Marcus”. This challenge relates to the concern that (at a future date) Marcus’ portion of the total claim presented by Team Mechanical to Dominion may be valued at a lower amount and if so, Team Mechanical will be prejudiced if Marcus has already received a judgment in its favour for $153,017.19.

I have already addressed this concern by the requirement of a stay of enforcement of any judgment given pending determination of the implied condition raised by Team Mechanical. Viking/Lloyd’s [ 38 ] The Memorandum of Fact and Law filed on behalf of Viking/Lloyd’s makes no challenge to the invoice presented by Marcus. The Affidavit of Anthony G. Elliott explains only that he did not instruct, consent or authorize the remediation work.

Dominion [ 39 ] On behalf of Dominion, the Affidavit of Jason Purdy states that “since Dominion was not given notice of this loss until long after the remediation was complete it had no opportunity to investigate the loss and survey the damages sustained…” (paragraph 14), but nevertheless, at paragraph 19, “…from Dominion’s perspective, there does exist a dispute as to the reasonableness of the charges claimed by Team Mechanical and its subcontractors related to this remediation…”. [ 40 ] At paragraph 20 Mr.

Purdy admitted that while “it is not possible for me to provide a detailed price estimate… to complete the remediation of this loss”, he had nevertheless reviewed the relevant documents and could “provide the following comments”. [ 41 ] The “comments” were restricted to his opinion on the normal insurance industry practice (authorizing repairs following notice of the loss and agreements reached with the contractors) and that when adjusting a property damage claim, “the amount of labour

required, labour rates, material/equipment costing rates, and the percentage of overhead and profit to be charged … would be negotiated at the onset of a loss with the adjuster” (paragraph 21). However, he acknowledged that this did not occur in this case. [ 42 ] At paragraph 23, Mr.

Purdy questioned the size and scope of work involved in remediating the loss and, in particular, the square footage that was damaged, had to be removed and reinstated as a result of the water loss. [ 43 ] At paragraph 26, he expressed the view that the “amount of overtime charged…is excessive and not reasonable” and at paragraph 27 that “some of the individual items claimed … for the rentals would already be included in the general overhead costs…”. [ 44 ] Finally, at paragraphs 28-29, Mr.

Purdy addressed the question of whether Dominion is “liable to indemnify Team Mechanical in respect to the claims for HST” because “under the principle of indemnity, an insurer is required to pay an insurance claim to the extent of the actual loss suffered by the insured in accordance with the terms of the insurance policy” and that based on his experience, “it is the standard practice in the adjusting industry for insurers not to pay the HST when commercial businesses are involved in a loss” because “most commercial businesses are HST registrants and are eligible to claim an income tax credit…to offset the collection of goods and services taxes that is derived from the HST that a business entity incurs on its business-related expenses and services.” [ 45 ] As is apparent, these “comments” relate to insurance issues which have not been established as relevant to the invoice presented by Marcus to Team Mechanical.

Finding the Facts Necessary [ 46 ] Relevance aside, in both of Mr. Purdy’s Affidavit and Dominion’s Defence to Third Party Statement of Claim filed on July 26, 2013, Dominion claimed that it had no knowledge of the flooding until January 2012 and gave no instruction with respect thereto. [ 47 ] Dominion’s Defence to the Third Party claim also contained a response to Marcus’ Statement of Claim (as permitted under Rule 12.05(2)).

It stated that “it has no knowledge as to the terms of the contract entered into between the Plaintiff and the Defendant” and “no knowledge as to whether the terms of the contract were carried out by the Plaintiff nor the amount contracted”. [ 48 ] Since neither Viking/Lloyd’s nor Dominion:

a) had notice of the loss;

b) gave any instruction on it; or

c) were familiar with the terms of the agreement between Marcus and Team Mechanical; they cannot provide any challenge to the quantity or quality of work performed at the request of Team Mechanical and which became the subject of the invoice. [ 49 ] There was therefore no evidence presented on the

Summary Trial to suggest miscalculation of the invoice itself or to challenge the legitimacy of either the scope of the work that Marcus performed, the materials provided, the labour rates charged, or the Third Party invoices paid, at the request of Team Mechanical. [ 50 ] Mr. Purdy’s Affidavit merely identified issues of a general nature that apply to the insurance industry and may be relevant to the indemnification

section of the Policy.

This will be determined in 201701G7466. [ 51 ] I note as well that Dominion earlier maintained that: • the amount payable on indemnification was a discrete issue; • distinct in both a factual and evidentiary context; and • for which the other subcontractor had no interest; (see its January 21, 2016 Memorandum in 201201G4868 in response to two Applications to add it as a Third Party in YMAN’s claim against Team Mechanical, paragraphs 32, 34 and 35). [ 52 ] On the whole of the evidence presented therefore, I am able to find the facts necessary to decide the question of the amount payable by Team Mechanical to Marcus for the invoice presented.

Is it Just to Decide the Issue? [ 53 ] This action was commenced in January 2013; Dominion was added as a Third Party in March 2013, and filed its Defence on July 26, 2013. Lists of Documents have been exchanged, discoveries have been held and the three related files have been case managed by Faour, J. since February 2016.

[54] It has not been established that there is material evidence from a principal player absent (Marco v. Newfoundland ProcessingLtd. (NL SC), 1995, 130 Nfld. & P.E.I.R. 317, 405 A.P.R. 317 (Nfld.

S.C.T.D.) at paragraph 16. [55] The Defendant and Third Parties have had ample opportunity to assess the Plaintiff’s claim, address any uncertainties aboutsquare footage affected, overtime rates applied and whether certain equipment rentals should have been covered by overhead charges. [56] The Plaintiff, a well-experienced and specialized contractor, responded to an emergency at a tertiary care hospital on a LabourDay weekend, worked diligently for 29 days in very difficult conditions and maintained meticulous records supporting every claim formaterials, labour, overhead and Third Party supply services.

In response, it has faced six years of delay in the receipt of any reasonablereimbursement solely because of insurance issues that have not been established to be relevant to its contract. [57] Unless and until it is determined that the agreement between the Plaintiff and the Defendant contained the implied conditionearlier referenced, subcontractors to Team Mechanical (Marcus and YMAN) have no interest in the discrete insurance issue betweenTeam Mechanical, Dominion and/or Viking/Lloyd’s.

This fact was acknowledged by Dominion in the Memorandum of Fact and Law itfiled in 201201G4868 on January 21, 2016, at paragraph 34 in response to two Applications to add it as a Third Party to YMAN’s claim. [58] I conclude that it is just to decide the issue of the amount due by Team Mechanical to Marcus under its invoice on thisSummary Trial. The amount due is $153,017.19 plus pre and post judgment interest as requested. Enforcement of the judgment will bestayed on the conditions to which Plaintiff’s counsel agreed. conclusion on

summary trial [59] On the whole of the evidence presented, I am able to find the facts necessary to decide the question of what amount is due bythe Defendant to the Plaintiff for the services provided as invoiced. Returning to Dalley, at paragraph 47, there is no genuine issuerequiring a trial in the standard form and it would be unjust not to decide the question of the amount due to Marcus from TeamMechanical for the remediation services covered by its invoice on this

Summary Trial. ORDER [60] As a result of the foregoing, judgment is given as follows: 1. The Plaintiff is entitled to receive from the Defendant the amount of $153,017.19 (being $193,017.19 less the payment of$40,000.00 received) plus pre and post judgment interest as requested. 2. Enforcement of this judgment is stayed pending determination of:

a) whether (as an implied condition of the verbal contract between the Plaintiff and the Defendant) the Plaintiff agreed to accept thelesser of the invoice or the amount assessed based upon a valuation of the Plaintiff’s services under the indemnification provisions of thePolicy and if so;

b) the claim in 201701G7466 between Team Mechanical and the Dominion of Canada General Insurance Company for the totalremediation work, including Marcus Contracting’s portion. [61] As to costs, I note the following considerations:

a) the Plaintiff has been successful;

b) the Defendant did not object to the Plaintiff’s invoice but has delayed the adjudication of the Plaintiff’s claim by raising a question ofwhether the amount that could be payable to the Defendant for Marcus’ work under the indemnification provisions of the Policy, will beless than Marcus invoiced. That is a different question. The Defendant could have requested to have the question of the impliedcondition addressed on

Summary Trial but it did not.

c) Viking/Lloyd’s and Dominion’s concerns are their obligations to Team Mechanical under whatever insurance policy is determinedto apply. Both Lloyd’s and Dominion acknowledged that they had no notice of the loss and were unfamiliar with the terms of theagreement between Marcus and Team Mechanical. Nevertheless, Dominion vigorously opposed the Application for Judgment on thebasis that insurance industry practice and the amount payable under the indemnification provisions of the Policy were relevant.

Thisposition was inconsistent with Dominion’s earlier position that insurance issues were not relevant to a subcontractor’s claim. [62] On the facts of this case, I conclude that the costs award to the Plaintiff should be assessed against Dominion and theDefendant jointly on Column 3. _____________________________ Gillian D. Butler Justice