2014 NBCA 55, 2014 NBCA 55

COURT OF APPEAL OF COUR D’APPEL DU NEW BRUNSWICK NOUVEAU-BRUNSWICK 140-13-CA B E T W E E N: E N T R E : CONSOLIDATED DEVELOPMENT CO. LTD. (Defendant) APPELLANT CONSOLIDATED DEVELOPMENT CO. LTD. (défenderesse) APPELANTE - and - - et - EVARISTE M. DIOTTE and E.M. DIOTTE CONSTRUCTION INC. (Plaintiffs) RESPONDENTS EVARISTE M. DIOTTE et E.M. DIOTTE CONSTRUCTION INC. (demandeurs) INTIMÉS A N D B E T W E E N: ET ENTRE : CONSOLIDATED DEVELOPMENT CO. LTD. (Plaintiff) APPELLANT CONSOLIDATED DEVELOPMENT CO. LTD. (demanderesse) APPELANTE - and - - et - EVARISTE M. DIOTTE and E.M.

DIOTTE CONSTRUCTION INC. (Defendants) RESPONDENTS EVARISTE M. DIOTTE et E.M. DIOTTE CONSTRUCTION INC. (défendeurs) INTIMÉS Consolidated Development Co. Ltd. v. Evariste M. Diotte and E.M. Diotte Construction Inc., 2014 NBCA 55 Consolidated Development Co. Ltd. c. Evariste M. Diotte et E.M.

Diotte Construction Inc., 2014 NBCA 55 CORAM: The Honourable Justice Robertson The Honourable Justice Bell The Honourable Justice Green CORAM : l’honorable juge Robertson l’honorable juge Bell l’honorable juge Green Appeal from a decision of the Court of Queen's Bench: December 2, 2013 Appel d’une décision de la Cour du Banc de la Reine : le 2 décembre 2013

History of Case: Historique de la cause : Decision under appeal: 2013 NBQB 386 Décision frappée d’appel : 2013 NBQB 386 , 2013 NBBR 386Preliminary or incidental proceedings: N/A Procédures préliminaires ou accessoires : s.o.Appeal heard: June 10, 2014 Appel entendu : le 10 juin 2014 Judgment rendered: August 28, 2014 Jugement rendu : le 28 août 2014 Reasons for judgment by: The Honourable Justice Robertson Motifs de jugement : l’honorable juge Robertson Concurred in by: The Honourable Justice Bell The Honourable Justice Green Souscrivent aux motifs : l’honorable juge Bell l’honorable juge Green Counsel at hearing: For the appellant: Basile Chiasson, Q.C.

For the respondents: Jeffrey Delaney Avocats à l’audience : Pour l’appelante : Basile Chiasson, c.r. Pour les intimés : Jeffrey Delaney LA COUR The appeal was dismissed from the Bench, with costs, and with reasons to follow. These are the reasons of theCourt. Costs are fixed at $7,500. The judgment of the Court was delivered by ROBERTSON, J.A. I. Introduction

[ 1 ] After hearing from the parties, we dismissed the appeal with costs and reasons to follow. While the appellant pursued four grounds of appeal, only one requires a sustained analysis. The others can be dealt with summarily in light of the trial judge’s unassailable findings of fact. The outstanding issue stems from the respondent builder’s failure to construct a garage that met the “square footage” requirement of the underlying contract. That document specified 150 sq. meters. The deficiency equaled 6.5 sq. meters (70 sq. feet).

The builder admitted that 4 of the 6.5 square meter loss is attributable to the foundation protruding into the floor space. The appellant owner sought damages of $53,932.51, the amount required to pay for the remedial work needed to achieve compliance with the contract specifications. Instead, the trial judge awarded nominal damages of $2,000. [ 2 ] This case forces us to revisit the well-established common law rule governing the assessment of damages for breach of contract.

The normal measure for breach of a building contract is the cost of remedying the deficiency, thereby placing the innocent party in the position he or she would have been in had there been contract compliance (the expectation principle). Thus, the “cost of performance” or “cost of reinstatement” is the usual measure of recovery. But the law makes room for other methods of assessment. Damages may be awarded for any “diminution in value” of the property caused by the breach.

Alternatively, nominal damages may be awarded for what is commonly referred to as a “loss of amenity”, a “personal preference” or a “consumer surplus”. Finally, there is the option of seeking to recover the contractor’s gain in those cases where the breach resulted in a cost-saving. [ 3 ] Ultimately, we must decide whether the appellant owner is entitled to damages equal to the cost of reinstatement ($54,000) or the nominal amount awarded at trial ($2,000). The search for the answer takes us back to the seminal decision of Cardozo J. in Jacob & Youngs, Inc. v.

Kent , 129 N.E. 889 (N.Y. 1921), and then forward to the equally influential, and more recent, decision of the House of Lords in Ruxley Electronics and Construction Ltd. v. Forsyth , [1995] UKHL 8 . While those precedents provide the starting point of any legal analysis, the jurisprudence reveals there is still work to be done. [ 4 ] Having regard to the established legal principles, I find no basis to intervene with the trial judge’s award of nominal damages. Most certainly, this is not a case where it has been shown the cost of reinstatement is the appropriate measure: that is to say, reasonable.

Above all, no evidence was led to establish the fair market value of the property was less than it would have been had there been no breach. The reality is that we do not know whether the breach of contract diminished the value of the garage. As there is no evidence the contract deviation resulted in a cost-saving to the builder, we are left with the trial judge’s nominal award. That award is justified in terms of either lost expectation or a presumed diminishment in the property’s value.

That the trial judge was able to reach the right result without counsel providing her with the relevant jurisprudence is a testament to how common sense and the common law go hand-in-hand. What follows are my formal reasons for dismissing the appeal and awarding costs on appeal of $7,500. II. Distillation of Facts and Issues [ 5 ] As the trial judge’s comprehensive reasons are now reported, I need only summarize the essential facts: see 2013 NBQB 386 , [2013] N.B.J. No. 424 (QL) .

The parties entered into a building contract in which the respondent builder (hereinafter “Diotte”) agreed to erect an office building and garage for the appellant owner (hereinafter “Consolidated”). The buildings were to be constructed in accordance with the specifications of the federal Department of Fisheries and Oceans, which had agreed to lease the buildings. The cost of construction was initially fixed at $318,500, and then $378,377.67. During the course of construction, Diotte periodically invoiced Consolidated and Consolidated paid the invoiced amounts.

At no time did Consolidated dispute any of the work or the invoices, which also took into account “extras”. On February 4, 2009, Diotte provided Consolidated with the last invoice. That document confirmed the original contract price, and extras of $100,819.49, for a total of $479,197.16. Of that amount, Consolidated had already paid $433,903.43; all that remained owing was $51,181.91, inclusive of HST.

Consolidated refused to pay the amount owing, ostensibly on the ground the “office building fit-ups” were the responsibility of Diotte and should not have been billed to Consolidated. [ 6 ] I pause here to note that the justification offered for the refusal to pay is contradicted by a series of other established facts. Diotte had quoted $68,438 for the “fit-ups”. On March 25, 2008, Diotte invoiced Consolidated for $47,419 with respect to that work. The invoice was paid without protest. Another invoice issued on April 28, 2008. That invoice was also paid.

It was only after the last invoice was sent on February 4, 2009 that Consolidated alleged, for the first time, that it was Diotte who was contractually obligated to absorb the cost of that work. [ 7 ] On March 11, 2009, Diotte filed a claim for a lien under the Mechanics’ Lien Act , R.S.N.B. 1973, c. M-6. As was the practice prior to this Court’s decision in SNC-SNAM, G.P., a partnership between SNC-LAVALIN INC. and SNAMPROGETTI CANADA INC. v.

Opron Maritimes Construction Ltd . et al. , 2011 NBCA 60 , 386 N.B.R. (2d) 1 , Consolidated started its own action, claiming deficiencies in the work and the right to set off (hence the dual style of cause). At trial, Consolidated not only pursued the issue of office building fit-ups, but an additional 11 issues tied to other alleged deficiencies. Those deficiencies were identified by Consolidated’s expert who was retained after the Mechanics’ Lien was filed. The trial lasted six days. Four experts were called: two from each side. All of the issues were decided in favour of Diotte, save for two.

As noted, the trial judge awarded $2,000 with respect to the “loss of square footage”. An additional $8,000 was awarded with respect to the cost of “strengthening” one of the

garage walls. After assessing costs, and once the math was done, the trial judge concluded Diotte had a valid lien for $52,318.91. [ 8 ] The Amended Notice of Appeal withdraws eight of the grounds of appeal set out in the original notice, thereby leaving for consideration the remaining four. Each of those is framed in terms of the trial judge committing a palpable error by ignoring or failing to consider evidence. To the extent the issues raise a question of fact or mixed law and fact, the reality is that the trial judge did not ignore relevant evidence.

She weighed the documentary evidence and the testimony of the witnesses, and made findings that resonate with clarity and persuasiveness. There was and is no palpable and overriding error. However, the issues raised on this appeal are not inconsequential when quantified in monetary terms. A brief explanation is required. [ 9 ] Consolidated argued the trial judge erred in rejecting its contention that the two buildings were not built at a “sufficient elevation”. The cost of remedying this deficiency was estimated to be $31,579.

The cost of remedying the deficiency with respect to the size of the garage was said to be $53,932. Finally, there is the ground of appeal alleging the trial judge erred in holding the 1995 National Building Code applied to the construction project and not the 2005 Code, which was not in force at the time of construction. Consolidated tendered evidence it would cost $98,972 to retrofit the buildings to comply with the newest Code.

Those three amounts total $184,483 and as noted earlier, the parties had agreed to a contract price of $378,000. [ 10 ] I find no merit to the grounds of appeal alleging the trial judge erred in not holding that: (1) the buildings were not built to the proper elevation; (2) the buildings should have been constructed in accordance with the 2005 National Building Code; and

(3) Consolidated was entitled to an engineer’s certificate that the buildings meet the requirements of the 2005 Code. The trial judge’s reasons for decision speak for themselves (see paras. 66 to 69 and para. 83 of her reasons). This leaves for consideration the contention that the trial judge erred in limiting the damage award, with respect to the deficiency in the size of the garage, to $2,000, when the cost of remedying the deficiency was estimated to be $53,932.51.

To the extent the assessment of damages issue requires consideration of the relevant legal principles, the issue qualifies as a question of law, and, therefore, the notion of judicial deference does not come into play. III. The Common Law Framework [ 11 ] The common law rule is that where a party sustains a loss by reason of a breach of contract, that party is to be placed, so far as money is concerned, in the same position as if the contract had been performed.

Applying that rule, it follows that Consolidated is entitled to the $54,000 needed to undertake remedial work to achieve compliance with the contract specifications. In short, damages are equal to the “the cost of reinstatement”. However, the rule is not absolute and, in the case of building contracts, there are other possible bases for assessing damages. One option is to determine the “diminution in the value” of the work. For example, damages may be assessed having regard to the difference between the fair market value of the land/building with and without the breach.

If there is no measurable discrepancy between the two valuations, nominal damages may still be awarded. Typically, however, nominal damages are assessed for “loss of amenity” in those cases where the owner’s “personal preference” is not met. Finally, there is the option of assessing damages by reference to any cost saving which accrues to the builder because of the deviation from the contract specifications. For example, if the builder uses less costly materials than those specified in the contract, the owner could seek damages based on the cost differential.

Intuitively, this option seeks to prevent the builder’s unjust enrichment. Having regard to the facts of the present case, there is no need to discuss that assessment option, other than to refer the reader to Professor Swan’s analysis of that topic: see Angela Swan, Canadian Contract Law , 2d ed. (Markham, ON: LexisNexis Canada, 2009) at 372 and 478. [ 12 ] With one exception, Canadian authors acknowledge the contribution of Cardozo J., then of the New York Court of Appeals, to the jurisprudence. His majority reasons in Jacob & Youngs, Inc. v.

Kent are of the stuff which animate classroom discussion and the writings of academic and judicial commentators, even to this day: see Richard A. Posner, Cardozo: A Study in Reputation (Chicago: The University of Chicago Press, 1990) and Lawrence A. Cunningham, “Cardozo and Posner: A Study in Contracts” (1995) 36 Wm. & Mary L. Rev. 1379. As to the Canadian texts, see Swan at 573, McCamus (John D. McCamus, The Law of Contracts , 2d ed. (Toronto: Irwin Law, 2012) at 900), Waddams (S.M. Waddams, The Law of Contracts , 6th ed. (Toronto: Canada Law Book, 2010) at 764) and the exception being G.H.L.

Fridman, The Law of Contract in Canada , 5th ed. (Toronto: Thomson Canada Limited, 2006). [ 13 ] In Jacob & Youngs , the plaintiff builder had failed to install the contractually specified brand of pipe (“Reading”) in a country residence. The residence had been built for the defendant owner at a cost of $77,000 (an immense sum in 1914). The owner entered into occupation only to learn that the specified pipe had not been used throughout the residence.

He demanded that the non-compliant pipe, most of which was now encased within the walls of the residence, be removed and replaced by the brand contractually specified. The builder refused to comply as compliance meant demolition, at great expense, of substantial parts of the completed structure. In response, the owner refused to pay the balance owing on the contract ($3,500). The builder sued.

[ 14 ] The evidence established that the failure to use the specified pipe was neither fraudulent nor wilful, but the result of “oversight and inattention” on the part of the builder. At trial, the builder sought to show that the brand of pipe installed was of the same quality in appearance, market value and cost as the brand specified in the contract; his evidence was excluded and he lost at trial. That decision was reversed by the “Appellate Division” and a new trial ordered. On further appeal to the Court of Appeals of New York, the majority affirmed the intermediate appellate court’s decision.

Cardozo J. observed that if the excluded evidence had been admitted, it “would have supplied some basis for the inference that the defect was insignificant in its relation to the project” (p. 241). However, the majority opinion went much further. [ 15 ] Writing for the majority, Cardozo J. held that “[i]n the circumstances of this case, we think the measure of the allowance is not the cost of replacement, which would be great, but the difference in value, which would be either nominal or nothing” (p. 244). The following passage represents the essence of Judge Cardozo’s approach to the issue at hand.

It is one woven into the fabric of the jurisprudence of many a common law jurisdiction: It is true that in most cases the cost of replacement is the measure. The owner is entitled to the money which will permit him to complete, unless the cost of completion is grossly and unfairly out of proportion to the good to be attained. When that is true, the measure is the difference in value. Specifications call, let us say, for a foundation built of granite quarried in Vermont.

On the completion of the building, the owner learns that through the blunder of a subcontractor part of the foundation has been built of granite of the same quality quarried in New Hampshire. The measure of allowance is not the cost of reconstruction. "There may be omissions of that which could not afterwards be supplied exactly as called for by the contract without taking down the building to its foundations, and at the same time the omission may not affect the value of the building for use or otherwise, except so slightly as to be hardly appreciable".

The rule that gives a remedy in cases of substantial performance with compensation for defects of trivial or inappreciable importance, has been developed by the courts as an instrument of justice. The measure of the allowance must be shaped to the same end. [pp. 244-45, citations omitted] [ 16 ] Over time, the jurisprudence would focus on the first two sentences of the above passage. The general rule is that non-compliance with contract specifications entitles the owner to damages equal to the “cost of completion” or “replacement”, or as it is more commonly labeled, the “cost of reinstatement”.

The exceptional case is one in which the cost of reinstatement is “grossly and unfairly out of proportion to the good to be attained”. [ 17 ] The reasons of Cardozo J. have not been lost on commentators who are struck by his willingness to resort to notions of “equity” to temper the harshness of the common law (see Posner at 105).

And there are those who turn to the trial record of Jacob & Youngs to point out that the underlying building contract contained the following clause, which failed to make its way into either the majority or dissenting opinions (see Cunningham at 1440, note 337, and Posner at 106): Any work furnished by the Contractor, the material or workmanship of which is defective or which is not fully in accordance with the drawings and specifications, in every respect, will be rejected and is to be immediately torn down, removed and remade or replaced in accordance with the drawings and specifications, whenever discovered. [ 18 ] Whether the above contractual provision would have overridden, or should override, the application of equitable notions or common law rules must be left for others to argue and decide.

On the facts of the present case, there is no such contractual provision. What remains of importance is the idea that damages based on the cost of reinstatement may be displaced, if that cost is grossly and unfairly disproportionate to the benefit which would otherwise accrue to the innocent party. But what are the damages if the home owner contracts for a row of blue bricks, but the builder inadvertently uses ones that are yellow? And what are the damages if the contract requires a pool that is seven feet in depth, but the contractor builds one that is deficient by 9 inches?

These are the questions the House of Lords canvassed in Ruxley Electronics , decided 74 years after the release of Jacob & Youngs . [ 19 ] The essential facts of Ruxley Electronics are as follows. The homeowner contracted with a builder to build an enclosed swimming pool for £70,000. The parties agreed the pool would be built to a depth of 7 feet 6 inches. During construction, the relationship between the parties became strained and eventually the builder sued to recover the £10,000 owing on the contract.

Having discovered that the pool had been built to a depth of 6 feet 9 inches, the homeowner counterclaimed for the cost of reinstatement, that is to say the cost of demolishing and rebuilding the pool such that it complied with the contract specifications. The cost of reinstatement was £21,560. However, the trial judge concluded the pool, as constructed, was safe for diving, and therefore, the shortfall in depth did not decrease the value of the pool. [ 20 ] The trial judge in Ruxley held the cost of rebuilding the pool was wholly disproportionate to any prospective benefit and, therefore, unreasonable.

His conclusion was bolstered by the omission to offer evidence that the homeowner would use the damage award to rebuild the pool. [By the time the case reached the Court of Appeal, the homeowner had given an undertaking to do so.] While the trial judge was not prepared to award damages equal to the cost of reinstatement, he did award the

homeowner £2,500 for the loss of an amenity brought about by the shortfall in the pool’s depth. The trial judge also awarded £750 for general “inconvenience and disturbance”. [ 21 ] The majority of the Court of Appeal reversed the trial decision and awarded damages equal to the cost of reinstatement. In dissent, Dillon L.J. endorsed the reasons of the trial judge. Staughton L.J., on the other hand, held that as there was no alternative that would provide the homeowner with what he contracted for, or one that cost less, damages had to equal the cost of reinstatement.

Moreover, it made no difference whether the homeowner intended to rebuild the pool. The third member of the panel, Mann L.J., took what the House of Lords would later describe as a “middle course”. He accepted that there may be cases where it would be unreasonable to award the cost of reinstatement, but this was not such a case, since the bargain was for “a personal preference”. In brief, the homeowner was entitled to have his “personal preference satisfied”, and the only way that could be achieved was by rebuilding the pool. [ 22 ] Five judges sat on the appeal to the House of Lords.

While their Lordships were unanimous in reinstating the result achieved at trial, each adhered to the custom of rendering a separate opinion. For the sake of completeness and to show how a deceptively simple legal question can become complex, it is worth revisiting each set of reasons. Invariably commentators focus on one of three sets of reasons. I leave it to the legal gymnast to determine the true ratio of their Lordships’ decision.

As Canadian courts are no longer bound by English precedents, we remain free to fashion a legal framework that builds upon the insights provided by those courts who have addressed the issue at hand. [ 23 ] Lord Keith took the shortcut to judicial decision-making and simply agreed with Lords Jauncey, Mustill and Lloyd. While Lord Bridge did likewise, he emphasized that the law relating to damages for breach of contract had developed almost exclusively in a commercial context and, therefore, the legal criteria to be applied continued to measure loss in purely economic terms.

However, His Lordship observed that the law did not foreclose an award of damages in those cases where the landowner complained of work that does not satisfy a “personal preference” in terms of “amenity, convenience or aesthetic satisfaction”. For this reason, Lord Bridge expressly adopted the reasoning of Lord Mustill in regard to upholding the trial judge’s decision to award damages for loss of amenity.

Lord Bridge ended his analysis with the observation that an award of damages equal to the cost of reinstatement, on the facts of the case, would “fly in the face of common sense”. [ 24 ] By contrast, the remaining three judges offered detailed reasons for decision. Lord Jauncey’s analysis embraces cases such as Jacob & Youngs . There is also an extensive discussion of the English jurisprudence, including for example, Tito v. Waddell (No.2), [1977] 1 Ch. 106 .

Therein it was held that if the plaintiff has suffered no monetary loss in the reduction of the value of his land, and the plaintiff has no intention of applying the damage award against the cost of rebuilding in accordance with the contract specifications, damages should not be awarded. As Megarry V-C aptly stated: “[i]t would be a mere pretence to say that this cost [of reinstatement] was a loss and so should be recoverable” (p. 332). Lord Jauncey also addressed the hypothetical case in which the homeowner contracts for the “lower courses of brick” to be blue and the builder uses yellow ones instead.

In these circumstances, His Lordship opined that it would be clearly unreasonable to award to the owner the cost of tearing out all of the bricks so as to achieve the contractual specification that the “lower course” bricks be blue. The owner’s loss is the “the lack of aesthetic pleasure which he might have derived from the sight of blue bricks” (p. 358 of Ruxley Electronics ).

By analogy, Lord Jauncey reasoned that as the homeowner had a useable pool and, therefore, there was no need to construct a new one, damages based on the cost of reinstatement could not be considered compensation for a loss, but rather a “very substantial gratuitous benefit”. [ 25 ] Lord Jauncey’s reasons for decision are noteworthy in three other respects. First, he speaks of those cases where a building is constructed “so defectively” that it is of no use for its designed purpose. In such cases the owner would have little difficulty in establishing the loss as being equal to the cost of reinstatement.

I shall return to the matter of defective construction below. For the moment, it is important to recognize that a distinction can be drawn between those cases where there is a failure to meet contract specifications, and those involving defective or shoddy workmanship. Second, in response to the argument that the cost of reinstatement should only be allowed where the innocent party intends to carry out the remedial work, Lord Jauncey noted that generally the law is not concerned with how that party will spend the money.

He observed: “[i]ntention, or lack of it, to reinstate can have relevance only to reasonableness and hence to the extent of the loss which has been sustained. Once that loss has been established intention as to the subsequent use of the damages ceases to be relevant” (p. 359). Finally, Lord Jauncey found it unnecessary to deal with the question of whether the trial judge erred in awarding £2,500 for the “loss of amenity” as the appellant had not challenged the award. Parenthetically, it must be assumed that his Lordship was speaking of the amount of the award and not the right to seek damages under this heading.

I say this because the homeowner’s principal argument was that the law obligated a damage award for the cost of reinstatement in cases where there is no diminution in value of the property ( e.g ., pool). [ 26 ] Lord Mustill agreed with the reasons offered by Lord Jauncey and Lord Lloyd. But, His Lordship recognized that in those cases where the underlying contract was to fulfill a purely commercial purpose, very often the loss for deviation from the contract or improper workmanship could be assessed in accordance with the cost of reinstatement or diminution in value of the property.

Lord Mustill also focused on the “everyday practical importance to householders who have engaged contractors to carry out small building works” in those cases where the contractor has fallen short with respect to what was promised. Acknowledging that the loss of amenity award had not been challenged on appeal, Lord Mustill declared something would be “wrong” if the cost of reinstatement and diminution in value were the only two methods available for assessing damages.

Hence, he was prepared to recognize a third option: an award incapable of precise determination, as is true of any loss with respect to an intangible. The third option meant

that it was no longer necessary “to remedy the injustice of awarding too little, by unjustly awarding far too much”. At the same time, Lord Mustill accepted that the test of reasonableness plays a central

part in determining the basis of recovery, and should be decisive in those cases where the cost of reinstatement is wholly disproportionate to the “non-monetary” loss suffered. [ 27 ] It was Lord Lloyd who penned the most comprehensive set of reasons. He outlined the homeowner’s central argument as follows. The trial judge was obligated to assess damages in accordance with the cost of reinstatement or the diminution in value.

In those cases where non-compliance with the contract specifications did not have the effect of lowering the value of the property, the trial judge had no alternative but to award damages based on the cost of reinstatement. Lord Lloyd rejected that argument. His reasons addressed two themes, which ran throughout Staughton L.J.’s judgment in the Court of Appeal.

One of the themes was placed under the heading of “reasonableness”, the other under the heading of “intention”. [ 28 ] Lord Lloyd’s reasonableness analysis begins with a restatement of classical rules to be applied when assessing damages for breaches of contract. With respect to building contracts the pecuniary loss is almost always measured in one of two ways: the difference in the value of the work done or the cost of reinstatement. Where the cost of reinstatement is less than the difference in value, the measure of damages is invariably the cost of reinstatement.

Furthermore, in the ordinary case, where reinstatement presents no problem, the cost of such will be the ordinary measure of damages for “defective performance” under a building contract. But Lord Lloyd also recognized the need for exceptions having regard to Cardozo J.’s analysis in Jacob & Youngs .

His Lordship cited that decision as standing for two principles: (1) the cost of reinstatement is not the appropriate measure of damages if the expenditure would be out of all proportion to the benefit to be obtained; and (2) the appropriate measure of damages in such a case is the difference in value even though it would result in a nominal award. [ 29 ] Lord Lloyd’s reasonableness analysis extends to the Australian High Court’s decision in Bellgrove v. Eldridge, [1954] H.C.A. 36. That was a case in which the builder constructed a home with defective foundations and, as a result, the house was unstable.

While the homeowner was successful in obtaining damages equal to the cost of reinstatement, the High Court went further by discussing the hypothetical case in which the homeowner had contracted for external walls to be built from second-hand bricks and the builder used ones that were new. The Court opined that in those circumstances, the work of demolition and re-erection would be “quite unreasonable”.

At the same time, the High Court was prepared to recognize a right to cost of reinstatement in those cases where the homeowner obtained a structure “quite different in character from that called for by the contract”. This led Lord Lloyd to hold: “I am far from saying that personal preferences are irrelevant when choosing the appropriate measure of damages” (p. 370). But he also held that: “… such cases should not be elevated into a separate category with special rules”. [ 30 ] The second theme dealt with in Lord Lloyd’s reasons is that of “intention”.

Acknowledging that courts are not normally concerned with what a plaintiff does with a damage award, His Lordship held intention to be a relevant consideration with respect to the question of reasonableness and a claim for damages for reinstatement. In short, if the breach has not brought about a diminution in the value of the property, and the owner has no intention of applying any damage award against the cost of doing the work in conformity with the construction contract, there is no reason why the plaintiff should recover the cost of reinstatement.

On the other hand, if the plaintiff demonstrates a genuine desire to undertake the remedial work, this factor “may be relevant” when assessing the reasonableness of the claim for the cost of reinstatement. On the facts, Lord Lloyd held that the homeowner’s undertaking to spend any damage award on the rebuilding of the pool made no difference with respect to the outcome of the case. Lord Lloyd reasoned: “[Mr.

Forsyth] cannot be allowed to create a loss, which does not exist, in order to punish the defendants for their breach of contract” (p. 373). [ 31 ] Additionally, Lord Lloyd touched on the trial judge’s decision to award £2,500 for loss of amenity. On appeal to the Court of Appeal, the homeowner sought to have the amount increased, but the issue was not dealt with in light of the appellate court’s decision to award the cost of reinstatement. When the case reached the House of Lords, the homeowner did not pursue the argument.

Instead, he argued the law did not make room for damages for that type of loss, having regard to the seminal decision in Addis v. Gramophone Co. Ltd ., [1909] UKHL 1 (damages for injured feelings) . Accordingly, the only issue was whether damages for the cost of reinstatement were available in those cases where there was no diminution in value flowing from the breach of the underlying construction contract.

Lord Lloyd held he was prepared to recognize awards for lost amenities as an exception to the Addis decision in the same way that plaintiffs may recover damages for disappointment, as where a tour operator breaches its contract: see Jarvis v. Swan Tours Ltd ., [1973] 1 Q.B. 233 (C.A.) , and Jackson v. Horizon Holidays Ltd ., [1975] 1 W.L.R. 1468 . Finally, Lord Lloyd ventured further.

Even if damages were not available for loss of amenity, he asked whether the law is so inflexible as to not provide compensation for “disappointed expectations”. [ 32 ] To summarize, their Lordships are in agreement that for breach of contract, the assessment of damages begins with measuring the actual loss suffered from the unfulfilled bargain. The damage award is to place the claimant in as good a situation as if the contract had been performed.

Thus, as stated by Lord Lloyd with respect to building cases, the loss is “almost always measured in one of two ways: either the difference in the value of the work done or the cost of reinstatement” (p. 366). Reasonableness informs the assessment, resulting in cases such as Ruxley , where it would “fly in the face of common sense” to award the cost of reinstatement, but where the difference in the value of the work done amounts to nil. It is in such cases of contract deviation that their Lordships diverge somewhat in approach.

However, whether referred to as a personal preference, a consumer surplus, or the loss of an amenity, each judgment rendered in Ruxley recognizes that a non-monetary loss, arising from a deviation from contract specifications,

is real and deserving of compensation, despite not being easily measurable in economic terms. Taken together, the various approachesmake it evident that the law of damages allows some flexibility in constructing an appropriate award. IV. Analysis [33] In cases of first impression, care must be taken not to lay down rules or frameworks that are toodistant from the trial judge’s factual determinations. Appellate judges are aware that reasons for decision should respond to those issuessquarely raised within the factual matrix presented.

While these reasons seek compliance with that caution, the substantive issue at handforces the writer to make general observations with respect to matters that may become relevant in future cases. Experience teaches thatthe articulation or development of legal rules or principles or legal frameworks is rarely achieved with the issuance of a solitary set ofreasons. These reasons for decision should be interpreted accordingly.

As they are to be released on the eve of my retirement, the task ofensuring a solid foundation to the law of New Brunswick is left with my colleagues. [34] My formal analysis rests on the understanding that the issue at hand arises from a buildingcontract in which the breach is tied to the builder’s failure to adhere to the contract specifications. In Jacob & Youngs the builder failed touse pipe of a specified manufacturer and, in Ruxley, the builder was short 9 inches with respect to the depth of the pool. In the presentcase, the building failed to meet the size requirement by 6.5 square meters of 150.

This case does not raise allegations that the workperformed was defective in the sense that it involved shoddy workmanship, below the “industry standard”. [35] I draw attention to this distinction because at least two of the judges in Ruxley wrote in a mannerthat could be interpreted to mean that the rules applicable to the assessment of damages for contract deviation are also applicable in casesinvolving defective workmanship (Lords Jauncey and Mustill).

Most certainly, damages equal to the cost of reinstatement are justified inthose instances where the deviation or defect poses a risk to personal safety or the structural integrity of the building and the like (e.g., afoundation or wall that is structurally unsound). But what of those cases where the quality of workmanship falls below a trade standardso as to offend the aesthetic sensibilities of any owner? Intuitively, one is driven to expect that the law would expect the contractor toredo the work or, alternatively, provide the owner with compensation equal to the cost of reinstatement.

The reasons of Lord Lloyd inRuxley appear to support that understanding of the law: see also Al Vogel Construction Ltd. v. Forbes, (SK KB),[1998] S.J. No. 696 (Q.B.) (QL), affirmed 2000 SKCA 10, [2000] S.J. No. 57 (QL). [36] On the other hand, the distinction between contract deviation and defective workmanship maybe one without a difference. An appraiser may well conclude that it is not difficult to justify a diminution in value of property, due toslapdash workmanship, by reference to the cost of reinstatement.

I say no more of the perceived distinction other than to point out thatthe law should be careful not to craft rules that serve as an incentive for builders to depart from their contractual obligations. Seegenerally: Pioneer Co-operative Association Ltd. v. Horseshoe Lodge Inc., 2000 SKQB 228, [2000] S.J. No. 314 (QL); A.J. HustinsEnterprises Ltd. v. Byrne Architects Inc., [2000] N.S.J. No. 470 (S.C.) (QL), affirmed 2003 NSCA 21, [2003] N.S.J. No. 32 (QL) andPSR & Construction v. Dagenais, [2014] O.J. No. 2741 (Sup. Ct.

J.) (QL). [37] It is also open to ask whether the law should segregate those cases, where the innocent party is aconsumer who complains of contract deviation, from those in which both the owner and builder are commercial parties. I raise thispossibility because, in Ruxley, Lords Bridge and Mustill expressed concern over the application of common law rules that weredeveloped in a commercial context and potentially unresponsive to the circumstances that often confront homeowners.

On the otherhand, Lord Lloyd expressly rejected the understanding that there should be two sets of rules for damage assessment: one for homeownersand another for commercial owners. That said, there can be no doubt the more difficult assessment cases are those involvinghomeowners. As Professor Swan so aptly stated: The compensation principle works well when the parties can be described as merchants, i.e., as parties who make contracts because theylead to profits.

A person like the owner who has a swimming pool built on his or her property, does not enter into the contract for itsconstruction because it will enhance the value of the property (at least to the extent of the cost of building the pool), but because it willenhance the owner’s enjoyment of it. From an economic perspective we can describe the owner’s enjoyment as representing a“consumer surplus”, i.e., an interest in the thing that justifies paying more than the amount by which the market value of the property isincreased.

The existence of the surplus explains why people renovate their houses, build swimming pools and have their propertylandscaped even though the increase in value of the house will be far less than the cost of what has been done to it. [p. 371] [38] The more troublesome cases are those where the builder’s deviation from the contractspecifications results in a loss of amenity, or in what Lord Bridge referred to as a “personal preference”, and which the academicliterature refers to as a “consumer surplus”.

Recall that in Ruxley, it was Lord Jauncey who outlined the hypothetical in which thehomeowner asks for a row of blue bricks to be placed on the lower part of the home, and instead the builder inadvertently uses yellowones. To insist the builder should be liable for the cost of removing all of the bricks, in order to provide the needed row of blue bricks, is

a position which represents a challenge to common sense, at least in those cases where the contract deviation does not diminish the value of the property. In short, the cost of remedying the breach appears “grossly and unfairly out of proportion to the good to be attained”. But what of the case where the homeowner asks for the entire home to be built using blue bricks, and instead the builder uses yellow ones, but without impacting the property’s fair market value? Or what of the homeowner (or the architect of a property developer) who asks for used bricks and gets new ones?

These are the cases where a damage award equal to the cost of reinstatement or reconstruction warrants further reflection. Such situations are also why the case law focuses on whether the owner has demonstrated an intention to apply the damage award toward the cost of remediation.

Once again, the law cannot be taken to promote the understanding that it is permissible for builders to deviate from unambiguous contract specifications so long as owners get most of what they paid for. [ 39 ] Parenthetically, one cannot help but observe that, in both Jacob & Youngs and Ruxley , prior to the litigation the contractual relationship between the homeowner and builder had deteriorated to the point where the homeowner’s insistence on strict compliance with the terms of the contract could be seen as punitive, as opposed to compensatory, in goal.

These are the cases where it is proper to ask whether the homeowner’s claim for the cost of reinstatement is motivated by factors unrelated to the loss of a personal preference. [ 40 ] Fortunately, this is not a case where breach of the contract specifications has deprived the owner of an amenity or personal preference. This is a commercial case in which the owner (Consolidated) lost 4.33 percent of the garage’s leasable floor space because of the builder’s (Diotte’

s) failure to adhere to the contract specifications. The broad issue is whether it would have been reasonable to award damages equal to the cost of reinstatement ($54,000) or some lesser sum ($2,000). Evidence was led to demonstrate that Diotte had offered to undertake renovations that would have eliminated some of the deficiency in the size of the garage, but that Consolidated was unwilling to provide Diotte with access to the building.

Evidence was also led at trial to establish that the tenant, who leased the property from Consolidated and for whom the property was being constructed, was prepared to enter into possession without compensation for the deficiency. In response, Consolidated argued that future tenants might not be as obliging. The trial judge reasoned as follows: In the circumstances, I accept that Consolidated is entitled to some compensation for the loss of square footage in the garage. However, to date, Consolidated has experienced no loss as a result of this missing square footage.

DFO, the tenant of the building, has accepted the building as provided, and paid the rent as negotiated. Mr. Dubé speculates that this perhaps will not happen in the future, and he could, therefore, occasion a loss. This is speculative at best. Mr. Diotte did offer to the extent possible to enter the building and rectify the problem. Mr. Dubé denied access to the building to complete these repairs. Again, the difficult question with which the Court must grapple is what and how to compensate Consolidated for this particular loss.

Under the circumstances, I accord Consolidated $2,000 for the loss of the square footage in the garage. [para. 81] [ 41 ] In refusing to award damages equal to the cost of reinstatement, the trial judge also questioned whether Consolidated would apply the damage award to the cost of reconstruction. She observed: Mr. Dubé has yet to effect any of the repairs recommended by any of the experts. Mr. Dubé would not allow Diotte back onto the property to do repairs that they had offered to do.

I am of the strong suspicion that even if the Court is to grant compensation to Consolidated to reinforce the garage or increase the usable space, the work will never be done. [para. 82] [ 42 ] There are at least two approaches one might adopt to resolve the issue at hand. There is the one Cardozo J. articulated in Jacob & Youngs : the owner is entitled to the cost of reinstatement unless it is established that the cost of performance is grossly and unfairly out of proportion to the good to be attained.

However, that approach is premised on the understanding that the contract breach has not diminished the value of the property. The second, and more general, approach is to ask, as does Professor Swan, whether it is reasonable to award damages equal to the cost of reinstatement (see Swan at 373). For purposes of deciding this appeal, this is the approach which I believe works best. [ 43 ] As noted above, this is not a case involving a loss of amenity or personal preference. This is a case where the builder failed to deliver 70 square feet of leasable space.

This is a case where the compensation principle can be applied in terms of ensuring the owner is placed in the same “economic situation” it would have been in had there been no deviation from the contract’s specifications. Therefore, we must focus on whether the owner is entitled to damages equal to the cost of reinstatement or the diminished value of the building. Unfortunately, no appraisal evidence was led to establish the impact of the contract breach on the property’s fair market value. The impact of that omission cannot be ignored.

Let me explain. [ 44 ] It is trite to acknowledge that the three principal methods for estimating a property's market value are the market comparison approach, the income approach and the depreciated cost approach. As the garage in question was built for leasing purposes, it qualifies as income producing property. Accordingly, it was reasonable to expect that Consolidated would lead appraisal evidence as to the impact of the 70 square foot deficiency on the property’s value determined in accordance with either the market comparison or income approach.

Correlatively, it would have been a relatively simple matter to assess damages based on the lower of the cost of reinstatement or diminution in value of the work done. Had the appraisal revealed the fair market value of the

property to be lower, because of the contract deviation, and by an amount less than the cost of the reinstatement, the court would be compelled to award damages based on the property’s diminished value. On the other hand, had the cost of reinstatement been lower than the diminished value of the property, the court would normally be compelled to award damages equal to the former. This understanding is consistent with Lord Lloyd’s view in Ruxley . The fact remains, however, that we do not know whether Consolidated suffered a loss through a reduction in the value of the garage property due to the breach.

By contrast, in both Jacob & Youngs and Ruxley , it was found that the contract deviation did not result in the property being worth less than it would have been had there been no breach. [ 45 ] In the absence of expert evidence regarding the impact of the contract deviation on the property’s value, it cannot be assumed that an award of damages equal to the cost of reinstatement is reasonable. However, Consolidated is entitled to an award of nominal damages, either for lost expectations or a presumed diminishment in value. That is why I am not prepared to disturb the trial judge’s award.

In the circumstances, it is unnecessary to dwell on the trial judge’s suspicion that Consolidated would not have applied the damage award to carry out the remedial work necessary to ensure contract compliance. Normally that type of analysis comes into play in those cases where the cost of reinstatement is obviously disproportionate to the benefit to be achieved. Similarly, I do not find it necessary to consider the impact or reasonableness of the builder’s offer to undertake some of the remedial work required to achieve compliance with the size requirement set out in the building contract.

Admittedly, others may view these factors as relevant to the “reasonableness” analysis. [ 46 ] Putting aside my reasons for allowing the appeal, we are left with the issue of costs on appeal. In that regard, Note 1 of Tariff “A” of Rule 59 of the Rules of Court , states that costs on appeal “shall” be 40% of the sum awarded at trial in accordance with that Tariff. The trial judge rejected the claim for solicitor-client costs and, instead, awarded costs under Scale 5 of the Tariff, based on the amount in issue of $45,000. Accordingly, costs were fixed at $6,300, plus HST.

While the respondent did not cross-appeal that costs award, it asks that this Court exercise its discretion not to award costs based on the 40% tariff. In that regard, it is clear that this Court retains the discretion to depart from Note 1. The word “shall” is “directory” rather than “mandatory”: see Brown et al v. Keenan , 2009 NBCA 81 , 351 N.B.R. (2d) 122 , at para. 16 , leave to appeal refused [2010] S.C.C.A. No. 9; Doucet and Dauphinee v. Spielo Manufacturing Incorporated and Manship , 2011 NBCA 44 , 372 N.B.R. (2d) 1 , at para. 119 ; and Potter v.

New Brunswick (Legal Aid Services Commission) , 2013 NBCA 27 , 402 N.B.R. (2d) 41 , at para. 105 . [ 47 ] Having regard to the issues raised on appeal and their relative importance, the extensive submissions provided, and recent cost awards of this Court, I am of the view that a costs award of $2,500 (40% of that awarded at trial) would not achieve the objectives underscoring Rule 59. Accordingly, I would order costs of $7,500. ____________________________________ J.T. ROBERTSON, J.A. WE CONCUR: ___________________________________ B. RICHARD BELL, J.A.

____________________________________ BRADLEY V. GREEN, J.A.