STM Contracting v Cross Date:, 2015 BCPC 80

Citation: STM Contracting v Cross Date: 20150311 2015 BCPC 0080 File No: 70455 Registry: Nanaimo IN THE PROVINCIAL COURT OF BRITISH COLUMBIA BETWEEN: STM CONTRACTING LTD. CLAIMANT AND: JARED CROSS DEFENDANT AND: SEAN MAJOR DEFENDANT BY COUNTERCLAIM REASONS FOR JUDGMENT OF THE HONOURABLE JUDGE GOUGE Appearing for the Claimant: S. Major Counsel for the Defendant: S. Bartlett Place of Hearing: Nanaimo , B.C. Dates of Hearing: November 3, 2014, March 5, 2015 Date of Judgment: March 11, 2015

THE ISSUE [ 1 ] The Claimant, STM Contracting Ltd., seeks to recover amounts which it alleges to be owing under a construction contract, or, in the alternative, quantum meruit for services rendered. [ 2 ] The Defendant, Mr. Cross, asserts that he contracted, not with the Claimant, but rather with Mr. Major, the sole shareholder of the Claimant. Mr. Cross admits liability to Mr. Major for quantum meruit in the amount of $38,500, but advances a counterclaim for alleged deficiencies in the work, and claims the right to set off those damages against the admitted amount. THE AGREEMENT [ 3 ] Mr. Cross is an accountant.

Mr. Cross assisted Mr. Major in the incorporation of STM Contracting Ltd., and prepared the company’s books for the first seven years after its incorporation. Mr. Major and Mr. Cross were friends until the events described below ended their friendship. [ 4 ] Mr. Major has worked in the construction industry all of his adult life. About 10 years ago, he went into the business of constructing “spec houses”; i.e. houses which he built on his own account for sale to others on completion. Mr. Cross saw several of the houses which he built, was impressed by them, and resolved to retain Mr.

Major to renovate and expand Mr. Cross’ house. In the end, they decided to demolish the existing house and build a new one. [ 5 ] Mr. Cross and Mr. Major met to discuss the project. Unfortunately, there is no documentary record of the discussion. No written contract was entered into, and there is no written description of the work which was agreed to be done. Neither Mr. Cross nor Mr. Major was able to give a precise account of the discussions in which the agreement was made. [ 6 ] The evidence of Mr. Major and Mr. Cross is consistent on some points and contradictory on others. They both say that: a. Mr.

Major was to have a supervisory or organizational role in managing the project, for which a fee of $10,000 was to be paid. b. Mr. Major was to do some of the physical work himself. Other tradesmen would be retained to do the rest of the work. c. The initial rate of remuneration for work to be performed personally by Mr. Major was $30 per hour. d. Mr. Cross was to be entitled to set off his outstanding accounts receivable for past accounting services against amounts payable for Mr. Major’s services on the project. They disagree on the following points: e. Mr. Cross says that Mr.

Major’s supervisory role was to be similar to that of a general contractor; i.e. that Mr. Major took responsibility to manage the project through to completion, to the satisfaction of Mr. Cross. Mr. Major says that his supervisory role was to be similar to that of a site superintendent; i.e. to coordinate the services of various sub-trades retained by Mr. Cross and to deal with on-site problems as they arose. f. Mr. Major says that the contracting party was STM Contracting Ltd. Mr. Cross says that it was Mr. Major personally. g. Mr.

Major says that the parties later agreed on increases to the rate for his work, first to $35 per hour and then to $40 per hour. Mr. Cross says that he did not agree to that. Neither of them was able to recall with any certainty exactly what was said between them on any of the disputed points. MR. CROSS’ COMPLAINTS [ 7 ] Mr. Cross advances four major complaints, and many lesser ones, about Mr. Major’s workmanship: a. During construction, Mr. Cross asked Mr. Major whether it would be possible to amend the plans to allow for 9-foot ceilings. Mr. Major replied in the affirmative, and the house was so constructed.

After completion of the house, it was discovered that the result was to place the completed structure out of compliance with height restrictions imposed by the city bylaws. Mr. Cross was forced to apply to the Board of Variance for a variance to allow the structure to stand. The variance was granted, but Mr. Cross incurred some expense, and suffered considerable inconvenience, during the process. b. The house includes a second-storey deck over a room below. Mr. Cross complains that the deck leaked, allowing water to flow down into the first storey of the house. c. Mr.

Major personally installed the tiling in the master bathroom. Mr. Cross says that the work was poorly performed, and that, as a result, he was forced to retain another tile setter to remove Mr. Major’s work and replace it. d. The plans call for a small skirt roof above the first storey at the centre of the house. Mr. Cross complains that it was improperly installed, causing the building inspector to refuse approval of it, and that Mr. Cross was obliged to pay an engineer to design a solution for the problem and a carpenter to implement the solution.

He also complains that the finished roof was improperly installed, and sags. The first three deficiencies have been remedied. The fourth has not. THE DENOUEMENT

[ 8 ] In August, 2011, Mr. Major knew that Mr. Cross was in a difficult financial position, and that Mr. Cross could not obtain further bank financing (which he needed to complete the project) without an occupancy permit. A successful inspection by the municipal building inspector was a condition precedent to the issuance of an occupancy permit. On August 10, 2011, the house failed a building inspection because of a deficiency in the skirt roof. Mr. Cross asked Mr. Major to assist in remedying the deficiency, but Mr. Major did not respond with the alacrity expected by Mr. Cross. [ 9 ] Mr.

Cross retained a structural engineer to design a remedy for the roofing problem. That solution was implemented by Mr. Broessler, a carpenter previously retained by Mr. Cross. The engineer and the building inspector then approved the structure, and an occupancy permit was issued. [ 10 ] Mr. Cross retained another contractor, Mr. Sihota, to replace Mr. Major and complete the work. THE SETTLEMENT [ 11 ] Although work began in 2010, the Claimant did not render any invoices to Mr. Cross until the autumn of 2011. Mr. Cross disputed the invoices. By letter dated October 24, 2011, Mr.

Cross offered the sum of $22,333, and enclosed with the letter six post- dated cheques, payable to Mr. Major personally, over a period of six months, totalling $22,333. Each cheque bore the notation “Pmt … towards final pmt of all invoices (hours, contracts, services)”. The letter includes the following sentence (underlining added): Please find below a payment

schedule and enclosed cheques to pay off all our arrangements and conclude this matter and put it behind us. Mr. Major accepted the offer. [ 12 ] Mr. Major cashed the first two cheques. However, when he presented the third cheque for payment, the cashier informed him that there were insufficient funds in the account to honour the cheque. Mr. Cross says that he stopped payment on the last four cheques because Mr. Major had not honoured his verbal commitment to return to the jobsite and repair the defective tiling in the shower. An impasse developed. Mr.

Major promised to return and remedy any deficiencies identified by Mr. Cross, but only if Mr. Cross first honoured the four uncashed cheques. Mr. Cross promised to honour the cheques, but only if Mr. Major first remedied the deficiencies alleged by Mr. Cross. Each of Mr. Cross and Mr. Major accuses the other of a repudiatory breach of the settlement agreement. Each seeks damages from the other. [ 13 ] It is unnecessary for me to decide whether Mr. Cross or Mr. Major is correct in his

interpretation of the obligations imposed by the settlement agreement. That is because neither party now seeks to enforce the settlement agreement - each seeks damages from the other and neither limits his claim to the amounts agreed.

If one of them committed a repudiatory breach of the settlement agreement (as must be so), the other elected to treat the repudiation as bringing to an end the obligations of the parties under the settlement agreement, with the result that the settlement agreement itself is no longer enforceable, and the parties are left to their remedies under the original contract: Heyman vs Darwins Limited [1942] AC 356 . PAYMENT FOR MR. MAJOR’S LABOUR [ 14 ] Mr. Cross concedes that Mr. Major is entitled to be paid for work performed by Mr.

Major personally, at the rate of $30 per hour, but denies that he agreed to any increase in that rate. The Claimant carries the onus of proving the agreement which it alleges. I am unable to conclude, on a balance of probabilities, that Mr. Cross agreed to the increased rate alleged by Mr. Major. Simply put, neither Mr. Cross nor Mr. Major was able to give a coherent or reliable account of their verbal communications in relation to this project. In the absence of a reliable evidentiary basis for a conclusion one way or another, the onus remains undischarged. [ 15 ] In his Reply, filed October 18, 2013, Mr.

Cross admits responsibility for five of the Claimant’s invoices, subject only to adjustment of two of them to the agreed rate of $30 per hour. After making those adjustments, the total of those five invoices is $26,208.78. Two of the other invoices for which a claim is made were disputed in Mr. Cross’ Reply. Mr. Major gave evidence to support those invoices. That evidence was neither challenged during his cross-examination nor contradicted by other evidence. The total of those two invoices is $6730.80. So far as the evidence goes, the Claimant has established a claim for $32,939.58, subject to: (

i) credit for interim payments made by Mr. Cross (which are agreed to total $16,529.32); and (ii) Mr. Cross’ counterclaim. However, in his Reply filed October 18, 2013, Mr. Cross said: The claimant’s invoices should have totalled $38,500 plus tax as per the verbal agreement. No application was made for leave to withdraw that admission. It follows that, on account of Mr. Major’s labour, the Claimant is entitled to $21,970.68 ($38,500 less $16,529.32), subject to Mr. Major’s counterclaim THE MANAGEMENT FEE [ 16 ] Mr.

Major summarized the denouement of his retainer on this project in a narrative which he tendered as Exhibit 1at trial, as follows (underlining added): August Long Weekend of 2011 Mr. Cross was making unreasonable requests to come and do some work on the house on a Sunday of a long weekend. When Mr. Major replied that he had plans and would not be coming on a Sunday of a Long Weekend, Mr. Cross replied “If you can’t get it done I will find someone who can”. Mr, Major replied with a “fine go ahead”. The following week, Mr. Cross and Mr.

Major speak about the fall out and decide the project the project is taking a toll on their friendship and Mr. Cross decides it’s best that they end the work relationship there. Mr. Major did not quit. This was an amicable agreement.

Mr. Cross did not expressly contradict this

summary in his evidence, and his evidence was generally congruent with the

summary. Itfollows that the agreement was terminated by consent in early August, 2011. The question is whether part or all of the agreed consultingfee was payable upon termination. I think not, because: a. Whatever the nature of the duties which Mr. Major agreed to perform, it is clear that those duties were to be performed from thebeginning of construction to the end of the project. It necessarily follows that those duties were incomplete when the parties agreed topart company. b.

Such a fixed-fee consulting contract is an “entire contract”, as described in Mailot vs Murray Lot Law Corp. 2002 BCSC 343;[2002] BCJ No. 470; 99 BCLR (3d) 170 @ paragraph 74: The "entire contract" doctrine is applied to retainer agreements on the basis that the client cannot receive the benefit of the considerationuntil the contract is completed. As Jessel M.R. analogizes in Re Hall and Barker (1878) 9 Ch.

D. 538 at 545, " (i)f a shoemaker agrees tomake a pair of shoes he cannot deliver one to you and ask for half the price." It was held in that case, at paragraphs 83 - 86, that a solicitor may be entitled to remuneration on a quantum meruit basis where: (

i) theclient wrongly terminates the retainer; or (ii) the solicitor terminates the retainer “for cause”. In this context, “cause” means afundamental or repudiatory breach of the contract or retainer by the client. [17] Mr. Major did not allege, and the evidence does not establish, that Mr. Cross wrongly terminated the agreement, or that Mr.Cross committed a repudiatory breach of it before August 11, 2011. Rather, the parties agreed to terminate the agreement, and did notaddress the question of the consulting fee when they did so.

I have been referred to no authority considering similar circumstances, andhave found none in my research. I must address the question as one of principle, ungoverned by authority. [18] It seems to me that the correct approach is to ascertain, by reference to the objective evidence, what the parties agreed to inAugust, 2011. Some points are clear. Mr. Cross and Mr. Major both understood that Mr. Major’s retainer was at an end, except for anundefined obligation to remedy deficiencies in work previously performed by Mr. Major. Mr. Cross and Mr.

Major both said that theyunderstood the latter obligation to survive the settlement agreement reached in October, 2011, although they differ on whether theremedial work was to be performed before or after payment was completed under the settlement agreement. What is not clear is whetherMr. Cross and Mr. Major understood that part or all of the consulting fee would remain payable despite the termination of the originalagreement.

Neither of them said that there was any express discussion of that question, or that he turned his mind to that question inAugust, 2011. [19] In this case, the only objective evidence of the intention of Mr. Cross and Mr. Major on the point in issue is their conduct afterAugust 10, 2011.

The principles governing the admissibility of evidence of such conduct were stated by Justice Lambert in Re CanadianNational Railway and Canadian Pacific Railway (BC CA), [1978] BCJ No. 1298; 95 DLR (3d) 242 @ paragraph 83: The types of extrinsic evidence that will be admitted, if they meet the test of relevance and are not excluded by other evidentiary tests,include evidence of the facts leading up to the making of the agreement, evidence of the circumstances as they exist at the time theagreement is made and, in Canada, evidence of subsequent conduct of the parties to the agreement.

However, to say that these types ofevidence become admissible where two reasonable

interpretations exist is not to say that the evidence, if tendered, must be given weight.In the case of evidence of subsequent conduct the evidence is likely to be most cogent where the parties to the agreement are individuals,the acts considered are the acts of both parties, the acts can relate only to the agreement, the acts are intentional and the acts areconsistent only with one of the alternative

interpretations. Where the parties to the agreement are corporations and the acts are the acts ofemployees of the corporations, then evidence of subsequent conduct is much less likely to carry weight. In no case is it necessary thatweight be given to evidence of subsequent conduct. In some cases it may be most misleading to do so and it is to this danger thatallusions are made throughout the recent English cases …. In England the risks have been considered sufficiently grave that thepossibility of illumination from the use of subsequent conduct has been ruled out.

In Canada, they have not, but those risks must becarefully assessed in each individual case before determining to give weight to subsequent conduct. [20] In my view, the most compelling evidence of the parties’ intention on the subject is the settlement agreement which theyreached a few months later. In his letter dated October 24, 2011, Mr. Cross offered to make payments in relation to each of the invoicesdelivered by Mr. Cross in the interval between August and October. The offer was, in essence, to pay for all of the hours in each invoiceat the original rate of $30 per hour. Mr.

Cross did not offer to pay anything on account of the consulting fee. Mr. Major accepted theoffer without comment. In particular, he made no demand for any payment on account of the consulting fee. If it were Mr. Major’sview that he retained a right to the consulting fee, or some part of it, despite the agreement to terminate the original agreement as atAugust 10, one would have expected him to make some statement to that effect in response to Mr. Cross’ offer three months later. Iconclude that, when they agreed to terminate the retainer as at August 10, Mr. Major and Mr.

Cross both intended that the consulting feewould not be payable. THE COUNTERCLAIM Professional Fees [21] Mr. Major concedes that Mr. Cross is entitled to a set-off of $10,805.25 on account of his outstanding invoices for professionalaccounting services. The Height of the Building [22] Mr. Cross claims $10,334.60, being the professional fees of a surveyor retained by Mr. Cross to assist him at the Board ofVariance hearing in relation to the issue arising from the height of the house. Mr.

Major disclaims responsibility for this item, on theground that he did not prepare the plans, that the plans were approved by the city, and that he was entitled to assume that the plansconformed to the bylaws. Mr. Major’s disclaimer fails to address one important aspect of Mr. Cross’ evidence. Mr. Cross said that theplans called for 8-foot ceilings, that he asked Mr. Major whether it would be possible to change to 9-foot ceilings, and that Mr. Major

assured him, without qualification, that it would. Mr. Major did not challenge that evidence when he cross-examined Mr. Cross, and did not contradict it in his own evidence. I think it clear that, by giving the answer he did, Mr. Major assumed a duty of care to Mr. Cross to take reasonable steps to ensure the accuracy of the answer before encouraging Mr. Cross to rely upon it: Keith Plumbing & Heating Co vs Newport City Club Ltd. 2000 BCCA 141 ; [2000] BCJ No. 390; 75 BCLR (3d) 186; 184 DLR (4 th ) 75.

It matters not, for this purpose, whether the question and answer fell within the scope of the original retainer - the obligation to take reasonable care in giving advice arises from the law of tort, independently of any contract. It follows that this aspect of the counterclaim succeeds. The Leaking Deck [ 23 ] The membrane under the deck, intended to be waterproof, was installed by Mr. Tyler Peters. Mr. Peters said that: a. He installed the membrane correctly, and that it was watertight when he completed the installation. b. He warned Mr.

Major to cover it with plywood or some other protective covering until the concrete slab could be poured on it, because it was likely to be damaged by foot traffic and construction debris if it were not protected. c. He was upset when he observed, some days later, that Mr. Major had not followed his advice, and that construction debris was scattered on the surface of the membrane. d. He cleaned up the debris as well as he could, and again warned Mr. Major to cover up the membrane. e.

Sometime later, after the concrete slab had been taken up to find the source of the leaks, he observed that the membrane had been penetrated in several locations. [ 24 ] Mr. Major acknowledges that Mr. Peters advised him to cover the membrane with protective plywood until the concrete slab had been poured. He says that: (

i) he urged Mr. Cross to pour the concrete slab immediately, but that Mr. Cross wanted that work to be done by a particular subtrade who was not immediately available; (ii) he decided not to follow Mr. Peters’ advice because he thought that the plywood cover would do more harm than good. The latter was a curious decision because of Mr. Major’s evidence, in relation to other subtrades and other issues, that he respects the expertise of other tradesmen, and would not substitute his own judgment for theirs. [ 25 ] I conclude that, by refusing to follow Mr. Peters’ advice, Mr.

Major failed to exercise reasonable care and skill, and that he thereby breached the obligation to exercise reasonable care and skill which is implicit in a construction contract. Mr. Cross is therefore entitled to succeed on this aspect of his counterclaim. [ 26 ] Mr. Cross has obtained two estimates for the cost of replacing the leaking deck, they being $14,150 and $12,869, respectively. Mr. Major did not challenge either estimate, and called no evidence on the question. In view of the fact that neither estimator was called to give evidence, I think it appropriate to use the lower estimate. Mr.

Cross also incurred $13,914.46 in costs to remedy water damage to the house resulting from the leaks in the deck. His counterclaim on this issue is therefore allowed in the amount of $26,783.46. The Shower in the Master Bathroom [ 27 ] Mr. Major personally installed the tile in the shower in the master bathroom. Mr. Cross complains that it was improperly installed, with the result that he was obliged to remove and replace it. Mr. Major says that: a. He is not a qualified tile setter, and that he told Mr. Cross that, but that Mr. Cross said that he had seen Mr. Major`s work in other houses and wanted Mr.

Major to do the work. b. The tiles selected by Mr. Cross were unsuitable for the project. c. The tiles would have had to be removed in any event because the plumbing had been installed incorrectly, and would have to be removed and replaced before the shower could be properly tiled. Mr. Cross led no evidence to contradict or challenge Mr. Major on those points. [ 28 ] I do not think that the points made by Mr. Major are an answer to Mr. Cross` complaints. A person who undertakes to perform a service for another implicitly agrees to bring to the task the appropriate standard of care and skill.

If he is unable to do that, he should decline to undertake the work. If the materials chosen by the owner are inappropriate for the task, the contractor should decline to proceed unless and until proper materials are selected and provided. If the shower had been improperly plumbed, with the result that it was not ready to be tiled, Mr. Major should have declined to proceed unless and until the plumbing deficiency had been rectified. [ 29 ] Mr. Cross incurred expenses of $15,386.46 to remove and replace the tile, and his counterclaim succeeds to that extent.

The Skirt Roof [ 30 ] There is no doubt that the skirt roof was improperly installed - it was the reason that the building inspector refused to issue an occupancy permit in August, 2011. Mr. Cross retained Opus Engineering, a firm of professional engineers, to recommend a solution. That solution was implemented, to the satisfaction of the engineer and the building inspector. [ 31 ] Mr. Cross says that the plans called for a cantilevered roof, and that the roof which was installed was not cantilevered.

He alleges that it now sags because it was not cantilevered, and will be a major impediment if he attempts to sell the house in future. Mr. Major says that the roof was installed by Mr. Broessler, who was retained by Mr. Cross, and for whom he disclaims responsibility. [ 32 ] Mr. Cross’ claim on this issue depends on the proposition that the solution devised by Opus Engineering was inadequate to resolve the problem and is the cause of the present sagging. If that is so, it would appear that Mr. Cross’ claim is against Opus

Engineering, not Mr. Major. Even if one assumes that the agreement imposed on Mr. Major the obligation to supervise the work of Mr.Broesler, neither of them can be blamed for completing the work in accordance with the engineer’s instructions. PERSONAL OR CORPORATE LIABILITY? [33] As noted, Mr. Cross asserts that he contracted with Mr. Major, as an individual. Mr. Major asserts that the contract was withhis company. Neither party has a precise recollection of the discussions leading up to the retainer. The only documentary evidence tosupport an inference either way is that the post-dated cheques provided by Mr.

Cross with his settlement offer were payable to Mr. Majorpersonally. Mr. Major deposited two of those cheques to his personal bank account before Mr.

Cross stopped payment on the others. [34] In my view, the governing principle is that stated by the Ontario Court of Appeal in Truster vs Tri-Lux Homes Ltd [1998] OJ#2001; (ON CA), 39 CLR (2d) 6; 18 RPR (3d) 1: … incorporation provides corporate officers and shareholders the legal protection thought to be necessary for modern business relations;however, if one expects to benefit from this protection, then others must, at a minimum, be informed in a reasonable manner that they aredealing with a corporation and not an individual.

In the last analysis, persons who set up after the fact that they contracted solely onbehalf of another bear the onus of establishing that the party with whom they were dealing was aware of the capacity in which they acted…. That onus is not discharged by the evidence in this case. It follows that Mr. Major is personally responsible under the contract. [35] Even if I had concluded that the contracting parties were STM Contracting Ltd. and Mr. Cross, I would have concluded that Mr.Major is personally responsible for the damage to Mr. Cross’ property caused by the leaking deck.

At least in a case of this kind, whereboth parties were aware that Mr. Cross entered into the contract solely because of his respect for Mr. Major’s skills, employees of acontracting party owe a duty of care to other contracting parties to exercise reasonable care to avoid damaging the latter’s property:London Drugs Ltd vs Kuehne & Nagel International Ltd (SCC), [1992] 3 SCR 299 @ paragraphs 185 - 186. I wouldalso have found Mr. Major to be responsible for the careless advice which he provided in relation to the height of the building: Northwestern Mutual Insurance Co. v. J. T.

O'Bryan & Co. (1974) (BC CA), 51 DLR (3d) 693. I would not havefound him to be responsible for the cost to repair the shower in the master bathroom because liability for repair of faulty workmanship,as distinct from consequent damage to other property, generally arises only in contract, and not in tort. DISPOSITION [36] The total of the three items on which the counterclaim succeeds is $52,504.52. Mr. Cross is also entitled to $10,805.25 onaccount of his invoices for professional services, for a total of $63,309.77.

The Claimant is entitled to a set-off of $38,500, being theadmitted quantum meruit to which it is entitled. As a result, Mr. Cross is entitled to judgment against Mr. Major in the amount of$24,809.77. [37] In the interest of simplicity, prejudgment interest should accrue from August 10, 2011, the date on which the agreement wasterminated. March 11, 2015 ______________________ T Gouge, PCJ