Shankle v. Waters Edge Leisure Living Ltd., 2023 NSSM 44

SMALL CLAIMS COURT OF NOVA SCOTIA Citation: Shankle v. Waters Edge Leisure Living Ltd. , 2023 NSSM 44 Date: 202304 04 Docket: SCBW 501312 Registry: Bridgewater Between: Jennifer Shankle and Andrew Shankle Claimants - and - Waters Edge Leisure Living Ltd. Defendant Reasons for Decision and Order Adjudicator : Eric K.

Slone Heard : January 18 and February 1, 2023, in Bridgewater, Nova Scotia Appearances : For the Claimants, self- represented For the Defendant, Stephen O’Leary and Mark Hoadley, owners BY THE COURT : Introduction [ 1 ] The Claimants are a married couple who in 2020 built a home on Fancy Lake, in the Bridgewater area, with the assistance of the Defendant operating in the capacity of a project manager.

[2] The Defendant is a company owned and operated by its principals, Mark Hoadley and Stephen O’Leary. [3] The role of a “pure” project manager in construction contrasts to that of a general contractor. Usually, a general contractoragrees to a global price for the project, and the customer only pays that amount. The general contractor will hire subcontractors, asneeded, and is responsible for paying them. A general contractor’s profit is built into the contract, which amount is not necessarilytransparent to the client.

On the other hand, a “pure” project manager charges a fee for planning and supervising the build, whichincludes but is not limited to hiring trades people who the customer will pay directly. [4] The Claimants have sought $25,000.00, which is the maximum allowable in this court, nominally characterized as a return oftheir initial deposit of that amount, with credits and additional damage items representing what they say were overpayments, costs torepair faulty work and to correct the plans.

They say their actual damages are somewhat higher than this court allows. [5] The Defendant company has counterclaimed for $6,413.49, representing money that it says is still owing on the contract. [6] The central issue is whether the Defendant was in breach of its contract, to the extent that it justified the Claimantsterminating the contract when they did. A secondary question is whether the Defendant should answer for any damages for errorsattributable to them. [7] The Claimants owned this land and had been planning to build their home on it for several years.

They spoke to a number ofdifferent builders and contractors before eventually settling on the Defendant. Unfortunately for both parties, they signed the contract onFebruary 11, 2020, which as everyone knows was mere weeks prior to the Covid 19 pandemic turning the economy and ordinary life onits head. It is impossible to ignore the fact that any promises made in early 2020, and any projections of a workflow or target dates weresubject to being upended. [8] On August 15, 2020, which was the original target date for completion, the Claimants terminated the contract as they weredissatisfied with the progress.

There were other issues that had convinced them that the Defendant had not lived up to its bargain as well. [9] The Claimants concede that they owe a portion of the project management fee to the defendant but have based theircalculations on a theory that the construction was only 54% complete at the time of termination. That figure derives from a bankappraisal of the project for mortgage purposes. [10] As these reasons will further detail, despite some issues with the construction I do not accept that the Defendant was in breachsufficient to justify termination of the contract.

It is possible for minor breaches to occur without necessarily giving the other party causeto terminate. In order for a contract to be terminated prematurely, absent some provision in the contract providing for early termination,the breach or breaches of the obligations of the allegedly at fault party must reach a threshold such that it can be said that the contract hasbeen fundamentally breached. Fundamental breach of contract [11] The doctrine of fundamental breach was commented upon by the Supreme Court of Canada in Guarantee Co. of North Americav.

Gordon Capital Corp., (SCC), [1999] 3 SCR 423: 50 The Court[1] was called upon to consider the doctrine of fundamental breach, defined as a failure in the breaching party’sperformance of its obligations under the contract that deprives the non-breaching party of substantially the whole benefit of theagreement.

Notwithstanding that in two separate minority reasons, Dickson C.J. (La Forest J. concurring) and Wilson J. (L’Heureux-Dubé J. concurring) concluded that the seriousness of the defects in the extraction boxes did not amount to a fundamental breach, bothDickson C.J. and Wilson J. discussed the legal consequences in the event that a fundamental breach had occurred.

As to thecircumstances in which the doctrine applied, Wilson J., at pp. 499-500, noted that the distinction between a mere contractual breach anda breach that is more appropriately characterized as fundamental is the exceptional nature of the remedy; while the traditional remedy forcontractual breach is the obligation to pay damages, a fundamental breach permits the non-breaching party to elect instead to put to anend all remaining performance obligations between the parties. Given the exceptional nature of the remedy, Wilson J. rightly noted that

the purpose of the restrictive definition of a fundamental breach is to limit the remedy to those circumstances where the entire foundation of the contract has been undermined. [ 12 ] A corollary to this principle is that if Party A declares that Party B is in fundamental breach and terminates the contract, and it turns out that Party A was wrong or even premature, then Party A has itself breached the contract and may be liable in damages. Declaring a contract to have been fundamentally breached is a risky position to take.

The contract [ 13 ] Some essential terms of the contract dated February 11, 2020 are as follows: The project manager agrees to manage and see to completion the construction of a Single-Family Dwelling as further outlined in

schedule A (drawings) and

schedule B (scope of work), subject to

schedule D (exclusions) … for the owner at Fancy Lake. A. In a pure Project Management relationship, Owner contracts directly with, and pays all suppliers and contractors. There is no markup on supplier and contractor costs. The parties agree that this is the version of Project Management that they will implement on this project. [ 14 ] The contract then went on to define the responsibilities of the project manager and of the owner.

The parties hand wrote in a start date of February 10, 2020, and a projected substantial completion date of August 15, 2020. [ 15 ] Compensation for the project manager was set at 12% of the final construction estimate, which in this case generated a fee of $35,675.15 plus HST. The Defendant says that it reduced its standard fee from 15% in light of the fact that the Claimants were planning to apply sweat equity by doing a lot of the finishing work themselves. [ 16 ] The contract continued: The project manager shall, on a bests efforts basis, attempt to achieve both budget and

schedule targets but offers no guarantee that these targets will be met. The Project Management Fee, above, shall be paid without deduction or holdback whether the budget or

schedule targets are met or not. [ 17 ] Attached to the contract were a number of schedules including specifications from Bucks Home Building Centre which had been tasked with the design of the structure. The final set of plans was also attached. [ 18 ] As mentioned, the Claimants ended up dissatisfied with the way a number of things transpired and were clearly accumulating grievances and literally counting the days until they could declare the Defendant to be in breach, and cancel the contract. They purported to terminate the contract on or about the original substantial completion date.

It bears repeating that the completion date of August 15, 2020, was arrived at before the onset of the pandemic. It also bears repeating that the contract stipulated that the

schedule was not guaranteed, and that the project management fee was payable whether or not the

schedule or budget were met. [ 19 ] Things that allegedly amounted to contractual breaches by the Defendant include these, in no particular order of importance: a. Alleged billing errors. b. Failure to specify an engineered floor joist system that eliminated the need for bulkheads in the basement.

c. Alleged problems with the concrete slab making it unsuitable for polished concrete. d. Problems with the concrete floor drain for the shower. e. Uncertainty about whether there would be a drilled well or water supply from the lake. f. Alleged placement of septic system in conflict with location of driveway. g.

Alleged failure to build a cantilevered deck. [ 20 ] The position of the Defendant is that it performed its duties as best it could under trying circumstances, and that it should not have been prevented from completing its work. [ 21 ] As mentioned, the timing of the pandemic was a major factor in slowing down the project. The Defendant listed many of the challenges. a. Supply chains were disrupted, causing delays in obtaining materials. b. An inability to get subcontractors. c. The inability to have multiple trades working on property at same time. d.

Office staff forced to work from home, making it harder to keep track of project expenditures without ready access to accounting systems. e. Staff staying home to have to deal with illness and support. f. Staff had to travel in individual vehicles. g. 6’ social distance requirements on site. h. Worker’s right to refuse. [ 22 ] I am convinced that, without the additional challenges posed by working during the early stages of the pandemic, the majority of the problems would not have been experienced.

The 54% completion fallacy [ 23 ] The Claimants have staked their project accounting (and claim for compensation) in large part on a theory that by August 15,

2020 - the original completion date - the project was only 54% complete. By extension, they say, the Defendant should only be entitled to 54% of the management fee. [ 24 ] I believe this theory is doubly fallacious. [ 25 ] First of all, the 54% figure was based on a bank appraisal, for its own purposes, reflecting its view of how much had been constructed. This figure does not measure the percentage of project management services that had been completed. As the Defendant pointed out, in any project management contract the majority of that work is done early and pre-construction.

Project management starts during the tendering and procurement stage of the project. Most project management is done in the early stages, as such it is not fair to prorate a project management fee in proportion to the amount of construction actually in place. If that logic held, a project manager would not be entitled to anything for all of the advance planning work that had been done before construction has commenced. A great deal of project management is done before there is anything to show on the ground. [ 26 ] The Defendant contends that most of the project management work had been done by August 15, 2020.

I believe that is true. [ 27 ] The second fallacious element is that without a valid reason to terminate the contract, the Claimants have no basis to avoid paying the full amount of the contract. The contract is clear that the management fee is payable without deduction or holdback.

And under the law of fundamental breach, if the Claimants wrongfully terminate the contract they are themselves in breach and cannot escape paying the full amount of the contract . [ 28 ] Dealing with some of the specific complaints: Billing errors [ 29 ] The Defendant conceded that there were billing errors but insisted that they would have been detected and corrected eventually.

Still, the Claimants were forced to stay on top of things and lost confidence in the Defendant. [ 30 ] In the end, this did not cost the Claimants anything other than time, which has to be acknowledged but does not amount to a fundamental breach of contract. [ 31 ] Adding to the complexity was the fact that the Claimants were randomly paying some subcontractors and suppliers themselves.

This resulted in a delay in information exchange as the Defendant had to contact and obtain information from these businesses who were also dealing with Covid issues as well. [ 32 ] I consider the billing issue to stem mostly from Covid. Failure to specify an engineered floor joist system that eliminated to need for bulkheads in the basement [ 33 ] The Claimants initially saw one of the Defendant’s homes under construction and were impressed by the engineered floor truss system.

They believed that such a system would eliminate the need for bulkheads in the basement (partially true) and would also eliminate the need for a bearing wall dividing the basement (true). [ 34 ] Mark Hoadley of the Defendant testified that he did not recall a conversation with the Claimants that indicated that they wanted such a system in their home. If such a conversation occurred, it did not find its way into the planning process. As a result, the final plans

which the Claimants approved did not specify such a system. [ 35 ] He also explained that the property that the Claimants saw was still under construction, and that the final version still required some (though fewer) bulkheads. [ 36 ] The Claimants’ desire for this kind of truss system did not find its way into the plans and specifications. It was not a contractual term. It was also something discovered very early in the process. Though it undoubtedly contributed to the Claimants’ lack of confidence in the Defendant, it is not something that could be relied upon to terminate the contract in August of 2020.

Polished concrete floor [ 37 ] The Claimants contend that the concrete pour was of a poor quality which made it unsuitable to be finished as a polished concrete floor. They say that they were forced to change their plan to a less desirable laminate floor. [ 38 ] In my view, the evidence does not support a finding that the concrete floor was unsuitable for polishing. The photo evidence shows the floor being poured and then protected properly.

I accept the Defendant’s evidence that there were no unacceptably large cracks, and that if they had been allowed to complete the process it more than likely would have been what the Claimants wanted. Shower base [ 39 ] The Claimants contend that there was an error made that did not allow for a seamless sloped shower drain in the basement concrete floor. [ 40 ] The Defendant insisted that the shower base would have been completed as planned, had they not been denied the opportunity to complete this, using the two- step process that they described.

This would have involved cutting out a small area of the concrete and doing a second pour. I do not consider the Claimants’ concerns about the process to be justified.

Site supervision [ 41 ] The Claimants believe they have been overcharged for site supervision. [ 42 ] This contention in part relies on the theory that the project was only 54% complete, which I do not accept. [ 43 ] It also relies in part on a contention that the Defendant had not produced a final reconciliation, which was a valid criticism, but which is no longer true, as the billing was reconciled in a document produced for the trial. [ 44 ] On the available evidence, I do not see any overcharging for site supervision. Alleged failure to build cantilevered decks

[ 45 ] The Claimants say that they wanted cantilevered decks. The Defendant’s position is that there was no need for cantilevering of the decks, unless the object was to make the decks larger. The Defendant says it built the decks, as specified in the plans. [ 46 ] I can find no written evidence in the record that supports the Claimants’ position that it ever made its preference known to the Defendant.

The optimal time to have communicated this preference would have been during the sessions that the Claimants spent with the house designer whose responsibility it was to translate the Claimants’ wishes into the plans. Uncertainty about whether there would be a drilled well or water supply from the lake [ 47 ] The Claimants say that they were relying on the advice and direction of the Defendant to advise them on whether to source the water supply from the lake or a drilled well. They say that the Defendant unilaterally directed the construction of a trench to bury the water lines from the house to the lake.

They say that in direct discussions with the plumber they became better educated and learned that a drilled well would be similar in cost, but likely a better solution due to the waterfront being shallow and pipes possibly freezing. [ 48 ] The Defendant says that they presented the Claimants with their options, and that Mr. Shankle made the decision. The Defendant says that using lake water was a reasonable and cost-effective choice. [ 49 ] There does appear to have been a miscommunication here, but I am not prepared to say that the Defendant was solely at fault.

Alleged placement of septic system in conflict with location of driveway [ 50 ] The Claimants contend that the Defendant allowed septic work to go ahead, that later had to be redone because it was in conflict with the location of a road/driveway into the property. [ 51 ] The Claimants say they eventually used the services of a third party to design and build an economical system.

They say that costs were incurred needlessly. [ 52 ] The Defendant says that it was the Claimants’ decision to place a road in conflict with the location of the septic system, which is what ended up needing to be redone. [ 53 ] I find that there was a miscommunication that can be traced to the actions of both parties. I am not convinced that there was any extra cost ultimately incurred by the Claimants. Conclusions on breach of contract [ 54 ] I do not consider the contract to have been fundamentally breached by the Defendant.

Conversely, the Claimants themselves breached the contract by purporting to terminate it. [ 55 ] Still, in the event I am wrong I will comment on the Claimants’ financial claims.

The Claimants’ financial claims [ 56 ] The Claimants say that they are only responsible to pay for 54% of two items: a. The 12% management fee of $35,674.29 = $19,264.11 b. The site supervision budget of $16,000.00 = $8,640.00 [ 57 ] Put another way, they claim to have been notionally overcharged for these two items by $23,770.28. [ 58 ] As already found, this is based on the dual fallacies that the project was only 54% complete, and that they were not responsible for the entirety of the contract. [ 59 ] They also claim damages for: a. Cost to correct concrete floor ($5,175.00) b.

Cost to correct shower floor ($1,552.50) [ 60 ] Other alleged errors do not appear to carry a direct cost in the various calculations supplied by the Claimants. [ 61 ] As for these two items, I find that the Claimants have not established that there was anything wrong with the concrete floor or the shower floor. Had they allowed the Defendant to take these items to completion, I believe it is more than likely that they would have had a satisfactory result. [ 62 ] In the result, the claim must be dismissed.

Counterclaim [ 63 ] The Defendant presented a carefully prepared reconciliation (Ex. 5) which shows the Claimants owing $6,413.49 for work and services performed but not paid, which consists of $31,413.49 less the deposit of $25,000.00. [ 64 ] I find that the Defendant has established its entitlement to this amount. The Claimants should also pick up the $66.00 cost to issue the counterclaim. ORDER [ 65 ] In the result, the claim is dismissed.

[ 66 ] In the further result, the counterclaim is allowed in the amount of $6,413.49 plus costs of $66.00, for a total owing by the Claimants to the Defendant of $6,479.49. Eric K. Slone, Adjudicator