Kareway Homes Ltd. v., 2012 YKSC 10

SUPREME COURT OF YUKON Citation: Kareway Homes Ltd. v. 37889 Yukon Inc., 2012 YKSC 10 Date: 20120217 S.C. No. 09-A0095 Registry: Whitehorse Between: KAREWAY HOMES LTD. Plaintiff And 37889 YUKON INC. Defendant Before: Mr. Justice L.F. Gower Appearances: James R. Tucker Counsel for the Plaintiff Michael D. Tatchell Counsel for the Defendant REASONS FOR JUDGMENT 1. INTRODUCTION [ 1 ] This is a dispute involving the construction of a two-building condominium complex in Whitehorse over the period from 2006 to 2009 (“the project”).

Wayne Cunningham is the principal of Kareway Homes Ltd., the builder, and Alex Shaman is the principal of 37889 Yukon Inc., the owner. I will be referring to the parties interchangeably as owner and builder, or by the surnames of their respective principals. [ 2 ] Mr. Cunningham and Mr. Shaman began their dealings together on the project on the basis of a verbal arrangement and a written cost estimate prepared by Mr. Cunningham in the late summer of 2006 (the “’06 estimate”). Mr. Shaman soon insisted that they enter into a written agreement.

That was done in early February 2007, when the parties signed a Development Agreement. This Agreement set out what the respective responsibilities of the parties were, how the project’s costs would be accounted for, and specified that the project’s anticipated profit was to be divided equally. The Development Agreement did not include a cost estimate for the project, but rather committed the parties to approving a “Project pre-budget” and a “Project working budget”.

When this was to be done was not specified. [ 3 ] The owner invested approximately $1.9 million of its own money into the project and the rest was obtained through bank financing. In order to obtain that financing, Mr. Shaman prepared an updated cost estimate for the project in September 2007, based on information provided by Mr. Cunningham (the “’07 estimate”). A number of additional changes (“extras”) were agreed to over the ensuing months. [ 4 ] The project was originally supposed to be completed by the end of December 2007, but in fact substantial completion did not occur until late 2009.

The owner maintains that the total cost of the project was significantly in excess of the ‘07 estimate plus the agreed-upon extras.

As a result of a disagreement between the parties about this alleged cost overrun, the builder ceased working on the project on September 28, 2009, and gave notice to the owner that it was terminating the contract and suing for damages. [ 5 ] The builder maintains that the terms of the Development Agreement were amended by the subsequent course of conduct of the parties, resulting in an agreement which was partly in writing and partly oral, and was in the nature of a ‘cost plus’ contract. Mr. Cunningham also says that all of the extras on the project were agreed to by Mr.

Shaman, for which he claims to be owed over $600,000, plus his share of the profits, which pursuant to the Development Agreement were to be divided equally. [ 6 ] The owner maintains that the Development Agreement, read together with the ’06 and ’07 estimates, resulted in a ‘fixed price’ contract, and that the builder significantly exceeded the ultimate fixed price agreed upon. Mr. Shaman also claims that he has overpaid the builder by more than $750,000. [ 7 ] Thus, the main issue in this trial is whether the agreement between the parties was a ‘cost plus’ or a ‘fixed price’ contract.

As will quickly become evident, the assessment of the relative credibility of Mr. Cunningham, Mr. Shaman, and the owner’s bookkeeper, Chris Johnson, is central to this determination. [ 8 ] There are also a number of sub-issues relating to the question of damages, which I will address later, after dealing with liability. 2. CREDIBILITY (

a) Wayne Cunningham

1. Interest on builder’s invoices? [ 9 ] Through the course of the project, the builder submitted weekly invoices to the owner, and the owner provided periodic advances to pay down the balance owing to the builder. Initially, the owner’s advances roughly kept pace with the builder’s invoices, but eventually the balance owing became significant. For example, as of December 31, 2007, it was over $1 million. Mr. Cunningham maintains that Mr. Shaman agreed to reimburse the builder for the interest charges it was carrying on the outstanding balance.

Accordingly, the builder factored these charges into its weekly invoices. Mr. Shaman denies any such agreement. [ 10 ] Mr. Cunningham was cross-examined about the interest issue in the context of a meeting between him, Mr. Shaman and Ms. Johnson on June 25, 2008. Ms. Johnson made notes of this meeting and a number of others between the parties over the course of the project. She made her notes shortly after each meeting. Mr. Cunningham was asked about Ms. Johnson’s notes of the meeting on June 25, 2008, and testified as follows [1] : “Q Let’s go on.

This goes on to say: - Alex said he was not going to pay for the interest he charged. Wayne said that this was costing him. Alex wanted to see documentation as to how much he was actually charged. … Now, let me just pause there. Do you agree that that conversation took place? A Yes, he told me that. Sometime around -- into the summer of 2008, as he was looking at costs, and he said to me he shouldn’t have to pay it. Q Well, he’s not saying he shouldn’t have to pay it. He’s saying he won’t pay it . It’s a big difference. A Yeah . Q Right? A Okay.” (my emphasis) [ 11 ] Mr.

Cunningham was also cross-examined about his evidence at his examination for discovery on the topic of interest. He acknowledged that in June of 2008, Mr. Shaman had told him a few times that he “shouldn't have charged interest.” He further acknowledged that Mr. Shaman had never assured him that he would pay the interest claimed. And finally, when asked about whether he knew that there was a challenge to the builder's interest charges, he responded “They would bring it up all the time…" [2] [ 12 ] Mr. Cunningham’s assertion that Mr.

Shaman verbally agreed to pay the builder’s interest charges was further contradicted by one of the builder’s own witnesses, Carol Cunningham, Mr. Cunningham’s wife, who testified that she knew there was a dispute between the parties about the builder’s claim for interest. [ 13 ] The inconsistency is obvious. 2. All extras agreed upon? [ 14 ] The builder pled that “all changes to the plan of construction of the project” were discussed with Mr. Shaman in advance, and that “on each and every occasion” Mr. Shaman agreed. [3] However, in cross-examination, Mr. Cunningham implicitly admitted that he knew Mr.

Shaman was frustrated because he did not know how much the extras were costing. He testified as follows [4] : “Q And let me just stop there. Will you agree with me that you were aware of a great frustration from Chris Johnson and Mr. Shaman about not understanding or knowing how much these extras or any changes in the budget were costing? A This is why I made this up , to give them an idea where things were. Q Mr. Cunningham, you made this document up in March of 2011? [5] A Yes. Q And they’ve been asking you for this information through the entirety of the project , is what I’m suggesting to you. A Yeah .

The other information was all on the cost sheets, but for some reason they couldn’t pull it off there.” [6] (my emphasis) [ 15 ] I find this to be an implicit admission that Mr. Cunningham was aware, during the course of the project, that the owner had not agreed to “each and every” extra. 3. Builder would have stopped work? [ 16 ] A couple of times in his testimony Mr. Cunningham emphasized that if Mr. Shaman had told him that he would not pay what

the builder had charged, then he would have stopped work and walked off the job. For example, Mr. Cunningham testified [7] : “A I’m not sure whether he said he wouldn’t pay it. Because if he said he wouldn’t pay something at that time, I would have stopped work any time. Q You would have stopped work? A I would have stopped work. Q Did you tell him that? A What’s that? No, I didn’t tell him that. Anytime he would have said, hey, [indiscernible] I’m -- I’m not going to pay me, then my reaction would have been to completely stop work. There would be no use for me to continue on. Q Okay.

But we’re talking about him saying to you, “I’m not going to pay the interest,” and you’ve agreed he said that? A I don’t think he totally used those words, but he had concerns of the interest and why he should pay it, and I explained to him that I did that over three invoices, through January, February, and March.” [ 17 ] However, just prior to that answer, Mr. Cunningham was asked about Ms. Johnson's notes of his meeting with Mr. Shaman on June 25, 2008, where Mr. Cunningham acknowledged that Mr.

Shaman said he was not going to pay the builder’s interest charges, which were becoming a significant component of its weekly invoices (see para. 10 above). [ 18 ] Again, the inconsistency is obvious. 4. No limit on costs? [ 19 ] In cross-examination, Mr. Cunningham agreed that the goal of the parties was to find the most lucrative project that would yield the greatest return. However, he then went on to say that “saleability” of the condos was the only factor in terms of determining what would be the most lucrative project.

In other words, he posited that, as the costs rose, the sale price for the condo units could be increased proportionately. While Mr. Cunningham conceded that the sale prices were still dependent on a “reasonable cost” to build the condos, he nevertheless maintained that “there was no limit” on what he could charge for the cost of work. I found Mr.

Cunningham’s testimony in this regard to be remarkably inconsistent, illogical and, at times, in defiance of common sense [8] : “Q But the other point, and perhaps the primary focus, was to find a development, it could be townhomes, it could be apartments, it could be effectively a condominium complex, but what was really at the fore was to find the most lucrative project, that would yield the most return on that land? A Yes . Q And you knew that that was the object of the exercise from the very beginning, yes, sir? A Yes . Q All right. And you’ll agree with me, sir, that Mr.

Shaman relied on you to come up with that project which would achieve that goal? A Yes. Q And for you to achieve that goal there had to be good controls on budget; yes or no? A No, not particularly. Q Well, how do you come up with a lucrative return without no control or inadequate control on a budget, sir? A It was developing something for the market that looked like there was a need in the market. Q A which? A We were developing something. it looked like there was a need – Q Need, yes. A -- in the market for this type of building.

Older residents were thought looking for something that was secure for them and close to downtown. Q Okay. But that’s something a little bit different, with respect. What I’m asking you about is not what the needs were for members of the community; it was what was the most financially achievable way of getting the greatest yield on that property; isn’t that the goal? A Yes. Q All right. So where does budget, in your view, your theory as the builder, come into play in that regard?

A The first part we were looking for was saleability . Q Is saleability? A And this is what I put forward towards Alex and the real estate, that this was going to be the most saleability at the time. Q Okay. Is that the only factor, sir? A Yes . Q The only factor in terms of determining what is the most lucrative? A Yes . Q So if the saleability is substantial, but the cost for achieving that construction is disproportionately higher than the other ones, you don’t pay attention to that?

A At the time, when I was building through there, we were picking homes, I was starting to build some larger homes for that need, and we’d build them, make them nice, and they sold lucratively. Q Okay. Let’s go back to this project, though, sir. A Yes. Q I’m asking you a question about what was in your mind in terms of the factors that you had to take into account to achieve the common goal? A I believed that this building was going to be the most lucrative for us. Q The more what? A The most lucrative for us. Q For us, yes. But you’ve pointed to saleability.

I’m asking you about costs, what impact, what -- what role does that factor play in the calculation? A They would be a higher cost unit, they would be -- definitely be more money than the others, and if we added 20 percent onto that, that 20 percent would be more lucrative than 20 percent of a lower number. Q But is the yield on a condominium or a house simply a function of cost bumped up by 20 percent? A Yes, on -- on the more expensive stuff, it seemed like you can get a higher return on. Q Yes. A I'd learnt before that.

The lower projects, smaller condominiums, smaller things, smaller -- very smaller contractors, sometimes home owners jump into that market and get the price down more. Q But you have to keep an eye on the market in terms of saleability; that much is certain, correct, sir? A Yes. Q And at a certain point the saleability of those units is going to depend on the price, obviously, yes? A Yes . Q And price is a function of cost, is it not, sir? A Yes . Q And the higher the cost, obviously, the lower the level of the saleability; isn’t that fair to say? A Yes . Q All right.

So my question to you, sir, from the inception of this project, is what control did you envision with respect to cost? A At the time of? Q At any time when you were putting this project together with Mr. Shaman, and you knew the goal, what did you understand, what did you contemplate to be, the role that cost would play in this? A Well, I knew it's a good time, that there wasn’t much on the market for what we were doing at all, and anything we were offering. THE COURT: Sorry, again? A So we were offering --

THE COURT: Sorry, I just didn’t catch the last thing you said. A We were marketing a product that was more unique to downtown than what other people were doing, so we’d be in a unique market. MR. TATCHELL: Q Okay. I’ll ask the – A That – Q -- question. Go ahead, sir, if you’re still -- carry on. A That we would be able to put our price on it . Q Any price? A Not any price, but we still have to build reasonably too. Q Build reasonably means, sir, build at a reasonable cost? A Reasonable cost . Q And you understood that at all times, did you not? A Yes .

Q And I suggest to you that you knew very well, sir, that that was quite important to Mr. Shaman? A Yes. Q And he relied on you to get it right when it came down to cost estimates; yes or no? A Not with cost estimates, no. Q Well, on the cost, who does the cost estimating for this project? A We didn’t do a cost estimate on the project. Q Why not? A We never had time. We had complete drawings to do the cost everything -- everything, was into June of 2007.

Q So you wish this Court to believe, sir, that notwithstanding the Development Agreement, which we’ll turn to in a minute, that notwithstanding that agreement, this -- there was no cap, no limit on what you could charge for the cost of this work? A There's -- yes, there was no limit , but –“ (my emphasis) 5. No cost estimate? [ 20 ] In direct examination, Mr.

Cunningham acknowledged drafting a document entitled “Takhini Condominium Project”, which projected certain start-up costs for the period of September and October 2006 and included (at least) five pages of “estimate sheets”, as well as a “Total Project…Estimate” of $4,268,000 (not including GST). This is the document I refer to as the “’06 estimate”. Mr. Shaman and Ms. Johnson referred to it as the “original budget”. It is therefore a document of central importance in this case. In his direct examination, Mr.

Cunningham said that one of the reasons he drafted this document was to enable the parties to begin the construction of the project, and that he reviewed the document with Mr. Shaman. However, in the quote above, at para. 19, Mr. Cunningham quite inconsistently said, “We didn't do a cost estimate on the project.” 6. “Scope of Work”? [ 21 ] The last page of the Development Agreement is entitled “Schedule A – Scope of Project”. The rest of the page is blank. Both Mr. Cunningham and Mr. Shaman were asked a number of questions about the term “scope of work”, which was used interchangeably with “scope of project”.

Whether there was in fact a scope of work document prepared for the project and, if so, what it contained, was another central issue in this trial. In cross-examination, Mr. Cunningham was asked questions about his examination for discovery evidence on the point, as follows [9] : “Q All right. Now, before the break, we were also talking about this term that you’ve just referred to as “Scope of Work” ; do you remember that? A Yes. Q And it’s a term that’s used in the industry, and it’s a term that you use?

A Yes. Q Okay. Now, do you remember being examined for discovery by me on July 20th and 21st of 2010? A Yes. Q Okay. I’m going to refer to the questions I asked you in discovery on July 20th. … Q And you were examined under oath in this examination for discovery? A Yes. Q And I’m going to turn to page 56, and I’ll let you read with me, Mr. Cunningham. Starting at line 11, and this is me questioning you: Q Before we broke, Mr. Cunningham, we were talking about something called a Scope of Work, or Scope of Project. are you able to say whether you ever actually did prepare a Scope of Work or Scope of Project?

A “Scope” meaning? Q It’s a term that’s in the contract, and I wondered if that means anything to you, given that you’re in the industry. Is this a term of art that you do not use, or is it something that you do use? A It’s a term I don’t use. Were you asked those questions? A Yes. Q Did you give those answers? A Yes. Q Were those answers true? A Yes. Q Why are you telling us today it’s now a term that you do use, “Scope of work”? A [Indiscernible] -- on my housing before that, I didn’t use it. Q When did you start using “Scope of work”?

A Only on this project. ” (my emphasis) [ 22 ] The examination for discovery took place on July 20 and 21, 2010, which was long after the builder stopped working on the project. Therefore, Mr. Cunningham’s explanation that he was unfamiliar with the term “scope of work” at his discovery, but was familiar with the term by the time of trial because he used the term while working on the project, makes no sense. [ 23 ] Further, Mr. Cunningham’s professed ignorance about the term “scope of work” at his discovery is belied by the apparent instructions he gave to his lawyer much earlier on.

A fax from his lawyer to the owner’s lawyer dated March 7, 2007, reads [10] : “Further to your telephone message of this morning, we have spoken to our client. He and Alex have spoken to each other and have agreed that the Development Agreement is to be amended to reflect the project startup date of approx. April 1, 2007 at project completion date of approx. December 31, 2007. As well, our client advises that he is in the process of preparing the "Scope of Work"

schedule but that it will take some time before it is completed. However, our client claims that the $100 K was not to be held back pending the completion of the “Scope of Work”

schedule . He will be contacted Alex directly to discuss this matter.” (my emphasis) [ 24 ] Mr. Cunningham gave other evidence at trial, also inconsistent with his discovery evidence, about his understanding of what was intended to go in

Schedule A [11] : “Q …I ’m going to move to another series of answers you gave to His Honour the other day, yesterday, about that. And you told His Honour what you felt was supposed to be in the Scope of Work document; do you remember telling him that?

A I believe so. Q And you said yesterday in the afternoon, in answer to my friend’s question, “What should have been there?” And you answered, “Specs, colours, types of products, finished landscaping”; do you remember giving that answer? A Yes, I do. Q And that’s the answer you gave to my friend’s question of what was the scope of work supposed to look like; yes or no? A Yes. Q Okay. And for our reference, we’ll look at Tab 38 of the same -- of Volume 2, and you should see the Development Agreement in there. THE COURT: Tab? MR. TATCHELL: It’s in Volume 2 at Tab 38, Your Honour. Q And this is the Development Agreement , and you’ll see my friend referred you to page 14,

Schedule “A” Scope of Project? A Pardon me? You said which page? Q Page 14, it’s the last page in your document. I -- I called it page 14. There’s two numbers there, but it’s the last page in that document, and all you’ve got is a title, Scope of Project, yes? A Yes. Q

Schedule “A”? A Yes. Q Now, and it’s in response to that that you were able to identify what you thought should be there. That’s what you said in testimony yesterday afternoon. A Yes. Q Okay. Let’s look at the examination for discovery of the second day, and this will be – MR. TATCHELL: I’ll give him, Your Honour, the outline first. Q Page 179, and I’m going to take you through line 24 through to the next page. And again, you were asked these -- I’m going to ask you some series of questions. I’ll read this to you and then you can answer my questions. A Yes. Q Question at line 24: Q All right.

On this document, Mr. Cunningham, there is a reference, under s. 1.0, and I’m going to ask you to read that into the record. A There’s two 1.0’s. Now, over to page 180: Q Oh, sorry. Let’s do the second

section 1.0. A Finalize and approved description and scope of project list,

Schedule A, prior to execution of agreement. Q So, there’s a discussion, now, about

Schedule A, in this very early juncture; November of 2006. And the question then is, what is

Schedule A, if your solicitor is referring to a

Schedule A and you, in turn, are providing comments back to the opposing solicitor? What is

Schedule A? A I still don’t know . It was probably supposed to be the estimate sheet. Now, were you asked those questions? A Yes.

Q Were you -- did you give those answers? A Yes. Q And will you agree with me, sir, that that’s a much different answer than you gave yesterday? A I probably got flustered and got spreadsheets and scope mixed up that time. Q I beg your pardon? A I probably got flustered a little bit and gave the answer out of an estimate instead of a -- the Scope of Work. Q Well, you expressed not only that it should be an estimate sheet, you said you didn’t really -- you really were not sure . A Yes. Q Were you flustered yesterday too, sir? A What’s that? Q Were you flustered yesterday as well? A A couple of times. Q Uh-huh.

It’s the same process, is it not, Mr. Cunningham? A Yes. Q Being examined, yes? A Yes. Q All right. So I suggest to you that you knew very well what the Scope of Work was supposed to be and what was supposed to be attached to that document. A Yes. ” (my emphasis) 7. No budget? [ 25 ] The cost estimate dated September 7, 2007, prepared by the owner using information supplied by the builder (the “’07 estimate”), is relied upon by the owner as the “final budget” for the project, subject to the cost of a number of extras which were subsequently agreed upon by the parties.

It is therefore another document of central importance in this trial. Yet, strangely, the builder paid very little attention to this key piece of evidence in the presentation of its case. [ 26 ] Mr. Cunningham was cross-examined about discussions between the parties leading up to the creation of ’07 estimate, including a reference to the total estimated project cost in the ‘06 estimate of $4.268 million (not including GST) [12] : “Q Okay.

Now, do you recall that there were discussions, again, moving ahead a bit, in September or through the summer of 2007, about add-ons to that budget figure of 4.268 million, and by that I mean discussions about certain items, which probably should be introduced to the project to make it more “saleable”? A Yes. Q Yes. And that, I suggest to you, resulted in an increase in this budget amount by September of 2007? A Yes. Q Okay. And that also resulted in a number which was presented to the bank, which is the one that’s contained in your letter? A Yes.” (my emphasis) [ 27 ] I will return to the topic of Mr.

Cunningham’s letter shortly, but for now it is sufficient to note that he did not quibble with counsel when he used the words “that budget figure” and “this budget amount”. That is inconsistent with Mr. Cunningham's testimony elsewhere, where he repeated several times that “there was no budget” for this project. [ 28 ] As I said, the ’07 estimate is a central document in this trial. However, in an extraordinarily disingenuous fashion, Mr. Cunningham attempted to distance himself from this document by pretending that he never received a copy of it.

The document is attached to a letter from Niels Jacobsen to the owner’s bank, also dated September 7, 2007. Mr. Jacobsen is a professional engineer who was retained by the builder to effectively act in the role of a quantity surveyor, monitoring the progress of the project and periodically reporting to the owner's bank. The parties referred to these reports as “engineer’s progress reports”, and I will discuss them again later. In cross-examination, Mr. Cunningham was asked about the engineer’s progress report of September 7, 2007 and whether he received a copy [13] :

“A I -- I wouldn’t know for sure . I don’t think -- I think it probably went straight to Chris [Johnson]. Q Which is not to say you didn’t get a copy? A Yes, most of the stuff that he dealt with, Chris [Johnson], I never got a copy of anything. Q I’m not interested in what most of the stuff is; I’m interested in this document, sir. Did you get a copy or not? A No. Q Do you know that for sure? A Not a hundred percent for sure, but. ” (my emphasis) [ 29 ] However, Mr. Cunningham later admitted that he recognized the ’07 estimate attached to Mr.

Jacobsen’s letter and indeed had discussed it with him [14] : “A -- we only had one meeting about this letter. ... Q And I suggest, sir, that you recognize this document? A Yes.” [ 30 ] Furthermore, in the ‘07 estimate, the total hard costs are shown to be $3,834,000. That Mr. Cunningham not only saw a copy of the ’07 estimate, but was also quite familiar with it, is evident from the fact that this figure of $3.834 million found its way into a letter Mr. Cunningham drafted to the owner’s bank dated September 17, 2007. Mr.

Cunningham was asked about this in cross- examination [15] : “Q And you see your letter of September 17, 2007? A Yes. Q And you’ll agree with me, sir, that the -- that there’s two things about this document that are notable, at least two things. The first is you send a letter or at least prepare a letter and sign it, saying: Please be advised Kareway Homes Ltd ., the General Building Contractor has reviewed the attached September 07th Progress Report …. A Yes. Q And you said that in your letter, sir? A Yes. Q And you had that progress report that we just referred to attached to this letter?

A I don’t believe I had that attached to the letter. Q You attached the -- you don’t believe you attached it? A I didn’t attach any progress report to the letter. Q Going on: After reconfirming costs -- This is the second sentence. After reconfirming costs with all our suppliers and subcontractors we confirm that the total hard cost estimates are accurate at $3,834,000.00 for the completion of this project.

You made that statement, sir? A Yes. Q And that $3.834 million correlates exactly with that September 7, 2007 attachment for hard costs? A It wasn’t attached to this letter. It was stuff that Niels and I reviewed at that time. Q So the $3.834 million of hard costs that we just saw in the progress report , which was at least attached to Mr. Jacobsen’s letter, is the number you’re referring to in this letter? A Yes . Q And you and Mr. Jacobsen had reviewed that number? A On those cost reports we did. ” (my emphasis) 8. Marking up labour costs? [ 31 ] At a meeting between Mr. Cunningham, Mr. Shaman, and Ms.

Johnson on August 21, 2007, Ms. Johnson raised concerns about the extent to which the builder was marking up its labour costs to cover premium contributions for workers’ compensation and unemployment insurance (“UIC”), holiday pay and statutory holidays, among other things (referred to below as “administration fees”). Mr. Cunningham’s answers in cross-examination on this issue reflect poorly on his credibility and, once again, occasionally defy common sense. To provide the full flavour of his testimony in this regard, the quotation below is quite lengthy [16] : “Q You will agree with me, Mr.

Cunningham, I suggest, that, in any event, Mr. Shaman was not pleased with your answer about these administration fees? A He raised the issue, yes, and I raised the issue and said that’s -- it’s part of Kareway’s costs of keeping the business going. Q And then [Ms. Johnson’s note] goes on to say: In the end Wayne just said “Well don’t pay them then.” And I suggest that that’s what you said at the end of the discussion with Mr. Shaman? A I don’t believe I would say that, but. Q Okay, let me -- let me insert this question, then.

I suggest that you absolutely knew at the end of this meeting that you were not going to have consensus on the part of the owner to pay those fees? A And also three different times, when I asked Alex, “Are we going to have any trouble with our bills? Am I still going to get paid for all my stuff?” and he would say yes. Q I’m going to go back to the question. When you left this meeting, you understood that the owner was not going to pay for the administration fees? A No, I did not understand that, because I said it was -- I kept referring to them back that this is part of my cost, and that’s what I’m putting in.

Q The note goes on : My complaints were - WCB & UIC over charged And that’s the note we’re just looking at, almost 18 months later. A Yes. Q They are back to - it’s almost two years later - they are referring back to the very items that they raised with you at the beginning of the project. A So nothing was -- they brought this up in August, and then they had virtually nothing said until almost two years later. Q Well, I suggest they didn’t have to say anything, Mr. Cunningham, because they made it very clear to you in this meeting that they weren’t going to pay those fees?

A And at the same time I got it cleared and it was part of the cost of my project. Q The -- the note goes on: STAT holidays is not based on 4% You remember that discussion? A Yes. Q And Chris Johnson effectively said, “That’s simply an error”? A That’s not an error; four percent does work out. Q Well, how does it work out? Tell me what you mean by that. A Four percent of a person’s pay on a regular 40-hour week, four percent comes out to actually less than what a person gets paid for a whole day, which he would get paid for a full day on a stat holiday.

Q Moving on to the next line: 3.1% for paperwork is ridiculous Now, you recall there, again, Chris Johnson and Alex Shaman’s consternation, I’ll use that term, over this charge? A She said that, yes. Q Okay. And they made it pretty clear to you, sir, that they were not going to endorse or agree to that charge? A Carol still put the time in for this to do the payroll. Q That’s not the question, sir. A Yes. Q Did you understand the question? A Yes, I understand the question. Q Okay, answer the question, then, sir. A And I was -- repeat it again, please.

Q You understood that they were not going to pay 3.1 percent for paperwork, that they made clear in August of 2007? A They didn’t make it clear that they said they’re not paying for it. They never, ever made anything directly quite clear to me and said that they were not paying for anything. Q I heard you -- except that she conveyed a sentiment to you as follows: 3.1% for paperwork is ridiculous A She says ridiculous. Q She said ridiculous. A And she probably, at that time, she says ridiculous and I said that’s still what it costs us to have the payroll done.

Q And did you take it, you’ll agree, that there was very little question in your mind that they were going to balk if you charged 3.1 percent in the future? A Nothing was said for almost two years, until this May 30th. Q Moving onto the next line:

Wayne should not get STAT & Vacation Pay We’re back to that, and that sounds quite familiar, based on the very comment in the note on May 30, 2009, will you agree with me? A Yes. Q Okay. So at the very outset they made it clear, I suggest, that they were not going to pay you that? A And I said I’m entitled to a stat holiday; I’m an employee of Kareway also. Q It goes on to say: Wayne & Carol should not get Clothing & Tool allowance. And you recall, sir, that this, in particular, was something that really bothered Chris Johnson and Alex Shaman? A They suggested it.

I can’t say that -- they suggested these things all the time to me at this meeting . The meeting was a polite meeting. It was not, like I was saying, a heated argument or anything. It's [indiscernible] we were still -- Carol and I are both employees of Kareway Homes. We have the same things that the other employees need, clothing and everything else, for the projects. Q The point is, is that, is it your position or your evidence that if that’s the cost of running a business for a year you’re going to pass that onto a consumer, even if the project is only supposed to last seven months?

A It’s not -- it was prorated through my other projects too. It was not the total cost of this. Q And what clothing and tool allowance are we talking about? A Clothing for work. Q But what is Carol -- what does Carol do for work in terms of a clothing allowance? A She still goes out onto the sites. Q And the tool allowance, what tool allowance does she get? A Hers would be more into maybe some of the office stuff but that’s an average I take for what I spend on all my tools for the year. So I do average things out for the percentages I put on there. THE COURT: Average what out?

A What I spend on tools for the year. THE COURT: I think the question was directed towards Carol’s tool allowance. A The tool allowance, there wouldn’t be too much for Carol, but the average I averaged out with my percent worked out to that percentage for -- across the board for all the tools. MR. TATCHELL: Q So you just charge a percentage? A Yes. … Q Well, this is a percentage at a certain rate, and that was simply, and I’ll say arbitrarily, set by you and passed onto 37889? A Yes, I set that rate.” (my emphasis) [ 32 ] Ms.

Johnson's notes about the August 21, 2007 meeting also include the following reference “Wayne doesn’t pay UIC”, referring to Mr. Cunningham. Mr. Cunningham was asked about that meeting and did not dispute that this issue was raised. However, quite remarkably, and in a way which reflects poorly on his credibility, Mr. Cunningham acknowledged in cross-examination that he became aware that his own personal labour claim could not justifiably include a mark-up for unemployment insurance, but did not tell Mr. Shaman this [17] :

“Q You found out that you did not have to pay UIC, but you chose not to tell the customer? A Yes.” (

b) Alex Shaman [ 33 ] The builder’s counsel submits that, where Mr. Shaman’s evidence conflicts with that of Mr. Cunningham, Mr. Cunningham’s evidence should be believed. He makes this submission for four principal reasons: 1. Mr. Shaman “lied” when he swore eight statutory declarations in which he stated that “all accounts payable in respect of the project” had been paid; 2. Mr. Shaman gave inconsistent evidence about when he received the ‘06 estimate from Mr. Cunningham; 3. Mr. Shaman gave inconsistent evidence about when Mr. Cunningham was out of Whitehorse in July 2007; and 4. Mr. Shaman gave inconsistent evidence about agreeing to change the

schedule of the project. I will deal each of these points in turn, followed by one of my own. 1. The statutory declarations [ 34 ] These were required by Mr. Shaman’s bank in order to obtain financing. The dates of the statutory declarations sworn by him were: • January 9, 2008, • March 18, 2008, • May 5, 2008, • June 10, 2008, • July 14, 2008, • July 31, 2008, • September 15, 2008, • October 20, 2008, and • December 17, 2008. [ 35 ] At about the same time, the owner began to require the builder to supply its own statutory declarations, as required by the Development Agreement. Mr.

Cunningham swore six such declarations: • May 6, 2008, • July 22, 2008, • July 30, 2008, • September 17, 2008, • October 21, 2008, and • December 18, 2008. [ 36 ] The builder’s counsel argues that Mr. Shaman’s statutory declarations were false because the owner had not paid all the accounts rendered by the builder with respect to the project when they were sworn. At paragraph 3 of each statutory declaration, the owner swore that “All accounts payable in respect of the project for the period 30 days prior to the date of this claim have been paid except for holdbacks.” [ 37 ] Mr.

Shaman testified in cross-examination that by “accounts payable” he meant the builder’s invoices which were not in dispute. In other words, Mr. Shaman maintained that paragraph 3 in each statutory declaration was true because all of the builder’s accounts payable were paid, except for the ones in dispute. [ 38 ] In re-examination, Mr. Shaman further explained that he also relied on the statutory declarations from Mr. Cunningham that all of the bills owing by the builder were similarly paid. The builder’s counsel counters this by arguing that Mr.

Shaman swore the first two statutory declarations without having received any statutory declarations from the builder, and on the other occasions, with the exception of the statutory declaration of July 31, 2008, Mr. Shaman received the builder’s statutory declarations after he swore his own. [ 39 ] Mr. Cunningham’s statutory declarations included the following paragraphs: “2.

All claims for wages and materials due and payable in respect of the said construction project to date have been fully paid and satisfied and therefore there are no persons entitled at this time to claim of [as written] file a lien under the Builder’s Lien Act in respect

of the said construction project. 3. This declaration is made for the purpose of inducing the Bank to make payment of a portion (the balance) of the funds secured by the above-mentioned mortgage and I am aware that in making such payment the Bank will be relying on the statements herein contained.” [ 40 ] The owner’s counsel made five points in support of the veracity of Mr. Shaman’s testimony in this regard. [ 41 ] First, paragraph 2.0 (

a) of the Development Agreement stipulates at least two conditions before payment even becomes due (i.e. becomes transformed into an account payable): 1. That the builder’s invoice has been approved by the owner; and 2. That the builder must provide “a statutory declaration certifying payment of all [its] accounts payable.” The latter precondition was waived by the owner during the initial period of the project, as the owner was relying on its own funds and had not yet begun drawing on financing from its bank. However, I accept that it may well have been the first pre-condition which Mr.

Shaman had in mind when he testified about only paying the accounts which were not in dispute. [ 42 ] Second, the owner’s counsel reminds me that this contract was funded not on the basis of “payment of invoices or accounts payable” per se , but rather on the basis of advances made by the owner to the builder, which were applied by the builder against the outstanding balance owing. [ 43 ] Third, counsel argued that significant disputes about the builder’s invoices arose when Mr.

Cunningham decided unilaterally to resume the construction of Building B in February 2008 (discussed further below), thereby skewing and inflating the invoice numbers at a point when financing had only been obtained by the owner for Building A. [18] This, argued counsel, made it next to impossible for the owner to make sense of, let alone “approve”, the invoices being presented by the builder. [ 44 ] Fourth, the owner’s counsel submits that the builder’s own statutory declarations establish the connection made by Mr.

Shaman between his statutory declarations to the bank and the information which he relied upon from the builder. The fact that many of the builder’s statutory declarations were sworn after those of the owner “misses the point” says counsel. Rather, it is the language of the builder’s statutory declarations, combined with that in the Development Agreement, which makes it reasonable for Mr.

Shaman to have testified in re-examination that he also had in mind, at the time of swearing his own statutory declarations, the accounts payable status of the builder with its sub-trades. [ 45 ] Fifth, the owner’s counsel points to the nature of the owner’s statutory declarations, attached as they were to individual “progress claims”, seeking draws on the owner’s financing. The standard form statutory declaration includes paragraph 6, which reads as follows: “The proceeds of the progress claim set out above will be used by the Borrower to funds [as written] payments under contracts relating to the project.

In respect of such payments, the amount required under the Act be paid into the holdback account(

s) is as set out above. If there is more than one such holdback account required under the Act, the respective amounts to be paid into each holdback account are set out in the

Schedule attached to this solemn declaration.” This, suggests counsel, is evidence that the standard form of statutory declaration is intended to deal with the situation where the owner and the developer are one and the same person or entity. For example, this was Mr. Cunningham’s usual business practice as a builder, prior to becoming involved with the project. He said he would purchase land for the purpose of building a residential home on that land, and then later sell the home with a mark-up for his profit.

While in the case at bar, the owner is distinct from the developer, counsel nevertheless argued that the ‘payables’ which are referred to in the owner’s statutory declarations (“all accounts payable in respect of the project”), are more likely the payables going to the builder’s sub-trades than any payables owing from the owner to the builder. At the very least, said counsel, this likely contributed to Mr. Shaman’s confusion in answering the questions about the statutory declarations. [ 46 ] I generally accept these arguments by the owner’s counsel and reject the suggestion by the builder’s counsel that Mr.

Shaman “lied” when he swore his statutory declarations. 2. Shaman was inconsistent about the date when he received the ’06 estimate from Cunningham [ 47 ] It is correct that in cross-examination Mr. Shaman said that he was “sure” that it was early in 2007 when he received the ‘06 estimate. However, it must also be remembered that, just a few questions before, when Mr. Shaman was asked about when he provided the ‘06 estimate to his bank, he testified that it was in early 2007, but that it could have been in 2006 and that he could not remember the exact date. In re-examination, Mr.

Shaman was asked about when he first told Mr. Cunningham that he was going to use the ‘06 estimate as a budget with the bank. Mr. Shaman answered that it was in late 2006 or in the early part of 2007. Obviously, Mr. Shaman would have had to have previously received the ‘06 estimate in order to have such a conversation. Thus, I conclude that the point which the builder’s counsel raises here is more of a quibble than a substantial and probative inconsistency. 3. Shaman was inconsistent about when Cunningham was out of Whitehorse in 2007

[ 48 ] Once again, while that is technically correct, Mr. Shaman readily conceded in re-examination that it was probably in 2008 when Mr. Cunningham was out of Whitehorse, and that he gets his years mixed up. Thus, I am unable to conclude that this relatively minor mistake should significantly detract from Mr. Shaman’s credibility. 4. Shaman was inconsistent about the change to the construction

schedule [ 49 ] In his first affidavit, at para. 8, Mr. Shaman referred to the completion date in the Development Agreement of September 30, 2007, and stated: “At no time have I provided my consent in writing or otherwise, to a date other than September 30, 2007.” However, in his second affidavit, at para. 8, Mr. Shaman deposed as follows: “At paragraph 8 of my Affidavit # 1, I depose that the completion date of September 30, 2007 was never varied with my written consent or otherwise and indeed I believed that be the case when I swore that Affidavit on December 16, 2009.

However, in July of 2010, I had the opportunity to review correspondence produced in these proceedings by the Plaintiff which were from the Plaintiff’s then solicitor, Serge Lamarche, dated March 7 and 13, 2007 neither of which I have previously seen or received.

These letters ... have refreshed my memory and I can depose now that I had forgotten that the Plaintiff's representative, Wayne Cunningham, and I did agree to an extension of the startup date from March 1, 2007 to April 1, 2007 and the completion date from September 30, 2007 to December 31, 2007 – not only extending the start date by a month but also extending the completion date by three months and thereby allowing more time to complete the Project.” This seems a reasonable explanation for Mr. Shaman’s mistake in his first affidavit.

Thus, I do not conclude that it should significantly detract from his credibility. 5. Other problems with Shaman’s testimony [ 50 ] All this is not to say that I did not have certain difficulties with Mr. Shaman’s evidence in other respects. In fairness, however, and notwithstanding his substantial success as a businessman, some of these difficulties may have related to Mr. Shaman’s professed challenges in absorbing and processing written material. Nevertheless, even with that accommodation in mind, I found Mr. Shaman to have very poor communication skills.

His evidence was often vague, occasionally contradictory, and difficult to follow. A couple of examples will suffice for now, while others will become evident later in these reasons. [ 51 ] First, in cross-examination, Mr. Shaman testified that he asked Mr. Cunningham to “sign off” on the ‘06 estimate as the budget for the project. Then, Mr. Shaman said he did not recall asking Mr. Cunningham to sign off on it. In re-examination Mr. Shaman said that he did not ask Cunningham to sign off on it. [ 52 ] The second example relates to two letters Mr. Cunningham wrote to the owner’s bank on September 8 and 17, 2007.

I have already referred to the September 17 letter as containing the total hard cost estimate from the ’07 estimate. Mr. Cunningham testified that Mr. Shaman asked him to write these letters in order to assist him in obtaining financing from his bank. Mr. Shaman denied asking Mr. Cunningham to draft the letters. When asked whether it was “simply coincidence” that Mr. Cunningham did so, Mr. Shaman answered affirmatively. [ 53 ] While I do not conclude Mr. Cunningham only wrote the letters because Mr. Shaman asked him to, the inference that Mr. Shaman did ask seems almost inescapable.

Indeed, in his first affidavit, at para. 11, it is interesting to note how Mr. Shaman juxtaposed the issue of his financing and Mr. Cunningham’s letter of September 17, 2007: “In September 2007, I needed to provide information to my banker, the Bank of Montreal in Kelowna, British Columbia, as to the projected future costs of the project. The plaintiff provided a letter to the bank dated September 17, 2007 where he stated that after confirming his costs with his suppliers and subcontractors, the total hard cost estimates were accurate at 3,834,004 completion of the project…” (

c) Chris Johnson [ 54 ] Ms. Johnson drafted seven progress reports which were provided to the owner’s bank together with covering letters from the builder’s engineer, Mr. Jacobsen. These were the “engineer’s progress reports”, which I refer to above, and which were submitted to the bank in order to obtain draws on the owner’s financing. [ 55 ] The builder’s counsel submits that Ms. Johnson admitted that five of these engineer’s progress reports “were false” in that they did not accurately reflect the builder’s billings to the dates indicated in the reports.

Further, counsel submits that the reports did not accurately reflect the projected costs of the project to its conclusion, which Ms. Johnson knew because she had prepared accurate projections in another series of reports referred to by the parties as the “actual progress reports”. [ 56 ] A complete answer to the challenge to Ms. Johnson's credibility will be made following my findings of fact below. For now, I begin with my observation that Ms. Johnson seemed to be a careful, diligent and thoughtful witness, who did not appear to exhibit any bias against Mr.

Cunningham, notwithstanding the fact that she was retained by the owner. She also brought to her bookkeeping duties a significant amount of related experience. She is a high school graduate who went on to take accounting courses and was employed with

Revenue Canada 1981 to 1987. She was employed as a bookkeeper from 1987 to 1991. Over the period from 1991 to 2005 she owned the Yamaha business in Whitehorse. She has been self-employed as a bookkeeper and property manager from 2005 to the present, carrying on business as “Cornerstone Business Services.” [ 57 ] Ms. Johnson was hired by the owner in the spring of 2007 to keep track of expenses on the project. In particular, because Mr.

Shaman was often away from Whitehorse during construction, he expected her to be his “eyes and ears” in terms of monitoring the progress and costs of the project. [ 58 ] The diligence with which Ms. Johnson approached her duties is exemplified by the series of notes which she made following various meetings she attended between Mr. Shaman and Mr. Cunningham. I will return to some of these notes later in my findings of fact. For now, it is sufficient to note that, by and large, Mr.

Cunningham did not take significant issue with the content of the notes as an accurate depiction of matters discussed at those meetings. [ 59 ] Near the beginning of her retainer, Ms. Johnson began to experience problems allocating items from the builder’s weekly invoices to the expense categories set up under the ‘06 estimate, and she later encountered the same issue working with the’07 estimate. This problem was exacerbated by the fact that, while the builder claimed to have a purchase order system in place, it often required a subjective

interpretation of the invoices in order to determine how the purchased items should be categorized. This led to frequent discussions between Ms. Johnson and Mr. Cunningham about the proper allocation of those items. [ 60 ] Further, when the owner’s bank financing became necessary, the bank required that the engineer’s progress reports be in a certain format, which differed from what was being used by the builder in its expense tracking. Ultimately, Ms. Johnson agreed to take over the tracking of the builder’s expenses herself, using the builder’s format. These became known as “actual progress reports”.

It is the divergence between the actual progress reports and the engineer’s progress reports, which gives rise to the challenge by the builder’s counsel to Ms. Johnson’s credibility. [ 61 ] According to Ms. Johnson, as time went on, she became increasingly concerned that the information being provided to her by Mr. Cunningham was not accurate. The problems in this regard included : (

a) regular reallocating of expenses from one category to another; (

b) the extent to which Mr. Cunningham referred to certain categories of expenses as being completed (i.e. a particular expense item was 100% finished), only to receive further invoices under those same categories; and (

c) whether the expenses should be allocated to Building A or Building B. [ 62 ] The owner also began to dispute the correctness of the builder’s invoices. In Ms. Johnson’s testimony about the engineer’s progress report of June 26, 2008, she explained that she was not including all of the builder’s billings in the progress reports, because the owner no longer agreed that they were all legitimate. [ 63 ] Further, there were representations by Mr. Cunningham that, notwithstanding the owner’s concerns about increasing costs, Building B would “come in cheaper” than Building A.

Those representations were initially accepted by the owner and Ms. Johnson, but eventually they began to seriously question the accuracy of the builder’s numbers. It is in this context that Ms. Johnson testified that the engineer’s progress reports may have been under-representing the true cost of the project. [ 64 ] According to Ms. Johnson, the problem for her and Mr. Shaman was that they did not really know where the project was at financially because of the inaccurate information they were getting from Mr. Cunningham.

For example, they could not always rely on the actual progress reports because the numbers therein were derived from information from Mr. Cunningham. Ms. Johnson spoke in terms of “fearing” that they were more over budget then the engineer’s progress reports indicated, but she denied the suggestion by counsel that these reports were “false”. Rather, she maintained they were accurate to the best of her knowledge and ability, because she and Mr. Shaman were disputing a number of the builder’s charges and a lot of what Mr. Cunningham was telling them. [ 65 ] Further, Ms.

Johnson was aware of the owner’s need to continue to obtain financing draws and knew that the engineer’s progress reports were required by the bank for those draws. I infer from this that she likely felt pressure to act professionally as the owner’s bookkeeper, while doing her best to keep the project going. [ 66 ] Ultimately, however, Ms. Johnson testified that she found it “very frustrating” to try and do a good job in the circumstances. For example, with reference to a meeting between the parties on March 28, 2008, she said that she and Mr. Shaman had “extreme discomfort” because they did not feel Mr.

Cunningham “actually had a handle on the project” and they doubted the truth of what he was saying.

Towards the end of the period of the bank financing there was a point where she said she did not know what to believe. [ 67 ] Nevertheless, and importantly, when re-examined about the differences between the engineer’s progress reports and actual progress reports and whether the numbers in the respective reports were true or not, she made a distinction between what she knew at that time and her later knowledge, clarifying that her answers to the builder’s counsel in that regard were based on what she learned later, rather than what she absolutely knew to be true at the time. [ 68 ] Taking all of these circumstances into consideration, together with my very favourable view of her demeanour, I conclude that the challenge to Ms.

Johnson’s credibility by the builder’s counsel in this regard does not adversely impact on her credibility to any significant extent. At the end of the day, my initial assessment of Ms. Johnson as a thoughtful, diligent, careful and unbiased witness remains. 3. FINDINGS OF FACT [ 69 ] My findings of fact in this case are largely dependent upon my assessment of the credibility of the various witnesses, principally Mr. Cunningham, Mr. Shaman and Ms. Johnson. As I concluded above, I have significant problems with Mr. Cunningham’s

credibility in several key respects, most centrally on the question of whether the ‘06 and ’07 estimates were respectively intended as the original and final budgets on the project. [ 70 ] Mr. Shaman’s testimony was not without its problems, however it was corroborated in many important respects by Ms. Johnson, whom I find to be an entirely believable witness. Therefore, contrary to the submission of the builder’s counsel, where the evidence of Mr. Cunningham conflicts with that of Mr. Shaman and Ms.

Johnson, I generally prefer the evidence of the latter two witnesses. [ 71 ] On this basis, I make the following findings of fact: 1. In about 2005, Mr. Cunningham built a residential home for Mr. Shaman on a fixed price basis and employed a “scope of work” document as part of that job. 2. In the spring of 2006, Mr. Cunningham and Mr. Shaman met again to discuss the development of a piece of property Mr. Shaman had purchased in the Takhini area of Whitehorse, which he wished to develop for commercial purposes. 3. Mr.

Shaman had previously encountered some difficulties with the local residents resisting his attempts at rezoning the property for the purposes of the development. 4. Mr. Shaman solicited the assistance of Mr. Cunningham to prepare conceptual drawings for the development and to assist Mr. Shaman in his attempts at resolving the rezoning issues. 5. By March of 2006, the parties settled on a 20 unit condominium complex spread out over two identical buildings. The following elements had been agreed upon: (

a) two buildings housing 10 condo units apiece; (

b) the dimensions of each building would be 35 feet in height, 60 feet wide, 130 feet long; (

c) each condo unit would have two bedrooms and a den, with an attached two-car garage; (

c) the target markets were seniors, professional single people or young couples with no children; and (

d) the buildings would be oriented towards the east side of the property. 6. Mr. Cunningham prepared some conceptual drawings, attended meetings with area residents and city officials, and ultimately was successful with the rezoning in the early summer of 2006. 7. Mr. Shaman and Mr. Cunningham discussed concepts for the further development of the project and Mr. Cunningham arranged for some architectural drawings to be done. 8. Mr. Shaman asked Mr.

Cunningham to be involved with the demolition of the existing structures on the property and the installation of the necessary services for the future development of the project. 9. In August 2006, Mr. Cunningham prepared the ‘06 estimate and provided a copy to Mr. Shaman shortly thereafter. 10. Both Mr. Shaman and Mr. Cunningham are notoriously poor communicators. I found at trial that Mr. Cunningham has a tendency to speak in very rapid-fire bursts of phrases, and frequently slurs his words together so that they are difficult to understand. Further, both he and Mr.

Shaman have a tendency to speak in broken sentences, moving from one thought to another without a clear conjunction. Mr. Shaman is also very soft-spoken and difficult to hear at times. Both persons were frequently indiscernible during their testimony and I regularly had to ask each of them to repeat what they had said at various times. I find that this mumbling led to a degree of miscommunication between them. 11. An early example of miscommunication between the parties involved the concrete foundation work for the project: (

a) The ‘06 estimate included a “proposed construction schedule” for the project over the period from September 2006 to October 2007. In particular, during the period of September and October 2006, the following items of work had been identified: “Permits Site demolition Water and sewer installation Slab preparation for both buildings

Concrete place and finishing for both structural slabs Site grading” In addition, the ‘06 estimate included a number of cost estimates for various categories of labour and materials. Those relevant to the initial development of the project included: “Excavation & Service ... Water and Sewer service ... Cement Finishing ... Concrete.” (

b) In the fall of 2006, during a period when Mr. Shaman was away from Whitehorse, Mr. Cunningham proceeded with the foundation work for the project, which included the pouring of concrete slabs for each of the two condominium buildings. This work was finished by the end of October 2006. Mr. Cunningham billed the owner just over $375,000 for all of the builder’s services to that point, the vast majority of which would have involved the foundation work. (

c) Mr. Cunningham assumed he had the owner’s authority to proceed with the foundation work, whereas Mr. Shaman maintained that he had not in fact authorized that work, and it came as a total surprise to him. I find that the miscommunication arose from the combination of Mr. Shaman’s instructions to Mr. Cunningham to proceed with “demolition” and “putting in the services”, and the fact that the ‘06 estimate had included a

schedule for the foundation work and various estimates for labour and materials associated with that work. 12. Upon Mr. Shaman’s return to Whitehorse in the fall of 2006, he met with Mr. Cunningham to discuss the foundation work which had been done. Mr. Cunningham explained that he wanted the slabs to be completed before winter. Mr. Shaman said that Mr. Cunningham should not do any further work on the project without a contract and a budget being in place. Mr. Shaman immediately retained counsel for the purpose of drafting of an agreement. 13.

Drafts of the proposed written agreement were exchanged between the parties and their respective counsel over the ensuing months in late 2006 and early 2007. Mr. Cunningham’s counsel provided a four-page memo regarding suggestions about certain wording in the agreement. [19] Included in that list was a reference to the profit-sharing provision in the draft agreement, where Mr. Cunningham’s counsel made the following notation: “50/50 split but the Builder’s portion must be no less than 13% of the “Cost of Work”. I find that this was an attempt by Mr.

Cunningham to introduce a ‘cost plus’ component into the contract. However, the Development Agreement which was ultimately signed by the parties on February 27, 2007, and specifically the profit-sharing provision, contains no such wording. Rather, it simply says that the profit “shall be divided equally”. 14. By December 8, 2006, the owner had provided to the builder a total of $375,000 in advances, the first $25,000 of which had been credited to the builder’s initial invoice of $375,357.70. Mr.

Shaman specifically held back $100,000, to be held in trust by his lawyer, because he was concerned about possible liens on the property and the fact that he and the builder had not yet entered into a written agreement. 15. Following the signing of the Development Agreement, the parties agreed that the construction

schedule would be amended to run from April 1 to December 31, 2007. They further agreed that Mr. Cunningham would prepare the “Scope of Work”

schedule relating to the Development Agreement (referred to in the agreement as “Schedule A - Scope of Project”, but otherwise left blank), but Mr. Cunningham indicated it would take some time before that could be completed. In the meantime, he asked that the remaining $100,000 being held back by Mr. Shaman be paid to the builder, pending the completion of the “Scope of Work”. These agreements were confirmed in the fax from the builder’s counsel dated March 7, 2007 (see para. 23 above). Mr. Shaman agreed to proceed on that basis. 16.

This was the first construction project of this magnitude in the builder’s experience. Typically, the builder would purchase properties and build single dwelling residential homes on them, selling them for a mark-up. As the owner and developer in such undertakings, Mr. Cunningham did not have to work under an agreement and did not have to answer to a customer. The Development Agreement in this case was unique to his experience. He understood that it was “vital” to the owner to have such an agreement before proceeding with the work. 17.

Construction did not begin on April 1, 2007, because the builder had not yet obtained the structural and electrical drawings from its engineer. Originally, Mr. Cunningham expected that those drawings would be prepared over the winter months of 2006 - 2007, but Mr. Shaman had specifically instructed him not to undertake any further work on the project until the Development Agreement was in place. Framing began on the site in June 2007. 18. In approximately May 2007, the owner retained Ms. Chris Johnson as its bookkeeper in relation to the project. 19.

Although the Development Agreement referred to monthly invoices from the builder, Mr. Shaman wanted to receive them on a weekly basis in order to keep a closer eye on costs. The builder agreed to this. 20. On June 15, 2007, Mr. Shaman and Ms. Johnson met with Carol Cunningham. Ms. Johnson’s note of that meeting records that

there was reference made to a problem because the categories of expenses in the first invoice from the builder (for the work to and including the foundations) did not match “the budget categories”. I find this to be a reference to the categories of the various anticipated expenses in the ‘06 estimate. 21. On July 4, 2007, Mr. Shaman and Ms. Johnson met with Mr. Cunningham. Ms. Johnson’s notes indicate that they “reviewed [the] budget” and that Mr. Shaman was concerned because the excavating costs were “double budget”. Ms. Johnson also asked Mr. Cunningham about using a purchase order system. Mr.

Cunningham and Mr. Shaman also discussed installing fireplaces in each of the condos and having a show suite ready for August, although Mr. Cunningham did not think it would be ready until the Fall. I find that the reference to a “budget” by Ms. Johnson in her notes of this meeting relates to the ‘06 estimate. 22. On August 21, 2007, Mr. Shaman and Ms. Johnson again met with Mr. Cunningham: (

a) Mr. Shaman was concerned about the delay in construction, but Mr. Cunningham assured him that he would be able to continue working into the winter. Ms. Johnson commented on “the budget” information she received and said that it did not balance with the builder’s invoicing. I find this to be another reference to the mismatching of the expense categories on the invoices with those in the ‘06 estimate. Mr. Cunningham indicated this was probably because his own bookkeeper was behind on entering information and that the owner had not yet been billed for some items. He suggested it would all balance out in the end.

Ms. Johnson asked whether the builder could code the individual invoices before sending them to the owner. I find this to be a further request from the owner to the builder to use a purchase order system; (

b) Mr. Cunningham indicated he thought he might have five pre-sales; and (

c) Ms. Johnson raised the issue of the builder charging “administration fees” and how that was not fair and not part of the true cost of the project. She referred to the builder’s mark-up on labour costs for such things as workers’ compensation and unemployment insurance premiums, statutory holidays, holiday pay, and office administration. Ms. Johnson further indicated that Mr. Cunningham and his wife should not be entitled to clothing and tool allowances. Finally, she indicated that Mr.

Cunningham does not pay unemployment insurance premiums, therefore his labour claim should not be marked up for that reason. 23. By September 2007, the owner had exhausted its own funds and was turning to its bank for financing. The bank had previously indicated to Mr. Shaman that it would require regular reports from a quantity surveyor on the status of the construction as that related to the cost of the project. As there are no quantity surveyors in the Yukon, it was agreed by the parties that Mr. Cunningham would retain Niels Jacobsen as a professional engineer to perform those services. 24.

In anticipation of the first financing draw from the bank, Ms. Johnson prepared a memorandum to Mr. Shaman dated September 4, 2007, regarding the “Requirements from Project Engineer”: (

a) This memo indicated that the bank would require from the project engineer a number of items including confirmation that he has reviewed the plans and specifications for the phase being financed, and finds those to be acceptable. In addition, the project engineer would have to review the “detailed construction budget for the project” being financed and conclude that the budget is sufficient to allow for completion in accordance with plans and specifications; and (

b) A copy of this memo was faxed to Mr. Cunningham by Ms. Johnson and included some handwritten notes made by Ms. Johnson, requesting additional information from him, for the bank. I find as a fact that Mr. Cunningham in turn provided a copy of this memo to Mr. Jacobsen. On his copy of the memo, Mr. Jacobsen made notes regarding address information for the owner’s bank and the name of the bank officer on the file. 25. On September 5, 2007, the owner entered into an “Agency Agreement for Sale of Property” (“Listing Agreement”) with Marilyn Mah.

About that time, the project was named “Lansing Point.” The owner retained Ms. Mah as a realtor to sell at least 16 of the 20 condo units on the project. It was then anticipated that the owner and the builder would be able to sell four of the units on their own. Ms. Mah prepared an information package for prospective purchasers which included a number of details regarding the specifications of the individual condo units, as well as their sale prices and planned drawings of the units and the buildings. Most of the information regarding the specifications of the units was supplied to Ms. Mah by Mr.

Cunningham prior to her signing the Listing Agreement. A subsequent updated version of the information package was prepared by Ms. Mah in December 2007. 26. Using information provided by Mr. Cunningham, Ms. Johnson prepared an updated progress report on the costs of the project to date, as well as the estimated costs to complete. This was dated September 7, 2007, and was provided by her to Mr. Jacobsen. Mr. Jacobsen and Mr. Cunningham met at the project site to go over this progress report, which included the ’07 estimate, and confirm its accuracy. Following that meeting, Mr.

Jacobsen wrote a letter to the owner’s bank, also dated September 7, 2007, attaching the ’07 estimate and confirming that he had done a general review of the plans and specifications for the project. The ’07 estimate indicated that the total project costs were to be $4.541 million, with a sub-total for ‘hard costs’ at $3.834 million (not including GST). 27. On September 8, 2007, Mr. Cunningham, on behalf of the builder, wrote to the owner’s bank confirming that the builder was the general contractor for the project and that Mr.

Cunningham was “fully responsible for the overall project management, construction, and marketing” of the project. This letter included the following paragraph: “Kareway Homes Ltd. is solely responsible for establishing and maintaining the project budget. The cost and budget are continuously reviewed and scrutinized on a regular basis and have been adjusted accordingly throughout the construction of this project.

Wayne Cunningham is confident and satisfied that the current detailed budget is realistic and sufficient which will allow [as written] for completion of this project in accordance with the plans and specifications.” (my emphasis) 28. On September 17, 2007, Mr. Cunningham again wrote to the owner’s bank confirming that he had reviewed the September 7 th progress report and stating that “the total hard cost estimates are accurate at $3,834,000 for the completion of this project.” I find this to

be a direct reference to the subtotal for “total hard costs” in the ’07 estimate prepared by Ms. Johnson. 29. In a letter from Mr. Jacobsen to the owner’s bank dated January 3, 2008, enclosing one of the several subsequent engineer’s progress reports, Mr. Jacobsen referred to “the budget figure of $4,441,392.20 in the September 7, 2007 progress report” (my emphasis). As previously noted, Mr. Jacobsen was retained by the builder and was acting as the builder’s agent, and, at least in part, on the builder’s instructions.

The total project costs in the September 7, 2007 progress report were in fact $4,541,392.20, so it appears as if Mr. Jacobsen made a typographical error in this letter. 30. On October 28, 2007, Mr. Shaman and Ms. Johnson met with Mr. Cunningham. Mr. Shaman indicated that he could not make a draw on his financing because the anticipated six pre-sales previously mentioned by Mr. Cunningham had not materialized. Consequently, the parties decided to change the owner’s financing to Building A only, and to close up Building B for the winter.

The plan was to complete Building A in order to sell some condo units, and later proceed with the financing on Building B. Contrary to that arrangement, the builder restarted construction on Building B in approximately February 2008, before Building A was completed. 31. On April 8, 2008, Mr. Shaman and Ms. Johnson met with Mr. Cunningham: (

a) Mr. Shaman was concerned about the “overrun”, which I find to be with reference to the ’07 estimate. Mr. Cunningham suggested that some of the labour expenses may have been distributed incorrectly, however Ms. Johnson disagreed with this explanation. Mr. Cunningham then suggested that expenses may have been billed to Building A instead of Building B. Ms. Johnson again asked Mr. Cunningham to code the individual invoices before copying them for her, so that she could more easily enter them in the various expense categories. Mr.

Cunningham agreed that construction costs would not be over $2.2 million for Building A and that Building B should cost a bit less. He again indicated that there were six pre-sales, two for Building A and four for Building B, and estimated that the project should be complete by the end of August 2008; and (

b) Mr. Shaman expressed unhappiness about the overruns and the delay. He also complained about the fact that Mr. Cunningham had indicated that certain expense categories, such as electrical and siding, were 100% complete, and yet the owner was continuing to receive further invoices from the builder for expenses in those categories. 32. On June 5, 2008, Ms. Johnson complained to Carol Cunningham about being charged “2%”, which I find to be a reference to the builder’s attempt to charge the owner interest on its outstanding invoices from suppliers. Ms. Johnson asked Ms.

Cunningham to supply statements supporting these charges, but she refused to do so. 33. On June 25, 2008, Mr. Shaman and Ms. Johnson again met with Mr. Cunningham. Mr. Shaman told Mr. Cunningham that he was not accepting the “budget overrun”. They were then reviewing an estimate which put the cost to complete at $5.58 million. Mr. Shaman was unhappy because Building B was now costing more than Building A, when Mr. Cunningham previously assured the owner that Building B would cost less. Mr. Shaman said he was not going to pay for the interest being charged by the builder.

He also wanted to know why the labour costs were so high. Mr. Shaman again complained about the lack of a proper purchase order system. Mr. Shaman was upset that they were still working on Building A and that Mr. Cunningham would not commit to a completion date. 34. On December 18, 2008, Mr. Shaman and Ms. Johnson met with Mr. Cunningham. Mr. Shaman again complained about the project being “over budget” and about Building B costing more than Building A. He wanted to know what Mr. Cunningham was going to do about it. Mr. Shaman stated that there was “no profit left” in the project, but Mr.

Cunningham thought there was. Mr. Cunningham suggested that they could simply charge more for the condo units. 35. On March 3, 2009, Mr. Shaman and Ms. Johnson again met with Mr. Cunningham, this time at the project site, and they viewed the condo units: (

a) Mr. Shaman again complained about the project being delayed and about the “budget…overrun”. He described the situation as “ridiculous”. Mr. Cunningham failed to respond with any specific suggestions; and (

b) Following that meeting, Mr. Cunningham asked for a further advance to credit against the builder’s outstanding balance from its invoices. Mr. Shaman agreed to a further advance of $100,000, but instructed Ms. Johnson to ensure that Mr. Cunningham swore a statutory declaration (as required by the Development Agreement) before releasing the funds. Mr. Cunningham attended at Ms. Johnson's office later that day to pick up the cheque. He said it was too late that day to provide the statutory declaration but said that he would do so later. He never did. 36. In early 2009, Mr.

Shaman determined that it was necessary to insulate the attic of one of the buildings. According to Mr. Shaman, the subcontractor had a dispute with the builder over an unpaid bill, so Mr. Shaman took this on himself, and paid the subcontractor for the work. This was in the amount of $13,673.84. I did not understand the builder to have any quarrel with this amount. Accordingly, I find that it is a sum due to the owner, for which it is entitled to be repaid before any determination of profit-sharing. 37. It was also Mr. Shaman's evidence that he paid a total of $47,814.36 in insurance costs for the project.

Again, I did not understand the builder to take any issue with this amount. I therefore find that is should be repaid to the owner before any determination of profit. 38. On May 30, 2009, Ms. Johnson prepared a memorandum for the builder formally objecting to a number of items for which the owner claimed it was being overcharged. Unfortunately, there was little or no evidence explaining the "General adjustments" of $17,127.58 included in that memorandum. However the references to overcharges relating to "interest" and to "payroll" were previously discussed with Mr.

Cunningham much earlier on in the meetings between the parties on August 21, 2007 and June 25, 2008. For the reasons given by Mr. Shaman and Chris Johnson at those meetings, and as further detailed in their testimony, I find the owner’s objections to being overcharged on interest, in the amount of $89,312.71, and on payroll, in the amount of $100,335.75, to be legitimate. 39. On September 28, 2009, Mr. Shaman and Ms. Johnson again met with Mr. Cunningham. Ms. Johnson provided Mr. Cunningham with more documentation regarding items that were in dispute. Mr.

Cunningham suggested that the overruns being complained about had been agreed to by Mr. Shaman and that they were just part of the builder’s costs. Mr. Shaman asked for further

information on the actual cost of the extras that they had agreed to. Mr. Shaman's own estimate was that the cost of these extras did not exceed $200,000. Mr. Cunningham again suggested that they should simply charge more for the condos. Mr. Shaman asked what else needed to be done and how much it was going to cost. Mr. Cunningham said there was an outstanding bill for $40,000 for security, but Mr. Shaman responded that “the budget” only called for $24,000. I find this to be a direct reference to the security system category in the ’07 estimate. Mr. Shaman complained that the builder was $16,000 over the “b

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