0867740 B.C. Ltd. v. Quails View Farm Inc.

2013 BCSC 1021 0867740 B.C. Ltd. v. Quails View Farm Inc.

IN THE SUPREME COURT OF BRITISH COLUMBIA Citation: 0867740 B.C. Ltd. v. Quails View Farm Inc., 2013 BCSC 1021 Date: 20130607 Docket: 47611 Registry: Vernon Between: 0867740 B.C. Ltd. Plaintiff And Quails View Farm Inc., Antonia Dudka and Alejandro Dudka Defendants And 0867740 B.C. Ltd. Defendant by way of Counterclaim And Egrip Equipment Inc. and 0790816 B.C. Ltd. d.b.a. Egram Homes Third Parties Before: The Honourable Madam Justice Gerow Reasons for Judgment Counsel for Plaintiff and Third Parties: E.J. Woolley Counsel for Defendants: T.M. McCaffrey M.G. Hansen Place and Date of Trial: Kelowna, B.C. April 29 and 30, May 1 and 2, 2013 Place and Date of Judgment: Vernon, B.C. June 7, 2013 [1] The plaintiff, 0867740 B.C. Ltd., entered into a contract with the defendants to build a recreational vehicle park ("RV park") on a portion of the property owned by the individual defendants, Antonia Dudka and Alejandro Dudka. The property in issue is part of a larger parcel of land owned by the individual defendants. [2] The project started in January 2010, and was nearing completion when a dispute arose between the parties. The plaintiff alleges the defendants terminated the contract and have breached the contract by refusing to pay it the monies owed under the contract. The defendants allege the plaintiff abandoned the project and did not construct the park in accordance with terms of the contract. [3] The issues are: 1) Did the plaintiff abandon the project or was the contract terminated by the defendants?

2) What amount is due and owing to the plaintiff pursuant to the contract?

3) Did the plaintiff breach the contract by failing to perform the work in a good and workmanlike manner and in accordance with the specifications?

4) If there were deficiencies, what, if any, set-off for damages against the contract price are the defendants entitled to? Background [4] The individual defendants own a 19.5 acre farm that is in the Agricultural Land Reserve. In 2009, the individual defendants, together with their daughter, Catalina Dudka, met Ernie Gylytiuk, one of the two co-owners of the third parties on an unrelated matter. [5] During the course of a meeting, the parties discussed the possibility of constructing an RV park on the individual defendants' property. Mr. Gylytiuk advised the Dudkas that the third party, 0790816 B.C. Ltd., was a construction company doing business as Egram Homes, and the companies would be interested in building an RV park if the defendants were interested in proceeding with the project. [6] The parties entered into further discussions in which the defendants made it clear that the construction budget was $200,000, including the cost for any permits. During the meetings between the parties, Mr. Gylytiuk introduced the Dudkas to his business partner, Ramesh Sharma. [7] In late 2009, ground preparation began on the property by the third parties, even though the parties had not entered into a contract. There is a dispute between the parties as to whether or not the defendants authorized the stripping of the site to be done at that time. Despite the dispute, the defendants

acknowledge that money is payable to the plaintiff for the work done to strip the land. [8] The parties continued to negotiate the contract through the winter of 2009 and into January 2010. By that time, the initial stripping of the land had been completed and an invoice had been sent to the corporate defendant for the amount of $22,697. [9] In anticipation of reaching an agreement, Mr. Gylytiuk and Mr. Sharma incorporated the plaintiff company for the purpose of constructing the RV park and possible similar projects in the future. [10] The plaintiff forwarded a contract to the defendants, which the defendants took to their lawyer. The contract was rejected and a new contract was drafted by the defendants' lawyer. [11] The contract was for a fixed price of $200,000 plus GST, of which $100,000 was to be financed by the plaintiff for two years at an interest rate of 8%, with interest-only payments until the due date. The balance of the contract price of $100,000 was to be paid in accordance with a schedule set out in the contract. The defendants were responsible for making certain payments to third parties. [12] In the contract, the plaintiff is identified as the "Project Manager," and the individual defendants are identified as the "Owners." The relevant terms of the contract provide: 1. As used herein: (a) "Completion of Construction" means the date when the RV park has been

substantially completed in accordance with the plans and Specifications and the Project Manager has obtained a Final Inspection and presented such to Quails View. (b) "Contract Price" means the sum of $200,000.00, excluding GST. I "Deficiency List" means a list, if any, prepared by Quails View which sets forth those items which were not completed according to the terms contained herein. (d) "Final Inspection" means that Document which is given by the appropriate governmental authority and shows that the RV Park is completed to the stage that it is fit and permitted to be used as a RV Park. I "Financing" means the amount equal to the Contract Price less the Quails View Capital as defined hereinafter. (f) "Plans and Specifications" means the plans and specifications (including the building blue prints and the budget items) to be used in the construction of the RV Park, attached hereto as Appendix "A". ... 2.3 Quails View shall pay the sum of ONE HUNDRED THOUSAND DOLLARS ($100,000) (the "Quails View Capital") towards the construction of the RV Park, which sum will be paid as set out in Schedule "B". The balance of the Contract Price will be paid by Quails View to the Project Manager as set out in paragraph 2.6. ... 2.5 This Contract is a fixed price Contract. Any extras or additional costs to this Contract shall be agreed to in writing by the Project Manager and Quails View prior

to such cost or extra being incurred. Any extra or additional costs incurred by the Project Manager which have not been approved in writing by Quails View shall be the sole cost and expense of the Project Manager without reimbursement thereof by Quails View. 2.6 Quails View will pay to the Project Manager the Financing within two (2) years of the Completion of Construction of the RV Park. Quails View will pay interest at the rate of 8% per annum compounded semi-annually, not in advance on the outstanding balance of the Financing commencing on the Completion of Construction. During the 2 year term, Quails View will make monthly payments on the first day of each and every month for interest only on the outstanding amounts owing for the Financing. Quails View shall have the right to repay part or all of the Financing without notice or penalty at any time during the 2 year term.

3. The Project Manager shall, from the date of acceptance of this Contract, use all reasonable efforts, as a prudent Project Manager building for its account would use, to cause the construction of the RV Park to be completed in a good and workmanlike manner in accordance with the Plans and Specifications. ...

5. Within 14 days of the Completion of Construction, Quails View shall provide the Project Manager with a Deficiency List. The Project Manager shall complete the work stated in the Deficiency List within 60 days of receipt of such, failing which Quails View shall have the right to complete such work and set off the balance against the outstanding balance of the Financing.

6. The Project Manager agrees that it will, upon Completion of the Construction, provide the Owners and Quails View with a 2-year warranty on the work completed by the Project Manager. ...

10. Antonia and Alejandro by signing this Contract, unconditionally guarantee to the Project Manager, Quails View's payment of the Financing and interest thereon due and owing and compliance with Quails View's other obligations under this Contract and, upon default by Quails View, will pay the Project Manager upon demand and comply with all the obligations under this Contract. Each of Antonia and Alejandro shall be jointly and severally responsible with Quails View and with one another for all obligations of Quails View under this Contract.

11. This Contract shall terminate on the happening of any of the following events: (a) In the event any party receives written notice that such party (the "Defaulting Party") is in default of their obligations in this Contract and the Defaulting Party fails to cure such default within 14 days of receipt of written notice of the default, the other parties may, at their option, terminate this Contract by giving the Defaulting Party written notice of their election to do so; ... I Upon any party giving the other parties 90 days' notice of their intention to withdraw from this Contract; (d) Upon the final payment by Quails View of the Financing and interest thereon. ... [13] There are three schedules attached to the contract. Schedule "A" is entitled "Plans & Specifications" and provides: See attached Quails View Farm RV Park Site Plan Certified Blue Prints Survey City of Kelowna Specifications [14] Schedule "B" is entitled "Quails View Capital Draws" and provides: Payable directly to Black Mountain Irrigation by Quails View: a) Capital Expenditure fee water certificate $21,637.00 Total: $21,637.00 Payable directly to City of Kelowna by Quails View: a) Sewer Connection fees for RV site $11,500.00 b) Plumbing & sewer permit, inspection & development fees $3,040.00 c) Building permit & inspection fee $121.50 Total: $14,661.50 Payable directly to Fortis: a) Extension to electrical

service and connection down payment $5,421.47 Total: $5,421.47 Payable to the Project Manager: a) Work done to date as per Jan 29, 2010 Invoice $22,697.85 b) Surveyor/Civil Engineer fees (certified blue prints) $8,400.00 c) Upon completion of office building $12,603.65* d) Remainder of cost of electrical service extension $14,578.53* * More detailed payment schedule to follow Total: $58,280.03 TOTAL QUAILS VIEW CAPITAL DRAWS $100,000.00 [15] Schedule "C" is entitled "Quails View Farm RV Park Requirements" and provides: 10 pad RV park with office as per site plan 10 RV Pads -1 level gravel RV parking area per pad as per site plan 1 lawn area as per site plan with grass seed 1 water and 1 sewer hook-up per pad 8 pads with 30amp & 2 pads with 50amp electrical hook-up 1 tree per pad (min 6' high eg oak or maple - not willow) 4 common areas - lawn as per site plan with grass seed 1 water tap per common area 1 outdoor electrical outlet (2-4 plug-ins) per common area 2 trees (min 6' eg oak/maple-not willow) per common area Irrigation pipe installed with riser to each pad and to each common area in two zones, originating at office and connected to water supply. Building - office building finished inside & out with washroom with toilet and sink and Laundry sink and rough-in for washer/dryer. NB no appliances included. Road - Access gravel road into property and to access all pads as per

site plan. Infrastructure - All infrastructure required for the above and for this Infrastructure to meet City of Kelowna Code, Requirements and applicable By-Laws. Work contracted consists of: (1) Surveying, engineering, and stripping of designated site. (2) Installation of infrastructure (sewer, water, hydro) and appropriate connection to municipal supplies to engineers specifications (3) Creation of 10 R.V. stalls with ¾" crush topping and bordered with 4"x4" timbers (4) Creation of road with ¾" crush topping (5) Building office as per city guidelines and bylaws (6) Meeting all of the requirements mentioned above. [16] Although the contract is dated January 21, 2010, the parties agree that it was signed at the Dudkas' farm on January 29, 2010. Mr. Gylytiuk and Mr. Sharma did not consult lawyers prior to signing the contract. Mr. Sharma's evidence is that they were anxious to be paid for the outstanding invoice, and knew they would not get paid until there was a signed contract, so they signed it. [17] Construction began shortly after the contract was signed and completed in mid-May 2010. Around the end of construction, disputes arose between the parties. The defendants alleged deficiencies in the construction and refused to pay any amounts owing under the contract. A meeting to discuss the issues took place between the parties at the Dudkas' farm, and ended when the

president of the corporate defendant, Catalina Dudka, ordered Mr. Gylytiuk and Mr. Sharma to leave the property. Both Mr. Gylytiuk and Mr. Sharma gave evidence that they thought they had been fired by the defendants at the meeting. [18] In June 2010, the defendants' lawyer sent a letter to the plaintiff attaching a deficiency list. The plaintiff sent a response addressing each of the issues raised, and denying they were deficiencies. Despite the denial, the plaintiff offered to do some additional work. The defendants did not respond to the plaintiff's offer. [19] Since May 2010, the defendants have been operating the RV park. They have not repaired any of the alleged deficiencies, nor have they allowed the plaintiff's representatives onto the site to remedy any of the deficiencies. Applicable Law [20] Both parties presented evidence regarding their negotiations leading up to the signing of the contract. However, as noted in Group Eight Investments Ltd. v. Taddei, 2005 BCCA 489, a case dealing with a promissory note, the words of the contract must be looked at to determine the intention of the parties. The meanings of the words are not interpreted based on the intention of the parties. [21] The plain and ordinary meaning should be given to the words, and the various terms should be read in the context of the whole of the contract. In Group Eight Investments, the court

stated: [21] A helpful review of the principles of contract interpretation in the commercial context is found in the decision of Scanlon v. Castlepoint Development Corp. (1992), 99 D.L.R. (4th) 153 (Ont. C.A.); leave to appeal to S.C.C. refused (1993), 102 D.L.R. (4th) vii. Robins J.A. stated at 179: The agreement with which we are concerned is a negotiated commercial document which should be construed in accordance with sound commercial principles and good business sense. To the extent that it is possible to do so, it should be construed as a whole and effect should be given to all of its provisions. The provisions should be read, not as standing alone, but in light of the agreement as a whole and the other provisions thereof: Hillis Oil & Sales Ltd. v. Wynn's Canada Ltd. (1986), 25 D.L.R. (4th) 649 at p. 655, [1986] 1 S.C.R. 57, 71 N.S.R. (2d) 353. [22] More recently, this Court summarized the principles of contract interpretation in Gilchrist v. Western Star Trucks Inc. (2000), 73 B.C.L.R. (3d) 102, at paras. 17‑18: The goal in interpreting an agreement is to discover, objectively, the parties' intention at the time the contract was made. The most significant tool is the language of the agreement itself. This language must be read in the context of the surrounding circumstances prevalent at the time of contracting. Only when the words, viewed objectively, bear two or more

reasonable interpretations, may the court consider other matters such as the post-contracting conduct of the parties: Delisle v. Bulman Group Ltd. (1991), 54 B.C.L.R. (2d) 343 (B.C.S.C.), approved by Chief Justice McEachern in Bramalea Ltd. v. Vancouver School Board No. 39 (1992), 65 B.C.L.R. (2d) 334 (B.C.C.A.); Prenn v. Simmonds, [1971] 3 All E.R. 237 (U.K.H.L.); Eli Lilly and Co. v. Novopharm Ltd. (1998), 161 D.L.R. (4th) 1, (S.C.C.). The first inquiry, then, is to determine whether there is only one reasonable meaning to the words in the contract, or more than one. In this search one must look to the surrounding circumstances and the whole of the contract. The words of the contract must be looked at in their ordinary and natural sense and cannot be distorted beyond their actual meaning: MacMillan Bloedel Ltd. v. British Columbia Hydro & Power Authority (1992), 72 B.C.L.R. (2d) 273 (B.C.C.A.); Melanesian Mission Trust Board v. Australian Mutual Provident Society, [1997] 1 N.Z.L.R. 391 (New Zealand P.C.). [22] With those principles in mind, I turn to the analysis of the issues in this case. Did the plaintiff abandon the project, or did the defendants terminate the contract? [23] The first issue to be addressed is did the plaintiff abandon the project, or did the defendants terminate the contract? For the following reasons, I have concluded that the defendants terminated the

contract. [24] The defendants take the position that the plaintiff abandoned the project. However, the uncontroverted evidence is that Catalina Dudka ordered Mr. Gylytiuk and Mr. Sharma to leave the property at a meeting in May 2010; the defendants did not respond to the plaintiff's offer to remedy some of the deficiencies that had been identified; and the defendants refused to pay the plaintiff for the invoices that had been rendered both before and after that meeting. [25] Catalina Dudka agreed that she ordered Mr. Gylytiuk and Mr. Sharma to leave the property. However, she says at the time she was suffering from a panic attack and could not carry on with the meeting, and she did not intend to fire the plaintiff or forbid Mr. Gylytiuk and Mr. Sharma from returning to the site. However, Catalina Dudka did not contact either Mr. Sharma or Mr. Gylytiuk after the meeting to advise them the plaintiff was permitted to return to the property. As well, the evidence is that neither of the individual defendants took any steps to contact Mr. Sharma or Mr. Gylytiuk after the meeting, except through their lawyer. [26] Given the circumstances and the testimony regarding the meeting, and the defendants' ongoing refusal to pay the plaintiff's invoices, I am of the view it was reasonable for Mr. Sharma and Mr. Gylytiuk to think the defendants had terminated the contract. As stated earlier,

after the meeting the defendants continued to refuse to pay the plaintiff any further monies under the contract, and never allowed the plaintiff onto the property to correct any of the alleged deficiencies. Accordingly, I conclude that the defendants terminated the contract at the meeting in May 2010, and that the plaintiff did not abandon the contract as alleged by the defendants. What amount, if any, is owing under the contract? [27] The total contract price was $200,000, $100,000 of which was to be financed by the plaintiff. The non-financed portion of the contract was to be divided between the parties, with the defendants being responsible for paying certain third party expenses, including the costs of permits. [28] The defendants' costs were determined by Catalina Dudka, who provided them to her lawyer for insertion into the contract after contacting the various third parties. The plaintiff was not involved in determining the defendants' costs, and relied on the numbers provided by Catalina Dudka. [29] Schedule B to the contract provided that the corporate defendant was to pay $41,720 to third parties and $58,280 to the plaintiff by way of four draws at various stages of construction. The contract provided the corporate defendant was to pay financed amount of $100,000 to the plaintiff within two years of the completion of construction of the RV park. During the two year

period, the corporate defendant was to make interest only payments each month, and had the option of prepaying some or all of the financed portion at any time during that period. [30] The plaintiff and defendants agree that the corporate defendant has paid $53,676.38 over the course of the construction, leaving the sum of $4,603.65 owing of the non-financed amount. [31] The defendants have not paid any of the financed portion of the contract price, nor any interest on the amount. The plaintiff alleges that the defendants owe $123,333.33, as of May 1, 2013, on the financed portion. Interest is accruing at the rate of $666.66 per month, or $21.92 per day. The plaintiff says the amount has not been disputed by the defendants. [32] With the exception of the first invoice, GST has not been paid by the defendants. The defendants agree that the corporate defendant owes the plaintiff $6,833.15 for GST. [33] The plaintiff is claiming an additional amount of $1,888.58 (including GST) against the personal defendants for the connection of their personal residence to the sewer and two loads of ½ inch crush. The plaintiff takes the position that the corporate defendant also owes $4,847.09 (including GST) for a yard lamp, water pipe, levelling of dirt in a neighbouring field, building and installing a cabinet, and installing a meter for the sprinkler system, all of which are extras to the

contract. [34] The defendants take the position that because the plaintiff has breached several key provisions in the contract, it is not entitled to the contract price. The defendants assert that the amount the plaintiff is entitled to is the amount already paid by the corporate defendant of $53,676 and no more. [35] In the alternative, the defendants take the position that the financed amount is not due and owing under clause 2.6. The defendants point to the fact there is no evidence that the plaintiff has obtained a Final Inspection and presented it to the corporate defendant, which is a prerequisite to the financed portion of the contract price becoming payable. [36] As well, the defendants take the position that the plaintiff breached the contract by not building the RV park in accordance with the plans and specifications, and by not building the RV park in a good and workmanlike manner. The defendants say if there is any amount owing to the plaintiff under the contract, they should be entitled to offset the amount of damages they have suffered as a result of the plaintiff's breach of contract. [37] The defendants take the position that none of the extra work was authorized in writing as required by the contract, and therefore they are not responsible to pay the plaintiff anything for the work it performed. However, they have agreed to pay $2,568 of an invoice for

$3,489.74, for the connection of their personal residence to the sewer. The defendants are also prepared to pay invoice number 9 in the amount of $761.83 for material and labour to install a cabinet to cover the pipes. However, they are not prepared to pay invoice number 10, which is an extra for material and labour for commercial metering for the sprinkler system. [38] As stated earlier, the defendants argue that the plaintiff is not entitled to the contract price because the plaintiff has breached several key provisions in the contract. However, the defendants did not argue that the breaches complained of constitute a fundamental breach of the contract. [39] The defendants provided no authority for the proposition that if there were deficiencies in the construction of the project and/or that the project was not built in accordance with the contract specifications, the contractor is not entitled to the contract price but only to an amount the owner unilaterally determines. [40] Instead, the cases that have been provided all deal with the appropriate measures of damages: Strata Corporation NW 1714 v. Winkler (1987), 20 B.C.L.R. (2d) 16 (C.A.); Alex Gair & Son Ltd. v. Lepinski, [1998] B.C.J. No. 494; and 514953 B.C. Ltd. dba Gold Key Construction and Chiu v. Leung, 2007 BCCA 114. [41] Even if it were found that the plaintiff breached the contract by not complying with the

specifications or not performing the work in a good and workmanlike manner, it is clear from the case law that does not mean the plaintiff cannot claim under the contract to be paid for the work performed. Rather, the damages or losses the defendants have suffered must be assessed and a determination made as to the proper measure of damages. The Court has to determine whether the proper measure of damages is the cost of performing the work to make good the defects, or the actual pecuniary loss suffered by the plaintiff as a result of the breach, i.e., the difference between what would have been the value of the property if the work had been performed in accordance with the specifications, and the value of the property with the defects. [42] The defendants take the position that even if the plaintiff can claim under the contract, the financed portion of the contract has not become due and payable because the preconditions to trigger its payment have not occurred. In particular, the defendants argue that because Mr. Sharma did not say the plaintiff obtained the Final Inspection and presented it to the defendants, the payment of the financed portion has not been triggered under clause 2.6. [43] However, "Final Inspection" is defined in the contract as meaning the document which is given by the appropriate governmental authority and shows that the RV park is completed to the stage

that it is fit and permitted to be used as an RV park. [44] The evidence is that the defendants were dealing directly with the third parties responsible for permitting, and that the defendants have been operating the RV park as a business since May 2010. It is reasonable to infer that since the defendants have been operating the RV park as a business since May 2010, that the document referred to in clause 2.6 has been obtained, either through the plaintiff or by the defendants directly. [45] The plain reading of the contract is that once the RV park was completed and the defendants had the document that allowed them to operate the park, the provisions under clause 2.6 are triggered. [46] Clause 5 of the contract provides that "[w]ithin 14 days of Completion of the Construction, Quails View shall provide the Project Manager with a Deficiency List." In this case, the evidence is that the defendants have been operating the RV park since May 2010, and that the corporate defendant provided a deficiency list to the plaintiff on June 21, 2010, which was pursuant to clause 5 of the contract. By relying on clause 5, the defendants took the position that the completion of construction had occurred. Therefore, in my opinion, clause 2.6 was triggered in or around May 2010. [47] Accordingly, I have concluded that the amount owing under the contract as of May 1, 2013, is $134,770, including

GST, plus interest after that date. While the plaintiff also claims extras to the contract, it is clear that no written authorization was obtained as required by the contract. However, the defendants have agreed to pay $3,329.83 for extras. Accordingly, as of May 1, 2013, the total amount owing by the defendants to the plaintiff under the contract and for agreed upon extras is $138,099.83, subject to a set-off for damages for deficiencies. Did the plaintiff breach the contract by failing to perform the work in a good and workmanlike manner and in accordance with the specifications and/or were there deficiencies? [48] The following deficiency list was provided by the defendants to the plaintiff on June 21, 2010: 1. 10 RV pads - the base of the pads (i.e. gravel, clay, etc.) has not been constructed properly as vehicles are sinking into the pads. 2. 10 RV pads are not level.

3. Gravel access road - The base of the road (i.e. gravel, clay, etc.) has not been constructed properly as vehicles are sinking into the road.

4. Lawn (areas between RV pads & common areas) - The top soil is not screened or treated properly before seeding. The lawn areas contain mostly pig weed, not lawn. Also the lawn areas are not smooth but very bumpy (clods of dirt) so problematic for mowing/upkeep.

5. Common areas - The outdoor electrical outlets in three of the four common areas have not been installed as required by the contract.

6. Common areas - The water taps in all 4 common areas have not been installed as required by the contract.

7. Irrigation system installation in lawn areas & common areas - The irrigation pipes were not installed before work commenced on the pads & lawn areas. The irrigation pipes were not placed deep enough in the soil. There will be issues in remedying points 1 & 2 because of this.

8. Office building originally supposed to be 12' x 16' - finished building 12' x 12'.

9. No Laundry sink in laundry area of the 'office building'.

10. Breaker box not labeled properly. Require proper labelling so that it is evident which breakers apply to which pad hookups. [49] Since the letter was sent, the defendants allege further deficiencies. The two outlets labelled 50 amp are in fact 30 amp, and there are no 50 amp hook-ups, contrary to the contract requirements. As well, there are water shut-off valves missing at some of the sites. [50] The defendants take the position that the RV park was not constructed in a good and workmanlike manner as required by the contract. As well, they take the position that the construction does not comply with the engineered drawings for the project prepared by Quantum Engineering (the "Quantum drawing"). In particular, they say that the road structure detail on the drawing showed 100mm of 25mm base course crush gravel over 300mm of 75mm sub base minus sub-grade gravel approved by a geotechnical engineer. [51] The sanitary service detail shown on the drawings indicates that 100mm pad complete with 15M bars should be used to cap it and instead the plaintiff used plastic. As well, the pressure treated wood tie posts on the yard hydrant detail was omitted, and water shut-offs were not provided for each connection. [52] The defendants assert they told the plaintiff they wanted to cater to Big Rigs in order to differentiate their park from other RV parks, most of which cannot accommodate

vehicles of that size and weight. [53] The plaintiff takes the position the RV park was built in accordance with the contract. The roads and pads were constructed in a manner consistent with a standard RV park. The plaintiff says that there was no requirement to design and construct the park for Big Rigs as claimed by the defendants. [54] The plaintiff takes the position that the Quantum drawing was commissioned purely for the purpose of water, sewer and electrical infrastructure and was required for permitting. The plaintiff points to the fact that there were negotiations between the parties in which the scope of work was reduced to meet the defendants' budget requirement of $200,000. [55] The plaintiff says the contract only makes reference to "level gravel RV parking area" and "Access gravel road into Property." No specifics were given beyond that except for the notation that the stalls would have "3/4 inch crush topping and bordered with 4x4 timbers" and road would have "3/4" crush topping". All emails leading up to the contract similarly state that building of the RV pads and a road with ¾" crush topping. The plaintiff says that is what was constructed. [56] The plaintiff points to the fact that the only requirement in the contract for the lawns was "lawn per site plan with grass seed". The contract did not call for pre-screened top soil to be used. In the pictures taken

in the fall of 2012, it appears the grass has largely taken over the weeds. The defendants admit the lawn areas have improved over time. [57] The plaintiff offered to add two additional electrical outlets and two water taps in response to the letter of June 2010, with the attached deficiency list. The defendants did not respond to the plaintiff's offer. [58] The plaintiff takes the position that the size of the office building was agreed to between the parties. The original office building was to include the electrical box; however, it had to be put into a separate kiosk and the size of the building was reduced accordingly in order to fit within the defendants' budget. The defendants were advised of the change to the size of the building in the emails leading up to the signing of the contract and raised no concerns. The contract is silent on the size of the building. [59] The plaintiff thought that two 50 amp hook-ups had been installed. The plaintiff agrees this is a legitimate deficiency and says if it had been allowed access to the property, it would have repaired the deficiency. [60] The first issue is whether the Quantum drawing forms part of the contract between the parties. It is clear from clause 1(f) and Schedule A to the contract that the "certified blue prints" were incorporated into the contract and to be used in the construction of the RV park. Clause 2.1 provides

the plaintiff is to construct the park in accordance with the plans and contract specifications. Although the Quantum drawing was not attached to the contract at the time it was signed, it is clear from the terms of the contract that there were to be certified blue prints. [61] Insofar as there is any ambiguity in regards to the term "certified blue prints," the parties' communications leading up to the signing of the contract referred to surveyors and engineers being involved in the project. It was clear from Mr. Gylytiuk's evidence that it was anticipated that the plaintiff would retain an engineer, which it did. Accordingly, I have concluded that the Quantum drawing is incorporated into the contract. [62] I turn next to the issue of whether there were deficiencies. The defendants rely on two experts' reports. [63] Chris Wallis, a geotechnical engineer, provided an opinion about whether the road structure and pads met the specifications set out in the Quantum drawing. Mr. Wallis attended at the site. Mr. Wallis' firm excavated three shallow test pits within the access roads. In his opinion the base course crushed gravel on site, which was 19 millimetre clear crush gravel did not meet the specification for 25 millimetre base course crush gradation specification in the drawing. In his opinion the road sections constructed on site did not meet the specifications on the Quantum

drawing, being deficient in thickness and quality of material placed. [64] H. Grant Maddock, who is a civil engineering technician, provided an opinion as to what it would cost to build an RV park to the specification shown in the Quantum drawing in 2010, and what it would cost to remedy the deficiencies identified in Mr. Wallis' report, as well as other deficiencies which he identified. [65] It is clear from the evidence that the roads and pads were not built in accordance with the Quantum drawing. The plaintiff asserts that the Quantum drawing only applied to the electrical and plumbing, and the contract specification within Schedule C was the governing specification for the roads and pads calls for ¾" which is equivalent to 19mm found on the site. However, the clause is silent about the sub base. There is evidence that a sub base was constructed; however, it was not to the specification on the Quantum drawings. [66] Generally the specifications contained in the contract govern over the specifications contained on a drawing. There is evidence that the scope of work was reduced during the negotiation phase in order to meet the defendants' budget requirements. [67] Even if I accept that there was a variation agreed upon to 19mm base material instead of the 25mm called for in the drawing as reflected in Schedule C, there is no reference in that schedule to any change to the sub

base. Since Schedule C is silent on the sub base, the Quantum drawing would govern that aspect of the road construction. Accordingly, I have concluded that the plaintiff failed to build the road and pads in accordance with the contract requirements. [68] I turn next to the deficiencies alleged in respect of the irrigation system and the lawns. It is clear from the contract that the plaintiff was to provide "1 lawn area as per site plan with grass seed". There was no requirement for sifted topsoil. In my view, the defendants have not established the plaintiff did not meet the contract requirements in regards to the lawns. [69] There is insufficient evidence in regards to the irrigation system to determine that it was not constructed in accordance with the contract. The defendants complain of some settlement in the areas of the lawn around the irrigation system, but it is far from clear how systemic that problem is. The evidence is that the defendants have taken no steps to repair the settlement, despite their concerns that it poses a potential danger to the RV park guests. [70] The defendants also complain that the office size was reduced, and there was no laundry sink provided as required under the contract. However, the contract is silent on the size of the office building. The office building was originally designed to contain the electrical panel for the RV park. During

discussions with the electrical company it was determined that a separate electrical kiosk was required. Accordingly, the size of the building was reduced. The defendants were made aware of the reduction in size in emails from the plaintiff prior to signing the contract. I accept Mr. Gylytiuk's evidence that he advised the defendants that the reduction in size was necessary in order to achieve the budget requirements. The plaintiff agrees it did not install a laundry sink in the building; however, with the reduction in size, installing the sink was no longer possible. [71] In my view, the reduction in size from 12 x 16 that was originally contemplated for the building to the 12 x 12 is not a breach of the contract, and is in keeping with the parties' intentions as outlined in the emails. The emails support Mr. Gylytiuk's evidence that the reduction in size was discussed with the defendants when the separate electrical kiosk was required, prior to the contract being signed. [72] The fact that it resulted in a lack of room to put a second sink was discussed during the course of construction, and an alternative was suggested that was rejected by the defendants. However, the lack of a laundry sink is a deficiency under the contract. [73] Mr. Maddock attended the site on two occasions, once on January 26, 2011, and again on October 29, 2012. He identified a number of deficiencies in

compaction around piping for plumbing system. As well, he commented that the landscaped areas had little or no topsoil. However, he makes no reference to the requirements in the contract that were not met; rather, he suggests there should have been plans and specification to deal with those items. [74] The evidence is that the plaintiff did not construct the concrete pad for the sanitary service details as shown on the Quantum drawing. The plaintiff unilaterally changed that specification, and used a plastic pad instead. The defendants did not approve the change. [75] Having reviewed the contract documents, including the Quantum drawing, I have concluded that the defendants have established there were deficiencies in the construction, consisting of a lack of specified sub base under the roads and pads, the lack of a laundry sink in the office building, the lack of two 50 amp plug-ins and the omission of concrete pad for the sanitary service detail. If there were deficiencies, what damages are the defendants entitled to? [76] The next issue is what loss has been sustained by the defendants as a result of the defective work, and what is the appropriate measure of damages? [77] The cost of making good the defects will not ordinarily be applied if the cost is unreasonable in the circumstances, or the court is not satisfied that, if damages are ordered, the claimant will carry out

the work. [78] Alex Gair & Sons, adopts the following from I.N. Duncan Wallace Q.C., Hudson's Building and Engineering Contracts, 11th ed. (London: Sweet & Maxwell, 1995), as setting out the applicable law: [82] ... at page 1046 ... in the case of defective work (that is, work not in accordance with the contract), there are in fact three possible bases of assessing damages, namely: (a) the cost of reinstatement: (b) the difference in cost to the builder of the actual work done and the work specified; or I the diminution in value of the work due to the breach of contract. [83] The author goes on to state at page 1047: ... in some cases the cost of carrying out work so as to comply with the specification may be very great once the contract work as a whole has been completed. ... It is suggested that, in deciding whether to substitute what are usually the lower bases of the difference in value, or the difference in cost to the builder between the actual and specified work, the following factors should be taken into account, namely: (a) whether the work actually carried out is reasonably satisfactory for its purpose; (b) whether the building owner has carried out or in fact intends to carry out the work of reinstatement; I whether the defect or omission has substantially affected either the market value or the amenity value to the building owner of the works; (d) whether the cost

of reinstatement is wholly disproportionate to the advantages of reinstatement. [79] Alex Gair & Sons at para. 84, also adopted the following from Strata Corp. N.W. 1714 v. Winkler (1987), 45 D.L.R. (4th) 747: I find no support in the authorities for the proposition that the general rule governing damages for breach of contract requires the cost of reinstatement to be awarded even where it would not be reasonable to reinstate, and where there is no intention to do so. Were the plaintiffs to recover on the basis asserted by them in this case, they would be in a far better position than if the contract had been properly performed. They would then have a sum of money approximately equal to the original cost of that area of the building occupied by them and would still have a building serviceable for their purposes. That would not be a reasonable result. It therefore cannot be one intended by the general rule, the purpose of which is to grant full compensation, not a windfall. [80] In Alex Gair & Sons, the court was far from satisfied that if the defendant were to be awarded damages claimed to remedy the defects, the work would be carried out. Accordingly, the court went on to assess damages based on diminution in value of the property as a result of the defects. [81] The court, at paras. 90-93, reviewed the case law supporting the conclusion that even when there are evidentiary

problems in assessing damages for a claim for deficiencies and incomplete performance of a building contract, if the claimant has suffered a loss, the evidentiary issues should not prevent an assessment being made, even though it may be somewhat arbitrary. [82] In 514953 B.C. Ltd. dba Gold Key Construction and Chiu v. Leung at para. 7, the Court of Appeal approved the statement of law in McGarry v. Richards, Ackroyd & Gall Ltd., [1954] 2 D.L.R. 367 (B.C.S.C.): "that the cost of re-instatement is not the proper measure of damages where the owner does not intend to rectify the defective work, or where he would be acting unreasonably or oppressively in doing so." [83] The Court of Appeal quoted at length from two English cases, Radford v. de Froberville, [1978] 1 All E.R. 33; and Ruxley Electronics and Construction Ltd. v. Forsyth, [1996] A.C. 344 (H.L.). [84] Radford dealt with the measure of damage in a property sale where the vendor was supposed to construct a wall, which the purchaser eventually had to construct. The court in Radford noted that the quantum of damage is a question of fact. [85] In Ruxley, an owner had contracted for the installation of a swimming pool on his property to a certain depth, which was not achieved. The court reiterated the general rule that damages are to compensate the claimant for an established loss, not to provide a windfall. In 514953 B.C. Ltd.

dba Gold Key Construction and Chiu v. Leung at para. 16, the Court of Appeal emphasized the following passage: Thus in the present appeal the respondent has acquired a perfectly serviceable swimming pool, albeit one lacking the specified depth. His loss is thus not the lack of a useable pool with consequent need to construct a new one. Indeed were he to receive the cost of building a new one and retain the existing one he would have recovered not compensation for loss but a very substantial gratuitous benefit, something which damages are not intended to provide. [86] At para. 18, the following statement of law was emphasized: This does not mean that in every case of breach of contract the plaintiff can obtain the monetary equivalent of specific performance. It is first necessary to ascertain the loss the plaintiff has in fact suffered by reason of the breach. If he has suffered no loss, as sometimes happens, he can recover no more than nominal damages. For the object of damages is always to compensate the plaintiff, not to punish the defendant. [87] The Court of Appeal concluded that the cases in which the proper measure of damages was found to be the diminution in value were correctly decided in the circumstances of those cases. The facts must be examined to determine whether the damages awarded are reasonable, both to the plaintiff and the defendant. [88] The defendants rely

on the report of Mr. Maddock, as well as a number of estimates for the remedial work Mr. Maddock, Mr. Wallis and the defendants have identified. [89] Mr. Maddock provided an opinion that the cost of building a RV park in 2010 to the specifications on the Quantum drawing would have been $182,117, not including the permits which were approximately $42,000. That amount is well above the defendants' budget of $200,000. I note this estimate is in keeping with the original estimate prepared by Mr. Gylytiuk, which he testified was reduced by reducing the scope of work, including the base course from 25mm to 19mm. Mr. Maddock's estimate for remedying the deficiencies identified in Mr. Wallis' report and supplying and placing a concrete inlet pad in accordance with the sanitary service detail is $67,727.50. [90] Counsel for the defendants argued that the costing prepared by Mr. Maddock for constructing the RV park in 2010 in accordance with the Quantum drawing was not relevant and should not be considered. However, in my view, his cost estimate for the work is relevant to the validity of his estimate to repair the deficiencies. Obviously other contractors, such as the plaintiff, were willing to perform the work of constructing the park in 2010 for less. A reasonable inference from that evidence is that other contractors may repair the deficiencies for less than the amount estimated by

Mr. Maddock. [91] The defendants also provided a quote from Hawkeye Holdings Ltd., another contractor, to do the work identified in Mr. Wallis' report, in the amount of $99,725. However, Ms. Dudka conceded that the quote was obtained on March 19, 2012, for the purposes of this litigation. In my view, not much weight can be put on that estimate given the circumstances in which it was obtained. The same comments apply to an invoice from Soil to Sod for the placement of the concrete pads around the septic drains, new underground irrigation and repairing all sunken turf and three manholes, in the amount of $16,695. The invoice was obtained on April 18, 2013, for the purposes of this litigation. [92] There is also an estimate for the cost to repair the 50 amp hook-ups in the amount of $4,500 which was obtained on April 15, 2013, also for the purposes of this litigation. There were no competitive quotations obtained for any of these alleged deficiencies. [93] There is no evidence that the defendants have undertaken any work to repair the alleged deficiencies since May 2010, despite the fact that they have not paid the plaintiff any of the amount owing on the financed portion of the contract price, and that they have had in excess of $70,000 in gross revenue from the operation of the RV park since May 2010. [94] The plaintiff presented two estimates from Grassmick's Excavating Ltd. to

repair the deficiencies. The first was not in accordance with the Quantum drawing, although it did provide for the reconstruction of the roads and pads with a sub base and base, and was for $36,939. The cost before contingency allowance, profit and tax is $27,810. There is a note on the invoice that if only the problem areas need to be done, the cost would be approximately $20,000. The second invoice is to construct the road and pads in accordance with the Quantum drawing and is $49,704, including tax. The cost before contingency allowance, profit and tax is $37,590. [95] The plaintiff takes the position that no damages should be assessed in view of the particular circumstances of this case. The plaintiff asserts it is unlikely the defendants will do the work because they have not done it so far, despite having the plaintiff's money as well as revenue from the RV park. The measure of damages in this type of case is not necessarily the cost of making good the defective work. [96] As stated earlier, the evidence is that the defendants have taken no steps to remedy any of the deficiencies, despite not having paid the plaintiff in excess of $100,000 and receiving revenue from the RV park in excess of $70,000 since May 2010. Those monies constituted a fund which could have been used for repairs if the defendants chose to do so. In my view, it is reasonable to infer from the

defendants' choice not to use those funds to rectify any of the deficiencies, that the deficiencies, though of concern to the defendants, are not fundamental to the use of the RV park for its intended purpose. [97] The RV park has been in constant operation since May 2010, and has been utilized on a regular basis by the "big rigs" the defendants testified they wanted to market to. [98] Having reviewed the evidence as a whole, I am far from satisfied that if the defendants were awarded the costs of rebuilding the roads with a sub base that conformed to the Quantum drawing, they would perform the work. As set out above, the defendants have not obtained any competitive quotations for the work, and have not even repaired areas which they say pose a potential danger to their customers. They also failed to mitigate their losses by allowing the plaintiff onto the site to repair the deficiencies in the electrical work they complain of. [99] In the circumstances, I have concluded that the diminution of value test is the proper approach for the measure of damages. [100] The plaintiff takes the position that there is no evidence that the property is less valuable as a result of the deficiencies. The plaintiff points to the fact that the property has been listed for sale, and when inquiries were made by Peter Nicolson, a real estate agent, the defendants' agent advised that there were no

issues with the RV park. [101] In my opinion, little weight can be given to Mr. Nicolson's evidence. There is an issue as to whether the individual Mr. Nicolson spoke to was authorized as an agent of the defendants. As well, Catalina Dudka testified that she has been in attendance at all of the showings and the deficiencies are obvious, in that there is settlement of some of the areas in the RV park. [102] As indicated earlier, there is evidence of deficiencies and that the defendants have suffered a loss. In my view, this case is similar to the situation in Alex Gair & Sons, and the cases referred to in paras. 90-93 of that decision, in that even though it is impossible to achieve any precise monetary amount for the appropriate award, that should not prevent an award from being made. [103] In this case, there is evidence that the lifespan of the roads has been shortened as a result of the deficiencies. As a result, I am of the opinion it is appropriate to make an arbitrary award to compensate the defendants for the shortened life span of the roads of $30,000. [104] As well, there should be some compensation to the defendants for increased maintenance of the park, and services, and the deficiencies with regards to the electrical work and the lack of concrete pads for the sanitary services. Based on the evidence, including the fact the defendants have failed to mitigate their

losses by allowing the plaintiff to remedy the deficiencies during the warranty period, I am of the view that the amount award for those items should be $5,000. [105] I have determined these amounts from the invoices obtained by the plaintiff in May 2010 to remedy the deficiencies, and the discussions between the defendants and plaintiff's representatives as to what it would cost if the plaintiff remedied the deficiencies. [106] Accordingly, the defendants will be entitled to set-off of $35,000 against the monies owed by them to the plaintiff. Conclusion [107] The plaintiff is entitled to $134,770, including GST, which is the amount owing under the contract as of May 1, 2013. The defendants have agreed that extras in the amount of $3,329.83 are payable, for a total owing by the defendants to the plaintiff of $138,099.83. The defendants are entitled to set-off the amount of $35,000, for losses sustained as a result of the construction deficiencies. [108] Accordingly, there will be judgment in favour of the plaintiff against the corporate defendant, and the two individual defendants under their guarantee in the amount of $103,099.83 as of May 1, 2013, plus interest from that date pursuant to the contract. In the event the parties cannot agree on interest, they can seek further directions. [109] The defendants did not make any arguments regarding the third parties. The defendants' claims against the third parties are dismissed. [110] Given the divided success, the parties will each bear their own costs, subject to submissions. "Gerow J."