All Out Contracting Ltd. v. Gourlay

2020 BCSC 481 B.B.S.G. v. E.K.G.

IN THE SUPREME COURT OF BRITISH COLUMBIA Citation: All Out Contracting Ltd. v. Gourlay, 2020 BCSC 481 Date: 20200331 Docket: 77772 Registry: Nanaimo Between: All Out Contracting Ltd. and Joachim Winkler doing business as All Out Contracting Plaintiff And Paul Gourlay and Judith Gourlay Defendants Before: The Honourable Mr. Justice Dley Reasons for Judgment Counsel for the Plaintiff: K. Hauer Counsel for the Defendants: B.D. Sutton Place and Date of Trial: Nanaimo, B.C. February 25-28 and March 3-4, 2020 Place and Date of Judgment: Nanaimo, B.C. March 31, 2020 Introduction [1] All too often, an owner motivated by haste or enthusiasm authorizes a contractor to proceed without ensuring that the relationship is clearly defined. Coincidentally, a contractor eager to secure the project, proceeds without clearly spelling out the nature of the agreement and the manner in which billing is to be done. [2] All Out Contracting Ltd. ("All Out") agreed with Mr. and Ms. Gourlay to tear down a failing retaining wall and construct a replacement. The parties signed a document that set out an estimated cost of $80,000-$100,000. Due to complications, the final bill exceeded $200,000. [3] The Gourlays had paid $140,000 and refused to pay any more. The question is whether there was an agreement between the parties and the terms of remuneration for services provided. [4] For the following reasons, I

conclude that there was no meeting of the minds with respect to the manner by which All Out's work was to be charged and that the value of the work is to be assessed on a quantum meruit basis. [5] For the purposes of this decision, I have taken the liberty of rounding-off some of the numbers. [6] I award All Out judgment in the amount of $22,194.50. Background Facts [7] The Gourlays own their home at 3090 Shamrock Place, Nanaimo, British Columbia. The home is adjacent to and overlooking a creek. Close to the back of the home was a retaining wall that supported the bank down to the creek. The retaining wall had been constructed from logs stacked to a height, in spots, exceeding six feet. The outer surface of the wall had been coated with a thin concrete layer. [8] The Gourlays' property extends to the opposite side of the creek where they maintain a garden, access to which was by way of a footbridge extending across the creek. [9] In 2015, the Gourlays noted that the retaining wall was in obvious need of repair. It was bulging away from the home, revealing cavities under the rear patio slab. [10] The Gourlays reached out to an engineer and several contractors. [11] Two contractors indicated that they did not have sufficient crews and that the project was too big for them to undertake. Another declined to participate because he did not have any machinery. [12] The Gourlays

received a $40,000 quote from another contractor who proposed doing the remediation using four feet high, rock filled wire mesh baskets. The Gourlays were not comfortable with the approach of that contractor. [13] Mr. Gourlay searched online and came across All Out. The Gourlays spoke with All Out's principal, Mr. Winkler. Mr. Winkler reviewed the contents of the first quote and spoke to a structural engineer. He relayed the results of his research to the homeowners. [14] On June 30, 2015, the Gourlays attended an on-site meeting that included Mr. Winkler, Mr. Romain (structural engineer), Ms. Maltais (geo-technical engineer), Mr. Zamora (biologist), and representatives from the City of Nanaimo. Following the meeting, Mr. Winkler handed the Gourlays a document entitled "Construction Estimate". He asked them to sign it and provide him with a signed copy. [15] The Gourlays read the document and endorsed their signatures to it. Several days later, the signed copy was returned to Mr. Winkler. [16] The scope of the work in the Construction Estimate was described as: Teardown and rebuild retaining walls - backyard patio - and railing - price is estimated and depending on engineers and biologist [17] The first paragraph of the document states: This Construction Estimate is provided by All Out Contracting and constitutes an offer to the Owner. Execution of this Construction Estimate by

the Owner constitutes acceptance on behalf of the Owner. Upon acceptance, this Construction Estimate forms the contract between the Contractor and the Owner. The amount estimated to complete the Job is an estimate only and the Job is subject to increased costs based on the circumstances on the Premises and the nature of the Job. [18] The parties agreed that the contract price for the work required would be calculated on a "set price cost plus" basis. Under the heading "Contract Price", the following term was stated: "The set contract rate for the Work is $80,000 to $100,000". They agreed that a $20,000 retainer was to be provided before work commenced and there would be weekly accounting reviews and progression payments as agreed upon. [19] The parties agreed that the Gourlays had the right to require changes in the work, but any such change was to be recorded in writing. [20] All Out commenced tearing down the existing retaining wall in July 2015. It became apparent that there were complications unforeseen at the time the Construction Estimate was presented. There was significant debris and unstable fill behind the wall that required removal and replacement. A portion of the home was balanced on the fill to the extent that there was a danger of the home settling further down the embankment unless there was additional structural support. [21] All Out engaged the services of Mr.

Romain, Ms. Maltais and Mr. Zamora. All Out regularly consulted with and did its work under their direction. [22] There was pressure on the Gourlays to ensure that the wall was properly replaced. They had inquired of their homeowner insurer as to whether there was coverage for the costs of the wall repair. By letter dated September 1, 2015, the Gourlays were placed on notice by their insurer that coverage was in jeopardy. [23] The Gourlays were concerned that without insurance coverage, they would not be able to renew their mortgage which was expiring in October. [24] The Gourlays had also notified the City of Nanaimo that they intended to make a claim against the City so as to secure compensation for their costs. In August, they asked Mr. Winkler to provide an up-date as to the expenses incurred and those still anticipated. On August 16, 2015, Mr. Winkler provided a summary of what had been done and what was expected. The total costs were stated as $162,569.17. [25] Mr. Winkler was on the job site daily and maintained regular contact with the Gourlays. He kept them apprised as to what was required. By late September, the Gourlays had paid $140,000 toward All Out's charges. [26] At the end of October, Mr. Winkler presented the Gourlays with the final account showing a balance owing of $66,505.80 (total for the job: $206,505.80). The Gourlays refused to pay. They took the

position that the June 30 Construction Estimate outlined the obligations between the parties and that they had agreed to pay $80,000-$100,000. They took the position that the $20,000 gap in the estimated range was the amount contemplated to account for unforeseen circumstances, but not an amount that was more than double the initial quote. [27] All Out filed a Builders Lien against the property and commenced this action. [28] All Out produced a report and evidence from Mr. Crosbie, a certified quantity surveyor, who was qualified to give opinion evidence as to the costs of construction projects. Mr. Crosbie's opinion was that a prudent contractor doing the scope of work required by the engineers would have charged $201,756, plus GST, making a sum total of $211,844. [29] The Gourlays produced a report and evidence from Mr. MacKinnon, a contractor in Nanaimo, who was qualified to give opinion evidence regarding construction of footings and retaining walls. Mr. MacKinnon opined that the retaining wall should have been replaced for $106,000. [30] Mr. Romain was of the view that All Out performed its work properly and within a reasonable time frame. Contract Interpretation [31] It is not for the court to formulate a contract between parties. The court must view the transaction on an objective basis to determine whether there was a meeting of the minds between the parties. It is only

if there has been an agreement on all of the essential terms that the transaction can be declared an effective contract. The terms in question must be certain so that a breach of the contract can result in an award of damages or an order for specific performance: Aubrey v. Teck Highland Valley Copper Partnership, 2017 BCCA 144 at paras. 46-48. [32] The surrounding circumstances will assist in the interpretation of a contract. The factual matrix may help the court to understand the objective intentions of the parties, but the surrounding circumstances cannot result in the creation of a new agreement for the parties. The terms of the contract must always be gleaned from the agreement itself: Sattva Capital Corp. v. Creston Moly Corp., 2014 SCC 53 at paras. 57-58. Discussion [33] The Construction Estimate must be read in its entirety and in the context of the surrounding circumstances. The document was an estimate as to the cost. [34] It is clear from the wording throughout that All Out was providing only an estimate as to what the anticipated cost was at the outset of the project. The actual work was going to be dictated by the engineers and biologist. Unless the work was completed to their satisfaction, the remedial measures were not going to receive the approvals necessary to satisfy insurance and mortgage requirements. [35] The manner of how the costs were to be calculated

were agreed to - this was expected to be a cost plus contract. Thus, the parties agreed as to how the costs would be levied, but acknowledged that the amount of the costs depended upon the amount of work required under the direction of the engineers and biologist. However, the actual terms of the cost plus arrangement were not agreed to. All Out did not specify the percentage it would charge as its profit margin; the Gourlays did not agree to pay a particular percentage. Therefore, even if the Gourlays had prevailed in their initial position that the June 30 Construction Estimate was a contract, an essential term was not agreed upon - namely the amount of remuneration to be paid for the work. Quantum Meruit [36] In the absence of an effective contract between the parties, the question then remains as to how the dispute between the parties is to be decided. The Gourlays received the result they wanted; All Out did the work. However, All Out has not been paid for all its work. [37] All Out expected that this job would be relatively straightforward. Hence, the estimate reaching up to $100,000. The difficulties encountered during the project were not as a result of All Out's lack of commitment or inferior work. All Out did not commence the project with the intention of billing more than double the amount of the initial estimate. The scope of the work changed dramatically because of

what was required to properly do the repairs to the satisfaction of the engineers and biologist. [38] The angst displayed by both Mr. and Ms. Gourlay is understandable given the enormity of the misfortune they were faced with. Their home had been in jeopardy - both from the physical danger of displacement on the bank and the challenge of an unexpected monetary obligation that required resolution or face insurance and mortgage cancellation. However, they should not look to All Out as the Good Samaritan providing gratuitous remedial repairs. [39] On any construction project, a tension exists between the interests of the owner and that of the builder. The owner seeks to have the job completed at a reasonable or favourable price. The contractor seeks to maximize its profits. Neither position is to be criticized. [40] A homeowner is entitled to know what his or her exposure is before a builder commences work. Once work begins, it may be too late or too expensive to change contractors if costs become a runaway. An owner ought not to be held hostage to the project by a contractor. [41] A contractor is entitled to make as much profit as it can. Without profit, the contractor cannot provide ongoing services. However, a contractor must spell out the amount of percentage profit to be added to costs if it expects to recover all of the margin charged. Unless the profit margin is disclosed

and agreed to by the owner, it cannot be said that the parties agreed to an essential term of a cost plus contract. The profit margin is, of course, irrelevant in a fixed price contract. [42] All Out was entitled to make a profit. Nonetheless, All Out was obliged to set out the costs and the formula to be used for rendering its accounts. In that respect, All Out should have been more diligent to spell out the difference between costs and profit percentage - the latter being the plus side of the cost plus equation. [43] The amount as billed would not be fair to the Gourlays. They are being asked to pay a sum of money well beyond what they expected and based upon labour rate inflations that are unjustifiable absent an agreement. [44] Restricting All Out's claim to $140,000 as paid and as the amount at which the Gourlays were "tapped out" fails to account for the work that was necessary and of benefit to the owners. [45] The value of the work requires an assessment. Failure to do so would result in the Gourlays being unjustly enriched. [46] In these circumstances, the court must apply equitable principles to determine the fair value of the work. The reasonable price for the work is to be assessed upon a quantum meruit basis. [47] The nature of a quantum meruit claim was succinctly stated in Rafal v. Legaspi, 2007 BCSC 1944: [29] Where one party "confers a benefit on another party

by part performance of services under a contract and that other party accepts such services", the party conferring the benefit may "recover reasonable remuneration for services rendered under a contract, despite the fact that a contract may not exist or has been abandoned": Wise, The Manual of Construction Law, (Toronto: Carswell, 1994) at 3-58. Obtaining quantum meruit relief is "not dependent on the existence of a valid contract. Rather, it is a discreet cause of action separate and apart from claims granted in contract or tort, which contemplates a remedy for unjust enrichment or unjust benefit": Consulate Venchers Inc. v. Amico Contracting & Engineering (1992) Inc., 2007 ONCA 324 at ¶95, citing Deglman v. Guaranty Trust Co. of Canada, [1954] S.C.R. 725 at 734-35. [30] Quantum meruit will be available if the services in question were furnished at the request or with the encouragement or acquiescence of the opposing party in circumstances that render it unjust for the opposing party to retain the benefit conferred by the provision of the services: Fridman, Restitution, 2d ed. (Toronto: Carswell, 1992) at 290-92; Nicholson v. St. Denis (1975), 57 D.L.R. (3d) 699 (Ont. C.A.), leave to appeal to S.C.C. refused, [1975] 1 S.C.R. x. [48] Like Rafal at para. 31, there is no question here that All Out performed the work at the request of the Gourlays and it would be unjust for the

Gourlays to retain the benefit of the completed work without paying All Out. The issue is the value of the completed work. [49] As an equitable remedy, quantum meruit is flexible. The award can be assessed in various ways, "including the cost to the claimant of providing the service, the market value of the benefit, or even the value placed on the benefit by the recipient": Infinity Steel Inc. v. B & C Steel Erectors Inc., 2011 BCCA 215 at para. 20, citing Kerr v. Baranow, 2011 SCC 10 at para. 74. [50] The appropriate method for determining the value of the completed work will depend on the circumstances of the case, including the evidence that is before the court: Infinity Steel at para. 21; Aerovac Systems Limited v. Darwin Construction (Western) Ltd., 2010 BCSC 654 at para.

49. Although there is no closed list of potential sources of information, the court may consider: estimates, reasonable costs and expenses, quoted rates, abortive negotiations on price, and expert opinions: Aerovac Systems at para.

49. As stated by the Court of Appeal in Infinity Steel at para. 22, "Important factors will include but not be limited to, the course of dealings between the parties, any estimates obtained, the costs incurred, the scope of work, the actual work done, the market value of the services provided." [51] Mr. MacKinnon opined that the work could have been completed for about $106,000. However, he based his opinion on what he would have quoted in 2015. Mr. MacKinnon's report was prepared in 2017, long after the work had been completed and all of the engineering requirements and unexpected costs were known. His report fails to take into account what the engineers and biologist actually required. [52] Mr. MacKinnon did not express an opinion as to what the cost would have been in accordance with the requirements of the actual engineers and biologist. Mr. MacKinnon's report fails to use assumptions or facts that were known and more reliable than his gazing into a crystal ball in 2015. I place little weight on his opinion as it relates to the total cost of the project. [53] Mr. Crosbie's opinion is of more substance than Mr. MacKinnon's. Mr. Crosbie reviewed the actual materials used and the scope of work required. Mr. Crosbie's report is helpful regarding the cost of materials and the amount of labour required. [54] There is no doubt that All Out did its work as required by the

professionals. Mr. Romain stated that the time involved was appropriate and there was no criticism of the work quality. There is no reliable evidence to show that the materials were not required or were too costly. There were some suggestions that the materials should have been purchased locally, but Mr. Winkler has shown that there was a cost saving by using non-local trucking and material suppliers. Therefore, I conclude that there is no reason to reduce the cost of materials or trucking. [55] Mr. Winkler has also justified the use of the pumps to deal with the groundwater and creek diversion issues. His decision to rent the heavier machinery on a monthly basis was reasonable given the attractive rates for a long project, as this turned out to be. [56] All Out did not charge for travel time. Instead, it charged for fuel consumption. Although there might have been some fuel used for purposes other than the Gourlay job, there is no evidence proving that to be the case. There is no reason to reduce the fuel charges. [57] Mr. Crosbie did not find the costs as charged to be of concern. I agree with his assessment of the charges, save and except for the labour component and the associated percentage for profit. [58] There is a reason to reduce the labour costs. All Out was paying its full-time employees $15-$20 per hour, but charging them out at $45.00 per hour. On top of those

charge-out rates, All Out was adding an additional 15% as its profit margin. That amounts to charging more than what a cost plus arrangement would be expected to include; it amounts to a cost plus plus arrangement. [59] If All Out had disclosed at the outset that it was going to charge labour at $45.00 per hour, plus an explicit profit margin, the homeowners could not later complain about a rate and margin they had agreed to. However, there was no such disclosure made and, accordingly, I conclude that the Gourlays did not agree to pay a combination of wage upcharges, plus a profit margin. Therefore, the charges for the labourers must be adjusted so that their costs are the actual wages and benefits, plus a reasonable profit margin. [60] Mr. MacKinnon was helpful in setting out the cost of labour. He paid his employees $20.00 per hour and charged them out at an hourly rate of $25.00 to cover the cost of benefits. Mr. MacKinnon charged himself out at $35.00 per hour. Mr. MacKinnon's experience is a reasonable guide as to the range of hourly rates to be charged by construction supervisors or owners. Mr. Winkler was charging $55.00 per hour. I accept Mr. MacKinnon's hourly rates as the appropriate guide. [61] The hourly rate for All Out's employees ranged between $15-$20. Allowing that benefits would be paid in addition to the hourly rate, I conclude that $22 per hour is a fair

rate. I have used Mr. MacKinnon as a comparable to what an owner would charge and set Mr. Winkler's hourly rate at $35.00. [62] In All Out's final account, the full-time employees are shown to have logged 889.5 hours. At $22.00 per hour, their charges total $19,569.00. Mr. Winkler logged 630.5 hours and at $35.00 per hour the charge totals $22,067.50. [63] All Out concedes that the charge of $977.79 for carpenters and site cleanup should be deleted. [64] All Out has also conceded that the temporary labour should be reduced from $40 per hour to $30 per hour resulting in a revised figure of $11,220. [65] There is no reason to adjust the casual labour charge of $3,259.30. [66] Therefore, the revised amount for all labour totals $56,115.80, excluding GST. [67] There was no agreement that labour was subject to the cost up charge. However, the estimate provided on August 16 showed a 15% profit margin for labour. The Gourlays did not take issue with a profit margin on labour. I, therefore, conclude that they cannot argue now that the margin on labour was a new matter presented only at the final billing. That does not mean that they agreed to the actual percentage as shown in the amount of 15%. [68] If Mr. Winkler had disclosed at the outset that there would be 15% added to All Out's labour costs, the Gourlays would not be in a position to quarrel either with the amount being charged

or the obligation to pay it. In the absence of All Out's initial disclosure and with the acknowledgement that there was disclosure of labour costs being part of a cost plus formula, the question is to set an amount that is fair to both parties. [69] Mr. Mackinnon's profit margin of 5-7% is an attractive measure to use. This was a difficult project and there was a significant benefit to the Gourlays in having the work properly completed. They have a home that is now safe and sound. They have insurance coverage and the ability to borrow money against the property. Common sense would indicate that the home, properly supported and stable, has a greater value than one which was in danger of slipping down the bank because of a rotting retaining wall. I am satisfied that in these circumstances, a profit margin on labour of 7% is a fair assessment. Therefore, all of the labour costs are subject to a profit margin of 7%. [70] The Gourlays complain that All Out's labourers did not work the entire time they were on site. They say that there was much standing around. [71] The Gourlays also complain that they did not authorize All Out to terrace the slope beside the home. They say that they arrived home to find the work being done. They did not tell All Out to cease construction. Mr. Winkler says that the Gourlays authorized the terracing to be done and that it was a much better finish to

the yard than simply leaving it as a slope. [72] There has been some disagreement about the number of fence panels that were removed and replaced in order to accommodate the construction. The Gourlays and their neighbours say that less work was done to remove the fences than that described by Mr. Winkler. [73] An award on a quantum meruit basis is an assessment of damages, not a calculation (although calculations can be helpful). The following factors (although not exhaustive) have helped to shape my assessment of a damage award: a) The initial quote topped a range at $100,000 (albeit subject to engineering and biologist requirements); b) All Out's summary of incurred and expected costs as of August 16, 2015 was about $162,000 - by then the final engineer drawings were complete; c) There were times when All Out's employees were not productive; d) There was less fence removal than charged for by All Out; e) All Out's work was passed by the engineers and biologist; f) The time frame within which the work was completed was reasonable; g) The costs of material and equipment was reasonable; h) The homeowners received significant value by having their home stabilized so that insurance and mortgage concerns were satisfied; and i) The final account was more than double the initial estimate. [74] The adjustment to the labour charged forms the basis for the biggest adjustment to All

Out's final account. Instead of $93,902.09 for labour charges as billed, the revised amount is assessed at $56,115.80. However, that sum fails to take into account the unproductive time or the over-billing for removing and replacing the fence. Taking all matters into consideration, I reduce the labour charges to $55,000. [75] All Out is entitled to a profit margin of 7% which amounts to $3,850.00, making a total of $58,850.00. GST of $2,942.50 must be added to that amount, thereby making a sum total of $61,792.50. [76] All Out's profit margin on materials must be reduced to 7%. Materials cost $93,833.57. The 7% margin on that amount is $6,568.35, thereby totalling $100,402. [77] I, therefore, conclude that that the sum the total of labour and materials is $162,194.50. [78] All of the confusion could have been avoided if All Out had spelled out its costs as matters proceeded. Any uncertainty in the figures is resolved in favour of the Gourlays. I, therefore, assess the total damages to be awarded in the amount of $162,194.50. Of this amount, the Gourlays have already paid $140,000, which must be deducted from this award, resulting in a judgment in favour of All Out in the sum of $22,194.50. [79] There will be a declaration that All Out is entitled to a Builders Lien as has been pleaded and in the amount awarded. [80] All Out is entitled to interest pursuant to the Court Order

Interest Act, R.S.B.C. 1996, c. 79. [81] At the conclusion of the evidence, I granted an order amending the style of cause to include "Joachim Winkler doing business as All Out Contracting". The estimate and subsequent invoices referenced "All Out Contracting". There was no mention of the limited company. However, it is apparent that all parties treated this litigation as a dispute between the limited company and the Gourlays. The work was done by the limited company and it paid for the materials and labour. As a result, I am satisfied that judgment should be in favour of the limited company as I have referred to it throughout these reasons for judgment. [82] Counsel are at liberty to address any issues arising out of the final award as it relates to GST, costs or calculations regarding amounts already paid. Any such application must be set within 60 days of this decision. [83] Unless there are further submissions relating to costs, I award All Out costs at Scale B. "S.D. Dley J." DLEY J.