Corner Stone Holdings Ltd. v. Savage

2002BCSC1255 Citation: Corner Stone Holdings Ltd. et al v. Savage Date: 20020826 2002 BCSC 1255 Docket: S039116 Registry: New Westminster

IN THE SUPREME COURT OF BRITISH COLUMBIA BETWEEN: CORNER STONE HOLDINGS LTD. AND

HAROLD HARMS plaintiffs AND:

ARMAND SAVAGE AND

PHYLLIS SAVAGE

DEFENDANTS

REASONS FOR JUDGMENT

OF THE

HONOURABLE MADAM JUSTICE WEDGE Appearing on his own behalf: H. Harms Counsel for the defendant: A.E. Maragos Dates and Place of Trial: May 6, 7, 8, 9 & 10; May 13, 14, 15, 16 & 17; May 21; May 27, 28, 29, 30 & 3l, 2002 New Westminster, BC

INTRODUCTION [1] Phyllis and Armand Savage bought a view property in White Rock on which to build their dream home. In the summer of 1994 they hired an architect, Paul Rust, as a consultant to design and supervise construction of the home. On the advice of Mr. Rust, the Savages chose Harold Harms, principal of Corner Stone Holdings Ltd., as general contractor. [2] In November, 1994, the Savages and Mr. Harms signed a standard "cost plus" construction agreement under which the Savages were to pay the actual cost of construction and an additional 8%. The estimated cost was $1.8 million with substantial completion scheduled for November, 1995. [3] The result was a magnificent 10,000 square foot custom home with a unique copper roof and expansive ocean view, but it was not finished until December, 1996, and cost $3.6 million. The Savages were by then disenchanted with their consultant and their general contractor. Mr. Rust left the project in September, 1996, after issuing the certificate of Substantial Completion. The Savages were left to deal with Mr. Harms in the final stages of the project. When Mr. Harms presented the last of twenty-two monthly bills in October, 1996, the Savages noticed they had been billed twice for some materials and appliances. They took a closer look at the billings for the entire project, and discovered $125,000 in questionable billings. They also

discovered that a number of subcontractors had not been paid. [4] The Savages became even unhappier when they moved into the house and discovered the design and installation of the copper roof was defective, and there were other construction deficiencies that Mr. Rust had apparently overlooked when he declared substantial completion. They refused to pay the last bill, and did not release the builders lien holdback funds. They hired others to rectify the deficiencies. [5] Mr. Harms commenced an action against the Savages to recover unpaid billings and holdback funds of approximately $450,000. The Savages commenced an action against Mr. Harms (and Corner Stone) for breach of contract and breach of trust, seeking to recover the cost of rectifying the construction deficiencies and any billings in excess of the true cost of the home. They also sued Mr. Rust and the roofing contractor for breach of contract and negligence. At some point in the proceedings, Mr. Harms obtained an order consolidating the actions. The Savages eventually settled with Mr. Rust and the roofing contractor. The trial involved the actions of Mr. Harms and the Savages.

ISSUES [6] There are three central issues in the proceedings. They are as follows: 1. Did Mr. Harms bill the Savages amounts in excess of the true cost of the work, and, if so, to what extent?

2. Is Mr. Harms responsible for the construction deficiencies and the cost of rectifying them?

3. Is Mr. Harms responsible, in part, for the defective roof?

FACTS [7] Armand and Phyllis Savage live on Marine Drive in White Rock, B.C. Through hard work and business acumen they successfully developed and ran a duty-free business. In 1993 they purchased a large oceanfront property. They were nearing retirement and wanted to build their dream home. They began looking at custom homes, and were impressed with the mock-up of a home designed by Paul Rust of Paul Rust Architecture Inc. for the "Street of Dreams" home show. The Savages contacted Mr. Rust and, in the summer of 1994, hired him to design the home and act as consultant during its construction. [8] The Savages told Mr. Rust they were prepared to spend between $1.5 and $2 million to build the home. Mr. Rust did some preliminary drawings for a 10,000 square foot home, and invited bids on the job. Several general contractors bid on the project including Corner Stone Holdings Ltd., a contracting company solely owned by Harold Harms and located in the White Rock area. Mr. Harms invited the Savages to view a residential construction project he was supervising in Vancouver that was similar in size and scope to the Savages' project. The Savages thought that Mr. Harms was the general contractor on the project, although he was in fact only the site supervisor. Mr. Harms had not performed as general contractor on a project the size of the Savage residence. [9] Mr. Rust was aware that Mr.

Harms was the site supervisor for the Vancouver project, but was satisfied that as a result of his work on the project he would be capable of performing as general contractor for the Savage residence. In consultation with Mr. Rust, the Savages decided to hire Mr. Harms. His bid was slightly lower than that of the other contractor, and the Savages liked the fact that his company was based in the White Rock area. In September, 1994, the Savages and Mr. Harms signed a Standard Form CCDC ("Cost Plus") Construction Agreement. Mr. Harms acknowledged at trial that he entered into the Agreement and performed as general contractor on the project in his personal capacity. The Cost Plus Agreement [10] Under the Agreement, Mr. Harms was to be paid for the "cost of the work" and a contract fee of an additional 8%. The Agreement defined "cost of the work" as the actual costs incurred by the contractor to complete the project, including the wages and benefits of workers employed directly by the contractor, the cost of all subcontracts, and the cost of all materials, products, supplies and equipment incorporated into the work (Agreement, A 9, Cost of the Work). [11] Although the contractor was responsible under the Agreement for the proper performance of the work, including the work of subcontractors, he was responsible only "to the extent that the design and specifications permitted such

performance" (Agreement, GC 24, Warranty). [12] The Agreement contemplated that payment for Mr. Harms' work as general contractor on the project was the 8% contract fee. He was also entitled to hire, as part of the cost of the work, a site supervisor who was to be in attendance on site while the work was being performed (Agreement, GC 26, Superintendence). [13] The duties of Mr. Rust in his role as consultant were stipulated in the Agreement, although the Savages also entered into a separate contract with Mr. Rust in his capacity as architect. As consultant on the project, he was responsible for the design and specifications for the work, and was obliged to visit the project at appropriate intervals to inspect the progress and quality of the work. He was not, however, obliged to make "exhaustive or continuous on-site inspections to check the quality or quantity of the work". On the basis of his site inspections, Mr. Rust was to review the contractor's billings, rendered at the end of each month, and approve or "certify" them for payment by the Savages (Agreement, G 3, Consultant). He was to issue certificates of payment "to the best of his knowledge, information and belief". The issuing of any certificate did "not guarantee the correctness or completeness of the work." (Agreement, GC 14, Certificates and Payments). [14] The Agreement stipulated the form and content of the

monthly billings. The contractor was permitted to bill on a monthly basis for "the cost of the work performed and the products delivered" to the site during the month, and add to that his contract fee of 8%. The billings were to include "a statement showing payroll costs, accounts payable for products and accounts for work performed by subcontractors for which payment is due", and any other costs as defined by the Agreement (Agreement, GC 13, Applications for Payment). [15] The budget for the project was estimated at $1.8 million with substantial completion scheduled for November 12, 1995. The Agreement provided that Mr. Harms would receive a 2% bonus if construction costs at completion were less than the budgeted amount. Work on the project began in October, 1994. The Copper Roof [16] The original design of the home included a slate roof. Shortly before construction began, the Savages decided they would rather have a copper roof. Mr. Rust agreed that a copper roof, while more costly, would enhance the beauty and quality of the home. He completed drawings for a "standing seam" copper roof and the job was put out to bid. [17] Mr. Harms solicited the bids from several roofing companies, including the successful bidder, Ace Roofing. Ace's bid of $68,500 was almost 40% lower than the other bids. Neither Mr. Rust nor Mr. Harms had previously worked with the company. Paul Dore, the

principal of Ace, provided both Mr. Rust and Mr. Harms with a book of photographs showing examples of the copper roofing work he had performed. Mr. Rust testified that he would have preferred another company that bid on the job, Fox Manufacturing, because he had worked with Fox in the past and knew of the company's expertise in copper roofing. However, his review of Mr. Dore's photographs satisfied him that Ace Roofing was capable of performing the work. Mr. Rust did not ask Mr. Dore for references, nor did Mr. Harms. [18] Mr. Harms decided to proceed with Ace Roofing. Mr. Dore drafted the contract, which included the proviso that Ace Roofing had "still not received confirmation on panel and eaves detail from the architect". [19] Mr. Rust testified at trial that he did not review the contract and was not aware Mr. Dore was seeking panel and eaves specifications at the time the contract was signed. He said that had he known that fact he would not have proceeded with Ace Roofing, because a competent roofer would not bid on a job before obtaining the specifications he needed to properly estimate the cost of performing the work. [20] I conclude that Mr. Rust is mistaken in his recollection of events. The evidence of Mr. Dore and Mr. Harms, which I accept, is that they signed the roofing contract in Mr. Rust's office. Mr. Rust was present at the time, and participated in discussions

about the contract. He must have been aware Mr. Dore was requesting design details at the time the contract was signed. Mr. Rust acknowledged that he agreed Mr. Dore should prepare a mock-up of the panel and eaves details for Mr. Rust's review in order to confirm those details before proceeding with the job. [21] Mr. Dore constructed a mock-up for the standing seam roof panels, and another for the nose eave detail required for a section of the roof above the master bedroom. Both were constructed on site, and both were viewed and approved by Mr. Rust. The main roof panels were constructed with single-locked ("S-locked") standing seam joints between each panel rather than double locked joints more commonly found in the construction of copper roofs. [22] Mr. Rust did not provide any other details or specifications for the eaves, panelling or venting of the roof. When Mr. Dore expressed concern about the lack of vents, Mr. Rust told him he had obtained approval of roof designs in the past without vents or plumbing stacks. Mr. Dore also expressed concern that there were not enough drains on the roof to ensure that it was capable of properly shedding water. Although a few drains were added to the flat sections of the roof, it appears Mr. Rust did not take any other steps to address Mr. Dore's concerns. [23] The exterior of the home, including the roof, was completed in the fall of

1995; "lock up" occurred in September or October of that year. [24] In November, 1995, Mr. Harms noticed that some of the gutters were failing. He contacted Mr. Dore and requested that he apply another membrane coat to seal the gutters and install some new copper flashings. Mr. Dore performed the work and charged an additional $12,000 because he regarded the work as beyond the scope of the original contract. [25] In January, 1996, Mr. Harms again observed problems with the roof. The gutters were overflowing and water was leaking into the soffits. He reported the problems to Mr. Rust. They asked Fox Manufacturing to inspect the roof. Gervais Fox, the company's principal, reported to Mr. Rust that there were a number of problems with the roof. [26] In a letter to Mr. Harms dated January 11, 1996, Mr. Rust described the problems as reported to him. The letter states in part as follows: I have some concerns, as I am sure you do, over the copper roofing and gutters. It has become obvious that the gutters have failed in several places and water has infiltrated into the stucco soffits I have not received from your roofer the specs on the gutter nor any warranty or guarantee as to its performance. In view of the failure of the gutter system it must be replaced by an EPDM or similar membrane that will drain over the roof sub-membrane as detailed. As for the copper roof I have always

been concerned with the details at the hips, wall closure and at the gutter (discussed at the time of installation). As well, I have been informed by an expert that some of the joints between sheets contain holes in each corner as a result of lack of overlap of succeeding sheets. Unless we can rely on the sub-roof membrane this could be a source of future problems. [27] He concluded by asking Mr. Harms to "clear this problem up before it becomes more costly". [28] Mr. Harms contacted an engineering firm, Gordon Spratt and Associates, to inspect the roof. In February, 1996, the firm provided a written report to Mr. Harms in which it identified a number of problems with the roof. The report concluded that the design of the roof and its installation were deficient in several respects. Mr. Harms could not recall whether he showed the engineering report to Mr. Rust but was certain that he spoke with him about the problems with the roof as identified in the report. Mr. Rust denied any knowledge of the report. [29] I conclude that while Mr. Rust may not have actually seen the engineering report, he was aware of its existence and its contents. The report and its cost were clearly identified in Mr. Harms' monthly account which was reviewed and certified by Mr. Rust. He was the architect responsible for the design of the roof and, as consultant overseeing the project, visited the site

two or three times each week. He was well aware the roof required extensive remedial work. He reviewed and approved the repairs subsequently performed on the roof by Fox Manufacturing. [30] Mr. Harms initially tried to contact Ace Roofing to discuss the problems with the roof but his telephone calls were not returned. He decided for a number of reasons not to pursue Ace Roofing any further. Mr. Dore had charged a great deal to perform the earlier remedial work, and the work he did perform was not of good quality. As evidenced by his failure to return calls, he did not appear willing to return to the site. Mr. Harms discussed the matter with Mr. Rust, and eventually retained Fox Manufacturing to perform some remedial work. [31] The eaves were caulked in an attempt to seal them and thereby prevent leaking. Some caulking was done to the S-lock joints on the roof panels to prevent leaking. Roof panels that had slipped were reinstalled into the joints. Extensive work was done on the hip cap flashings. The work performed at this time is described in a report Mr. Fox later prepared when further problems developed with the roof in 1997. [32] Mr. Harms billed the Savages for the remedial work performed by Fox Manufacturing. Mr. Rust did not question the propriety of charging the Savages for the work. The steps taken by Fox apparently addressed the problems, at least in the short

term. [33] Construction of the house continued through the summer of 1996. In early September, 1996, Mr. Rust viewed the site and issued the certificate of Substantial Completion and prepared a list of deficiencies. He reviewed the list with Mr. Harms and the Savages. Mr. Rust did not identify any deficiencies with respect to the roof. Accounting issues [34] By the substantial completion date, Mr. Harms had rendered bills totalling almost $3 million. Tensions had developed on the site as a result of some cost and design issues, and the length of time it was taking to complete the house. The Savages were increasingly disillusioned with both their architect and their general contractor. Mr. Rust advised the Savages to prepare their own deficiency lists in addition to the one he had prepared, present them directly to Mr. Harms, and supervise their completion. After certifying Mr. Harms' September bill, Mr. Rust effectively discharged himself from the project. [35] Although Mr. Rust had prepared a deficiency list and declared the project substantially complete, the Savages were of the view that a significant amount of work remained to be done. They were frustrated by the delays and the spiralling costs. On September 11, 1996, Mr. Savage presented a letter to Mr. Harms setting a deadline for completion of the interior of the house at early October and the exterior of the house at

early November. Mr. Savage requested that Mr. Harms sign the letter, and he did so. The Savages prepared extensive deficiency lists between September and early December, 1996, which Mr. Harms and his crew addressed. [36] On October 7, 1996, the Savages left for Europe on a three-week business trip. Shortly after they left, the builders lien holdback came due. The holdback was about $270,000. Mr. Harms was encountering financial difficulties and wanted the funds released without delay. He called the Savages' bookkeeper and was told the Savages were on an extended trip to Europe and had not made any arrangements to pay the holdback. Mr. Harms told the bookkeeper he would file a lien on the property if the holdback funds were not released. Mr. Savage called Mr. Harms from Europe and attempted to dissuade him. He told Mr. Harms he would be back from Europe in a matter of days and would deal with payment then. Mr. Harms decided to file a lien on the property despite Mr. Savage's assurances. [37] The Savages arrived back on October 31, 1996, to discover the lien. At the same time, Mr. Harms submitted Bill 22, the last of his monthly billings, in the amount of $138,000. Mr. Harms did not submit the bill to Mr. Rust for certification, apparently because Mr. Rust was no longer involved in the project. Instead, he submitted it directly to the Savages for their review when they returned.

In total, including Bill 22, Mr. Harms billed the Savages $3,609,780.15 for the project. Of that amount, the Savages had already paid Mr. Harms $3,171,565.19. [38] The Savages were dismayed by the lien, and their dismay increased when they reviewed Bill 22. Although Mr. Harms had unilaterally assumed the cost of several potentially contentious items, the Savages discovered some double-billings. They knew, for example, that they had paid directly for all of their kitchen appliances but noticed that Mr. Harms had included the cost of those appliances in the account. [39] This discovery prompted the Savages to look more closely at Bills 1 to 22. They discovered that Mr. Harms had overcharged them by approximately $125,000 for supplies and products during the course of the project. Many of the charges were double-billings. The Savages refused to pay Bill 22. They also refused to release the final holdback funds due a month after substantial completion of the project. They contacted their accountants, a local White Rock firm, and asked them to review the bills. The accountants concluded that Mr. Harms had overcharged the Savages for supplies and products by about $135,000. They began questioning Mr. Harms' billing practices generally, and sought invoices and underlying documentation from him to justify the labour costs and charges from some of the suppliers. [40] The Savages'

accountants contacted the accounting firm of Grant Thornton in December, 1996, to inquire about a forensic accounting of the project billings. At about the same time, the Savages discovered that several of the subcontractors hired by Mr. Harms to work on the project had not been paid. Mr. Harms had billed the Savages for the work as it was completed. He provided a statutory declaration with each of his monthly bills confirming that he had paid all of the subcontractors. In the last few months of the project, however, he submitted false declarations in order to secure the release of some of the holdback funds. The Savages later determined that the amount of unpaid claims was in excess of $100,000. [41] The Savages moved into the house in late November, 1996. Despite the strain in their relationship with Mr. Harms, they continued to communicate with him in order to address the construction deficiencies. Mr. Savage prepared a series of deficiency lists, the last being provided to Mr. Harms in early December, 1996. Mr. Harms and members of his crew attended on site for the last time in December to address the items on that list. [42] In early 1997, Grant Thornton began its examination of Mr. Harms' billings for the project, including labour costs. It sought to obtain from Mr. Harms all invoices from the project, including invoices for labour costs, in an effort to determine the

true cost of the work. Mr. Harms retained the accounting firm of KPMG to deal with Grant Thornton. He was by this time in significant financial difficulty as a result of his involvement in a number of residential construction projects. His accounting records were disorganized and he could not provide timely responses to the requests of Grant Thornton for particulars and documentation supporting Bills 1 through 22. [43] In February, 1997, Mr. Harms decided to seek recovery of the funds he claimed were owing to him. He commenced an action against the Savages. They, in turn, filed an action against Mr. Harms, alleging breach of contract and breach of trust. They also sued Mr. Rust for breach of contract and negligence, and later amended their pleadings to include Ace Roofing. [44] Some of the unpaid subcontractors filed liens on the Savage property and commenced actions against the Savages and Mr. Harms. The lien claims totalled $128,400.00. The Savages eventually settled the claims for $106,000. Mr. Harms' accounting: the Alpha Summary [45] In the fall of 1997, in response to the Savages' demands for a detailed accounting of his billings, Mr. Harms began assembling from the invoices he compiled during the project an audit package called the Alpha Summary. His stated objective in doing so was to provide a complete accounting, with supporting invoices, of the actual cost of the

project. He completed the package in December, 1997. [46] Unfortunately, the Alpha Summary raised more questions about Mr. Harms' billing practices than it answered. First, Mr. Harms' labour costs as disclosed by the package bore little resemblance to the labour costs charged in Bills 1 to 22. During the project, Mr. Harms directly employed a crew of labourers and carpenters. One of the crew was designated site supervisor; his job in part was to record the hours worked by each crew member. Mr. Harms paid the crew members based on their recorded hours worked. However, he testified that in his monthly bills to the Savages he marked up his labour costs by 20% to 25%. The marked up costs were not apparent on the face of the bills. The Savages were not aware of the practice, nor was Mr. Rust. [47] Mr. Harms testified at trial that, at least in the initial stages of the project, he believed he was entitled to "charge out" the labour of his crew at a marked up rate. At that point, he had not carefully read the provisions of the Agreement concerning the scope of the term "cost of the work", which he acknowledged appeared to limit him to billing his actual labour costs. When he compiled his Alpha Summary, he billed on the basis of actual cost. A comparison of labour costs in the original billings with those in the Alpha Summary discloses that, on average, Mr. Harms marked up his labour

costs in the original billings by about 25%. [48] The original labour costs, including Mr. Harms' supervision fee, were $473,309. However, even without mark up, the cost of his labour in the Alpha Summary was ultimately billed at $501,855.98, approximately $28,000 more than the labour costs in the original billings. [49] Mr. Harms' explanation for the discrepancy was that he had undercharged the Savages for labour in the original billings, although those billings were apparently based on the hours of the crew as recorded by the site supervisor at the time. There were significant discrepancies between the original billings and the Alpha Summary in the number of hours claimed for the various workers on a particular day or for a particular pay period. There were also discrepancies in the charged out rates, even without mark up. Some items, such as "framing" and "foundation" were simply billed in lump sum amounts with no supporting information concerning hours worked or rate charged, such that it was impossible to determine how the amounts were calculated. [50] In the Alpha Summary, Mr. Harms included WCB remittance costs of 6.71%, or about $26,000, for all labour on the project, although most of the labour was performed by subcontractors who paid their own WCB costs. His actual WCB costs were less than $10,000. He acknowledged at trial that he knew when he prepared the Alpha

Summary he was not entitled to charge the subcontractors' WCB costs but did so in order to increase the overall cost of the labour even without any mark up. [51] Mr. Harms included in the Alpha Summary invoices to justify his billings with respect to suppliers and subcontractors. He identified almost $58,000 in "new billings". Of seventy-three such items, thirty-one had in fact already been billed in the original billings but had not been properly identified. Forty-two invoices were "new" in the sense that they had not been included in Bills 1 to 22. Some of these invoices dated back to 1994 and 1995. Other invoices were not clearly attributable to the Savage home. By the end of the project, Mr. Harms had begun building another house in White Rock, and the Savages suspected that some expenses charged to them may have been incurred on the other project. [52] In the original billings and the Alpha Summary, Mr. Harms billed the Savages $75,000 (plus GST and 8%) as a supervision fee for his work as general contractor on site. He admitted that he was not the site supervisor, and that he was on site less than half the time. He had billed the Savages $5,000 per month for the first fifteen months of the project, but stopped doing so when Mr. Savage complained about paying the fee when Mr. Harms was not on the site. Mr. Harms also acknowledged that in addition to his supervision fee, he

designated a member of his crew as site supervisor and billed the Savages for that supervision as well. In his examination for discovery, Mr. Harms conceded that under the Agreement his fee for work as the general contractor was limited to the 8% contract fee. [53] Mr. Harms made deductions in the Alpha Summary for some of the erroneous and double billings that had been identified by the Savages' accountants as obvious billing errors. For those acknowledged errors, which he attributed to careless accounting, he deducted $96,164.16 (rather than approximately $135,000 identified by the accountants). An example of an acknowledged double billing concerned the Savages' kitchen appliances. Mr. Harms accompanied the Savages to McDonald Supplies when they chose the appliances, and was aware they had arranged to pay for them directly. He nevertheless included $18,000 in his monthly billings for those appliances. [54] In the Alpha Summary, Mr. Harms did not make any deductions for the unpaid subcontractors and suppliers, or the unpaid members of his own crew, although he was aware that all of these costs had been passed on to the Savages in the original billings. [55] Mr. Harms disclosed for the first time in the Alpha Summary that during the project he had withheld credits in the amount of approximately $38,000 given to the Savages by suppliers. One credit, from a tile supplier called

Builder's Choice, was for $26,000. Mr. Harms could not explain how a credit of that magnitude could be overlooked. It also became apparent from a review of the invoices included in the Alpha Summary that the Savages had been charged for defective materials that were returned to suppliers. [56] As already noted, the Alpha Summary disclosed labour costs of $501,855.98, in contrast to $473,309 in the original billings. The original billings, Bills 1 to 22, disclosed labour costs totalling $473,309. In subsequent interrogatories filed in the proceedings, Mr. Harms calculated his labour costs at $593,701.27. [57] As a result of the numerous accounting discrepancies and other information that surfaced during their audit of the project billings, the Savages could not determine the true cost incurred by Mr. Harms to build their home. Construction Deficiencies [58] As noted earlier, Mr. Rust prepared a list of construction deficiencies before he issued the certificate of Substantial Completion. Mr. Harms addressed those deficiencies at the time the certificate was issued in September, 1996. After that, Mr. Rust left Mr. Savage the task of identifying any other deficiencies he wanted Mr. Harms to address. Mr. Savage prepared a series of deficiency lists between September and December 1996. Most of the deficiencies concerned the interior of the house. Only one of the lists identified

deficiencies concerning the exterior. Mr. Harms and his crew attended on site from time to time between October and December, 1996, to deal with the items on the lists. When he left the site for the last timed in December, 1996, Mr. Harms understood that he had dealt with all identified deficiencies. Workers who were part of his crew at the time confirmed that understanding when they testified at trial. [59] The warranty provisions of the Agreement (Article GC 24.2, Warranty) stipulate that the contractor must correct deficiencies that appear before and during the one-year period from the date of substantial performance of the work. The homeowner, through the consultant, must give the contractor written notice of the deficiencies (GC 24.3). The contractor, in turn, must enforce the warranty obligations of his subcontractors where the deficiencies are the result of their work (GC 24.4). [60] In April, 1997, the Savages retained William McCreery, an architect, to inspect the house. He prepared a site report describing deficiencies he had identified. Of particular note were problems with the workmanship and appearance of the roof, and water leaking into the billiard room on the lower floor. Mr. McCreery returned to the site in June, 1997, this time accompanied by Gervais Fox of Fox Manufacturing to inspect the copper roof, and a contractor, Jerry Vickars, to examine the foundation

of the house in an effort to determine the source of the water leaking into the billiard room. Again, his field report dealt primary with the roof and billiard room. [61] Three more site visits by Mr. McCreery followed in July, August and November, 1997, and site reports were filed. The August report reflected Mr. McCreery's conclusion that one of the billiard room leaks was the result of faulty installation by one of the subcontractors of the waterproof membrane below the tiling on the large ceramic-tiled patio. He concluded that the second leak was the result of the contractor, Mr. Harms, using improper backfill material around the foundation of the house. [62] The August, 1997, site report contained a more detailed analysis of the problems arising from the design and installation of the roof and indicated that a full report would be prepared by Fox Manufacturing on the options available to the Savages to remedy the problems. The August and November site reports described numerous other deficiencies Mr. McCreery identified concerning the exterior and interior of the home. [63] In November, 1997, Mr. McCreery sought estimates from contractors to determine the likely cost of correcting the deficiencies (excluding the roof). Barclay Restorations Ltd. estimated the cost at approximately $142,000. The Savages retained Barclay to repair the billiard room leaks and a number of other

deficiencies they wished to have addressed immediately. They paid Barclay approximately $26,000 for the repairs, and an electrical contractor an additional $5,000. The Savages have not yet undertaken repairs with respect to the balance of the deficiencies identified by Mr. McCreery. [64] Mr. Savage testified that while he had lost confidence in Mr. Harms as a result of his questionable billing practices, he would have allowed him to return to the site to correct the deficiencies. He said he would have been "stupid to go out and pay others" to do the work if Mr. Harms had been willing to do it. However, Mr. Harms was not notified of the deficiencies nor was he ever asked to rectify them. He became aware of them when he was provided with Mr. McCreery's final report in October, 1998. [65] Further problems with the roof did not arise until a few months after substantial completion. As noted, Mr. Rust had participated in the discussions about the remedial measures undertaken by Fox Manufacturing in early 1996 and supervised the work. He was apparently satisfied with the results when he left the project in September, 1996. He did not identify any deficiencies with respect to the roof before issuing the certificate of Substantial Completion. [66] In January, 1997, after a snowfall, Mr. Savage noticed the panels securing one of the skylights had shifted and was slipping down the roof.

Mr. McCreery's site visits involved inspections of the roof and discussions with consultants about its defects. Mr. McCreery noticed design and installation defects from his perspective as an architect, but relied on Fox Manufacturing and an engineering firm, Levelton Engineering, to determine the full extent of the problem. [67] In the fall of 1997, Fox Manufacturing provided the Savages with a report that concluded the roof was incapable of performing the most basic and fundamental requirement of a roof -- shedding water. The Savages also retained an engineering firm to inspect the roof in early 1998, and it concurred with Fox. Ultimately, the Savages obtained reports from several independent sources -- architects, roofing contractors and engineers. All were highly critical of both the architect's design of the roof and the roofing contractor's workmanship in assembling and installing the roof. In both design and installation, the eaves, gutters, drains and roof panels were far below standard. Venting of the roof was non-existent. [68] All of the consultants were of the view that the roof ought to be removed and completely rebuilt. As noted by Fox Manufacturing in its report: "[This is] a barely working, poorly detailed roof. This roof looks like a copper roof, but in reality it is a copper veneer over a light membrane roof." The Savages hired Fox Manufacturing to tear out

the existing roof and install a new one. The estimated cost of the work was $156,000 but ultimately the Savages paid Fox $178,000. Positions of the Parties [69] The positions of the parties on the three central issues are as follows: 1. Accounting issues: Mr. Harms says that the balance owing to him for his work on the project is $451,519.95 (before interest), taking into account deductions he acknowledges ought to be made for accounting errors. The Savages say they owe Mr. Harms nothing and that, if anything, they overpaid Mr. Harms for his work.

2. Construction deficiencies: Mr. Harms agrees that he is responsible for the reasonable cost of correcting deficiencies for which he and his crew were directly responsible but that deficiency costs arising from the work of subcontractors either must be borne by the Savages because they fall within the "cost of work" under the Agreement, or by Mr. Rust because they are the result of poor design. The Savages say Mr. Harms must pay them for the estimated cost of correcting all deficiencies identified by Mr. McCreery.

3. The defective roof: Mr. Harms says the failure of the roof was caused by its faulty design and Mr. Rust is entirely responsible for the cost of replacing it. The Savages seek recovery of one-third of the cost of replacing the roof because they say that had Mr. Harms conducted the necessary reference checks he would have determined that Ace Roofing was not capable of properly constructing a copper roof for a project of this magnitude.

ANALYSIS 1. Did Mr. Harms bill the Savages amounts in excess of the true cost of the work? [70] In the course of the project, Mr. Harms billed the Savages $3,609,780.15. Of that, the Savages paid $3,171,565.19. [71] At the outset of the trial, Mr. Harms claimed the Savages owed him $510,588.54 before certain deductions that he was prepared to concede. He said that after deductions, the Savages owed him $451,519.95, exclusive of interest and the costs of the litigation. He based his claim primarily on the Alpha Summary. [72] Mr. Harms acknowledged that the original billings, Bills 1 to 22, contained a number of obvious errors that resulted in excessive charges to the Savages. He claimed, however, that when he prepared his audit of the project, the Alpha Summary, he discovered that he had significantly undercharged the Savages in other respects. He argued that the Alpha Summary reflected, for the most part, the true cost of the project. The Savages disagreed. They argued that by Mr. Harms' own admission, the Alpha Summary is in many respects unreliable, particularly with respect to labour costs and new billings. For that reason, the Savages asserted that in order to assess the true cost of the project one must begin with the costs as described by Mr. Harms in the original billings, Bills 1 to 22, and then assess the additional accounting information contained in the Alpha

Summary. [73] I accept the Savages' argument. Mr. Harms presented his Alpha Summary as a revised summary of his original billings. It listed all of his subcontractor and materials costs, as well as his labour costs, in alphabetical order with supporting invoices and other documentation to support his billings. The facts disclose, however, that while the Alpha Summary confirmed many of the accounting discrepancies identified by the Savages in Bills 1 to 22 and disclosed other errors (such as the suppliers' credits of which the Savages were unaware), it also contained questionable invoices and unsubstantiated and inconsistent labour costs. I conclude Mr. Harms assembled the Alpha Summary with a view to establishing that the cost of the project was at least as great as the amount he originally billed the Savages. [74] Glen Harry, a partner in the accounting firm of Grant Thornton, reviewed the original billings, the Alpha Summary and additional accounting information provided by Mr. Harms in his interrogatories. He prepared a report for the Savages concerning the true cost of the project (the Grant Thornton report). The report was filed at trial and Mr. Harry was called to speak to it. His view was that, particularly with respect to labour costs, Bills 1 to 22 were the appropriate starting point to determine the actual cost of the project, bearing in mind the obvious accounting

errors in those bills that were admitted by Mr. Harms. [75] Mr. Harms acknowledged that in the original billings he overcharged the Savages, through inadvertent accounting errors, by $96,164.16. He also acknowledged that he owed the Savages the previously undisclosed credits totalling $38,170.84. Deducting those amounts, which total $134,332.00, the cost of the project as originally billed was $3,475,448.15 before any other deductions. Subtracting the amount already paid, the Savages owed Mr. Harms $303,882.96 before other potential deductions that fall into four general categories: (a) amounts paid directly by the Savages; (b) amounts charged by Mr. Harms for his supervision of the project in addition to the 8% contractor's fee; (c) questionable labour costs; and (d) rejected invoices. My conclusions concerning each of the four categories follow. (a) Amounts paid directly [76] The Grant Thornton report, Schedules 4 and 5, list the direct payments made by the Savages. Schedule 4 lists eighteen invoices paid directly by the Savages in the course of the project that were billed to them again in Bills 1 to 22, including five invoices for repairs resulting from faulty supplies or workmanship. Mr. Harry concluded that the Savages were entitled to deductions totalling approximately $34,000. Mr. Harms agreed, with one minor exception (HMS Engineering, item #18, $980) that the Savages

were entitled to those deductions. [77] Schedule 5 lists the amounts owed to unpaid suppliers and subcontractors, several of whom filed liens against the Savages' property. The Savages paid a total of $106,000 in order to settle claims totalling $128,400. Mr. Harms also admitted the Savages were entitled to a deduction for the full amount of the settled claims. [78] The evidence further established that Mr. Harms failed to pay seven subcontractors who chose not to pursue their claims. The abandoned claims totalled $24,500. Mr. Harms also failed to pay another subcontractor, Ebony Electric, $17,000. [79] The unpaid subcontractor costs total $203,900. I conclude on the evidence that the Savages are entitled to a deduction for that amount. (b) Supervision costs [80] Mr. Harms conceded that he performed only the role of general contractor on the project. He attended the site in the morning for a few hours and again at the end of the day. He was off site more hours of the day than he was on site. The evidence established that a member of Mr. Harms' crew was designated as site supervisor and the Savages were billed for that supervision as stipulated by the Agreement. For fifteen months of the project, however, Mr. Harms billed the Savages an additional $5,000 per month for his supervision of the project. He testified that he had not read the Agreement carefully and was not aware, at

the outset, that he could not bill a supervision fee for his work on the project. He charged the fee for the first fifteen months but stopped when the Savages noticed he was not always on site and complained about the fee. [81] Mr. Harms acknowledged that at least by the time of his examination for discovery he was aware that he was entitled only to the 8% stipulated by the Agreement for his work on the project. However, he argued that because Mr. Rust, who reviewed his bills regularly, did not object to the practice, the fee should not be deducted from the cost of the project. [82] I conclude Mr. Harms was not entitled under the Agreement to bill for his own supervision. There is no provision in the Agreement that would permit the general contractor to charge a fee in addition to his 8% and the cost of a site supervisor. Mr. Rust reviewed the billings but was apparently unaware that Mr. Harms was charging a supervision fee for his work. Mr. Rust, as consultant, was not responsible for Mr. Harms' failure to review the Agreement and familiarize himself with his rights and obligations under it. Mr. Rust, Mr. McCreery and Glanville Airton, an expert called by Mr. Harms, all testified that under a standard "cost plus" contract such as the Agreement in question, the general contractor's fee for his work on the project is limited to the 8% of cost. [83] Mr. Harms billed the Savages

$86,250 for supervision in the first fifteen months of the contract ($75,000 plus GST and 8% contractor's fee). The Savages are entitled to a deduction of that amount. (c) Labour costs [84] Mr. Harms bears the onus of establishing the cost of the project, including the cost of the crews he directly employed to build the house. Under the Agreement, the contractor must "keep full and detailed accounts and records necessary for the documentation of the Cost of the Work" (A 11 Accounting and Audit). [85] As noted earlier, the cost of the work consists of the actual cost incurred by the contractor, including the actual cost of employing a crew to perform the work. The Agreement does not contain a provision permitting the contractor to mark up his labour costs. Under the Agreement, Mr. Harms' fee was 8% of cost. Mr. Rust, Mr. McCreery and Mr. Airton confirmed that under a standard cost plus agreement the contractor is not entitled to mark up his labour costs. To do so is tantamount to increasing the 8% contract fee. [86] Mr. Harms marked up his labour costs on average by about 25%. His site supervisor tracked the number of hours worked by each member of his crew and Mr. Harms paid them based on those hours at their hourly rate. He then billed the Savages for the hours and his mark up. When he prepared the Alpha Summary, Mr. Harms did not mark up his labour costs, but he reassessed

the number of hours actually worked by the crew. The basis for reassessing the number of hours worked is far from clear. Many of the hours Mr. Harms claimed were not supported by invoices. There were also discrepancies between the original billings and the Alpha Summary in the rates apparently charged by the workers. [87] Further, while the labour costs in the Alpha Summary did not include a mark up, Mr. Harms included a number of costs to which he knew he was not entitled. When he was subsequently required to respond to interrogatories, he provided yet a different accounting of his labour costs. On the evidence, including Mr. Harms' admissions at trial, I conclude the labour costs in the Alpha Summary are unreliable. [88] The report of Grant Thornton, Schedule 10, sets out the many inconsistencies between the original labour costs and those contained in the Alpha Summary. Where there is documentary support for the actual hourly rate of a crew member in the original billings (before mark up), it is apparent from a comparison with the Alpha Summary that Mr. Harms consistently marked up his labour costs in the original billings. [89] Mr. Harry testified that after reviewing all of the accounting information provided by Mr. Harms, including the information contained in the interrogatories, he could not determine with any accuracy the actual cost of labour for the project. [90] The

labour costs in Bills 1 to 22 are based on hours recorded at the time by the site supervisor. I conclude that the most accurate means of determining the true cost of the labour on the project is to take the number of hours originally billed and reduce the cost of those hours by 25%. The cost of labour in the original billings, after deducting the supervision fee, was $398,000. The Savages are accordingly entitled to a reduction in the labour costs of $99,750. (d) Rejected Invoices [91] The Savages disputed twenty-six invoices because they contained errors, did not have adequate supporting documentation, or were recorded twice (Grant Thornton report, Schedule 2). These invoices total $35,199.38. Mr. Harms agreed that the Savages were entitled to a deduction of $10,664.90 for errors in these invoices. [92] On the evidence, I conclude that in addition to the items conceded by Mr. Harms, the Savages are entitled to a $10,000 deduction for the double billing of finishing work (John Charles, Schedule 2 item #16). The remaining invoices, in my view, were properly submitted for supplies delivered or services rendered by subcontractors. The Savages are accordingly entitled to a deduction of $20,664.90. [93] The Savages disputed an additional twenty-seven invoices as invalid because, in their view, the cost was incurred to repair construction deficiencies or replace defective products

and thus ought to be borne by Mr. Harms, or the work was never done (Grant Thornton report, Schedule 3). They seek a deduction of $45,825.63. Mr. Harms conceded a deduction of $7,599.70. [94] In addition to the items conceded by Mr. Harms I conclude that the Savages are entitled to deductions for the following: installation of a phone system the Savages advised Mr. Harms, in advance of installation, they did not want (Canwest Telephone Co., Schedule 3 item #4); the cost of electrical work identified by Mr. Harms in Bill 22 as a Corner Stone cost (Ebony Electric, Schedule 3 item #8); and the cost of defective windows and rusted hardware identified in Bill 22 as a Corner Stone cost (Wilmar Windows, Schedule 3 items #26 and #27). These items total $18,422.04. On the basis of the documentary evidence provided by Mr. Harms, I conclude that the remaining invoices were properly submitted by Mr. Harms for supplies delivered or services rendered by subcontractors. Including the amount conceded by Mr. Harms, the Savages are entitled to a deduction of $26,021.74. [95] Finally, the Savages disputed seventy-one new invoices submitted by Mr. Harms when he produced the Alpha Summary in December, 1997, that he said were not included in Bills 1 to 22 by inadvertence (Grant Thornton report, schedule 6). Those invoices totalled $58,985.82. Some of them date back to 1994 and 1995. Mr. Harms

conceded that a few of the invoices, totalling $3,522.14, were not properly included as costs to the Savages and sought to recover the remaining $55,463.68. [96] Three of the disputed invoices were from Builder's Choice, the company that supplied and installed the ceramic tile throughout the home. These invoices totalled $15,677.64. Mr. Harms called evidence from William Potts, the principal of the company. He testified that he billed Mr. Harms a total of $311,439.10 for the project, and was paid the full amount. [97] I accept that the Builder's Choice invoices reflect costs incurred with respect to the Savage house and paid by Mr. Harms. With the exception of those costs, I conclude that Mr. Harms has not proved that he incurred the costs submitted in the new billings. As noted earlier, the evidence disclosed that the Savages had already paid Mr. Harms for thirty-one of the invoices. Mr. Harry testified that he identified these invoices, during his examination of the accounting records, in Bills 1 to 22. Mr. Harms did not dispute Mr. Harry's findings. Mr. Harms also acknowledged that with respect to some of the invoices he simply guessed as to whether the costs were properly attributed to the Savage house. With the exception of the Builder's Choice invoices, Mr. Harms did not provide any evidence, documentary or otherwise, to support his assertion that the costs he claimed in

the new billings were attributable to the Savage house. [98] The Savages accordingly owe Mr. Harms $15,677.64 for the new billings submitted in the Alpha Summary. Accounting Issues: Summary [99] Mr. Harms billed the Savages considerably in excess of the actual cost of the work. The Savages overpaid Mr. Harms by $117,739.84, and are entitled to recover that amount from him. [100] My conclusions concerning accounting issues may be summarized as follows: 1. Amount originally billed by Mr. Harms (Bills 1 to 22): $3,609,780.15 2. Amount Savages owed to Mr. Harms after acknowledged adjustments ($134,332): $3,475,448.15 3. Amount paid by Savages: $3,171,565.19 4. Amount owed to Mr. Harms by Savages (before further adjustments): $303,882.96 5. Amounts credited to Savages (further adjustments): (a) direct payments: $203,900 (b) Mr. Harms' supervision fee: $86,250 (c) labour mark up: $99,750 (d) rejected invoices: $46,686.64 6. Amount to be credited to Savages before new billings: $436,586.64 New billings: $15,677.64 Total amount to be credited to Savages: $420,909 7. Amount Savages overpaid Mr. Harms: $117,026 2. Is Mr. Harms responsible for the construction deficiencies and the cost of rectifying them? [101] The Savages relied on the report of Mr. McCreery dated October 18, 1998, to support their claim for the cost of deficiency repairs estimated by Barclay Restoration Ltd. at

$142,000. [102] Mr. Harms argued that he was not advised of the deficiencies in a timely way and was never asked to rectify them. He accordingly did not have an opportunity to address the deficiencies under the warranty provisions of the Agreement. He argued, in the alternative, that a more accurate estimate of the cost of the deficiency repairs was $31,000, as indicated in the report prepared by Glanville Airton of Consulco Forensic Engineering Inc. Mr. Airton was retained by Mr. Harms to inspect the Savage house and respond to the report of Mr. McCreery and the estimate of Barclay. [103] The issue of the deficiency repairs is complicated by the fact that during the crucial final stages of construction, the project was without its consultant. Mr. Rust, as consultant, was responsible for the administration of the Agreement until all construction deficiencies were corrected as required by the warranty provisions of the Agreement or until the issuance of the certificate of Total Performance of the Work (Agreement, GC 3.1). He was also responsible for conducting inspections of the work to determine the dates of Substantial Performance and Total Completion (Agreement, GC 3.11). He did not fulfil these responsibilities, nor, it appears, did the Savages insist that he do so. [104] The Agreement contemplates that the consultant continues to play a key role in the last stages of the

project particularly with respect to the identification and correction of construction deficiencies and the enforcement of the warranty provisions of the Agreement. As the individual responsible for the design and specifications of the project, the consultant is the person most capable of determining whether the contractor had performed the work in accordance with the specifications. The provisions of Article GC 24-Warranty underscore the integral connection between the consultant's specifications for the work and the enforcement of the warranty provisions to correct deficiencies in the work. The article states in part as follows: 24.1 The Contractor shall be responsible for the proper performance of the Work only to the extent that the design and specifications permit such performance. 24.2 Subject to paragraph 24.1 and in conformity with Article A-9 COST OF THE WORK, the Contractor shall promptly correct defects or deficiencies in the Work which appear prior to and during the period of one year from the date of Substantial Performance of the Work, as set out in the certificate of Substantial Performance of the Work, or such longer periods as may be specified for certain products or work. 24.3 During the period provided in GC 3 CONSULTANT, paragraph 3.1, the Owner through the Consultant shall promptly give the Contractor written notice of observed defects and

deficiencies. [105] Once given notice of deficiencies, the contractor must "enforce the warranty obligations of his stipulated price subcontracts", who are then responsible for correcting defects in the subcontract work at their own expense (Agreement, GC 24.4). [106] Before issuing the certificate of Substantial Completion in September, 1996, Mr. Rust performed an inspection of the house and drew up a deficiency list for Mr. Harms. He was satisfied that the quality of the work was good and the defects were relatively minor. Although he advised the Savages to draw up their own deficiency list in addition to his, and deal directly with Mr. Harms in addressing the deficiencies, Mr. Rust issued the certificate of Substantial Completion on September 6, 1996 and effectively left the project. He alluded in his evidence to "tensions that made it difficult to be on site". Although the Savages called him back to the site in January, 1997, to look at the roof, it appears that either the Savages did not ask him to complete his work under the Agreement or he declined to do so. [107] Instead, the Savages retained Mr. McCreery in about April of 1997 to deal with the immediate problems caused by the failure of the roof to shed water and the leaks in the billiard room on the lower floor. Those problems were the focus of his site visits in April, June and July, 1997, reports of which are

appended to his October 18, 1998 report. [108] The deficiency lists drawn up by the Savages between September and December, 1996 were detailed and fairly lengthy, but most of the deficiencies were relatively minor in nature. Mr. Harms and members of his crew addressed most of those deficiencies before they left the site in December, 1996. One noted deficiency Mr. Harms did not address concerned the misalignment of the mirrored closets in the master bedroom. Another concerned cracks that had appeared in large planters on one of the patios. [109] It was not until Mr. McCreery's site visit on August 13, 1997, nearly a year after Substantial Completion, that many of the deficiencies described in his October, 1998, report were identified. Other deficiencies were not identified until his site visit of November 24, 1997, well after the twelve month warranty period stipulated by the Agreement. Mr. Harms was not given notice, in writing or otherwise, of these deficiencies. [110] Some of the deficiencies identified by Mr. McCreery also existed at the time of Substantial Completion and are clearly design rather than construction issues. They include the porte cochere trench drain, problems with pool patio and balcony drainage, stained stone veneer finishing, lack of attic venting, retaining wall cracks, and problems with the balcony doors. The misalignment of the master bedroom closet

mirrors is also primarily a design issue. As such, they are the responsibility of Mr. Rust, not Mr. Harms. [111] These deficiencies existed at the time Mr. Rust issued the certificate of Substantial Completion. I conclude that Mr. Rust, who was responsible for design and specifications, was of the view that these contentious items were acceptable and in accordance with his specifications. Indeed, Mr. McCreery said as much in his report at p. 9: The majority of the observed as-built deficiencies in this project are under the jurisdiction of the architect, either directly as part of the architectural scope of work or indirectly in his role as Coordinating Professional, or as traditionally called the prime consultant as opposed to the sub consultants. [112] In Mr. McCreery's view, the overall quality of the workmanship on the project was quite good with the exception of the "as built deficiencies". In contrast, his assessment of the quality of the work of Mr. Rust was quite different: [the architect] is responsible to review the work in progress and correspond with the contractor to ensure the intent of the contract and regulatory requirements are being followed, review change orders, shop drawings and other submittals for conformity to the contract scope of work and budget, review progress claims submitted by the contractor and recommend payment by the owner, ensure substantial

and final completion of the work of the contract, and other related normal construction admin services . [T]here is little documented file information I would normally expect to see during the construction of a project such as this one. Two important consequences of the shortcomings in these services, including inadequate contract administration and field review, in my opinion, are the resulting significant cost overruns, and the documented 'significant construction deficiencies' as opposed to those which are noted in this report as being normal 'end of construction deficiencies'. In summary it is my opinion the architect did not provide the normally accepted standard of services in the execution of this project in that he failed to prepare sufficiently complete, coordinated and cross referenced construction contract documents,[and] he failed to provide sufficient construction administration services so as to ensure the quality and extent of work was being satisfactorily carried out by the contractor [113] While Mr. McCreery concluded that the architect/ consultant, Mr. Rust, was primarily responsible for the "as built deficiencies", he also concluded that the general contractor "must accept some responsibility as he did undertake the work of the contract" based on the initial design and specifications. The difficulty with this conclusion is that it runs contrary to a central

provision of the Agreement: Mr. Harms is responsible for the proper performance of the work only to the extent that the design and specifications permit it (Agreement, GC 24 Warranty). [114] The balance of the deficiencies identified by Mr. McCreery, with one exception discussed below, were the result of work by subcontractors. The Agreement contemplates that the contractor, once notified of such deficiencies, will take steps to enforce the subcontractors' warranties. The subcontractors must correct their deficiencies at their own cost. Under the Agreement (A-9 Cost of the Work, (t)) the homeowner must bear the costs incurred by the contractor for the correction of deficiencies, with the exception of defective work as defined in Article GC 33-Rejected Work. Under GC 33, the contractor must, at his expense, rectify damage caused by his own omission or carelessness. Because Mr. Harms was not notified in a timely way of most of the deficiencies in the work of subcontractors, he was not able to enforce their warranties. [115] Before he left the site in December, 1996, Mr. Harms was notified by Mr. Savage of the cracks in the planters. He did not take steps to address that problem. The Savages paid a plastering company to do the repairs. The total cost, including repairs to decorative columns and some work on the interior of the house, was $7,276. The exact cost of that repair is

not apparent from the invoice. I conclude from the evidence of the consultants, Mr. McCreery and Mr. Airton, that the cost to repair the planters was in the range of $2,500. Mr. Harms is responsible for that amount. [116] Mr. Harms is also responsible for the cost of addressing the billiard room leak at the point of the electrical service duct from the garage. Mr. McCreery's assessment, which I accept, was that Mr. Harms was primarily responsible because he used clay as backfill at the foundation, which is nonporous, while standard practice in the industry requires porous material as backfill to permit effective drainage. Mr. Harms was aware of the leak before he left the site because he attempted to address the problem with a concrete slab around the duct, which proved to be inadequate. The foundation had to be removed and new, porous material put in place. Mr. Harms accepted responsibility for his failure to use the proper backfill. He argued that his liability ought to be limited to the estimated cost of $10,600. The actual cost to the Savages was $17,849.87. In my view, Mr. Harms is responsible for the actual cost of rectifying the result of his defective work. He was aware of the problem before he left the site and the steps he took to rectify the problem were clearly inadequate. [117] The other billiard room leak was the result of faulty design by the architect and

substandard work by the membrane applicator and tile setter, Builder's Choice. Mr. Harms' role was limited to coordinating the work. He was not notified under the Agreement of the deficiency and given no opportunity to enforce the warranty of Builder's Choice. I conclude that he is not responsible for cost of addressing the problem. [118] Finally, on the evidence I conclude that Mr. Harms ought to have ensured that all subcontractors provided operating manuals for the various systems installed in the home. He failed to do so. Barclay Restorations estimated the cost of assembling the manuals at $600. Mr. Harms is responsible for that cost. [119] Counsel for the Savages argued that in light of Mr. Harms' questionable billing practices that came to light at the conclusion of the project, it was not reasonable to hold them to the strict application of the Agreement which required them to notify the contractor of the deficiencies and give him the opportunity to rectify them. I cannot accept that argument. It is not supported by the evidence. As noted earlier, Mr. Savage acknowledged that while he had lost confidence in Mr. Harms as a result of billing practices, he would have permitted him to address the remaining deficiencies as it would have been more cost effective to do so. That is borne out by the fact that although the Savages were aware by early November that there were

problems with Mr. Harms' bills, they continued to provide him with deficiency lists and worked with him through December, 1996, to address them. When Mr. McCreery was retained and further deficiencies identified, Mr. Harms was not notified or asked to address them. The evidence disclosed no reason for that. [120] The Savages are insisting on strict compliance with all other terms of the Agreement, as they are entitled to do. The warranty provisions stipulate terms operating in part to the benefit of Mr. Harms. They were not met. [121] In summary, I find that Mr. Harms' responsibility under the Agreement for rectifying construction deficiencies is limited to the cost of addressing the billiard room leak at the electrical duct and the cost of repairing the planters. He is also responsible for the cost of the operating manuals. In total the Savages are entitled to recover $20,949.87 for these deficiencies.

3. Is Mr. Harms responsible, in part, for the cost of replacing the defective roof? [122] The Savages acknowledged that Mr. Rust and Ace Roofing were primarily responsible for the failure of the copper roof and the cost of its replacement. However, they argued that Mr. Harms was responsible for one-third of the cost because he failed to exercise due diligence before hiring Ace Roofing to perform the work. Mr. Harms' position was that the design of the roof was the cause of its failure and accordingly he is not responsible. [123] I have reviewed all of the reports provided by architects, engineers and roofing contractors concerning the defective roof. On the basis of those reports, and the evidence of Mr. Rust, I conclude that Mr. Harms was not responsible for the failure of the roof. Nor, in my view, was he responsible for the additional work undertaken first by Ace Roofing and then by Fox Manufacturing in early 1996 to remedy the problems that became apparent at that time. [124] Paul Dore showed Mr. Rust photographs of copper roof installations he had previously performed. Ace Roofing was not Mr. Rust's first choice, but he was satisfied by his review of Mr. Dore's portfolio that he was capable of constructing and installing the roof he had designed for the Savage home. He did not inquire further, nor did he ask Mr. Harms to do so. Mr. McCreery testified that Mr. Rust, who

designed the roof and was aware of the specifications he required, ought to have been alive to a potential problem when Ace Roofing provided a bid that was 40% lower than that of Fox Manufacturing. According to Mr. McCreery, whose evidence I accept, the obligation to perform due diligence with respect to the credentials and experience fell first to Mr. Rust. Either the low bid did not concern Mr. Rust, or he was confident based on the samples of Mr. Dore's work that he was able to do the job. In any case, Mr. Rust made no further inquiries and agreed to proceed with Ace Roofing. [125] Even assuming the responsibility to conduct due diligence fell to Mr. Harms, no direct evidence was led to support the suggestion that reference checks would have alerted him to the fact that Mr. Dore was not competent to do the job. In hindsight, the scope of the job was likely beyond Mr. Dore's experience and capabilities. His workmanship was not acceptable, but that may not have been inevitable had he been provided with the design and specifications necessary to perform the work, proper supervision by an architect who was experienced in the design of copper roofing, and periodic inspections by an engineering consultant with roofing expertise. [126] Mr. Rust was aware of Mr. Dore's request for additional specifications at the time he presented the contract. As the architect responsible for the

design of the roof, he approved the mock-up of the single-locked standing seam panels although it is apparent from the reports of roofing contractors and engineers that a double-locked standing seam ought to have been used to prevent water penetration at the panels. Mr. Rust also approved the eaves detail for the portion of the roof covering the master bedroom, but provided no other eaves or gutter details. He disregarded Mr. Dore's request for more drains. He did not include a venting system in the specifications for the roof and rejected Mr. Dore's suggestion that there ought to be vents to permit the roof system to breathe. [127] It is clear from the various reports that Mr. Dore's work did not meet industry standards. However, as noted by both Mr. McCreery and Mr. Fox in their reports, Mr. Rust's design called for "a decorative covering, not a roof". Mr. McCreery went on to say the following: The architect should have properly specified the standard of quality, and the necessary details for this roof application in advance of the contract being let by the contractor. This apparently did not happen. He should also have personally inspected, and, or retained a specialist to inspect the roof carefully during its installation. If the architect had followed normal practice and prepared details and specs for this new roof system, he would have, by doing so, become informed as to

the standards and requirements of this type of roofing system if he was not already so knowledgeable. During the construction he and the contractor then would have this knowledge and specific contractual documentation by which to measure the acceptability of the subcontractor's installation. The subcontractor would then also clearly know what standard he was expected to quote. [128] In the opinion of Levelton Engineering Ltd. and Fox Manufacturing, the central problem with the roof was the detailing of the gutter and eaves portion of the roof in the original design. They confirmed that when the gutters first began to fail in December, 1995, it appeared reasonable to apply another coat of the membrane originally used by Ace Roofing. It also appeared reasonable to affect the further repairs by Fox in February, 1996. That remedial work was carried out under the supervision of Mr. Rust, who was satisfied that the work had addressed the problems. [129] Mr. Rust's January 11, 1996, letter to Mr. Harms criticizing the installation of the roof was clearly self-serving. Mr. McCreery was highly critical of its contents. In his report, he stated as follows: There is a memo of 11 January 1996 from Paul Rust to Harold Harms concerning the roof application. At this point the gutters had failed and were leaking. The memo says: "I have not received from your roofer the specs on the gutter nor

any warranty or guarantee as to its performance". Why is the architect asking the trade to provide the spec? The specification is the written part of the Contract Documents which are completed by the architect to delineate the design intent of the contract. In my experience it is not appropriate for the architect to rely on the trade after the fact to provide a "spec". This is a fundamental role of the designer, in this case the architect. The Rust memo further states: " I have always been concerned with the details at the hips, wall closure and at the gutter (as discussed at the time of installation)". On-going site review reports should have been prepared by the architect, and, or a roofing inspector during the course of the installation of the roof which would have documented these shortcomings with the necessary corrective instructions . The Rust memo then states: "Unless we can rely on the sub-roof membrane this could be a source of future problems". This statement sounds as though the architect is not sure of how the roof as installed will perform. In my experience it is the job of the architect as the designer and the administrator of the contract to know with certainty all components of the building will function satisfactorily, and if not sure, take the necessary steps to be sure. [130] It eventually became apparent that the design of the roof was fundamentally flawed

because the result of Mr. Rust's design was a copper veneer that depended entirely on a light sub-membrane for weather protection. As noted by Mr. McCreery, both the architect and the roofing contractor must have intended the sub-membrane to provide the primary weather protection. That was not an acceptable design. Poor workmanship in the installation compounded the problem. Nails securing the copper panels penetrated the sub-membrane over the entire roof such that even it could not provide the necessary weather protection. Hence the conclusion of Fox Manufacturing, which was as follows: Starting over again, with new eaves panels, a proper gutter system, adequate ventilation, correctly installed membrane underlays, and correctly configured standing seam copper roofing is the only option that would provide the Owners with what they paid for. [131] On the basis of the expert opinions, I conclude that all of the components of the roof that led to its failure were the result of the poor design by Mr. Rust, his failure to properly direct its installation, and the poor workmanship of Ace Roofing. Mr. Harms is not liable to any extent for the defective roof.

SUMMARY [132] In summary, my conclusions are as follows: 1. Accounting Issues: Mr. Harms billed the Savages significantly in excess of the actual cost of building their home. As a result: (a) Mr. Harms' action to recover the unpaid billings and the builder's lien holdback in the amount of $451,519 is dismissed; and (b) The Savages are entitled to recover $117,026 from Mr. Harms, and interest.

2. Construction Deficiencies: The Savages are entitled to recover the cost of rectifying deficiencies in the amount of $20,949.87 and interest.

3. The Defective Roof: Mr. Harms does not share responsibility for the cost of replacing the defective roof. [133] The Savages are entitled to their costs at Scale 3. "C.A. Wedge, J." The Honourable Madam Justice C.A. Wedge