Hickey's Building Supplies Limited v. Sheppard

Date: 20141124 Docket: 13/15 Citation: Hickey's Building Supplies Limited v. Sheppard, 2014 NLCA 43 IN THE SUPREME COURT OF NEWFOUNDLAND AND LABRADOR COURT OF APPEAL BETWEEN: HICKEY’S BUILDING SUPPLIES LIMITED APPELLANT AND: HARVEY SHEPPARD AND PATSY SHEPPARD RESPONDENTS Coram: Welsh, Harrington and Hoegg JJ.A. Court Appealed From: Supreme Court of Newfoundland and Labrador Trial Division (G) 201001T1457 (2013 NLTD(G) 19) Appeal Heard: June 11, 2014 Judgment Rendered: November 24, 2014 Reasons for Judgment (Dissenting in Part) by Welsh J.A. Reasons for Judgment by Hoegg J.A. Concurred in by Harrington J.A. Counsel for the Appellant: Keith Morgan Counsel for the Respondent: Genevieve Dawson Page: 2 Welsh J.A.: [1] Hickey’s Building Supplies Limited contracted with Harvey and Patsy Sheppard to build a house for them. The Sheppards refused to make the final payment under the contract because they were dissatisfied with aspects of the work. The Contractor registered a mechanics’ lien claiming $96,688.33 as owing. [2] The trial judge concluded that the amount owing under the contract was $35,950.46. He ordered that the lien be vacated and awarded the Sheppards costs under column 5 of the scale of costs, Rules of the Supreme Court, 1986. The Contractor appeals portions of the trial judge’s decision regarding his interpretation and application of the contract, the award of general damages, and the award of costs in favour of the Sheppards. An additional issue is whether the lien was properly vacated. BACKGROUND [3] The contract to build a house for the Sheppards, entered into in October 2009, had a completion date of February 2010. The house was not completed until December 2010. Due to disputes as to deficiencies, the Sheppards did not take occupancy until March 2011. From the beginning, the Contractor knew that the residence was to be wheelchair accessible. The Sheppards were particularly concerned about the flooring. They wanted a level transition from hardwood to ceramic tiles. Unfortunately, sufficient care was not taken to ensure this. [4] The Contractor submits that compliance with the National Building Code was what was required by the written contract and that the use of transition strips, where there was a slight height difference from one type of flooring to another, was in compliance with the Code which permitted a maximum difference in level of one-quarter inch. The trial judge concluded that “good construction practice would have been to install the ceramic to the same level as the hardwood” (2013 NLTD(G) 19, at paragraph 72). He awarded damages of $34,237.87 to replace the flooring. [5] A second issue is the Sheppards’ understanding that they had contracted for nine-foot ceilings. The Contractor took the position that the Sheppards had agreed to forego nine-foot ceilings due to the additional cost and, later, to avoid further delay in building the house. The trial judge found Page: 3 that the contract called for nine-foot ceilings and awarded damages of $2500. [6] When the Sheppards refused to make the final payment, the Contractor filed a mechanics’ lien and commenced an action claiming $96,688.33 as owing. The Sheppards filed a defence and counterclaim denying liability under the contract and seeking damages as against the Contractor. ISSUES [7] At issue is whether the trial judge erred in: 1. Awarding damages for the failure to provide: (a) a level floor, and (b) nine-foot ceilings; 2. Awarding general damages; 3. Vacating the mechanics’ lien; and 4. Awarding the Sheppards costs as provided in the contract. ANALYSIS Standard of Review [8] I begin with a consideration of the applicable standard of review. In Sattva Capital Corporation v. Creston Moly Corporation, 2014 SCC 53, Rothstein J., for the Court, stated the following principles: [47] Regarding the first development, the interpretation of contracts has evolved towards a practical, common-sense approach not dominated by technical rules of construction. The overriding concern is to determine “the intent of the parties and the scope of their understanding” … . To do so, a decision-maker must read the contract as a whole, giving the words used their ordinary and grammatical meaning, consistent with the surrounding circumstances known to the parties at the time of formation of the contract. … [48] The meaning of words is often derived from a number of contextual factors, including the purpose of the agreement and the nature of the relationship created by the agreement … . … Page: 4 [50] … Contractual interpretation involves issues of mixed fact and law as it is an exercise in which the principles of contractual interpretation are applied to the words of the written contract, considered in light of the factual matrix. [9] In the result, Rothstein J. concluded that, because the interpretation of a contract is a question of mixed law and fact, the appropriate standard of review is reasonableness, unless an extricable question of law is identified, to which a standard of correctness applies. Regarding the latter, he explained: [53] … Legal errors made in the course of contractual interpretation include “the application of an incorrect principle, the failure to consider a required element of a legal test, or the failure to consider a relevant factor” (King [2011 MBCA 80, 270 Man. R. (2d) 63], at para. 21). Moreover, there is no question that many other issues in contract law do engage substantive rules of law: the requirements for the formation of the contract, the capacity of the parties, the requirement that certain contracts be evidenced in writing, and so on. [10] Regarding the relevance of the surrounding circumstances, Rothstein J. explained: [57] While the surrounding circumstances will be considered in interpreting the terms of a contract, they must never be allowed to overwhelm the words of that agreement … . The goal of examining such evidence is to deepen a decision- maker’s understanding of the mutual and objective intentions of the parties as expressed in the words of the contract. The interpretation of a written contractual provision must always be grounded in the text and read in light of the entire contract … . While the surrounding circumstances are relied upon in the interpretive process, courts cannot use them to deviate from the text such that the court effectively creates a new agreement … . [58] … [Evidence of surrounding circumstances] should consist only of objective evidence of the background facts at the time of the execution of the contract …, that is, knowledge that was or reasonably ought to have been within the knowledge of both parties at or before the date of contracting. … The Flooring [11] The Contractor conceded that there were problems with the installation of the hardwood flooring and that this required remediation at the Contractor’s expense. However, the Contractor submits that the trial judge erred in ordering replacement of the ceramic tile and remediation costs for the flooring in the amount of $42,237.87. Page: 5 Interpretation of the Contract [12] The Contractor submits that the trial judge erred by applying a standard of “good construction practice” and, as a result, requiring level flooring when the contract provided for compliance with the National Building Code, which permits the use of transition strips to accommodate a difference of one-quarter inch. [13] The written contract consists of a standard building contract having sixteen clauses, which are in ordinary type, together with the project drawings and several pages of specifications and prices. Clause 15(b) provides: All work shall be completed in a workman-like manner and in compliance with all Building codes and applicable laws. … [14] The Sheppards submit that the Contractor knew that, to accommodate Ms. Sheppard’s wheelchair and her mobility issues, they required level floors, that is, without transition strips between hardwood and ceramic tiles. In response, the Contractor refers to clause 13(b) of the contract, which provides: This Contract constitutes the entire agreement of the parties. No other agreements, oral or written, pertaining to the work to be performed under this Contract exists [sic] between the parties. This Contract may only be modified only [sic] by a written agreement signed by both parties. [15] Rod Mercer, who installed the hardwood, testified that the National Building Code, which incorporates accessibility standards, permits a transition height of one-quarter inch, and that, with transition strips, the installation in the Sheppards’ house was compliant. [16] That said, the Contractor concedes that the hardwood floor must be replaced due to faulty installation. However, the Contractor submits that the trial judge erred in determining that the ceramic tiles, which are one-quarter inch thinner than the hardwood, require replacement, and that transition strips are not an adequate measure. While the two types of flooring could have been made flush with the use of underlay, unfortunately, the thinner of the two, the ceramic tile, was installed first. [17] The trial judge accepted the evidence of the Sheppards that they had contracted for a level floor: Page: 6 [57] … The Sheppards were adamant that they had emphasized to Jay Hickey that they wanted a smooth, flat floor, with no obstacles for a wheelchair. They maintain that the floor ought to have been installed so that there was no difference between the heights of the two types of flooring. [The Contractor] on the other hand, felt that the problem was only a minor one, and could be solved by the addition of tapered “transition strips” which would mask the difference in height. [58] It is not credible that [the Contractor] could have misunderstood the need for a flat floor with no obstacles. Jay Hickey knew from the beginning that Mrs. Sheppard required a floor that was appropriate for a wheelchair. Jim Hickey, who took over management of the job from Jay Hickey in May 2009, also knew these requirements. This issue could have been addressed in the late fall of 2009, when the ceramic floor was installed. … [61] I believe it is disingenuous for [the Contractor] to refer to the terms of the written contract. It is true there is nothing written in the contract about the two types of flooring being even where they came together. However, many aspects of good construction techniques are not mentioned in the contract. There is an expectation that the construction will proceed using the available techniques, within the costs permitted in the contract. According to several of the witnesses, it would have been a minor adjustment during construction to have had the flooring that satisfied the Sheppards. [18] In the circumstances, clause 13(b) requiring the entire contract to be in writing does not assist the Contractor. The National Building Code, on which the Contractor relies, sets minimum building standards. Therefore, had the house not been compliant with the Code, clause 15(b) would have been engaged to require remediation. This does not mean that, regardless of the circumstances, the minimum standard set out in the Code applies. [19] In this case, the Contractor knew that the National Building Code permitted the use of transition strips. The Contractor also knew that the Sheppards particularly wanted a level floor, and the reason for that. Clearly, there was a potential for conflict between what the Code permitted and what the Sheppards had requested. The evidence accepted by the trial judge leads to the conclusion that, while the Contractor was aware of this possible conflict, the Sheppards were not. Indeed, the Sheppards were relying on the Contractor’s expertise and on the contractual obligation in clause 15(b) that the house would be built in a workman-like manner. The trial judge accepted evidence that, without significant expense, a level floor between hardwood and ceramic tile could be achieved by the use of appropriate underlay. Page: 7 [20] In the circumstances, it was incumbent on the Contractor either to clarify that transition strips could be used or that there would be some extra expense if underlay was required to achieve a level floor. It was open to the Contractor, as the provider of the written document, to specifically address this issue in the contract. This was not done. Since the issue was not specifically referenced in the written contract, the trial judge did not err in relying on the stipulation that the construction was to be completed in a workman-like manner which, in the circumstances, would involve the use of underlay. [21] In summary, the trial judge did not err in concluding that the Sheppards had contracted for a level floor and that the Contractor could not rely on the National Building Code to permit the use of transition strips. In the result, compliance with the contract required replacement of the ceramic tile, as well as the hardwood. Based on this conclusion, the next question is whether there was an error in the assessment of damages. Damages for Remediation of the Flooring [22] The Contractor submits that the maximum that could be awarded in respect of the flooring is $11,500, the amount allowed for flooring under the contract. No authority is provided for this proposition. The applicable fundamental principle is that damages are intended to put the injured party in the same position as if the contract had been performed in accordance with its terms (Fidler v. Sun Life Assurance Co. of Canada, 2006 SCC 30, [2006] 2 S.C.R. 3, at paragraphs 27 and 44; Swan and Adamski, Canadian Contract Law, third edition, (Markham, ON: LexisNexis Canada Inc., 2012), at paragraph 6.75). [23] A second relevant principle is that the “purpose of an award in damages is to grant full compensation, not to award a windfall” (Goldsmith, Heintzman, Goldsmith on Canadian Building Contracts, looseleaf edition, (Toronto, ON: Carswell, 2009), at page 6-10). The authors comment further, at pages 6-10 to 6-11: It is usually more costly to call in another contractor in the course of the work to complete it and such additional costs must be borne by the defaulting contractor if it is reasonable for the owner to incur such costs and he has done so or it is likely he will do so. Any moneys unearned by the defaulting contractor under the original contract must be credited towards completion, since this money would in any event have been payable by the owner; but any excess over this amount represents the loss suffered by the owner as the result of the default. Page: 8 [24] As applied to this case, the Sheppards would be required to pay the Contractor $11,500, the amount contractually allowed for the flooring. This amount is included in the $96,688.33 remaining to be paid under the contract. Anything in excess of that amount is a remediation cost that must be paid by the Contractor. The trial judge accepted, and the Contractor has not challenged, the following quote for replacement of the flooring: [106] … Remove existing hardwood $ 3,459.00 Supply and Install hardwood $13,461.00 Remove existing ceramic tiles $ 2,900.00 Supply and Install ceramic tile $ 7,479.00 Ditramat under tile $ 2,400.00 Removal of debris from site $ 600.00 Total $30,299.00 HST at 13% $3,938.87 Total estimate $34,237.87 [25] In addition, the trial judge ordered the Contractor to pay a further $8,000 in respect of the flooring, comprised of $2,000 for refinishing the concrete, the same for removal and replacement of cabinets, baseboards and furniture, and $4,000 for alternate accommodation for four weeks. The Contractor did not take issue with these amounts should this Court conclude that the ceramic tile required replacement. [26] Accordingly, the total amount payable by the Contractor for remediation of the flooring is $42,237.87. Ceiling Height [27] The trial judge found that the drawings of the proposed house showed nine-foot ceilings. However, the specifications were for “2x6 Pre-cut spruce studs”, which would indicate an eight-foot ceiling. Mr. Hickey testified for the Contractor that he had discussed the height of the ceiling with Mr. Page: 9 Sheppard and that Mr. Sheppard “told him to go with the lower priced option”, that is, eight-foot ceilings (decision of the trial judge, at paragraph 29). [28] This was different from the testimony of the Sheppards. The trial judge stated: [30] Harvey and Patsy Sheppard both testified that the first time they were aware that the walls would not be nine feet was in January 2009 when the carpenter doing the framing contacted them to confirm the height of the walls. Harvey Sheppard went to the site for a meeting with Jay and Jim Hickey which degenerated into shouting. He had looked at the specifications and said that he did not know that “precut” means eight feet. Patsy Sheppard said at the time the contract was signed there was no discussion about nine foot walls. When they met with Jay and Jim Hickey, she said the senior Hickey was emphatic that “we’re not getting nine foot walls.” [29] The trial judge referred, at paragraph 32, to clause 13 of the contract, which provides: The Contract, drawings, and specifications are intended to supplement one another. In the event of a conflict, the specifications shall control the drawings, and the Contract shall control both. If work is displayed on the drawings but not called for in the specifications, or if the work is called for in the specifications but not displayed on the drawings, Contractor shall be required to perform the work as though it were called for and displayed in both documents. (Emphasis added.) [30] The trial judge concluded: [33] Since the meaning of “p/cut” and “pre-cuts” set out in the specifications is not obvious, a layperson reading the contract would normally come to the conclusion that the requirement for nine foot walls in the drawings was not contradicted by the specifications. In the absence of an explanation for the technical term “precuts”, there was no expectation that the Sheppards would understand that the contract provided for eight foot walls. As a consequence I find that the contract called for walls of nine feet. [34] When I discuss damages, I will consider the consequences of a breach of this provision. In addition, this event bears on the deteriorating relationship between the parties. [31] The Contractor concedes that the specification, referring to “2x6 Pre- cut spruce studs”, was ambiguous. However, the Contractor submits that the Page: 10 trial judge did not consider the question of waiver arising from the evidence. Both Mr. Hickey and Mr. Sheppard testified that, when the framing of the house began, they had a heated discussion about the height of the walls. In cross-examination, Mr. Sheppard testified that, at that time, he agreed that the framing should proceed with eight-foot walls because he could not countenance any further delay in the construction. [32] Principles regarding waiver are discussed in Rental Shop Ltd. v. Western Surety Co. (1992), 99 Nfld. & P.E.I.R. 238 (NFTD). At paragraph 26, Hickman C.J.T.D. referred to the decision in Mitchell and Jewell Limited v. Canadian Pacific Express Company, [1974] 3 W.W.R. 259: “Again at page 270 he summarizes the principle of electing to waive and sets out the factors and considerations necessary to make an election operative: ‘Summarizing the law as set out in the above cases I am of the opinion that waiver as used in the present context arises where one party to a contract, with full knowledge that his obligation under the contract has not become operative by reason of the failure of the other party to comply with a condition of the contract, intentionally relinquishes his right to treat the contract or obligation as at an end but rather treats the contract or obligation as subsisting. It involves knowledge and consent and the acts or conduct of the person alleged to have so elected, and thereby waived that right, must be viewed objectively and must be unequivocal. … [33] Mr. Sheppard submits that his agreement to eight-foot walls was made under duress or coercion because the carpenter was ready to commence work on the walls and he wanted to avoid further delay. There is no evidence as to how much delay would have been involved. The trial judge found that, up to this point, the Sheppards had understood the house would have nine-foot walls. [34] Having conceded there was an ambiguity in the contract, it is not open to the Contractor to rely on clause 13(b) to the effect that the written contract is the entire agreement and that no other agreement exists regarding the work to be performed. [35] In considering the Sheppards’ submission that they agreed to the change in the height of the walls under duress, the test set out in Burin Peninsula Community Business Development Corp. v. Grandy, 2010 NLCA 69, 302 Nfld. & P.E.I.R. 163, is of assistance. In Grandy, Harrington J.A., Page: 11 for the Court, adopted the test set out in Greater Fredericton Airport Authority Inc. v. NAV Canada, 2008 NBCA 28, 329 N.B.R. (2d) 238, at paragraph 53. The test is summarized in Grandy: [25] My review of the authorities leads me to the conclusion that a finding of economic duress is dependent initially on two conditions precedent: (i) the contractual variation must be extracted by pressure in the form of a demand or threat; (ii) the exercise of pressure must be such that the coerced party has no practical alternative but to comply with the demand or threat. [26] If these two conditions are met, the focus shifts to whether the party consented to the contract variation. The factors to be considered are (i) whether the promise was supported by consideration (ii) whether the coerced party protested the variation or executed it on a “without prejudice” basis and (iii) [if not,] whether the coerced party took steps to disavow the variation on a timely basis. (Note: In Grandy, the words “if not” in paragraph 26 were omitted in error. Conditions (ii) and (iii) are meant to be in the alternative rather than cumulative.) [36] As applied to this case, the evidence regarding the heated discussion between Mr. Sheppard and the Contractor leads to the conclusion that there was a demand amounting to pressure on Mr. Sheppard to agree to the eight- foot rather than nine-foot walls. In the circumstances, the Sheppards had no practical alternative but to accept this change. The change was not supported by any consideration from the Contractor. Finally, the Sheppards vehemently protested the variation. [37] The conclusion follows that the trial judge did not err in determining that the contract provided for nine-foot walls. Further, the Sheppards had not waived that requirement. [38] Regarding compensatory damages, the trial judge noted that the Sheppards did not provide evidence regarding “the loss in value to them of the lower ceilings”. Accordingly, the judge awarded damages of $2500, based on the Contractor’s evidence that the difference in cost between constructing an eight and a nine-foot ceiling would have been between $2,000 and $3,000. Page: 12 [39] In the result, the Sheppards are entitled to damages in the amount of $2500 to compensate for the Contractor’s failure to provide nine-foot ceilings. General Damages [40] The trial judge awarded the Sheppards $15,000 in general, non- pecuniary damages for [117] … mental distress and inconvenience arising from the general conduct of the project by [the Contractor]. This included the stress and disappointment relating to the failure of the contractor to perform the contract in a way that met their expectations for a retirement home that would have been designed and comfortable for Mrs. Sheppard’s mobility issues. [41] I note here that, with the remediation of the flooring, the Sheppards will have the house they contracted for, with the exception of having eight- foot rather than nine-foot ceilings. The trial judge awarded compensation of $2500 for the loss of the higher ceilings since this was not something that could be remediated. The judge noted that “[w]hile the Sheppards have not itemized a claim for their costs for delay, they have asked me to consider awarding general damages” (paragraph 94). It was, of course, open to the Sheppards to have made a claim for specific damages to cover their costs consequent on delay. Costs of $4,000 for four weeks’ accommodations were awarded to cover the time during which remediation of the floor would take place. [42] The award of general damages for breach of contract is a developing area of the law. Such damages may be granted in limited circumstances. Relevant principles are discussed in Fiddler v. Sun Life Assurance Co., supra. McLachlin C.J.C. and Abella J., for the Court, having stated that mental distress may be a compensable head of damage “where such damages were in the reasonable contemplation of the parties at the time the contract was made” (paragraph 44), explained: [45] It does not follow, however, that all mental distress associated with a breach of contract is compensable. In normal commercial contracts, the likelihood of a breach of contract causing mental distress is not ordinarily within the reasonable contemplation of the parties. It is not unusual that a breach of contract will leave the wronged party feeling frustrated or angry. The law does not award damages for such incidental frustration. The matter is otherwise, however, when the parties enter into a contract, an object of which is to secure a particular psychological benefit. … The basic principles of contract damages do Page: 13 not cease to operate merely because what is promised is an intangible, like mental security. [46] This conclusion is supported by the policy considerations that have led the law to eschew damages for mental suffering in commercial contracts. As discussed above, this reluctance rests on two policy considerations – the minimal nature of the mental suffering and the fact that in commercial matters, mental suffering on breach is “not in the contemplation of the parties as part of the business risk of the transaction”: McGregor on Damages, at p. 63. Neither applies to contracts where promised mental security or satisfaction is part of the risk for which the parties contracted. [47] This does not obviate the requirement that a plaintiff prove his or her loss. The court must be satisfied: (1) that an object of the contract was to secure a psychological benefit that brings mental distress upon breach within the reasonable contemplation of the parties; and (2) that the degree of mental suffering caused by the breach was of a degree sufficient to warrant compensation. … … [49] We conclude that the “peace of mind” class of cases should not be viewed as an exception to the general rule of the non-availability of damages for mental distress in contract law, but rather as an application of the reasonable contemplation or foreseeability principle that applies generally to determine the availability of damages for breach of contract. (Emphasis added.) [43] McLachlin C.J.C. and Abella J. went on to distinguish damages arising from breach of the contract, which “will be determined according to what was in the reasonable contemplation of the parties at the time of contract formation”, from aggravated damages, “which arise out of aggravating circumstances” and which “rest on a separate cause of action” (paragraphs 55 and 52, respectively). [44] In Fidler, McLachlin C.J.C. and Abella J. concluded: [57] Mental distress is an effect which parties to a disability insurance contract may reasonably contemplate may flow from a failure to pay the required benefits. The intangible benefit provided by such a contract is the prospect of continued financial security when a person’s disability makes working, and therefore receiving an income, no longer possible. If benefits are unfairly denied, it may not be possible to meet ordinary living expenses. This financial pressure, on top of the loss of work and the existence of a disability, is likely to heighten an Page: 14 insured’s anxiety and stress. Moreover, once disabled, an insured faces the difficulty of finding an economic substitute for the loss of income caused by the denial of benefits. … [58] People enter into disability insurance contracts to protect themselves from this very financial and emotional stress and insecurity. An unwarranted delay in receiving this protection can be extremely stressful. Ms. Fidler’s damages for mental distress flowed from Sun Life’s breach of contract. … [45] Applying the above principles in this case results in the conclusion that the trial judge erred in awarding general damages for breach of the contract. Regardless of the Sheppards’ special circumstances with respect to wheelchair accessibility, the contract to build their house did not engage the “peace of mind” component that would ground the necessary foreseeability criterion related to securing a psychological benefit as referenced in Fidler. It is true that the hardwood flooring was not properly installed and that the Contractor chose to comply with National Building Code standards in using transition strips. However, these deficiencies could be corrected and damages awarded to address the required remediation. This was not a situation in which the house was rendered uninhabitable. [46] The conclusion follows that the trial judge erred in awarding general damages for breach of the contract. Vacating the Lien [47] When the Sheppards failed to make the final payment under the contract, the Contractor registered a lien against the property. The trial judge vacated the lien without any analysis or discussion of his reasons, although he concluded that the Sheppards owed the Contractor $35,950.46. The Contractor submits that this was an error in law. In addition, the Contractor submits that, supposing the trial judge vacated the lien on the assumption that costs awarded to the Sheppards would exceed the amount of the judgment, this too was an error in law because costs, not having been assessed at the time of the decision, must be considered separately. In effect, the Contractor submits, the trial judge improperly anticipated future costs which may or may not have affected the Contractor’s right to maintain the lien. I accept both these submissions. [48] The right to register a lien under the Mechanics’ Lien Act, RSNL 1990, c. M-3, is governed by section 6. Subsection (1) provides, in relevant parts: Page: 15 … where [the lien claimant] does work upon or in respect of, or places or provides materials to be used in, the … constructing, … [of] a building, … that person has, by doing that work or placing or providing those materials, a lien for the price of the work or materials upon the estate or interest of the owner in the land, … limited, however, in amount to the sum due to the person entitled to the lien … The option to register a lien under this section was available to the Contractor in respect of the house built for the Sheppards. [49] Section 36 of the Act authorizes the court, after trial of the claim, to make any necessary orders in respect of the parties’ rights pursuant to the lien. Where an amount remains owing to the person claiming the lien, in the absence of an explanation by the judge, the lien would properly remain in place, with any necessary or appropriate adjustment. In this case, it could be expected that the judge would have ordered a reduction in the amount of the lien claim to $35,950.46 in accordance with the judgment. [50] To discharge the lien, with the amount of the judgment still owing, on the basis of an inference that undetermined costs payable to the Sheppards would result in a complete setoff, results in an improper use of judicial discretion. Such an order ignores the rights of the lien claimant. In the circumstances, the proper process would have been to maintain the lien at the adjusted amount pending finalization of the amounts owed by each party to the other. Once the amount of the judgment was satisfied through payment by the Sheppards, including by way of setoff if relevant, the lien could be discharged under section 26 of the Act, either by the Contractor registering acknowledgment of payment or by an application by the Sheppards. [51] I conclude that the trial judge erred in vacating the lien. The lien is reinstated, to be dealt with in accordance with the Act. I would vary the amount of the claim to $50,950.46 ($96,688.33, the amount owed by the Sheppards under the contract, minus $45,737.87, the amount of compensatory damages owed by the Contractor). Costs [52] Clause 14 of the contract sets out a special provision regarding costs: ATTORNEYS’ FEES AND COSTS: If any party to this Contract brings a cause of action against the other party arising from or relating to this Contract, the Page: 16 prevailing party in such proceeding shall be entitled to recover reasonable attorney fees and court costs. [53] The trial judge awarded costs to the Sheppards on column 5 of the scale of costs relying on an application of the above clause 14 and: [135] On the issues in dispute, it is the Sheppards who have prevailed. While [the Contractor] acknowledged minor deficiencies, the Sheppards have convinced the court of their case, and the failure of [the Contractor] to perform to reasonable expectations. As a consequence, I will award costs in favour of the Sheppards. [54] On appeal, the Contractor has been partially successful. The order for general damages has been set aside and the lien has been reinstated. The Sheppards have also been partially successful. This decision affirms the trial judge’s decision requiring replacement of the flooring, including the ceramic tile, and ordering compensation for the height of the walls. [55] In view of the partial success of each party, clause 14 is not engaged because there is no “prevailing party”. In the circumstances, it is appropriate to order the parties to bear their own costs of the appeal. [56] For the same reason, clause 14 was not properly engaged in respect of the trial judge’s decision. The decision on this appeal has clarified the appropriate amount of damages to which the Sheppards are entitled. On the substantive issues relating to remediation of the flooring and compensation for the height of the walls, the Sheppards were successful. While there was partial success by each party, success on the substantive issues carries more weight. [57] In the circumstances, I would order the Contractor to pay the Sheppards’ costs at trial on column 3 of the scale of costs on the basis of one counsel. SUMMARY [58] The trial judge did not err in concluding that the Sheppards had contracted for a level floor and that the contract required replacement of the ceramic tile, as well as the hardwood. The Contractor is liable for the costs of remediation. [59] The trial judge did not err in ordering that the Sheppards are entitled to damages in the amount of $2500 to compensate for the Contractor’s failure to provide nine-foot ceilings. Page: 17 [60] The total compensation payable by the Contractor to the Sheppards is $45,737.87. [61] The trial judge erred in awarding general damages for breach of the contract. Such damages do not pass the test of reasonable foreseeability. [62] The trial judge erred in vacating the lien where money was owed by the Sheppards to the Contractor. It was an error to vacate the lien based on speculation as to the amount of costs the Sheppards may claim in setoff. The lien should be reinstated, to be dealt with in accordance with the Act. I would vary the amount of the claim from $96,688.33 to $50,950.46, in accordance with this decision. [63] The trial judge erred in awarding costs under clause 14 of the contract. In the circumstances, I would order that the Sheppards are entitled to their costs at trial on column 3 of the scale of costs on the basis of one counsel. On appeal, I would order that the parties should bear their own costs. ___________________________________ B. G. Welsh J.A. Hoegg J.A.: [64] I agree with my colleague Welsh J.A. save for her opinion respecting general, non-pecuniary damages and costs. In that regard, I am of the view that the trial judge did not err in awarding $15,000 to the Sheppards. The Trial Decision [65] The trial judge found that an important part of the house contract was to provide peace of mind for the Sheppards in that their retirement home would suit Mrs. Sheppard’s special circumstances. He concluded that “peace of mind” was part of the home building contract between the Sheppards and Hickey’s, that mental distress was foreseeable upon breach, and that damages in the amount of $15,000 were warranted. He reasoned as follows: [124] … the Sheppards contracted for the construction of a home. Hickey’s substantially performed and built the home. The Sheppards also made it known that this was to be a retirement home, that Mrs. Sheppard was confined to a Page: 18 wheelchair, and that their circumstances made it foreseeable that delay and failure to live up to the terms of the contract would cause distress. An important part of this contract was to provide the Sheppards with the peace of mind that Mrs. Sheppard’s circumstances would be appropriately reflected in both the final product, and the execution of the construction itself. [125] In addition, they contracted for certain amenities, such as nine foot ceilings. They also expected that in contracting for a “turnkey” project, Hickey’s would have better managed the project. They contracted for a home that would give them pleasure in their retirement, provide a suitable home for wheelchair mobility, and peace of mind that the construction would have been conducted with efficiency. [126] Hickey’s failed to provide that peace of mind. Both Jay Hickey and Jim Hickey were fully aware of Mrs. Sheppard’s medical and disability issues. It was apparent from their first discussion in August 2008. It is reflected in the notes that Jay Hickey recorded before the contract was even finalized. The Sheppards wanted floors that were level and continuous, and they wanted to take possession of the house in a timely fashion. Hickey’s failed to meet the reasonable expectations of the Sheppards. [127] With respect to delay, it was foreseeable that failure to meet the contract completion date would present serious difficulties for the Sheppards. Because of the requirement for wheelchair accessibility, alternate accommodations would not be readily available. [128] The problems with the floor presented even greater distress. First, the failure of Hickey’s to acknowledge at an early date the lack of adhesion of the hardwood with the concrete sub-floor caused much frustration. Second, Hickey’s have not acknowledged that the transition areas between the hardwood and the ceramic tile were problematic. [129] On each of these issues, the Sheppards did not get the fruits of their contract – they were not able to take possession in accordance with the completion date, and they did not get flooring which was properly installed, and which met the needs of an individual requiring a wheelchair. The Law [66] The law respecting awards of general, non-pecuniary damages for mental distress in breach of contract cases is set out in Fidler, where the plaintiff was awarded damages for mental distress found to have foreseeably resulted from an insurer’s breach of her disability insurance contract. In Fidler, Chief Justice McLachlin and Justice Abella discussed the evolution of mental distress damages awards since the decision in Hadley v. Baxendale Page: 19 (1854) 9 Ex.Ch. 341, 156 E.R. 145, which held that such damages are compensable provided that they “may fairly and reasonably be considered either arising naturally … from such [a] breach of contract itself, or such as may reasonably be supposed to have been in the contemplation of both parties,” at the time they made the contract (page 151). The Justices described how Canadian and English courts were not quick to embrace the principle in Hadley v. Baxendale, preferring instead to generally deny claims for mental distress damages in breach of contract cases. However, the situation changed in the wake of the decision in Jarvis v. Swan Tours Ltd. (1972), [1973] 1 All E.R. 71 (C.A.), which carved out an exception to the non-recovery principle in contract cases involving “pleasure, relaxation or peace of mind” (Fidler, paragraph 38). The exception became known in the jurisprudence as the “peace of mind” exception, which was said to be in play when a contract had as an object the “peace of mind” of a contracting party. [67] The exception was relied on by the English Court of Appeal in Watts v. Morrow, [1991] 4 All E.R. 937, [1991] 1 W.L.R. 1421, which awarded modest non-pecuniary damages for mental distress causing physical discomfort resulting from the breach of a contract related to a home purchase. A few years later in Farley v. Skinner, [2001] All E.R. 801, [2001] 3 W.L.R. 899, the House of Lords confirmed the availability of general, non-pecuniary damages in breach of contract cases where an important part of the contract was for pleasure, relaxation or peace of mind. [68] Farley involved a contract with a surveyor, who was contracted to carry out a noise assessment respecting a prospective property purchase. The surveyor assessed the noise level as insignificant and the plaintiff purchased the home. The noise level turned out to be quite significant, thereby interfering with the plaintiff’s enjoyment of his home. The House of Lords restored the trial court’s damages award of £10,000 for mental distress, which had been reversed by the Court of Appeal. The consensus from the five Lords’ opinions was that when part of a contract was for pleasure, relaxation or peace of mind, and that pleasure, relaxation or peace of mind was not delivered, mental distress damages are recoverable. The principle in Hadley v. Baxendale in this context was thereby firmly revived in England. [69] Meanwhile the “peace of mind” exception found favour in this country in Keks v. Esquire Pleasure Tours Ltd., [1974] 3 W.W.R. 406 (Man. Co. Ct.), where damages were awarded for mental suffering resulting from a ruined vacation. The same year, the trial judge in Weisgerber v. Zurowski, Page: 20 [1974] S.J. 151; D.C. No. 1206 (Sask. Dist. Ct.) awarded general damages resulting from the breach of a contract for the construction of a home driveway and patio. The compensable “inconvenience, annoyance and mental strain” in that case came from the anguish associated with the worry of a wet basement whenever it rained and the mop up that was required when the worry materialized. [70] In 1992, the British Columbia Court of Appeal upheld a general non- pecuniary damages award in Wharton v. Tom Harris Chevrolet Oldsmobile Cadillac Ltd., 2002 BCCA 78, [2002] 97 B.C.L.R. (3d) 307. In Wharton, the plaintiff had purchased a luxury vehicle for pleasure use. Its “high end” sound system was defective from day one, making a buzzing noise that interfered with music and conversation and caused sensory discomfort for the two and a half years it took to fix the problem. The Court of Appeal agreed with the trial court that the defendant had not delivered the luxury vehicle experience to the plaintiff as promised. [71] Mental distress damages have also been awarded in cases where contracts to provide wedding photography have been breached. (See Wilson v. Sooter Studios Ltd., [1988] B.C. W.D. 1572 (Co. Ct.), aff’d in 33 B.C.L.R. (2d) 241 (BCCA), Downs v. Kaminski, 2010 Carswell Ont. 11312 (S.C.J.), and Klaus v. Taylhardat, 2007 BCPC 21.) [72] Other Canadian cases have endorsed the recovery principle but declined awards on the facts. (See Turczinski v. Dupont Heating & Air Conditioning Ltd., [2004] 246 D.L.R. (4th) 95 (Ont. C.A.), where the mental distress was not foreseeable, and Satara Farms Inc. v. Parrish & Heimbecker Ltd., 2006 SKQB 229, 280 Sask. R. 44, where the mental distress was not sufficient to warrant damages.) [73] The Supreme Court’s 1989 decision in Vorvis v. Insurance Corp. of British Columbia, [1989] 1 S.C.R. 1085, an employment contract case, confirmed that mental distress damages were not generally recoverable in employment contract cases. All members of the Court agreed that the facts in Vorvis did not entitle the plaintiff to damages for mental suffering. However, in her separate opinion, Wilson J. rested her conclusion in that regard on the fact that mental suffering had not been within the reasonable contemplation of the parties at the time the employment contract was made. She specifically stated, though, that such damages would be compensable in cases where they are foreseeable when the contract is made, on the basis of the principle in Hadley and Baxendale (see pages 1121 to 1122). Page: 21 [74] The Fidler Court also relied on the principle in Hadley v. Baxendale in holding that mental distress damages arising from a breach of contract may, in appropriate cases, be awarded (see paragraphs 54-55). Chief Justice McLachlin and Justice Abella directed that courts, when faced with claims for mental distress damages in breach of contract cases, should ask “what did the contract promise?” and provide compensation for those promises “subject to remoteness principles” (see paragraph 44). They reasoned that damages for mental distress should not be precluded where they are in the reasonable contemplation of the parties at the time of the contract, saying that “[t]his conclusion follows from the basic principle of compensatory contractual damages: that the parties are to be restored to the position they contracted for, whether tangible or intangible” (paragraph 44). They also explained that the law of contract protects all significant parts of the bargain and not merely those that are “dominant” or “essential”, thereby putting to rest the notion that “mental distress” consequent on a breach of contract has to have been the “very essence” of the bargain in order to be compensable (paragraph 48). [75] The Fidler Court was careful to point out that not all mental distress damages arising from breaches of contract are compensable because the risk of mental suffering is not generally within the contemplation of the parties at the time most contracts are made (see paragraph 45). The Justices also stated that damages for anger and frustration suffered by a wronged party remain non-compensable because these consequences are incidental and minimal in nature (see paragraph 45). [76] The remoteness principle elucidated in Fidler was elaborated upon in Mustapha v. Mulligan of Canada Ltd., 2008 SCC 27, [2008] 2 S.C.R. 114, albeit in the context of tort law. In Mustapha, the plaintiff had sought general, non-pecuniary damages for the psychological harm he suffered as a result of finding a fly in an unopened bottle of drinking water of a type that he was used to drinking. In deciding that the plaintiff’s damages were too remote to be compensable, Chief Justice McLachlin explained that “the law of tort imposes an obligation to compensate for any harm done on the basis of reasonable foresight, not as insurance” (emphasis in original, paragraph 16). She went on to say that “[o]nce a plaintiff establishes the foreseeability that a mental injury would occur in a person of ordinary fortitude, by contrast, the defendant must take the plaintiff as it finds him for purposes of damage” (paragraph 16). She added, importantly for the purposes of this case, that in contract law, if it is proved Page: 22 17 … that the defendant had actual knowledge of the plaintiff’s particular sensibilities, the ordinary fortitude requirement need not be applied strictly. If the evidence demonstrates that the defendant knew that the plaintiff was of less than ordinary fortitude, the plaintiff’s injury may have been reasonably foreseeable to the defendant. … [77] Fidler set out a two-fold test for recovery of mental distress damages in breach of contract cases at paragraph 47: (1) an object of the breached contract must be to secure a psychological benefit that brings mental distress upon breach within the reasonable contemplation of the parties; and (2) the resulting degree of mental suffering must be of a degree sufficient to warrant compensation. [78] The Court concluded by observing that awarding damages on this test in “peace of mind” cases is merely “an application of the reasonable contemplation or foreseeability principle that applies generally to determine the availability of damages for breach of contract”, and “should not be viewed as an exception to the general rule of the non-availability of damages for mental distress in contract law” (paragraph 49). [79] The Ontario Court of Appeal followed this approach recently in McQueen v. Echelon General Insurance Co., 2011 ONCA 649, 107 O.R. (3d) 780. The McQueen court upheld damages for mental distress awarded at trial to a plaintiff insured under a standard automobile policy on the basis that the insurance contract was a peace of mind contract and mental distress damages were in the reasonable contemplation of the parties at the time the contract was made. Issue [80] The issue in this case is whether the trial judge erred in awarding the Sheppards $15,000 general, non-pecuniary damages. Its determination requires affirmative answers to two questions: (1) was an object of the contract between Hickey’s and the Sheppards to secure a psychological benefit that would bring mental distress upon breach within their reasonable contemplation? and Page: 23 (2) is the degree of the mental distress suffered by the Sheppards sufficient to warrant compensation? (Fidler, paragraph 47). It is also necessary to consider costs. Analysis Was an object of the contract between the Sheppards and Hickey’s to secure a psychological benefit that would bring mental distress upon breach within their reasonable contemplation? [81] Mr. and Mrs. Sheppard lived in Labrador City when they negotiated their home construction contract with Hickey’s. Hickey’s understood that the new build was to be the Sheppards’ retirement home when they moved to Holyrood after Mr. Sheppard finished working. The Sheppards made it clear to Hickey’s that the home needed to accommodate Mrs. Sheppard’s special circumstances, in particular her mobility challenges. Mrs. Sheppard suffers from Type 2 Hereditary Sensory Neuropathy. She has no sensation from her elbows down to her hands and below her knees. Both of her feet have been amputated. She gets around by using two prosthetic feet and canes or a wheelchair, or by crawling on the floor. [82] The building contract was signed in September 2008 and the home was meant to be completed by February 29, 2009. Unfortunately construction proceeded slowly, despite the Sheppards expressing concern to Hickey’s on several occasions about the lack of progress. This concern was particularly acute for the Sheppards because they needed to move into the home shortly after Mr. Sheppard finished working in Labrador and finding suitable temporary accommodation presented significant challenges given Mrs. Sheppard’s needs. [83] On March 19, 2010, the Sheppards moved into their home even though it was not yet finished and despite outstanding deficiencies. They did so because Hickey’s had removed insurance coverage on the home and the Sheppards were unable to get insurance coverage unless it was occupied. [84] There was a significant balance owing on the construction contract which the Sheppards did not pay. They took the position that the contract had been breached because of outstanding deficiencies, delay in completion, Page: 24 and the fact that they had been promised an Atlantic Home Warranty which they had not received. [85] Hickey’s commenced a mechanic’s lien action for payment of the balance of the purchase price. Several of the outstanding deficiencies were eventually rectified, although the Sheppards never did receive the home warranty. But a serious problem with the flooring remained. It had not been properly installed, in that the hardwood flooring was not level and it did not properly adhere to the subflooring. As well, there is a quarter inch difference in height between the ceramic tile flooring in the kitchen and the hardwood flooring in adjacent rooms. The wooden transition strips Hickey’s installed did not rectify the problem. Mrs. Sheppard explained in her testimony that her wheelchair would sometimes “bring up solid” (Transcript, page 1614: 5, line 2) against the transition strips and the strips have cracked and splintered. As well, some of the floorboards have popped up from the floor and make popping noises under pressure, and the hardwood floor in the living room has a noticeable dip. The flooring deficiencies in the Sheppards’ home are not just aesthetically objectionable. They present tripping hazards which would pose risks to able-bodied people, but especially to Mrs. Sheppard. [86] Mrs. Sheppard put it this way at the conclusion of her direct evidence: I just want people to understand how hard it is to live with the condition that I have, not knowing from day to day if I’m going to end up in hospital because of infection or a broken bone. And that was the purpose of building this house, to have a safe place for me, and it’s not turning out that way. … (Transcript, page 1582: 143, lines 13-24) [87] That Hickey’s understood the psychological benefit for which the Sheppards had contracted was aptly demonstrated by the evidence of both Mr. and Mrs. Hickey having advised Hickey’s of their need for seamless flooring, both separately and together, on several occasions. That Hickey’s appreciated the psychological benefit contracted for is also shown by the product contracted for which included many special features requested by the Sheppards, such as handrails, a wheelchair ramp at the back of the home, lower light switches and countertops, etc., to accommodate Mrs. Sheppard. Mr. Hickey Jr.’s notes also documented the need for the home to be wheelchair friendly. Moreover, Hickey’s concedes in its factum that the Page: 25 contract can fairly be characterized as a “peace of mind” contract, and does not allege that the trial judge made any factual or legal errors relating to foreseeability. Hickey’s “had actual knowledge of the plaintiff’s particular sensibilities” which, as Chief Justice McLachlin said in Mustapha, means that “the plaintiff’s injury may have been reasonably foreseeable to the defendant” (paragraph 17). [88] It is inherent in a home construction contract that the finished flooring will be hazard-free. The flooring Hickey’s delivered was far from hazard- free. Foreseeable mental distress may ensue for any home purchaser who did not receive this basic contractual promise, but is particularly foreseeable that mental distress would ensue in this case. [89] Accordingly, it was within the contemplation of the parties that the purpose of the contract was to provide the Sheppards, in a timely fashion, with a safe retirement home accommodating Mrs. Sheppard’s needs. Hickey’s did not deliver what they promised with respect to the flooring and delay in completion. It was therefore foreseeable that these breaches of the contract between the Sheppards and Hickey’s would cause mental distress to the Sheppards. Given the foreseeability of their mental distress, damages for it are recoverable if they are sufficient to warrant compensation. Are the mental distress damages sufficient to warrant compensation? [90] Mrs. Sheppard spends a lot of time in her home. She has not worked outside her home because of her physical condition since she moved to Labrador some 30 or so years ago. Although she is not confined to her home, she spends more time at home than most people. As a result of the defective flooring, Mrs. Sheppard must go about her activities in space fraught with the risk of tripping and falling and in a state of fear and anxiety associated with that risk. The tripping hazards present serious risk to Mrs. Sheppard as she described in her evidence. Her compromised balance makes her less likely than able-bodied people to avoid a fall if she trips and the consequences of falling are worse for her than for others given the fragility of her bones. Past trips and falls have caused her broken bones and serious infections requiring hospitalization. These ever-present difficulties and risks in her daily living have caused her mental distress for over four years, and will continue to cause her distress until the flooring is redone, which will involve considerable tear up and require alternative living arrangements for a short time. Mrs. Sheppard’s mental distress is of an order which can be fairly described as significant. In my view, it is far more Page: 26 than incidental or minimal and rises above “the ordinary annoyances, anxieties and fears that people living in society routinely, if sometimes reluctantly, accept” (Mustapha, paragraph 9). [91] Mr. Sheppard has also suffered. In addition to dealing with the tear up associated with repairing the flooring, he is also at risk of tripping, and he bears the worry and concern of his wife going about her daily activities in an unsafe home. Mr. Sheppard’s mental distress also foreseeably flows from the contract and in my view is more than the ordinary annoyance, anxiety and fear arising from a bad building contract. In sum, the mental distress suffered by both Mr. and Mrs. Sheppard is serious, prolonged and far from trifling. It is sufficient to warrant compensation. [92] In summary, it was foreseeable to Hickey’s that the breaches of the contract with respect to flooring and delay were likely to result in mental distress of a compensable nature to both Mr. Sheppard and Mrs. Sheppard. The requirements set out in Fidler are therefore met. [93] The trial judge awarded damages of $15,000 to the Sheppards jointly. It is modest in comparison with other mental distress awards in breach of contract cases where the awards were to individual plaintiffs. (See Fidler, where the damages were $20,000, and Lumsden v. Manitoba, 2009 MBCA 18, 236 Man. R. (2d) 130, Fernandes v. Penncorp Life Insurance Co., 2014 ONCA 615, where the damages were $25,000 and McQueen where the award was $25,000). [94] In the result, I see no error in the trial judge’s award of $15,000 in general non-pecuniary damages jointly to the Sheppards. It is sound in law and is well supported by the evidence. I would not disturb it. Costs [95] The trial judge awarded costs to the Sheppards on column 5 of the scale of costs relying on clause 14 of the contract and his findings that the Sheppards have prevailed in the litigation (see paragraphs 52 and 53 above). [96] On appeal, the Sheppards have also prevailed, in that the trial judge’s decision has been upheld in all respects but the issue concerning reinstatement of the lien. Accordingly, the Sheppards are entitled to recover “reasonable attorney fees and court costs” as stipulated in clause 14 of the contract. I agree with the trial judge that costs on the basis of column 5 of Page: 27 the scale of costs appropriately addresses clause 14 and they are so ordered in this Court. Disposition [97] I would allow Hickey’s appeal to reinstate the lien in the amount of $35,940.46, which is the difference between the $96,688.33 owing to Hickey’s on the contract and the $60,737.87 payable to the Sheppards. I would dismiss the appeal on the other grounds. [98] The Sheppards are awarded their costs for one counsel on column 5 in this Court and in the court below. Interest on the amounts owing to both parties is ordered in accordance with the provisions of the Judgment Interest Act, RSNL 1990, c. J-2. L. R. Hoegg J.A. I concur with the reasons of Hoegg J.A.: M. F. Harrington J. A.