Back

The Measure of Damages in a Construction Contract

January 21, 2022

Alberta

,

Canada

Issue

Can a plaintiff prove their damages with an estimate for the cost of repairs where they have not yet incurred the cost of effecting the repairs?

Conclusion

The measure of damages to be awarded is a question of fact in every case. The onus is on the plaintiff to prove its damages on a reasonable preponderance of credible evidence. The damages need not, however, be proven with mathematical accuracy. The general test for calculating damages when substantial deficiencies are found in contracted work is the amount which the work is worth less by reason of the defects and omissions, and is usually calculated by the cost of making them good. (Ivan's Renovations Ltd v Arabsky)

In the absence of evidence of the actual cost of repairs, a plaintiff must produce an estimate of the cost of repairs by someone who is in the business of making those repairs and who is capable of and prepared to carry out those repairs for the estimated cost. (Kolinski v. Ideal Services Ltd.)

While the cost of repairs is often the measure of damages, it is not appropriate where the evidence establishes that the owner does not intend to effect the repairs or where the cost of repairs is unreasonable. (1469753 Alberta Ltd (Royal Services) v Luxen)

In Kolinski v. Ideal Services Ltd., the plaintiff homeowner contracted with the defendant to paint the exterior of the house. The defendant failed to sand the surface prior to painting with the result that the paint peeled shortly after it was applied. Hess J. found that sanding the surface was not a term of the contract between the parties and could not be implied into the contract. In addition, the Court found that the estimate of the expert, who was not a painting contractor, was insufficient to prove the plaintiff's damages. The Court held that in order to prove damages in the absence of evidence of the actual cost of repairs, a plaintiff must produce an estimate of the cost of repairs by someone who is in the business of making those repairs and who is capable of and prepared to carry out those repairs for the estimated cost.

In 1469753 Alberta Ltd (Royal Services) v Luxen, the plaintiff plumber agreed to do the plumbing and heating work needed for a large-scale renovation of the defendants' home, including the installation of an in-floor heating system. After installation, the defendants found that the heating system was noisy and they refused to pay the entire amount of the plaintiff's bill. The plaintiff filed a builder's lien and commenced the action against the defendants for payment. The defendants counterclaimed for damages arising from the negligently-installed heating system. The defendants asked a contractor to prepare a quote for repairing the heating system. Pentelechuk J. found the quote to be insufficient to prove the cost of the repairs given the pricing was based on telephone conversations they had with various subcontractors, none of whom provided anything in writing, none of whom visited the home and none of whom testified at trial. The estimate was short on detail and too unreliable to ground the basis of an award of damages. The Court found that even if the costs of repair had been sufficiently proven, they were not reasonable in the circumstances and general damages based on market diminution were ordered. (1469753 Alberta Ltd (Royal Services) v Luxen)

Law

In Kolinski v. Ideal Services Ltd., 1999 ABPC 128 (CanLII), the plaintiff homeowner contracted with the defendant to paint the exterior of the house. The defendant failed to sand the surface prior to painting with the result that the paint peeled shortly after it was applied. Hess J. found that sanding the surface was not a term of the contract between the parties and could not be implied into the contract. In addition, the Court found that the estimate of the expert, who was not a painting contractor, was insufficient to prove the plaintiff's damages:

[15] If I am wrong on the issue of the liability of the defendants then in my view the plaintiff’s claim must fail on the issue of the proof of her loss. The plaintiff has not re-painted the residence and I do not therefore have the benefit of invoices for the actual cost of repairs. Rather the plaintiff has asked her expert witness, Frank Palmer, to estimate the cost of correcting the defendants’ work. In support of the claim the plaintiff has introduced Mr. Palmer’s undated estimate. The document states the following:

“To prepare the surfaces to an acceptable standard, spot prime and apply two coats of paint to all specified areas to customers approved colour and sheen, Four Thousand, Eight Hundred and Ninety Dollars, (4,890.00)”

[16] I understand the estimate was prepared in November, 1997. Mr. Palmer testified he is a journeyman painter and worked in the painting industry as painter, foreman and supervisor in England and Canada until 1978. Since then he has been involved in instructing apprentices at the Southern Alberta Institute of Technology and then program supervisor until 1994 when he began consulting to the industry. The consulting duties have included establishing training programs for contractors and manufacturers, designing quality control programs for industry, problem solving for purchasers of new homes under the Alberta New Home Warranty Program and lectures on different aspects of applying coatings. I have no doubt as to Mr. Palmers extensive expertise and experience in the coatings industry and I had no difficulty in qualifying him as an expert in regard to coatings and their application. But to my understanding Mr. Palmer has never been a painting contractor and I have therefore have reservations in accepting his estimate as to what a contractor would charge to make good the painting of the residence. No evidence was offered to establish Mr. Palmer has the required experience to estimate the cost of the repair work or that he would be in a position to carry out the work.

[17] In my view, in the absence of evidence of the actual cost of repairs, a plaintiff must produce an estimate of the cost of repairs by someone who is in the business of making those repairs and who is capable of and prepared to carry out those repairs for the estimated cost. The plaintiff has failed to do provide the necessary evidence of her damages and for this reason her claim cannot succeed.

In Ivan's Renovations Ltd v Arabsky, 2014 ABQB 700 (CanLII), the plaintiff builder entered into a contract to build a house for the defendant home-owners for $520,000. After the house was complete, disputes arose with respect to outstanding amounts due to the builder and deficiencies with the house construction. The plaintiff filed a builder's lien and commenced the action for outstanding amounts under the contract and the defendants counterclaimed for deficient construction and uncompleted work. Gill J. found that the builder did breach the contract and assessed the defendants' damages based on the evidence of various experts:

95 The Arabskys have proven that Ivan's breached the Construction Contract. The next step is to assess what damages, if any, arise from the breach.

96 A useful summary of the law concerning damages in these types of cases is set out in Viper Concrete 2000 Inc. v. Agon Developments Ltd., supra. Beginning at para. 50, Associate Chief Justice Wittmann (as he then was) stated:

50 The principle behind damages for breach of contract was set out by Laskin, J. in Red Deer College v. Michaels, [1976] 2 S.C.R. 324 at p. 330:

• The primary rule in breach of contract cases [is] that a wronged plaintiff is entitled to be put in as good a position as he would have been in if there had been proper performance by the defendant ...

51 Thus, prima facie, Agon is entitled to have Concrete Work which enhances the aesthetics of the Property by its having been done in a good and workmanlike manner.

52 The measure of damages to be awarded is a question of fact in every case. See: G.H.L. Fridman, The Law of Contract in Canada, 5th ed. (Toronto: Thomson Carswell, 2006) at p. 759.

53 The onus is on the plaintiff to prove its damages on a reasonable preponderance of credible evidence. (See: 100 Main Street East Ltd. v. W.B. Sullivan Construction Ltd. (1978), 20 O.R. (2d) 401 (C.A.) at p. 422). The damages need not, however, be proven with mathematical accuracy. The Supreme Court of Canada emphasized this point in Penvidic Contracting Co. Limited v. International Nickel Co. of Canada Limited, [1976] 1 S.C.R. 267 at p. 279-280, citing its earlier pronouncement of the same principle:

• When Wood v. Grand Valley Railway Company, supra, reached the Supreme Court of Canada, judgment was given by Davies J. and was reported in 51 S.C.R. 283, where the learned justice said at p. 289:

• It was clearly impossible under the facts of that case to estimate with anything approaching to mathematical accuracy the damages sustained by the plaintiffs, but it seems to me to be clearly laid down there by the learned judges that such an impossibility cannot "relieve the wrongdoer of the necessity of paying damages for his breach of contract" and that on the other hand the tribunal to estimate them whether jury or judge must under such circumstances do "the best it can" and its conclusion will not be set aside even if the amount of the verdict is a matter of guess work.

[emphasis in original]

54 In Penvidic, the Supreme Court was considering a contract for laying a railway track. The owner breached the contract by failing to provide road beds that were properly graded and subbalasted and did not provide for hydro and railway crossings. Although the Court noted that the trial judge found "the evidence was not as helpful as one would have expected and more records giving more particulars of when and where different types of work were being done would have been very useful" (at p. 277), the Court nonetheless upheld the trial judge's assessment of the damages based on the evidence that was before him, even though they were "fragmentary and probably mere estimations" (at p. 280).

55 The current state of the law was summarized by S.M. Waddams in The Law of Damages, looseleaf (Toronto: Canada Law Book, 2008) at para. 13.30:

• In Anglo-Canadian law ... the courts have consistently held that if the plaintiff establishes that a loss has probably been suffered, the difficulty of determining the amount of it can never excuse the wrongdoer from paying damages. If the amount is difficult to estimate, the tribunal must simply do its best on the material available, though of course if the plaintiff has not adduced evidence that might have been expected to be adduced if the claim were sound, the omission will tell against the plaintiff. [citations omitted]

Reasonableness of Costs of Removal and Replacement

56 The Supreme Court of Canada in Miller v. Advanced Farming Systems Limited, [1969] S.C.R. 845 set out the general test for calculating damages when substantial deficiencies are found in contracted work. The Court was considering a contract for concrete work. The strength of the concrete was below specifications, the porosity of the concrete floors was too high, and the finish on the concrete floors was inadequate. The Court awarded the cost of making good the deficiencies. The Court held at p. 848:

• The correct measure of damage in a case such as the present one was stated by Lord Denning in Hoenig v. Isaacs [[1952] 2 All. E.R. 176 at 181] where from the principles laid down in H. Dakin & Co., Ltd. v. Lee [[1916] 1 K.B. 566] he stated:

• The measure is the amount which the work is worth less by reason of the defects and omissions, and is usually calculated by the cost of making them good.

Quantification of damages

97 Ivan's essentially acknowledged that there were structural problems and other deficiencies, but assessed the value of the deficiencies at an amount substantially less than the Arabskys. This court is required to come to a decision on the basis of the evidence presented.

98 One of Ivan's experts, Mr. Norman Lux, is a Quantity Surveyor and was qualified as an expert in the evaluation of deficiencies. In his report he evaluated the cost to repair the 36 deficiencies he identified to be about $14,900.00. This included the deck ($2,000.00) and the garage wall ($2,400.00).

99 I attach little weight to Mr. Lux's evidence in relation to his estimate to repair the garage wall as he did not appear to take into account the extent of the problems identified by Dr. Yao. When faced with this evidence he quickly readjusted his estimate from $2,400 to $5000-6000.00.

100 Mr. Lux's assessment of the seriousness of other deficiencies was significantly different from that of Mr. Boddez. Mr. Lux's estimates of the cost to repair these other deficiencies appeared unreasonably low. For example, his estimate to remedy the many areas that needed repainting was $500.00, but acknowledged that it would cost $7,500.00 to paint the whole house. He attributed no value to obvious ceiling deficiencies, or the cost to repair the stairs. He appeared to minimise obvious problems with the kitchen cabinets, despite acknowledging the low quality of the staining and that doors might have to be replaced.

101 As a consequence, I consider Mr. Lux's estimates as to the cost to rectify the deficiencies to be at best low or minimum estimates.

Cost to repair the Structural problems (garage wall and back sloping deck)

102 The work needed to fix the structural problems is significant and the cost is likely to be substantial. The area under the deck will have to be opened up and the tele-posts will have to be cut. The deck area may have rotten wood that needs to be replaced. The garage will need to be reinforced vertically in one of the ways described by Mr. Sinhar. In addition, as observed by Dr. Yao, the garage wall will also have to be opened to determine if additional work is needed to secure the wall to the grade beam and to complete that work.

103 For the reasons mentioned, I do not accept the cost estimates of Mr. Lux. The best evidence of the potential cost to rectify the structural problems relating to the garage and deck was provided by Dr. Yao. While he acknowledged that he is not an expert on costing, he has been involved in over 500 failure analyses in his employment and has an understanding of the cost of work necessary to address these problems. His initial estimate was that the cost would be between $30,000.00 and $50,000.00. He reviewed these cost assumptions with what he described as a company qualified to make the calculations and received an estimate of $40,000.00. I am going to accept the lower end of Dr. Yao's range and set the damages for repairing the structural problems of the garage wall and sloping deck at $30,000.00.

Finishing problems (not including the cabinets) and uncompleted work

104 The evidence of Mr. Boddez and the Arabskys convinces me that there is a substantial amount of repair required to bring the house up to an appropriate standard. Mr. Arabsky provided evidence that he had obtained quotes from five or six companies to do this work, including a quote for $63,450.00, plus GST.

105 I find the Arabskys' evidence as to the cost to repair these items was not that helpful. It did not convince me it will cost $63,450.00. In the absence of better evidence, I am left with the estimates in Mr. Lux's report as a rough guide of the cost to repair these other items. I begin with his estimate of about $10,000.00 for deficiencies (not including the garage and deck). Since I consider his estimates to be unrealistically low, and since he awarded zero for some categories, it is necessary to increase this amount. I award the amount of $20,000.00 for the finishing problems and uncompleted work.

Replacement of the kitchen cabinets

106 The evidence of Mr. Boddez, the Arabskys (and Mr. Lux), have established that the kitchen cabinets are clearly substandard in terms of workmanship and quality of materials. They are clearly not of the quality one would expect in a show home. They cannot be repaired or upgraded.

107 The Arabskys received a detailed estimate from a cabinet company of $39,767.00 to remove the existing cabinets, replace the cabinets and patch any wall damage. I accept this evidence as credible and award the amount of $39,767.70.

Geothermal system

108 The Arabskys paid $17,000.00 for a geothermal system and $4,448.82 to Fortis to upgrade the electrical system for the geothermal system. While the geothermal system operated, it never worked properly or performed its basic function of heating the house. After two (2) years of trying to get it repaired, the Arabskys spent $21,000.00 for a boiler system. Based on the evidence, this was a reasonable course of action and they are entitled to be reimbursed for these expenditures.

109 In summary, the Arabskys contracted and paid for a functioning heating system; Ivan's did not supply a functioning heating system. I award the amount of $42,448.82 to cover the cost of the original system and the cost to replace it with a heating system that worked.

General damages

110 The Arabskys are seeking general damages for other deficiencies where the cost of rectification is great in comparison to the nature or effect of the defect. The main deficiency in this category is the fact that the house was not built square. Mr. Boddez in his report noted that he found similar problems with the wall framing throughout the house and it was his opinion that the value of the home is adversely affected. To address this issue would require the reconstruction of the whole house.

111 In Viper Concrete 2000 Inc. v. Agon Developments Ltd., supra, Associate Chief Justice Wittmann (as he then was) addressed the issue of rectification. Beginning at para. 58:

58 The Alberta Court of Appeal in Nu-West Homes Ltd. v. Thunderbird Petroleums Ltd. (1975), 59 D.L.R. (3d) 292 (Alta. C.A.), considered the Supreme Court's discussion in Miller and added at p. 307:

It is, of course, obvious that there must be a restriction on such a rule. This restriction is that where the cost of rectification is great in comparison to the nature of the defect, the Court will not force a slavish following of the precise specifications of the contract.

59 The Court of Appeal cited with approval the discussion by the New York Court of Appeal in Jacobs and Young Inc. v. Kent, 129 N.E. 889(N.Y. 1921) at p. 891:

It is true that in most cases the cost of replacement is the measure. Spence v. Ham, supra. The owner is entitled to the money which will permit him to complete, unless the cost of completion is grossly and unfairly out of proportion to the good to be attained.

112 I agree with counsel for the Arabskys that since rectification is not practical, general damages should be awarded. The Arabskys are seeking general damages of $30,000.00.

113 In the Alberta Court of Appeal in Nu-West Homes Ltd. v. Thunderbird Petroleums Ltd. (1975), 59 D.L.R. (3d) 292 (Alta. C.A.) the Court awarded $2,500.00 in general damages for a number of deficiencies that were not quantified or quantifiable, including items such as steel left out of the basement walls, improper engineering etc.

114 In this case, as noted by Mr. Boddez, the house is "visibly out of square". I find that this deficiency is not minor but, in fact, reduces the value of the house and could negatively impact its future resale value. I award $20,000.00 in general damages to compensate for that reduced value.

In 1469753 Alberta Ltd (Royal Services) v Luxen, 2015 ABQB 282 (CanLII), the plaintiff plumber agreed to do the plumbing and heating work needed for a large-scale renovation of the defendants' home, including the installation of an in-floor heating system. After installation, the defendants found that the heating system was noisy and they refused to pay the entire amount of the plaintiff's bill. The plaintiff filed a builder's lien and commenced the action against the defendants for payment. The defendants counterclaimed for damages arising from the negligently-installed heating system. The defendants asked their contractors to prepare a quote for repairing the heating system. Pentelechuk J. found the quote to be insufficient to prove the cost of the repairs or that repairs were reasonable in the circumstances:

110 As a general rule, having established deficiencies in the work contracted, the Luxens are entitled to the cost of making good the defects in the work: Miller v. Advanced Farming Systems Ltd., [1969] S.C.R. 845, 5 D.L.R. (3d) 369 (S.C.C.). This is the measure of damages claimed by the Luxens. To eliminate the noise, the flooring would have to be removed, the K-tile removed and the piping secured in some other way. There is no evidence on the cost of an alternative system.

111 Alternatively, the system could be left in place and a light weight concrete such as Gypcrete, poured over the entire system. Currently, there is a 1/2 inch gap between the top of the pipe and the subfloor. If a 1 1/2 inch pour is required, the height of the flooring would change which would have a ripple effect on other areas of the construction such as other floor levels, door jambs and frames and cabinetry. In essence, the renovations would have to be ripped out and re-done.

112 In support of their claim for damages on this basis, the Luxens requested a quote from Mr. Brody and Mr. Reinhart on the cost of these necessary repairs. The quote is based on a worst case scenario where virtually nothing of the renovations could be salvaged. Mr. Brody and Mr. Reinhart prepared a letter dated February 20, 2012, outlining various components of the repairs:

SITE PREPARATION & REMOVAL

Town Licenses and Permits, disposal of all garbage materials.

Change office door, garage laundry room and door located near freezer, stair renovation;

Remove all lino and plywood from lower floor, mud room floor, upper bedrooms and hallway and walk in close (all floors have been glued and screwed down);

Remove hardwoods from office and living room floors;

Remove door jambs and casings and base board, (presently glued in place), walk-in clothes cabinets and shelving and glass block wall;

Remove shower and floor; ($26,200.00)

RESTORE AND REPLACEMENT & FINISHING

Restore, and or replace, the following items necessary to complete the work to the same standard as prior to commencing work and to the satisfaction of Jeffrey and Diane Luxen.

All new painting work, electrical modifications, stipple and restore dry wall as required, supply and fit new lino, concrete flooring (12,200.00) and wood floor in living room, pull toilets and refit, provide all new plumbing (57,286.00) required for in-floor heating and new shower enclosure with door.

To supplying all necessary materials, stain, lacquer and labour to replace the following and restore to the original standard:

Install base boards, casings, hang doors and door stops, replace panelling in hallway, master bathroom vanity and countertop, main vanity, rebuild and reinstall walk-in closet, and two bases in laundry rooms. (74,154.00)

TILE WORK

To supplying tile and other materials necessary to restore the tile throughout the house with a comparable quality of tile as the original tile, in the following areas - main bath, lower floor walls, mud room/bathroom walls, upper laundry room (walls and floor), master bathroom shower walls, master bedroom vanity walls, all glass block walls. (42,784.00)

MISCELLANEOUS

(30, 950)

113 The pricing was based on telephone conversations they had with various subcontractors, none of whom provided anything in writing, none of whom visited the Luxen home and none of whom testified at trial. The estimate for repairs totals $243,574.00 plus GST. Mr. Brody testified that since labour and materials have increased since the estimate was prepared, he would increase it by another $40,000.00. With GST, the estimate increases to just under $300,000.00.

114 There are several difficulties with the Luxens' claim for damages. First, the estimate is based primarily on hearsay, is short on detail and is too unreliable to ground the basis of an award of damages. The onus is on the Luxens to prove their damages on a reasonable preponderance of credible and admissible evidence. Neither Mr. Brody nor Mr. Reinhart have experience as general contractors. The pricing was elicited from telephone discussions but the evidence did not establish what information was provided to the various trades. There is no evidence on which to conclude the quotes, even if reliable, are reasonable and in accordance with market rates as it appears only one trade was contacted with respect to each component.

115 Second, Mr. Olsen testified that a shallow pour may be sufficient to eliminate or greatly reduce the noise. If the pour was a half inch or less, the only work that would be necessary would be removal of the flooring and subfloors and their re-installation after the pour. No pricing was provided for this alternative scope of work, but clearly, it would be significantly less than $300,000.00.

116 Third, if the shallow pour is not sufficient to remedy the problem, it is unclear whether the structure could withstand a 1 1/2 inch pour of Gypcrete. While it was recommended that a structural engineer assess the situation before repairs commence, there was no such evidence at trial. Thus, it is speculative as to whether the repairs can be effected in any event.

117 Fourth, while the cost of repairs is often the measure of damages, it is not appropriate where the evidence establishes that the owner does not intend to effect the repairs or where the cost of repairs is unreasonable. This point is surveyed by Wittmann CJ in Viper Concrete to evaluate whether damages should cover the cost to fully replace defective concrete which was intended to improve a residence's aesthetics. The usual rule is that damages are awarded for the cost of repairs: Viper Concrete, at para 56; Miller v. Advanced Farming Systems Ltd., at p 848. However, there is an exception where the cost of the repair is disproportionate to the nature of the defect: Viper Concrete, at paras 57-64; Nu-West Homes Ltd. v. Thunderbird Petroleums Ltd. (1975), 59 D.L.R. (3d) 292 (Alta. C.A.). For example, the full repair cost is not an appropriate remedy where subsoil issues led to a house that was not level, but to only a degree where that was not noticeable, and repair would require house demolition: Mangion v. Managen Project Management Ltd. (1989), 96 A.R. 122, 34 C.L.R. 156 (Alta. Q.B.). Similarly, in Ivan's Renovations Ltd. v. Arabsky, 2014 ABQB 700 (Alta. Q.B.) a house was not built square, but to correct that defect would require the entire structure's reconstruction. That was not a reasonable alternative.

118 General damages are appropriate where repair of the defect (rectification) is not practical: Ivan's Renovations Ltd. v. Arabsky, at para 112.

119 In my view, the cost of rectification, even if those costs are properly proven, is unreasonable in the circumstances. I have already determined that a silent in-floor heating system was not fundamental to the contract and did not render the system unfit for its intended purpose. It is a fully functional system that satisfactorily heats the home. There was no term of the contract, express or implied, that t

Alexsei publishing date:
93