Legal Blog

Deficiencies

Deficiencies invariably arise during construction work. For the most part, they are caught and fixed as construction continues. Once substantial performance is achieved, the contractor rectifies the deficiencies on the punchlist, finishes the incomplete items, and completes the project. At least that is the way it ought to be and usually is. Sometimes, however, the contractor does not rectify all of the deficiencies and at other times, the owner does not give the contractor the opportunity to rectify all of the deficiencies and rectifies them itself. The court then has to determine whether the owner should be allowed to set off the cost of rectification against money otherwise owed to the contractor or to claim additional money from the contractor. Such was the case in Mastracci v. 1882877 Ontario Inc., a 2019 decision of the Ontario Superior Court of Justice.

Contract

The owner, a developer of a residential condominium project, contracted with the roofing contractor to install a roof for $108,700. The roofer had completed most of the project, left the site on December 18, and returned to work on January 6 and January 21. By that time, it had completed all but $2,000 of the contract work. On the same day, the owner informed the roofer that he would not be allowed back on site.

During the Christmas break, the owner noticed various leaks in the building and although, ultimately, there was no causal link between any problems in the roof and the leaks, the owner’s concern over the leaks caused it to retain a consultant to assess the quality of the workmanship in the roof installation. That consultant reported that the workmanship was poor and that the roof would not last the expected 20 to 25 years and would not meet the manufacturer’s requirements. The owner terminated the roofer immediately after receiving the report.

Repairs

The consultant, who gave evidence at trial that the judge accepted, set out the various deficiencies in the roof, supported by photographs showing examples of each of the deficiencies. The trial judge found as a fact that the entire roof had serious problems arising from poor workmanship.

The consultant testified that the remedy for the deficiencies was to apply a third membrane over the entire roof. In his opinion, it was not economical to try to patch each one of the deficiencies because the roof would end up being “a quilt.”

The owner retained another roofer to apply the third membrane at a cost of $85,000. The owner set off this amount against the $63,000 otherwise due to the roofer and claimed an additional $22,000 in damages.

The roofer claimed that an uneven concrete core slab surface prevented the roofer from rolling the roofing material in a straight line and made the job far more challenging than it ought to have been. The replacement roofing contractor agreed that the job was more challenging, but testified that it could still have been done properly. The trial judge accepted the replacement contractors’ assessment. Mere difficulties in performing the job does not excuse deficiencies.

Spoliation

As soon as the third membrane was applied, the deficiencies were no longer evident. The roofer was therefore unable to determine through an actual visual inspection whether his work had actually been deficient. The owner certainly gave the roofer no notice of the deficiencies; it did not do so because it wanted the remediation work done as quickly as possible to keep the project going. At that point, the owner did not trust the roofer to repair the deficiencies properly and on a timely basis.

The owner’s decision resulted in two problems: the repairs destroyed relevant evidence and the roofer was not given a chance to remediate the deficiencies.

Spoliation is the intentional destruction of relevant evidence. The principal remedy for it is the imposition of a rebuttable presumption of fact that the lost or destroyed evidence would not assist the spoliator. The judge agreed that there was spoliation; the third membrane was applied purposely. However, the judge held that the consultant’s detailed report, along with the photographic evidence, set out all of the particulars of the deficiencies and that, accordingly, the owner had rebutted the presumption.

Fundamental

As a general rule of law, unless a contractor’s deficient work is a fundamental breach of the contract (i.e. a breach so serious that it goes to the root of the contract), an owner must give a contractor a reasonable opportunity to correct deficiencies in its work. Without this reasonable opportunity, an owner cannot claim a deduction for the cost it incurs to correct the deficiencies.

Without any real analysis, other than noting that the expected life of the roof would be adversely affected and there were multiple places where water could find its way under the seams, the judge concluded that the deficient work amounted to a fundamental breach of the contract. Accordingly, the owner did not have to give any notice to the roofer.

Of course, the general rule can be changed by way of contractual terms, but, we gather, the contract was silent on the remedies in this case.

We find this conclusion difficult to accept. The roofer could at least have been given some notice so he could review his work and comment on and perhaps contribute to the proposed solution. This was not a situation in which the roofer denied deficiencies; the roofer was simply never told of them.

In the result, not only did the roofer not receive $63,000 for the work that he had completed, he had to pay an additional $22,000.

Costs

The owner had claimed $35,000 for delay to the project; that claim was dismissed for lack of proof. Regardless, the owner successfully defended a $63,000 claim and, in addition, was successful on its $22,000 claim. Accordingly, the owner submitted that it should be paid its partial indemnity costs, including disbursements, of $37,000. The roofer, who stated that he had expended $150,000 in legal fees and disbursements, argued that the owner’s award was within Small Claims Court jurisdiction ($25,000 at the time) and that the owner should not recover any costs.

The judge stated that the parties should have made a significant compromise to resolve their claims outside the courtroom or made some realistic offers. She concluded that, because success was mixed and the actual monetary payment was modest after set off against the roofer’s claim, she would award no costs.

We do not agree with this aspect of the decision either. Just because the owner was not successful on all of its counterclaim, does not mean it was not the successful party in the litigation. It successfully defended a $63,000 claim and obtained a further $22,000 payment. In effect, not only was it successful in its defence against the roofer’s statement of claim, for which it should get its costs, it received an extra $22,000 as a bonus on its counterclaim. That is not a mixed result. The owner won, plain and simple. The Small Claims Court argument was a red herring. The amount at stake was $85,000, far higher than the Small Claims Court monetary jurisdiction.

The only basis on which we can rationalise this costs order is that an adverse costs award against the roofer would have just added insult to injury; the roofer had lost on the merits of the action and, in our humble opinion, he should have won.

 

Image courtesy of alluregraphicdesign.

Written by Jonathan Speigel, the founding partner of Speigel Nichols Fox LLP, leads the litigation and construction practices.