Shore & Horwitz Construction Co. Ltd. v. Franki of Canada Ltd., [1964] SCR 589

Supreme Court of Canada

Shore & Horwitz Construction Co. Ltd. v. Franki of Canada Ltd., [1964] S.C.R. 589

Date: 1964-06-10

Shore & Horwitz Construction Co. Limited (Plaintiff) Appellant;

and

Franki of Canada Limited (Defendant) Respondent.

1964: May 5; 1964: June 10.

Present: Cartwright, Fauteux, Judson, Hall and Spence JJ.

ON APPEAL FROM THE COURT OF APPEAL FOR ONTARIO.

Contracts—Delay in completion of main contract resulting from performance by subcontractor—Claim for damages against subcontractor—Assessment of damages.

The plaintiff took a contract from the Government of Canada to construct a building and employed the defendant to drive the piles. The work done by the defendant was rejected and had to be done again, with the result that there was 4¾ months’ delay in the completion of the main contract. The plaintiff sued the defendant for damages. Liability having been established, the trial judge referred the assessment of damages to the local master. The latter assessed the damages at $99,598.13 and itemized them under 13 heads. A judge of the Supreme Court of Ontario confirmed the report; the defendant appealed two items, namely overhead and plant. The Court of Appeal reduced the amount allowed for overhead from $16,909.33 to $3,692.10 and that for plant from $7,539.91 to $1,256.66. The plaintiff appealed to this Court.

Held (Judson J. dissenting): The appeal should be allowed.

Per Curiam: The plaintiff’s contention that it should be compensated on a commercial rental basis for the plant and equipment during the period of tie-up was rejected. In the absence of evidence to the contrary, the Court of Appeal was correct in treating the plaintiff’s plant as a nonprofit-earning asset during this period.

Per Cartwright, Fauteux, Hall and Spence JJ.: The Court of Appeal seemed to have cut out $2,802 per month for 4¾ months allowed in the overhead and allowed 4.99 per cent on the amount of additional out-of-pocket costs incurred by the plaintiff. In essence, therefore, the Court of Appeal had disallowed any compensation in overhead for the 4¾ months’ delay. This was not a proper deduction. During the 4¾ months the overhead costs were continuing to run but the plaintiff was obtaining no revenue from which to defray the overhead costs. The allowance of 4.99 per cent on the direct cost was not a compensation for this delay but was an allowance of the same percentage rate on an item which would not normally have been in the year’s operation. Therefore, the Court of Appeal erred in taking this amount ($13,309.50) from the master’s assessment.

Per Judson J. dissenting: Although delay resulting from the performance by a subcontractor may well cause loss to the main contractor, such loss of profit arising from inability to accept or to move on to another contract, nothing of that kind was alleged or proved here. Further, there was no suggestion that the plaintiff stayed in business solely for the business of completing this delayed job or with existing overhead

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made necessary during the period of delay. In the absence of any evidence to support such a claim, the Court of Appeal was right in disallowing the sum of $13,309.50 in the overhead.

APPEAL from a judgment of the Court of Appeal for Ontario, allowing an appeal from an order of Aylen J. which confirmed a report of the Local Master at Ottawa. Appeal allowed, Judson J. dissenting.

I. Goldsmith and Miss Rose-Marie Perry, for the plaintiff, appellant.

K.E. Eaton and J.H. Konst, for the defendant, respondent.

The judgment of Cartwright, Fauteux, Hall and Spence JJ. was delivered by

SPENCE J.:—I have had the privilege of reading the reasons for judgment of my brother Judson and I shall refrain from repeating the statement of facts except insofar as it is concerned with the question of overhead. I am in agreement with my brother Judson’s view as to plant, but I feel that I have come to another conclusion in reference to overhead.

The Master assessed the plaintiff’s damages at a total of $99,598.13 which total included the amount of $16,909.33 for overhead and $7,539.91 for plant. The Master in his reasons for judgment stated:

7. The method of calculating overhead as advanced by the plaintiff was a proper basis for so doing.

The plaintiff contended that overhead was a continuing expense and that as long as one was working on the job overhead was being incurred. He took the figures for the two years over which this job ran, on a percentage basis for the year’s operation of the business and averaged them, arriving at a figure of 4.99%. No definition of overhead was supplied to me. The defendant contended that overhead was part of the contract and once you put in a figure for overhead it never changed, no matter how long you were engaged on the job. It follows that the longer the job takes the more overhead that is incurred. Accordingly I found the plaintiff’s method of calculating overhead a proper one.

The amount for plant was arrived at by taking the value of the equipment and buildings tied up on the job for the delay period, at the rate of 5% per month. Counsel for the defendant cited a number of cases on this type of thing, but in my opinion these all referred to the rate to be charged for materials and labour actually expended on a job and not for equipment and buildings tied up on the job.

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The defendant (here appellant) appealed to a single judge of the Supreme Court of Ontario from the assessment of the Master and that appeal was dismissed by Aylen J. on February 22, 1963. The defendant (here respondent) further appealed to the Court of Appeal and the Court of Appeal by its judgment dated September 10, 1963, allowed the appeal and substituted a judgment reducing the amount allowed for overhead from $16,909.33 to $3,692.10 and reducing the amount allowed for plant from $7,539.91 to $1,256.66. Neither Aylen J. nor the Court of Appeal gave any reasons in writing for their decision and the lack of these reasons has considerably increased the difficulty of the task facing this Court.

OVERHEAD

It would appear, however, and counsel are agreed, that the judgment of the Master for overhead is composed of two items, firstly, 4.99 per cent of the sum of $72,171.06, being the additional out-of-pocket costs incurred by the appellant (plaintiff), equals $3,601.33, plus $2,802 per month for 4¾ months equals $13,309.50, totalling $16,909.33 (the $1.50 error is unexplained). The 4.99 per cent used as the factor for the overhead was the average of the actual overhead taken as a percentage of direct cost for the fiscal year ending April 3, 1960 (3.35 per cent), and for the fiscal year ending April 3, 1961 (6.64 per cent). The period of 4¾ months was the additional time required for the completion of the contract due to the failure of the subcontractors (the defendants, respondents) to perform their part thereof.

The Court of Appeal seemed to have cut out the $2,802 per month for 4¾ months allowed in the overhead and allowed 4.99 per cent figuring it on $73,990.56 as the Court increased the direct cost by addition of $1,819.50 “miscellaneous”.

In essence, therefore, the Court of Appeal has disallowed any compensation in overhead for the 4¾ months’ delay. I have considered the argument made by counsel and I have read the cases cited and I am of the opinion that this is not a proper deduction. The overhead in a year is figured as a percentage of the direct cost and then that percentage is assigned to the direct cost of each individual job. When the job here in question occupied 4¾ months more of the plain-

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tiff’s (appellant’s) time then during that 4¾ months the overhead costs were continuing to run but it was obtaining no revenue from which to defray the overhead costs. The allowance of 4.99 per cent on the extra direct cost is not a compensation for this delay but is an allowance of the same percentage rate on an item which would not normally have been in the year’s operations, and I am therefore of the opinion that the Court of Appeal erred in taking this amount from the Master’s assessment.

Counsel for the respondent during the argument mentioned a series of calculations which did not appear in the factum. Counsel were permitted additional time to put those calculations in writing and additional time to reply thereto.

I have perused both the additional figures supplied by the respondent and the appellant’s reply, and I am convinced that the appellant has properly explained the examples submitted by the respondent. Indeed, I agree with the counsel for the appellant that the figures submitted by the respondent have confirmed the respondent’s argument that the 4¾ month’s delay when, of course, the plaintiff company could not devote its enterprise to other undertakings but when its fixed costs kept running, is largely responsible for the unproductive fiscal year ending on April 3, 1961, and for the very large increase in the percentage of its overhead to direct costs in that year as compared to the previous year.

I would therefore allow this appeal and increase the amount of the award by $13,309.50. The appellant is entitled to its costs in this Court and of the order of Stewart J. There will be no costs of the appeal to Aylen J. or in the Court of Appeal. There is, of course, no variation in the judgment of McRuer C.J.H.C.

JUDSON J. (dissenting):—Shore & Horwitz Construction Co. Limited took a contract from the Government of Canada to construct a building in the City of Ottawa for a total contract price of $724,300, the contract to be completed within one year. They employed Franki of Canada Limited to do the pile driving at a price of $57,500, to be completed within 22 days. The piles driven by Franki were totally rejected by inspectors appointed by the Government of Canada. The result of this was that the piles had to be

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driven again, the whole structure had to be shifted by five feet and there was 4¾ months’ delay in the completion of the main contract. Shore & Horwitz sued Franki for damages. They established liability and the trial judge referred the assessment of damages to the Local Master at Ottawa. The two relevant paragraphs in the order of reference are:

THIS COURT DOTH FURTHER ORDER that the said Local Master shall assess the loss that the Plaintiff has suffered by reason of the failure of the Defendant to perform the contract referred to in the Statement of Claim and by reason of the failure of the Defendant to complete the work referred to in the letter from the Defendant to the Plaintiff, dated September 15, 1959 (filed as exhibit 1), within twenty-two days.

AND THIS COURT DOTH FURTHER ORDER that the said Local Master shall not assess any amount for profit, but shall assess overhead on a proper basis.

The Local Master assessed the damages at $99,598.13 and itemized them under 13 heads. Aylen J. confirmed the report and Franki appealed on two items:

(a) OVERHEAD, $16,909.33

The Local Master allowed the sum of $16,909.33 for overhead. Without giving reasons, the Court of Appeal reduced this item to $3,692.10. In spite of the lack of reasons, it is not difficult to trace the principles on which the Court acted. The sum of $3,692.10 was an allowance of 4.99 per cent on $73,990, which was the actual cost of certain additional construction which Shore & Horwitz did and for which Franki was to pay.

The disallowed sum of $13,309.50 is claimed by Shore & Horwitz for the delay. They say that when they took the contract, their overhead was established at $2,802 per month for a twelve month period of performance and that because Franki delayed the performance of the contract for a period of 4¾ months, Franki must pay for that period of delay at the rate originally established of $2,802 per month. This is the sole basis of the claim. Delay resulting from the performance by a subcontractor may well cause loss to the main contractor, such loss of profit arising from inability to accept or to move on to another contract. Nothing of that kind is alleged or proved here. Further, there is no suggestion that Shore & Horwitz stayed in business solely for the purpose of completing this delayed

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job or with existing overhead made necessary during the period of delay. In the absence of any evidence to support such a claim, the Court of Appeal was right in disallowing the sum of $13,309.50.

(b) PLANT

The Court of Appeal, also without giving reasons, reduced this item from $7,539.91 to $1,256.66. However, there is no dispute that the sum of $1,256.66 was arrived at by giving an allowance at the rate of 10 per cent per annum for a period of 4¾ months on the value of the plant tied up during this period. This plant consisted of

Shore & Horwitz contend that they should be compensated on a commercial rental basis for this plant and equipment which was tied up too long. The Local Master accepted this and allowed them 5 per cent per month for the period of 4¾ months on the above valuation. It should be made clear that this was an idle plant, not in use on the job and, of course, not capable of profitable use until moved to another job. If Shore & Horwitz thought that they should have compensation on the basis that this was a profit-making asset during the period of the tie-up, they should have given evidence that there was profitable work for this asset to do elsewhere. I think that the Court of Appeal was right in treating this as a non-profit-earning asset during the period of 4¾ months. The allowance of 10 per cent per annum on the valuation was generous.

There is a well established distinction between compensation for loss of use when the property is profit-earning and non-profit-earning: Mayne & McGregor on Damages, 12th ed., pp. 578-590; Street, Principles of the Law of Damages, pp. 203-210. I adopt the statement of Street at p. 207 as a compendious summary:

Where the court is not satisfied that a profit would ensue, the plaintiff is reverted to the method for compensating loss of non-profit-earning vessels, i.e., interest, depreciation and maintenance. This rule (and presumably the rest) applies to other forms of property such as contractors’ road-excavating plant [Sunley & Co. Ltd. v. Cunard White Star Ltd., [1940]

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1 K.B. 740] and (in Scotland, at least) lorries [Galbraith’s Stores, Ltd. v. Glasgow Corporation, 1958 S.L.T. (Sh. Ct.) 47].

I would dismiss the appeal with costs.

Appeal allowed with costs, JUDSON J. dissenting.

Solicitors for the plaintiff, appellant: Horwitz, Kertzer & Perry, Ottawa.

Solicitors for the defendant, respondent: Gowling, MacTavish, Osborne & Henderson, Ottawa.