Out West Windows v. Tilley, 2014 BCPC 296 (CanLII)
Citation: Out West Windows v. Tilley Date: 20141127
Registry: Courtenay
IN THE PROVINCIAL COURT OF BRITISH COLUMBIA
BETWEEN:
OUT WEST WINDOWS GLASS HOME MAINTENANCE LTD.
CLAIMANT
AND:
CRAIG TILLEY and CHERI TILLEY
DEFENDANTS
AND:
MARK HARGRAVE
DEFENDANT BY COUNTERCLAIM
REASONS FOR JUDGMENT
OF THE
HONOURABLE JUDGE GOUGE
Appearing for the Claimant, and on his own behalf: Mark Hargrave
Appearing in person: Mr. & Ms. Tilley
Place of Hearing: Courtenay, B.C.
Dates of Hearing: July 15, August 25, November 13, 21, 2014
Date of Judgment: November 27, 2014
BACKGROUND
[1] On April 30, 2013, Mr. Tilley and Mr. Mark Hargrave, the principal of the corporate claimant, signed a written purchase order for the installation of new doors and windows in Mr. Tilley’s home. The purchase order adequately defined the materials to be supplied and the work to be done. It was printed beneath a letterhead with the name: “Out West Windows, Glass and Home Maintenance” printed at the top. It set out the contract price ($19,995, including all taxes) and provision for extra work at “cost plus 48.00 per man 25% on materials 15% subtrades”. No other contractual terms were set out in the purchase order. So, for example, it contains no express warranties.
[2] Ms. Tilley is not named in the purchase order, and did not sign it. She says that she declined to sign the document because she considered the “extra work” provisions to be ambiguous, and that she told Mr. Hargrave that. She was present when Mr. Tilley signed the document.
[3] Mr. Tilley paid a deposit of $11,997 (60% of the contract price) on execution of the contract, but has not paid the balance. The corporate plaintiff sues for the balance ($7998), and for $288 in extra work which it alleges to have been performed but not paid for.
[4] Mr. & Ms. Tilley terminated the contract on July, 27, 2013. One of the issues in the action is whether they were entitled so to do. They defend the claim for the balance of the purchase price on the following grounds:
a. They allege that some of the work was improperly performed, and that the deficiencies were so serious as to justify termination of the contract.
b. They counterclaim for: (i) the cost of remedying the deficiencies, and completing those portions of the work which were incomplete when they terminated the contract ($6030.51); and (ii) amounts which they allege to have been overcharged for extra work ($6083.69), and seek to set off those amounts against the contract price.
THE EXTRA WORK
[5] Mr. & Ms. Tilley acknowledge that they ordered some extra work. They complain that:
a. before they ordered each item of extra work, they sought and obtained estimates for that item from Mr. Hargrave;
b. Mr. Hargrave provided estimates totalling about $2400 for the extra work;
c. Mr. Hargrave billed them more than $9500 for the extra work (about 4 times the estimate);
d. some extra work was billed at $48 per hour (the appropriate rate for the claimant’s employees), but was actually performed by a subcontractor at $25 per hour, and should have been billed at cost plus 15% (i.e. $28.75 per hour).
[6] On June 21, 2013, Mr. Hargrave rendered an invoice for extra work in the amount of $9574.63. Mr. & Ms. Tilley were aghast because: (i) they had informed Mr. Hargrave at the outset of the work that their budget for extra work was $4000, and that any extra work must be expressly authorized in advance; (ii) on each occasion when they ordered extra work, Mr. & Ms. Tilley sought and received an estimate from Mr. Hargrave; and (iii) the total of those estimates was about $2400.
[7] Mr. Hargrave responded to Mr. & Ms. Tilley’s expressions of concern by demanding payment in full of his invoice, and threatening to file a builder’s lien and to commence a civil action if it was not paid promptly. Discussions continued over the ensuing week, at the end of which Mr. Hargrave delivered an amended invoice in the amount of $8327.28, which Mr. & Ms. Tilley accepted and paid.
[8] The legal consequence of the events described in paragraph 7 is as follows. Mr. Hargrave rendered an account which Mr. & Ms. Tilley disputed, as they were entitled to do. The parties agreed to settle the dispute by a payment of $8327.28, which has been paid. The policy of the law is that parties are bound by the agreements which they make. Where a claim is disputed and the parties agree to settle the claim, the settlement agreement replaces the original agreement, and binds the parties in the same way as any other agreement. The governing principle was stated in Roumanis vs Hill 2013 BCSC 1047; [2013] BCJ #1267 @ paragraph 48, as follows:
… a binding settlement agreement … is enforceable on the same basis as any other contract and … the court has no power to refuse to give effect to such a settlement because it considers it to be unjust
Accordingly, I must give effect to the agreed settlement unless it can be rescinded under some principle of the law of contract.
[9] Ms. Tilley says that I should rescind the settlement agreement because it was made “under duress”. I do not think that I can do so, because the duress of which Ms. Tilley complains is Mr. Hargrave’s threat that, if the agreed amount were not paid promptly, Mr. Hargrave would file a lien against the Tilley home and commence a lien-holder’s action. Those are not improper threats - they are remedies available to any contractor who has an unsatisfied claim against a homeowner. “Duress” implies some impropriety in the threatened course of action. I adopt the following expression of the governing principles, found in Chitty on Contracts (26th ed), volume 1 @ paragraph 509:
Threatening to carry out something perfectly within one’s rights will not normally amount to duress. … It was at one time suggested that it could not be unlawful to threaten to exercise one’s legal rights, no matter what the motive. But such a principle is too widely stated. There are, for example, many cases where a man who has a “right”, in the sense of a liberty or capacity of doing an act which is not unlawful, but which is calculated to seriously injure another, will be liable to a charge of blackmail if he demands money from that other as the price of abstaining ….
* * *
There is no doubt that difficult and delicate problems may arise in deciding whether threats otherwise lawful can amount to duress in the particular circumstances of a case. It seems that the court would have to take account of a wide range of factors in making such a decision, including (for instance) the nature of the threat; whether such a threat is commonly regarded as a legitimate way of exerting pressure; how coercive the threat is in the particular circumstances in which the party threatened is placed; what alternative remedies he may have, and how effective such remedies would be; the nature of the demand coupled with the threat; the nature of the consequences to the threatened party if he submits to the coercion, on the one hand, and if he refuses to submit, on the other; and the identity and status of the parties ….
[10] In this case, the threat made by Mr. Hargrave was not excessively coercive. If Mr. & Ms. Tilley had refused his settlement offer, Mr. Hargrave would have filed his lien and commenced a lien-holder’s action to enforce it. A trial similar to the one over which I presided would have ensued, and a judgment would have been rendered on the merits of the claim. Mr. & Ms. Tilley would have defended themselves at that trial, as they did at the trial before me.
[11] I think that the result is regrettable, because I think that Mr. Hargrave’s claim for extra work was greatly exaggerated, but I am not empowered to set aside the settlement agreement on that ground.
[12] There being no basis to rescind the settlement agreement, both claims (i.e. those of the claimant and those of the defendants) in respect of extra work fail, and must be dismissed.
THE ALLEGED DEFICIENCIES
[13] Mr. & Ms. Tilley allege the following deficiencies:
a. When three of the windows, comprising the three panels of the bay window in the living room, were delivered to the worksite, they were discovered to be of the wrong size. Each of the two flanking panels was too small for the existing aperture, and the centre panel was too large. To make the flanking panels fit, shims and a filler were applied between the window frame and the wall studs. In order to make the centre panel fit, the claimant’s crew cut away ¾ of an inch from the stud on either side of the window frame.
b. The window manufacturer’s instructions, supplied with the windows: (i) directed the installer to refrain from driving screws through the window flanges; and (ii) directed that the upper horizontal flange of the window assembly be free-floating and not attached to the wall. The claimant’s crew contravened both instructions.
c. Mr. & Ms. Tilley fear that similar installation flaws will be discovered in the remaining eleven windows installed by the claimant’s crew.
d. Mr. & Ms. Tilley specified a front door with a ¾ glass panel. The claimant’s crew installed a door with a ½ glass panel.
a. The Bay Window in the Living Room
[14] Mr. & Ms. Tilley called Mr. Richard Dickenson as an expert witness. Mr. Dickenson has been a carpenter since 1986. He is Red Seal certified, has taught carpentry courses at a local community college, and is often retained as a tutor by the professional associations of carpenters in British Columbia and the Yukon Territory to assist apprentice carpenters in attaining their Red Seal certification. He was also employed by the claimant, for part of the job, as a carpenter at Mr. & Ms. Tilley’s house. Mr. Dickenson expressed the following opinions:
a. One should never cut into the structural members of a house in order to allow installation of a window which is too large for the existing window frame. One should purchase a window to fit the frame, rather than trying to fit the frame to the window. Similarly, if a window is too small for its aperture, it should be returned and a correctly-sized window installed. One should not attempt to remedy the misfit by use of shims and a filler.
b. Mr. Dickenson has compared the measurements of the window frames, provided to him by Mr. Hargrave with the actual dimensions, observed by Mr. Dickenson on-site. He reports that Mr. Hargrave inaccurately measured the dimensions of 13 of the 15 windows in question. No doubt, that explains why the windows supplied were the wrong size.
c. In this case, the claimant used screws to attach the window flanges to the walls. Screws should not be used for the purpose. Nails should be used instead.
d. In this case, the claimant screwed the upper horizontal flange of the windows to the wall. That flange should always be free-floating. That instruction is common to all manufacturers, and is expressly included in the manufacturer’s written instructions for the installation of the windows in question.
e. The use of screws, rather than nails, and the decision to attach the upper flanges to the walls, caused the cracks later observed by Mr. & Ms. Tilley in the interior walls. While Mr. Hargrave disputed that assertion, it was corroborated by Mr. Bates, a structural engineer first consulted by Mr. Tilley, but called by Mr. Hargrave as his witness at trial.
[15] Mr. Dickenson’s opinion as to the proper method of installation is corroborated by the installation instructions provided by Coastal Glass, the manufacturer of the windows installed by the claimant. Those instructions include the following provisions (bold caps in original):
Nail with 2.5” galvanized roofing nails at centre of pre-slotted holes in nail flange … DO NOT over nail, but allow nail fin to float on head of nail …. DO NOT nail through flange at head …
[16] Mr. Hargrave and Mr. Mortenson (another carpenter employed on this job by the claimant) gave evidence for the defence. They said that it is common practice to use screws rather than nails, and to attach the upper flange to the house. They did not consult the manufacturer’s instructions because every municipality has different requirements and different carpenters do things differently. They assert that the standard of workmanship which they employed at Mr. & Ms. Tilley’s job was above the average standard in the industry. They say that the Tilley house was an old structure, suffering from rot in various structural members, and that the wall cladding was a flimsy material which provided insufficient structural integrity for the walls. They attribute the cracks in the walls to that material, rather than to any error on their part.
[17] The contract in this case is silent as to the standard of workmanship required. In such a circumstance, the law implies a term that the work will be performed with reasonable care and skill. Mr. Dickenson says that, in this case, it was not. Mr. Hargrave and Mr. Mortenson say that it was. I accept Mr. Dickenson’s opinion, in preference to that of Mr. Hargrave and Mr. Mortenson, for the following reasons:
a. Mr. Dickenson’s opinion on the question of window sizing is inherently reasonable, and the opinion of Mr. Hargrave and Mr. Mortenson on the same subject is inherently unreasonable. If, as in this case, one has ordered windows which are too large for the existing frames, the obvious solution is to return the windows and procure replacements which are the correct size. One need not be an expert carpenter to discern that unfortunate consequences are likely to follow if one cuts away part of a structural member of a building in an attempt to fit an oversized window into the frame. Similarly, one need not be an expert to deduce that placing shims and filler around a window which is too small for its aperture is less likely to produce a weather-tight result than the installation of a window of correct size.
b. Generally speaking, manufacturer’s instructions should be followed: Levy vs Elmer Lohnes Lumbering Ltd 2004 NSSC 172; [2004] NSJ #329; Twin Cities Mechanical & Electrical Inc vs Progress Homes Inc 2005 NLTD 134; [2005] NJ #254; 46 CLR (3d) 27. Manufacturers know their products well, and put a lot of effort into devising and describing appropriate installation methods. I do not say that a failure to comply with a manufacturer’s directions is always a breach of the installer’s implied obligation to exercise reasonable care and skill. It might be that a highly-qualified specialist might choose to depart from the manufacturer’s instructions because of special circumstances on a particular job site, and that such a departure might be prudent because of those special circumstances. However, that is not this case. Neither Mr. Hargrave nor Mr. Mortenson is a highly-qualified expert. They offered no reason for departing from the manufacturer’s instructions. Indeed, they never read them. When Mr. Dickenson asked Mr. Hargrave for a copy of the instructions, Mr. Hargrave told him: “We don’t use that”. No special circumstances, peculiar to Mr. & Ms. Tilley’s job, were identified.
c. In the case of a building contract, the minimum requisite standard of care and skill is determined by the applicable building code. Put another way, it is an implied term of such a contract that the standard of workmanship is to meet or exceed the requirements of the applicable building code: G. Ford Homes Ltd vs Draft Masonry (York) Co. Ltd. (1983) 1983 CanLII 1719 (ON CA), 1 DLR (4th) 262; 43 OR (2d) 401; Window & Door Centre Inc vs Pine Lake Properties Ltd 2014 ONSC 1844; [2014] OJ #1364; terNeuzen vs Korn 1995 CanLII 72 (SCC), [1995] 3 SCR 674 @ paragraph 81. In this case, the applicable section of the British Columbia Building Code provides:
The installation of manufactured and pre-assembled windows … shall conform to the manufacturer’s instructions.
[18] By failing to exercise reasonable care and skill in performing the installation of the bay windows in the living room, Mr. Hargrave breached his contract.
b. The Other Windows
[19] Mr. & Ms. Tilley are concerned that other windows installed by the claimant may have been similarly mis-installed and may need to be replaced. However, there is little evidence to support that concern. Mr. Dickenson said that 11 of 15 windows were incorrectly measured, and one may reasonably infer that windows of the wrong size were installed. However, there is no evidence about how the windows, other than the bay window in the living room, were installed. Given the shoddy workmanship demonstrated in relation to the living room windows, it seems reasonable to think that there may be flaws in other workmanship by Mr. Hargrave’s crew. However, I cannot render a judgment based on concern or suspicion. There is no evidence of: (i) specific items of defective workmanship; or (ii) the cost of remedying such deficiencies.
c. The Front Door
[20] Ms. Tilley ordered a new front door with a ¾ glass panel. The “Out West Windows” crew installed a door with a ½ glass panel. Mr. Hargrave informed Ms. Tilley that a door with a ¾ glass panel could be procured, but that a manufacturer’s warranty was not available for that door. He told her that a manufacturer’s warranty would be available for a ½ glass or full glass door, and offered her a choice between those two. That statement was simply incorrect. Ms. Tilley subsequently discovered that a ¾ glass door, as she had specified, was available, with a manufacturer’s warranty. Mr. & Ms. Tilley have procured an estimate of $951.45 for the cost of supplying and installing a ¾ glass door.
THE REPUDIATION
[21] On July 27, 2013, Mr. Hargrave, Mr. Tilley and Ms. Tilley met at the Tilley home. Mr. & Ms. Tilley expressed their unhappiness at the quality of the work. They summarized the discussion in an e-mail to Mr. Hargrave on the following day, as follows:
… yesterday … you Mark Hargrove and your company Out West Windows & Doors, were terminated from our home renovation at 5090 Venture Road ….
Please be advised this is official notification that you are no longer permitted on our property at any time ….
* * *
Craig, myself and professionals hired at our discretion, will need a reasonable amount of time to investigate the issues that have arisen with the structural integrity of our bay window, and the issues involving the front door.
Once this process is complete, we can then start the process of negotiating the balance remaining on our contract.
[22] The question is whether Mr. & Ms. Tilley were justified in taking that step.
[23] I observe that the only deficiencies identified by Mr. & Ms. Tilley to justify their decision were the bay window in the living room and the front door. The same two issues, and no others, were identified by Ms. Tilley in a follow-up e-mail dated July 31, 2013. That, in itself, is not conclusive. A party who seeks to justify termination of a contract is generally entitled to rely on deficiencies in the work of which the terminating party was unaware on the date of termination. However, there is a limiting principle. In Walker vs Blades 2007 BCCA 436; [2007] BCJ #1945; 2005 BCCA 292 (CanLII), 40 BCLR (4th) 226 @ paragraph 24, the court quoted, with approval, the following passage from Heisler vs Anglo-Dal, Ltd [1954] 1 WLR 1273; [1954] 2 All ER 770 (underlining added):
Counsel relied on the principle which will be found stated by Greer, J. in Taylor v. Oakes, Roncoroni & Co. …:
"It is a long established rule of law that a contracting party, who, after he has become entitled to refuse performance of his contractual obligations, gives a wrong reason for his refusal, does not thereby deprive himself of a justification which in fact existed, whether he was aware of it or not."
This rule is, however, subject to a proviso. If the point not taken is one which if taken could have been put right, the principle will not apply.
The other deficiencies, of which Mr. & Ms. Tilley complained at trial, were of such a nature that they might have been remedied if Mr. & Ms. Tilley had complained of them before terminating the contract. No complaint was made at that time. For that reason, they may not now be relied upon to justify the termination.
[24] The question, therefore, is whether the deficiencies in the living room bay window and the front door were such as to justify Mr. & Ms. Tilley in terminating the contract. The answer to the question depends upon which of the many formulations of the governing legal principle one accepts. Those formulations fall into two broad categories.
a. The first is concerned with the effect of the breach upon the innocent party. The question is whether the breach deprived the innocent party of “… substantially the whole benefit which it was the intention of the parties that the innocent party should receive …” under the contract: Hongkong Fir Shipping Co Ltd v. Kawasake Kisen Kaisha Ltd [1962] 2 Q.B. 26 @ pages 65-66; Bridgesoft Systems Corp vs British Columbia [1998] BCJ #2445; 60 BCLR (3d) 106 @ paragraph 106.
b. The second is concerned with the intention (objectively assessed) of the party in breach. “If one party so acts or so expresses himself, as to show that he does not mean to accept and discharge the obligations of a contract any further …”, then the other party may terminate the contract and sue for damages: Heyman vs Darwins, Ltd [1942] AC 356.
If the former is the governing principle, Mr. & Ms. Tilley were not entitled to terminate the contract when they did. If the latter is the governing principle, the question is more difficult.
[25] Take the front door as an illustrative example. The door installed by Mr. Hargrave is a perfectly functional door. It is, aesthetically, reasonably pleasing. It is simply not the door which Ms. Tilley ordered and which Mr. Hargrave agreed to supply. One cannot say that the installation of the wrong door has deprived Mr. & Ms. Tilley of substantially the whole of the benefit which they were to receive from that part of the contract. However, Mr. Hargrave’s response to Ms. Tilley’s complaint about the door evinces a clear intention on his part to refuse to perform that part of the contract in accordance with the terms of the contract. He simply declined to provide the door which had been ordered, although such a door was available.
[26] I think that the correct answer to the legal question is that neither of the two formulations mentioned in paragraph 24 fully captures the correct legal principle. The fundamental question is that stated in Heyman vs Darwins, Ltd - does the conduct of the party in breach evince an intention to withhold future performance of the contract? However, an affirmative answer to that question does not necessarily entitle the innocent party to terminate the contract. One must also consider the nature of the future performance which is to be withheld. If the matter is trivial, it does not justify termination. If it is material, it does.
[27] In this case, I think that Mr. Hargrave’s response to Mr. & Ms. Tilley’s complaints takes the matter far beyond the trivial. If the case were concerned with the front door to a warehouse, I would not regard the deficiency in the front door as material, because, in that context, the primary question would be functionality rather than aesthetics. However, aesthetics are fundamental to a home renovation. It is necessary also to consider Mr. Hargrave’s response to the complaint about the windows. He insisted, and insists, that they were properly installed. That is simply not so. As noted above, the method of installation chosen and implemented by Mr. Hargrave was grossly inadequate. Mr. Hargrave’s refusal to remedy that inadequacy (to be inferred from his continued insistence that there is no defect to remedy) evinces a clear intention to refuse to provide the quality of workmanship mandated by the contract. In that circumstance, the homeowner is not required to allow the contractor to complete the work, because it would be reasonable to expect a similarly inadequate standard of workmanship in the remaining work, and unreasonable to expect the homeowner to accept that standard of workmanship in lieu of the higher standard for which he contracted.
[28] It follows that Mr. & Ms. Tilley were entitled to terminate the contract as and when they did.
CONSEQUENCES OF TERMINATION
[29] The consequences of termination of a contract by the innocent party, after a repudiatory breach of contract by the other party, were described in the following terms by Lord Diplock in Moschi v. Lep Air Services Ltd. [1973] A.C. 331 @ page 350:
Generally speaking, the rescission of the contract puts an end to the primary obligations of the party not in default to perform any of his contractual promises which he has not already performed by the time of the rescission. It deprives him of any right as against the other party to continue to perform them. It does not give rise to any secondary obligation in substitution for a primary obligation which has come to an end. The primary obligations of the party in default to perform any of the promises made by him and remaining unperformed likewise come to an end as does his right to continue to perform them. But for his primary obligations there is substituted by operation of law a secondary obligation to pay to the other party a sum of money to compensate him for the loss he has sustained as a result of the failure to perform the primary obligations. This secondary obligation is just as much an obligation arising from the contract as are the primary obligations that it replaces ….
[30] It follows that Mr. Hargrave is not entitled to recover the balance of the contract price, and that Mr. Tilley is entitled to damages for breach of contract. Ms. Tilley is not entitled to damages because she was not a party to the contract.
ASSESSMENT OF DAMAGES
[31] The governing principle was stated in Johnson vs Agnew [1979] 1 All ER 883, in the following terms:
The general principle for the assessment of damages is compensatory, i.e. that the innocent party is to be placed, so far as money can do so, in the same position as if the contract had been performed.
[32] If this contract had been performed according to its terms, Mr. & Ms. Tilley would have been spared the following expenses:
a. the cost, which they have incurred, of $736.96 for replacement windows for the bay window in the living room and $530 for labour to install those windows;
b. the estimated cost, which they have not yet incurred, of repairing the cracked drywall in the living room, caused by the defective bay window: $440;
c. the cost, which they have incurred, of completing the work which was unfinished when they terminated the contract: $1937;
d. the cost of a new front door, in conformity with the contract: $951.45
The total of those items is $5546.86. However, if the contract had been performed according to its terms, Mr Tilley would have been obliged to pay Mr. Hargrave the balance of the contract price ($7998). In order to put the parties in the position which they would have occupied if the contract had been performed according to its terms, it would be necessary to direct that Mr. Tilley pay to Mr. Hargrave the difference between $7998 and $5546.86. No such order can be made because Mr. Hargrave’s repudiatory breach of contract deprives him of the right to enforce the obligation to pay the balance of the contract price. However, the evidence does not justify an award of damages in favour of Mr. Tilley.
[33] I observe parenthetically that Mr. & Ms. Tilley provided particulars of their damage claim prior to trial, and amended them, with leave, during the trial. The amounts claimed in the final version of the particulars were $6083.69 in overpayments for extra work and $6030.51 for the cost of remedying deficiencies. The former is not recoverable for the reasons given in paragraphs 5 - 12. Because the latter is less than the balance of the contract price, Mr. & Ms. Tilley suffered no recoverable loss, even if they suffered all of the losses alleged in their particulars.
COSTS
[34] Section 19 of the Small Claims Act RSBC 1996, c 430 provides:
(1) The Provincial Court may determine, in accordance with the rules, the amount of costs that are payable by one party in a proceeding under this Act or the rules to another party in the proceeding or it may direct a registrar of the court to determine the amount.
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(3) If the rules provide for a reasonable fee, charge or other expense, the Provincial Court or a registrar of the court may determine what amount is reasonable.
Rule 20 of the Small Claims Rules BC Reg 261/93 provides:
(2) An unsuccessful party must pay to the successful party the following expenses, unless a judge or registrar orders otherwise:
(a) any fees the party paid for filing any documents;
(b) reasonable amounts the party paid for serving any documents;
(c) any other reasonable charges or expenses that the judge or registrar considers directly relate to the conduct of the proceeding.
(3) A judge may determine the amount of the expenses that are payable under subrule (2) or refer the matter to the registrar.
(4) If a judge refers the matter to the registrar, the registrar must determine the amount of expenses as soon as practicable.
(5) A judge may order a party to pay the other party up to 10% of the amount claimed or the value of the claim or counterclaim if the party made a claim, counterclaim or reply and proceeded through trial with no reasonable basis for success.
(6) A judge may order a party or witness whose conduct causes another party or witness to incur expenses to pay all or part of those expenses.
[35] In this case, both parties were unsuccessful, the claimant because it was unable to establish liability on the part of either defendant, and the defendants because they were unable to prove any damages. For that reason, subrule 20(2) does not apply.
[36] However, in my judgment, each of subrules 20(5) and 20(6) do apply.
a. The criteria applicable on an application for a penalty under subrule 20(5) were stated by His Honour Judge Woods in High Country Outfitters Inc. v. Pitt Meadows (City) 2013 BCPC 231:
The jurisdiction to order such penalties is exercised sparingly. As the Rule itself states, it is reserved for those cases where a losing party has proceeded to trial with "no reasonable basis for success".
As to policy, Rule 20(5) is intended to discourage unreasonable litigants from putting other litigants to the expense and inconvenience of going to trial where the dictates of reason urge the abandonment of claims or defences that are manifestly non-maintainable. An ancillary purpose for the Rule is that of preserving court resources for the adjudication of those disputes in which the positions taken by both parties have some apparent merit and which justify the invocation of the costly and time-consuming trial process.
In those cases where penalties have been awarded, reference is often made to shocking or reprehensible conduct on the part of the losing party, or to oblique and improper motives having been a factor in the losing party's persistence in prosecuting a manifestly non-maintainable claim or asserting a plainly non-meritorious defence ….
In this case, the standard of workmanship provided to the defendants was so shockingly deficient that it ought to have been manifest to anyone that the defendants were entitled to terminate the contract as and when they did. In particular, Mr. Hargrave’s blithe assertion that the manufacturer’s instructions were irrelevant to the task which he was to perform was and is completely unsupportable. I award a penalty in the amount of $414.30, being 5% of the claim.
b. In relation to subrule 20(6), I observe that, order to successfully defend the claim, Mr. & Ms. Tilley were obliged to bring Mr. Dickenson from Alberta to give evidence. They paid his travel expenses, as they were obliged to do, and have incurred a moral obligation to reimburse him for his lost wages while attending court, which they intend to do. The defendants are entitled to be reimbursed for those expenses, to be assessed by the Registrar if the parties are unable to agree.
[37] It is now necessary to determine whether the costs which I have awarded should be payable by the corporate claimant or by Mr. Hargrave personally. In my view, they should be payable by the contracting party.
[38] On the contract document, the contracting parties are named as Craig Tilley and “Out West Windows, Glass & Home Maintenance”. There is no British Columbia corporation with the name “Out West Windows, Glass & Home Maintenance”.
[39] In the original Notice of Claim, the claimant in this action was identified as “Out West Windows Ltd.” There is no British Columbia corporation with that name. On March 19, 2014, His Honour Judge Doherty granted an amendment to the Notice of Claim to identify the claimant as “Out West Windows, Glass and Home Maintenance Limited”. There is no British Columbia corporation with that name. On October 23, 2014, Judge Doherty again amended the style of cause to its present form, which correctly names the corporate claimant. The named defendants in this action are, and have been since its inception, Craig and Cherie Tilley. On November 13, 2014, I granted an application by Mr. & Ms. Tilley to add Mr. Hargrave as a defendant by counterclaim.
[40] Mr. Hargrave is a shareholder and the sole director of the claimant.
[41] Section 23(1) of the Business Corporations Act SBC 2002, c 57 provides:
… a company must have the word "Limited", "Limitée", "Incorporated", "Incorporée" or "Corporation" or the abbreviation "Ltd.", "Ltée", "Inc." or "Corp." as part of and at the end of its name.
Section 27 provides:
A company … must display its name … in legible English or French characters on all its contracts … used in British Columbia ….
The purpose of those provisions is obvious. A person negotiating a contract is entitled to clear notice that the other proposed contracting party is a limited liability company.
[42] The Business Corporations Act does not state the legal consequences which are to follow from a breach of section 23 or 27. Those consequences were described by the Ontario Court of Appeal in Truster vs Tri-Lux Homes Ltd [1998] OJ #2001; 1998 CanLII 3497 (ON CA), 39 CLR (2d) 6; 18 RPR (3d) 1. In that case, the court held that the corresponding provision of the Ontario Business Corporations Act:
… does not create automatic personal liability if it is not complied with. It is evident that the trial judge was aware of this. He also recognized a principle arising from the case law that persons wishing to benefit from the protection of the corporate veil should not hold themselves out to the public without qualification. They should identify the name of the company with which they are associated in a reasonable manner or risk being found personally liable if the circumstances warrant it .... This principle properly flows from the fact that incorporation provides corporate officers and shareholders the legal protection thought to be necessary for modern business relations; however, if one expects to benefit from this protection, then others must, at a minimum, be informed in a reasonable manner that they are dealing with a corporation and not an individual. In the last analysis, persons who set up after the fact that they contracted solely on behalf of another bear the onus of establishing that the party with whom they were dealing was aware of the capacity in which they acted ….
[43] Mr. Tilley said, and I accept, that he believed that he was contracting with Mr. Hargrave personally. There was nothing in the evidence of the precontractual discussions, and nothing in the purchase order, to alert Mr. Tilley to the existence of the corporate claimant or to Mr. Hargrave’s unexpressed intention to contract on behalf of the corporate claimant. The purchase order itself is consistent only with the inference that “Out West Windows, Glass and Home Maintenance” was the trade name of a proprietorship under which Mr. Hargrave carried on business. In those circumstances, Mr. Hargrave cannot shelter behind the limited liability of the corporate claimant, and the costs which I have awarded will be payable by Mr. Hargrave personally.
[44] Mr. Hargrave will also be responsible to pay the reasonable fee of Mr. Bates for his time in preparing for and attending at trial.
DISPOSITION
[45] The claim and counterclaim are dismissed. Mr. Hargrave is ordered to pay to Mr. & Ms. Tilley: (i) penalty costs in the amount of $414.30; (ii) travel costs and other expenses paid by Mr. & Ms. Tilley to Mr. Dickenson; and (iii) amounts paid by Mr. & Ms. Tilley to Mr. Dickenson to reimburse him for lost wages while travelling to and from, and attending at, trial. Items (ii) and (iii) will be assessed by the Registrar if the parties are unable to agree on the amounts.
November 27, 2014
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T. Gouge, PCJ