What are Your Damages Worth?

Frequently the courts are called upon to determine if someone has suffered damages, and if so, how to calculate them. Doing so can be like trying to guess the price on the game show, The Price is Right. A recent case, however, provides some helpful guidance on what the courts will generally consider.

FACTS

In 2007 a construction company (the "Contractor") agreed to construct a house for two individuals (the "Homeowners"). There was a written contract, which included a term that the Contractor agreed to construct the house "in a good and workmanlike manner in accordance with the plans and specifications."

The city issued a final occupancy permit in June 2008. On the same day, the Contractor and one of the Homeowners walked through the house and created a deficiency list. However, the Homeowner refused to sign the deficiency list and did not give the Contractor reasonable access to fix the deficiencies.

Instead, the Homeowners filed a claim with the Contractor's new home warranty provider. The warranty provider reviewed the alleged deficiencies and issued a report rejecting most of the Homeowners' claims. The Homeowners eventually let the Contractor repair the deficiencies identified by the warranty provider, but refused to pay the full amount of the contract price plus the agreed upon extras.

The Contractor sued. In response, the Homeowners filed a defence alleging negligent construction and claiming a set off for numerous deficiencies, including $115,000 they said it would cost them to correct five deficiencies that they said were not repaired.

ISSUE

Did the Homeowners prove that they suffered damages as a result of the Contractor's failure to perform the work in a good and workmanlike manner, and if so, how should they be calculated?

COURT DECISION

In reaching its decision, the court highlighted that this case raised an issue common in house construction case for which there was "no simple answer".

The Homeowners argued that the proper measure of damages was the cost of repairing the house so that it was constructed in accordance with the contract specification. The Contractor argued that the proper measure of damages is diminution in value - that is, is the house worth less than what it would have been worth if built according to the contract.In deciding what the appropriate method of calculating damages was, the court summarized the following principles that it will consider:

  1. Is the proposed repair work necessary?
  2. Does the homeowner intend to perform the repairs?
  3. Is there sufficient evidence of the cost of the repairs on which to base a damage award?
  4. What is the diminution in value of the home as constructed?
  5. Is the cost of repair reasonable in relation to the diminution in value and the cost of the project?

 

In this case, the court proceeded to apply these principles to each of the five alleged deficiencies. It ultimately concluded that the Homeowners failed to prove that they suffered damages in each case, i.e. that the work was not done in a proper and workmanlike manner, despite the presence of expert evidence. The court also found that Homeowners did not intend to fix some of the alleged deficiencies or that the alleged cost of repair was unreasonable in light of the fact that there was no diminution in value. As a result, the Contractor was awarded the full amount still owed to it under the Contract.

LESSONS LEARNED

  1. Ensure that you have sufficient evidence to prove alleged deficiencies or to refute them, which likely will require expert evidence.
  2. Consider the various ways to calculate damages in determining what your potential exposure is.

 

 

This article was written by Ian Moes, a lawyer who practices construction law with the law firm of Kuhn & Company. It is only intended as a guide and it is important to get legal advice for specific situations. If you have questions or comments about this case or other construction law matters, please contact him at 604-682-8868.