Colautti Construction Ltd. v. City of Ottawa

46 O.R. (2d) 236

9 D.L.R. (4th) 265

 ONTARIO

 COURT OF APPEAL

LACOURCIERE, CORY AND TARNOPOLSKY JJ.A.

22ND MAY 1984.

Appeal -- Grounds -- Question of fact -- Trial judge not making clear findings -- Whether new trial required.

Contracts -- Documents -- Extrinsic evidence -- Subsequent variation -- Building contract requiring all changes to be authorized in writing -- Owner making several changes orally and paying for work -- Whether contract varied.

The plaintiff contracted to install a new sewer line for the defendant city. The line marked for excavation was too close to a water-main and, after some work had been done, had to be relocated causing additional cost. The plaintiff claimed that the error arose through the defendant's fault in marking the line for excavation, and that the city's project officer had undertaken to pay the additional costs. At trial the judge made no findings of fact in respect of the way in which the error was caused or on the alleged undertaking, but he dismissed the plaintiff 's claim. The contract provided that all changes were to be authorized in writing, but several other changes had been made orally and paid for.

On appeal to the Ontario Court of Appeal, held, allowing the appeal and ordering a new trial, the strict requirement of writing had been varied by the conduct of the parties. Consequently, findings of fact were essential to determine the contractual, or restitutionary, rights of the plaintiff. As the critical findings had not been made a new trial was necessary.

Cases referred to

Lewis v. Todd et al., [1980] 2 S.C.R. 694, 115 D.L.R. (3d) 257, 14 C.C.L.T. 294, 34 N.R. 1; Charles Sundstrom et al. v. State of New York (1914), 213 N.Y. 68; Sir Lindsay Parkinson & Co., Ltd. v. Com'rs of Works Public Buildings, [1950] 1 All E.R. 208

APPEAL by the plaintiff from a judgment of Sirois J. in an action on a building contract.

Ronald J. Rolls, Q.C., and Raymond G. Colautti, for appellant.

Douglas R. Wallace, for respondent.

The judgment of the court was delivered by

CORY J.A.:-- On October 15, 1982, the plaintiff/appellant Colautti Construction Ltd. ("Colautti") was awarded judgment for $9,497.23 and the balance of its claim was dismissed. Colautti is appealing this judgment.

The factual background

Colautti carries on business as a sewer and watermain contractor. On January 3, 1979, it entered into a contract with the Corporation of the City of Ottawa (the "City") for the construction of sanitary sewers along Roosevelt Ave.

The proposed 18-in. sanitary sewer was to be installed in a north-south direction on Roosevelt Ave. The plans and specifications which were provided to Colautti for the purposes of tendering on the contract indicated that the new sewer was to be installed near the centre of the road and some 10 ft. east of an existing 12-in. diameter sanitary sewer running parallel to the proposed new sewer. An existing six-inch water-main was also shown on the plans. The water-main was located immediately adjacent to (within two feet) and parallel to the existing sanitary sewer. The position of the proposed new sewer line, the existing 12-in. sanitary sewer and the water-main are all clearly indicated on the plans.

The contract provided that the layout work was to be done by the City. This involved surveyors setting out the proposed line for the new sanitary sewer by staking or placing monuments or reference points such as grade stakes or picket nails. The line should have been offset 10 ft. to the east of the proposed new sewer line for it would have been impractical to set the line down the middle of Roosevelt Ave. The contractor was then to set his line by referring to the stakes and projecting the proposed line of the works from those stakes by measuring back 10 ft. The contractor was required to adhere strictly to the lines and grades set out by the City.

The surveyors for the City laid out the line on January 15, 1979. The contractor commenced construction the same date. At that time Mr. Weiss, a superintendent for Colautti, set out the proposed centre line for the new sanitary sewer by measuring back a distance of 10 ft. from the line of stakes that had been set out by the surveyors for the City. Weiss testified that he measured over from the line, made his marks on the road to show where the centre line of the proposed sewer was to be located, and commenced drilling operations.

The plans indicated that the water-main was within one or two feet of the existing 12-in. sanitary sewer. The water-main would thus be approximately eight or nine feet distant from the proposed sewer line. Uncontradicted evidence confirmed that the plans were reasonably accurate as to the location of the existing 12-in. sewer and water-main and that the water-main was located within a foot of the existing 12-in. sanitary sewer.

The contractor's method of procedure was to drill the rock along the line of the proposed sewer, blast the rock, and subsequently to excavate the rock and soil to the appropriate depth shown on the plans. A crew would then place a proper bedding material in the trench, lay the pipe on top of that material and backfill the excavated trench.

On January 15th, when the first blasting was undertaken, it was found that the six-inch water-main had been damaged. The water-main was then exposed. The evidence was that the distance between the centre line of the proposed sewer laid out and the water-main was only three feet instead of the eight or nine feet indicated on the plans.

The City's project officer, who had the responsibility for the execution of this contract, was informed of the water-main break. He attended at the work site and directed Colautti to continue blasting along the line as laid out. Colautti resumed its drilling and blasting operations on January 16th. The watermain was again ruptured. Once again, the project officer was consulted and once again he directed to Colautti to continue its operations along the proposed line as laid out. The drilling and blasting was resumed and yet again the water-main was ruptured.

The parties then agreed that a new survey line should be set out for the proposed sewer. The new survey line was measured from the westerly side of Roosevelt Ave. Final measurements showed that the sewer, as installed, was 16.73 ft. east of the existing 12-in. sanitary sewer.

Correspondence between the parties

When the contract was completed, the parties exchanged correspondence pertaining to the contract and the additional costs incurred by Colautti. In a letter to the City dated September 12th, Colautti noted that the water-main was located only three feet from the proposed 18-in. sewer as staked out by the City's surveyors. It was stated that Mr. Spero (the City's project officer responsible for the work) was immediately called and a site meeting was requested. The City, in its reply, did not contest Colautti's estimate of the distance of three feet between the water-main and the proposed new sewer. Both parties agreed that the line for the proposed new sewer was changed. Colautti said the new line was two feet inside the existing kerb of Roosevelt Ave. The City referred to the new line as being approximately five feet east of the original proposed line for the new sewer.

The City did confirm that the relocation of the sewer line was a major change in the contract. It was the City's position that the change in the line was undertaken in good faith in order to "mitigate Colautti's costs of the project".

Position of Colautti at trial

It was the position of Colautti at trial that the City had made a mistake in laying out the position of the line of the proposed new sewer. The plaintiff contended that the error in laying out the line was caused by the fact that the wrong manhole was used as a reference point by the surveyors in measuring out the proposed centre line and in setting out the offset stakes. The manhole which should have been used as the reference point was covered with snow and ice and had to be removed by members of the Colautti firm.

The evidence of Mr. Barney, who did the surveying for the City, was to the contrary. Unfortunately he did not keep notes of his surveying for this project contract although that apparently is good practice for surveyors. He based his recollection on the position of a stake in relation to a hydrant and also referred to its position in relation to kerbs in that position on Roosevelt Ave. Those kerbs were not installed until several years after the contract had been completed so that this segment of his evidence may have been of little assistance.

When the new line was set for the proposed sewer there was a discussion between the representatives of the City and Colautti. Mr. Colautti testified that Mr. Spero said that the City would pay for the additional costs of relocating the line. Mr. Spero, on the other hand, stated that no money claim was made by Colautti nor mentioned by him, but he advised that the City would not be liable for the relocation costs involved in the removal of trees and poles along the new line. This difference in the evidence was referred to by the trial judge but not resolved in his reasons.

The relocation of the line for the new sewer involved additional costs for the plaintiff. It is those additional costs which are the subject-matter of the lawsuit.

Decision at trial

The trial judge did not accept the plaintiff 's theory as to how the error in the original excavation occurred. In his reasons he stated:

The theory of the plaintiff that the error was made when the city started at the wrong manhole, which is five feet closer to the west, does not stand. If this allegation or hypothesis were true, and if we believed that the first trench was dug as a result of that erroneous information, at three feet from the water-line, therefore being either two or four feet from the existing sewerline, and if we were to assume that the new line as laid out was to be five feet east thereof, the new sanitary sewer would be at eight feet or nine feet from the water-main whereas we also all agreed that it is 16.7 ft. from the old or existing sanitary line.

The court may infer also that because of these distances between the old and the new sanitary sewer one could deduct and find it would be proof that the first digging for the first line was at roughly 11 ft. (as called for by the plans) from the old sanitary sewer and therefore this would destroy the plaintiff 's claim as well.

I find therefore that the plaintiff has not established that it was because of the city's action that it dug the first trench at three feet from the water-main which it found was roughly one foot away from the old sanitary sewer.

The learned trial judge did not make any findings of credibility and made no reference in his reasons as to how he resolved the conflicts in the evidence.

The position of counsel on appeal as to the facts

Both counsel agreed that the error in the excavation of the proposed sewer line could only have come about in one of two ways:

(1) The offset line laid out by the City surveyors was in error, or

(2) Colautti was in error in measuring back the 10 ft. from the offset line established by the City's surveyors.

The question for determination

The issue is whether or not the judgment at trial can be maintained based, as it is, not upon a finding of credibility but on a mathematical calculation.

Cases such as Lewis v. Todd et al., [1980] 2 S.C.R. 694, 115 D.L.R. (3d) 257, 14 C.C.L.T. 294, make it very clear that an appellate court must not interfere with the findings of fact of a trial judge absent an error of a palpable and overriding nature.

There could be no question of interference in this case if a finding had been made by the trial judge based on the credibility of the witnesses. Different considerations apply where the decision is based on a mathematical conclusion which may not have a sound factual basis.

Disturbing aspects of the mathematical formula

In arriving at his mathematical conclusion, the trial judge failed to consider that the new line was resurveyed from the west side of Roosevelt Ave. It was a completely new line and was not arrived at by the simple expedient of moving the original line five feet further to the east. This aspect alone would lead to some doubts as to making any mathematical calculations based on the new survey line without some clear finding of fact.

There is an additional worrisome aspect of the situation. The City conceded that it would accept the measurement that the centre of the proposed sewer line was only three feet from the water-main. The evidence confirmed that the existing pipeline was found in the position indicated for it on the plans. If the contractor erred in measuring back 10 ft. from the line set out by the City, then the measurement error was one of seven feet. That is to say, Colautti must have measured back 17 ft. instead of 10 ft. Such an error must have been readily apparent. Spero, who was responsible for the project and frequently on the job site, at no time mentioned such an error nor raised it with Colautti. There is no allegation of negligence on the part of Colautti raised either in any oral statements by City representatives or in the carefully drafted letter from the City.

By that letter the City recognized that the change in the sewer line constituted a material and significant change in the contract. One would expect that if such a change was necessitated by the negligent measurement of a short distance by Colautti, the City would refer to it. Indeed, it would be such a complete answer to the Colautti claim for extra payment that one would expect the City to announce the negligence with a clarion call and remit the claim to the contractor with a triumphant flourish. The City would say to Colautti, in effect, "don't bother us, any extra expense incurred by you arises from your negligence and inability to measure a distance of 10 ft.!" Not even in the pleadings does there appear any allegation of negligence on the part of the contractor which would put an end to the Colautti claim in this case.

Need for findings of fact in this case

The position of the parties in this case made it essential for the trial judge to make findings of fact. The City conceded that the change of line materially altered the contract and, once that concession was made, certain factual findings had to be made. For example, was the change necessitated by a negligent error in measurement by Colautti or by the negligent positioning of the survey line by the City?

There is, as well, the unresolved question as to whether or not Spero, on behalf of the City, undertook to pay for the additional costs arising from the change in the line. If such a statement was, as alleged, made at the work site, it could lead to an inference that the City's first survey line was incorrectly placed.

Can the City rely upon the strict terms of the contract to avoid liability in this case?

The City relies upon the provisions of the contract which require all additional costs to be duly authorized in writing. It is true that the contract imposes heavy burdens on the contractor.

There is no doubt that this contract, drawn as it was to protect taxpayers, attempted to limit the liability of the City to such an extent that one would expect that not even the ordered rotation of the seasons could be reasonably anticipated by the contractor. The problem with contracts such as these is that they are so rigid and so restricting that the parties tend to amend them by their actions during the course of the contract. That was the situation in this case. There were several significant changes and additions as to the work ordered by the City during the contract. None of these were in writing. All but the items in dispute in this case were paid for by the City.

In these circumstances the parties, by their conduct, have varied the terms of the contract which require extra costs to be authorized in writing. As a result, the City cannot rely on its strict provisions to escape liability to pay for the additional costs authorized by it and incurred as a result of its errors.

Legal consequences that may flow depending on the findings of fact

Once it is determined that the City cannot rely upon the strict terms of the contract, it becomes apparent that various legal consequences may flow depending upon the factual findings that may be made. The parties are in agreement that the relocation of the line constituted a significant change in the scope of some of the major items of work. If these significant changes resulted from an error by the City then it will, in all probability, be found liable for the resulting additional costs. It has long been established in the United States that if a corporation, such as the City in this case, by its own act, causes the work to be done by its contractor to be more expensive than it otherwise would have been according to the terms of the original contract, then it is liable for those increased costs: see Charles Sundstrom et al. v. State of New York (1914), 213 N.Y. 68. The principle is sound and should be applicable in Ontario.

On the other hand, if the additional work was occasioned by the negligence of Colautti, then it should not be entitled to any of the amount in dispute.

Alternatively, the agreement reached between the City and Colautti to change the line of the sewer might be found to result in the completion of a contract under totally different conditions. These altered conditions arose during the course of the contract and it might be found that they could not have been contemplated by the contractor. Under those circumstances the contractor might well be able to recover its extra costs at least on a quantum meruit basis: see Sir Lindsay Parkinson & Co., Ltd. v. Com'rs of Works & Public Buildings, [1950] 1 All E.R. 208.

Disposition

This case required clear findings of fact to be made upon conflicting evidence. Here there were no findings made as to the credibility of the witnesses. Critical conflicts in the evidence remained unresolved. The mathematical formula used to determine the result does not appear to be based on a firm evidentiary foundation.

The determination as to which party must bear the responsibility for the relocation can only be based upon specific findings of fact. This Court is not in a position to make those findings for it would involve, in part, a determination as to the credibility of witnesses.

The case must, in my view, be sent back for a new trial. In reaching this decision I can sympathize with the unhappy prospect of further litigation faced by the parties. As well, I can readily appreciate the difficulties this case presented to an able and talented judge very early in his career. Unfortunately, I can find no alternative to this result. I would allow the appeal with costs and reserve costs of the first trial to the judge presiding at the new trial.

Appeal allowed; new trial ordered.