



COURT OF APPEAL FOR ONTARIO

CITATION: 2395446 Ontario Inc. v. Kings and Queens Custom
    Homes Inc., 2017 ONCA 782

DATE: 20171013

DOCKET: C62997

Doherty, LaForme and Miller JJ.A.

BETWEEN

2395446 Ontario Inc. and Nikolay Chsherbinin

Plaintiffs (Appellants)

and

Kings and Queens Custom Homes Inc. and Sula
    Kogan

Defendants (Respondents)

Gregory M. Sidlofsky, for the appellants

Benjamin Salsberg, for the respondents

Heard: September 19, 2017

On appeal from the judgment of Justice Sean F. Dunphy of
    the Superior Court of Justice, dated October 20, 2016.

REASONS FOR DECISION

BACKGROUND

[1]

The appellant, Nikolay Chsherbinin, entered into a construction
    management contract with the respondent Kings and Queens Custom Homes Inc.
    (KQ), in which KQ agreed to manage the construction of improvements at Chsherbinins
    new law office. After the completion of the work, the appellants brought an
    action to recover alleged overpayments to the respondents, and for damages pursuant
    to a penalty clause for construction delays.

[2]

The appellants motion for summary judgment was unsuccessful and the
    motion and action were both dismissed.

[3]

The appellants raised two substantive issues on appeal: that the motion
    judge erred in finding: (1) there was no overpayment to KQ; and (2) the penalty
    clause for delay did not apply to the construction of a feature wall in the
    reception area. A third, overarching issue is whether the appellants received a
    fair hearing. The motion judge made significant, adverse findings of
    credibility against Chsherbinin. The substantive issues were questions of fact
    and mixed fact and law, and the motion judges credibility assessment must have
    influenced his decision. Unfortunately, that credibility assessment rested at
    least in part on significant misapprehensions of evidence.

[4]

These misapprehensions would be sufficient reason to allow the appeal,
    but the motion judge made an additional error: by dismissing the action in its
    entirety on his own motion, he denied Chsherbinin judgment even for a small portion
    of the alleged overpayment that the respondents conceded as owing.

[5]

For these reasons, we allow the appeal. In setting out our reasoning
    below, it is unnecessary, and we think unadvisable, for us to comment on the
    substantive issues on appeal. We set them out below only to provide the context
    for these reasons.

ANALYSIS

(1)

Overpayment

[6]

Chsherbinin claims to have overpaid KQ by $9,322.29. The basis of the
    claim is that advance payments made by Chsherbinin at KQs request exceeded the
    amounts ultimately invoiced by KQ.

[7]

Some months after the job was complete, KQ provided an account
    reconciliation via email to Chsherbinin. The reconciliation applied Chsherbinins
    advance payments against four invoices that had been issued by KQ, and noted a
    discrepancy of $9,322.29. The reconciliation then set out the extra work requested
    by Chserbinin that largely accounted for the discrepancy: specifically, upgrades
    to door jambs, and hardware. KQ concluded that after the extra work was taken
    into account, there remained only a modest overpayment from Chsherbinin of $677.79.

[8]

Chsherbinin, however, claimed the full $9,322.29 as an overpayment on
    the basis that the items referenced in the reconciliation email were not extras,
    as they had been included in the original contract. Further, he argued, he had
    not approved any extras in writing, as required by the contract.

[9]

The motion judge rejected this argument. In the motion judges view,
    there was clear evidence that Chsherbinin had requested numerous modifications
    as the project unfolded, and had paid for those modifications without complaint
    or reservation of rights. In any event, the motion judge found that Chsherbinin
    requested the work, received exactly what he asked for, and paid for what he
    received.

(2)

The Penalty Clause

[10]

The
    penalty clause for delayed construction reads as follows:

Any delays that are the sole fault of kings and queens homes
    inc. past April 2, 2015 for work related to this contract only will be subject
    to a penalty of $200.00 per day to be paid by kings and queens homes inc.

[11]

On
    the motion judges reading, the penalty clause related to delay in turning the
    premises over to Chsherbinin for painting and moving in on April 2, 2015. It
    did not relate to warranty claims or satisfaction of minor deficiencies. The
    purpose of the penalty clause, the motion judge found, was to avoid Chsherbinin
    having to continue to pay rent in his former premises while waiting for his new
    premises to become move-in ready. The motion judge found, and it was
    uncontested, that Chsherbinin did move in to the new premises on April 2.

[12]

The
    basis of Chserbinins delay claim is primarily that a feature wall in the
    reception area was not completed by April 2.

[13]

The
    motion judge made a finding that the contract did not require the installation
    of the feature wall by April 2. This finding was supported by the motion
    judges review of the parties subsequent conduct, specifically correspondence
    between the parties (and from Chsherbinin to third parties) throughout April
    and early May 2015, none of which expressed the expectation that the feature
    wall would be installed by April 2, and none of which expressed any concern
    when it was not.

[14]

Because
    the motion judge did not accept that the penalty clause applied to work that
    was not intended to be completed by April 2, the fact that there was,
    ultimately, delay in the installation of the feature wall, was immaterial. An
    additional ground for the penalty clause not applying to this latter delay, the
    motion judge found, was that the delay was not the sole fault of KQ as
    required by the contract. He would also have granted KQ relief from forfeiture
    even if the penalty clause applied, as the claimed penalty [was] out of all
    proportion to the harm attributable to the delay.

(3)

Credibility findings

[15]

The
    motion judge was highly critical of Chsherbinin. With respect to his conduct of
    the litigation, he objected that Chsherbinin had made a mountain out of a
    molehill. He criticized Chsherbinin at length for adding KQs principal Sula
    Kogan as an individual defendant, suggesting it was done for improper reasons.
    However, the propriety of joining Kogan was not in issue in the summary
    judgment motion, and Kogan had not at any point brought a motion to dismiss the
    action against her. The criticism was thus gratuitous.  The motion judge also
    criticized Chsherbinin for over-reaching in claims made in his affidavit
    about the drafting of the penalty clause. In making his assessment of
    Chsherbinins credibility, the motion judge said: (h)is tendency to exaggerate
    or overstate, if not deliberately misstate, is simply too evident for me safely
    to credit his evidence with any weight unless corroborated.

[16]

However,
    the motion judges assessment of Chsherbinins evidence is impaired by two serious
    errors.

[17]

First,
    although the motion judge stated that there were several examples of
    over-reaching in Chsherbinins affidavit, he listed only the one that he said
    was the most glaring: that although Chsherbinin, in asking for the penalty
    clause to be construed against KQ, claimed in his affidavit that it was Kogan who
    drafted the penalty clause, he later contradicted himself on cross-examination
    by stating that he amended the penalty clause on his own computer in his office
    after discussions with Kogan.

[18]

The
    apparent contradiction, however, is the product of the motion judges error in
    mixing up Chsherbinins and Kogans evidence on cross-examination. It was Kogan
    who testified in cross-examination that
she
typed out the amended
    penalty clause in
her
office on
her
computer after
    discussions with Chserbinin and with Chsherbinin present. Chsherbinin said
    nothing to the contrary in his cross-examination.

[19]

Second,
    the motion judge faulted Chsherbinin for not disclosing a fifth invoice from KQ,
    thought to be material to the question of whether KQ had been paid in excess of
    the amount it had invoiced. However, there was, the respondent concedes, no
    fifth invoice from KQ, and the motion judge erred not only in finding there
    was, but in drawing an adverse inference against Chsherbinin for not producing
    it.

[20]

It
    is arguable that the motion judges serious misapprehensions of the evidence
    did not directly impact on his interpretation of the penalty clause in the
    contract. It is also arguable that his interpretation was a reasonable one.
    However, we are satisfied that the motion judges strong, but unsupported
    findings against Chsherbinins credibility would have inevitably influenced his
    assessment of all of the issues before him. This conclusion is supported by the
    motion judges inexplicable outright dismissal of Chsherbinins overpayment
    claim, despite KQs concession that there had been a small overpayment that was
    recoverable by Chsherbinin.

DISPOSITION

[21]

The
    appeal is allowed. The orders for summary judgment and costs are set aside. The
    costs of the summary judgment motion below are reserved to the trial judge. The
    appellants are awarded costs of the appeal in the amount of $2,000 inclusive of
    disbursements and HST.

Doherty J.A.

H.S. LaForme J.A.

B.W. Miller J.A.


