Demir v. Kilic, 2018 ONSC 949; 2018 ONSC 7279
Differing understandings of an agreement to renovate a home is a scenario that may be familiar to many. When the parties are individuals, the budget is low, and everyone seems trustworthy, the idea of spending a lot of time and money up-front on a detailed, written contract can seem counterproductive to both owners and contractors alike. Yet each party comes away from verbal discussions with at least a slightly different idea of what was decided, and those differences compound over weeks and months of follow-up discussions, detailed design, changes, complaints, errors, and more. Demir v. Kilic is yet another case which should convince everyone to confirm in writing the essential terms of an agreement (usually at least: scope, price, and time) at the start of a project. Not only did the parties in this case disagree about what their contract was, the courts disagreed about whether there even was one at all.
In 2012, Erdal Kilic purchased a house in Bedford Park, Toronto and contacted Haci Ahmet Demir about renovating the property. Mr. Kilic paid preconstruction costs of $18,000 up front, and then gradually over about one year of work reimbursed Mr. Demir for about $275,000 of labour and material expenses he incurred. With the project nearly done but Mr. Demir requesting more money, Mr. Kilic refused. Mr. Demir invoiced, liened, and then claimed for about $32,000 in remaining unpaid costs plus a 20% management fee for the entire project (approximately $66,000 plus HST). Mr. Demir claimed in both breach of contract and in the alternative quantum meruit (unjust enrichment for compensable services provided). Mr. Kilic defended the claim on the basis that the contract had been lump-sum, for $250,000 only, and counterclaimed for deficiencies amounting to approximately $15,000.
Trial before the Master
The case was referred to Master Albert for trial, following which she delivered a report. Master Albert found that neither Mr. Kilic nor Mr. Demir were credible witnesses, and there was very little reliable evidence about an agreement on the price for labour, materials, or the project as a whole. She did hear that they both agreed there was a contract, and she found that there was a “meeting of the minds as to the role of each of the parties” – Mr. Demir to perform the work and Mr. Kilic pay the cost of it.
Master Albert awarded Mr. Demir his $32,000 claim for unpaid construction costs, but found that Mr. Demir had failed to prove that the 20% management fee was a term of the contract. Finding as she did regarding the contract, Master Albert determined she did not need to consider the quantum meruit claim. The alleged deficiencies were assigned almost negligible value at trial and not reconsidered on appeal. $48,000 in costs were claimed, but Master Albert awarded just $5,000.
Motion opposing confirmation of the Master’s report
Mr. Demir made a motion under Rule 54.09 to oppose confirmation of the report (essentially an appeal), which was heard by Justice Perell. While Justice Perell’s decision was framed in terms of deference to the facts found by Master Albert, he found her conclusion that a contract was formed to be unreasonable. He found instead that the facts “could only lead to the opposite conclusion; that [the parties] had not agreed on the essential terms of the renovation contract”. He therefore found it necessary to consider the quantum meruit claim, which he associated with Mr. Demir’s claim that he himself put over 2,500 hours of work into the project. Justice Perell awarded Mr. Demir the full amount he claimed for both the outstanding construction costs and management fee, totalling approximately $106,000. In addition, he increased the trial cost award to $38,000, plus $6,000 for the motion, payable by Mr. Kilic to Mr. Demir.
Appeal to the Divisional Court
A three-judge panel heard a further appeal, this time by Mr. Kilic, and overturned Justice Perell’s decision. The Divisional Court noted that Mr. Demir himself did not challenge Master Albert’s original finding that there was a contract, and found two further problems with Justice Perell’s decision to award the entire management fee claim. First, Justice Perell determined that aside from the management fee, Mr. Demir had received no compensation for his work, but this determination was his own, not rooted in the facts found by Master Albert. Second, he accepted Mr. Demir’s claim that he spent 2,500 hours working on the project, despite Master Albert’s finding that he was not a credible witness.
The Divisional Court confirmed Master Albert’s original report, reinstating her award of just $32,000 to Mr. Demir for unpaid construction costs. Not only did the Divisional Court overturn the cost award by Justice Perell, but quizzically, they reversed the costs previously awarded by Master Albert to Mr. Demir for the trial, finding that Mr. Demir now owed Mr. Kilic a total of $25,500 in costs for all proceedings to date. As of their decision in December 2018, over five years had passed since the lien claim was registered.
An oral contract is still a contract, but proving its terms can be challenging and expensive. Moreover, if the evidence suggests parties never truly shared one understanding of the essential terms, a court may find no contract was ever formed between them. In construction without a written agreement, what is payable and how to calculate amounts owing can become so unclear as to test the ability of even experienced Masters and Judges to set things straight. Clearly, the potential cost of not having a written contract – in uncertainty, inconvenience, time, and money – should caution everyone against just getting started with work and seeing how it goes.