Ottawa, Ontario, November 29, 2006
PRESENT : The Honourable Madam Justice Snider
ADMIRALTY ACTION IN REM
BETWEEN:
INTERTECH MARINE LIMITED, a body corporate
Plaintiff
RICARDO MENÉNDEZ, MARIA MENÉNDEZ,
THE OWNERS AND ALL OTHERS INTERESTED IN
THE YACHT "NAUTICA” and the Yacht “NAUTICA”
Defendants
REASONS FOR JUDGMENT AND JUDGMENT
[1] Mr. Ricardo Menendez and his wife, Maria Menendez, (collectively, the Owners) entered into a series of agreements with InterTech Marine Limited (ITM) to build the 49-foot yacht “Nautica”. Construction of the yacht, which commenced in February 2000, was essentially completed in June 2001, although a few outstanding items still remained to be done and the yacht remained with ITM. Throughout the construction period, the estimates of costs escalated dramatically. In total, the Owners paid $484,635.00 to ITM. As acknowledged by the parties to this litigation, the completed yacht is an outstanding piece of workmanship.
[2] During the construction, Mr. Menendez and Mr. Branko Mizerit, president of ITM, discussed the possibility of entering into some sort of arrangement by which the completed Nautica would be used to promote sales of “sister” yachts. In anticipation of this arrangement happening, ITM submits that it chose to forego certain costs during the construction. For instance, ITM did not include the “usual” profit margin in its fees to the Owners and, at one point, billed Menendez only 50% of certain finishing costs. Unfortunately, the relationship between Mr. Menendez and Mr. Mizerit soured and the arrangement for selling sister yachts never came to fruition. In August 2001, when it became clear that the sister yacht arrangement would not happen, ITM sent a “final billing” to Mr. Menendez requesting the payment of an additional $247,773.77. This amount was allegedly in respect of the foregone costs and extras that were added to the yacht at the request of Mr. Menendez.
[3] When the Owners refused to pay this sum, ITM commenced this action against the Owners and the yacht Nautica for recovery of the $247,773.77 and other relief (discussed below). ITM also had the Nautica arrested in July 2001. Since her arrest, the yacht has been moored in Halifax and has been effectively ignored. In response, the Owners filed a statement of defence and counterclaim seeking a declaration that the Nautica may be immediately released from arrest and for certain relief described below.
2. Issues
[4] In this action, the following are the issues to be determined:
- Having foregone certain payments during the construction of the vessel, is ITM entitled to claim all or some of those amounts after completion of the vessel under the agreements in place between the parties?
- What amounts, if any, are owing to ITM by the Owners pursuant to the terms of the agreements?
- Is ITM entitled to any payments under a remedy of quantum meruit?
- Was the yacht wrongfully arrested?
3. The Pleadings
[5] ITM claims against the Owners and the yacht Nautica for the following relief:
- Recovery of the sum of $247,773.77 (this was reduced by about $3,870 during the trial);
- In the alternative, recovery for the additional work done on and with respect to the yacht on a quantum meruit basis;
- Storage, insurance, movement and other expenses incurred by ITM;
- Interest from between October 1, 2001 to the date of judgment at the commercial rates;
- General damages;
- Orders for the appraisement and sale of the yacht; and
- Costs.
[6] The Owners claim against ITM for the following relief:
- Special damages, i.e. diminution in the value of the Nautica, interest paid on the mortgage during the period ITM has withheld possession of the yacht from the Owners and disbursements;
- General damages;
- Declaration that all sums due and owing by the Owners to ITM have been paid and that there are no further sums owing;
- Declaration that the Owners are entitled to immediate possession of the Nautica;
- Injunction preventing ITM from selling, altering, mortgaging, pledging or otherwise parting with possession of the Nautica or encumbering the Nautica pending trial of this matter;
- Prejudgment interest; and
- Costs.
4. Witnesses
[7] I heard testimony from two witnesses. The first witness was Mr. Branko Mizerit, president of ITM, who appeared on behalf of the Plaintiff. The second was Mr. Ricardo Menendez. Each witness was credible and sincere. For the most part, their testimony did not differ; the two men share a common understanding of most events that have led to this dispute. The only points of departure came with respect to their understanding of: (a) the degree to which the sister yacht arrangement was finalized and agreed to; (b) when and if Mr. Menendez had directed ITM to put no more money into the yacht; and (c) what fixtures of the yacht were to be included as part of the finished yacht as opposed to being “extras”.
5. Analysis
5.1 Approach and summary
[8] The main basis of the claim by ITM is that the Owners owe $247,773.77 to it pursuant to the terms of the contracts between the parties. The sequence of my analysis is as follows:
- I begin my analysis with this first question: Is ITM entitled to payment pursuant to the terms of the contracts in place between the parties, either in whole or in part? As will unfold in the following, I have concluded that ITM is entitled to only a very small amount of the $247,773.77 pursuant to the terms of the written agreements between the parties.
- The alternative claim of ITM is that it is entitled to the full amount claimed pursuant to the equitable principle of quantum meruit. This claim is based on the arrangement that was discussed for the showing of the completed Nautica as a “show boat”. Under this arrangement, both parties were to benefit from the sale of sister yachts and, specifically, ITM would have been able to recover the extra costs not billed to the Owners during the construction of the yacht. I have concluded that the remedy of quantum meruit is not applicable on these facts.
- Finally, I turn to the counterclaim which is concerned with the legality of the arrest of the Nautica and the diminution of the value of the yacht during its lengthy arrest. Since I have found that the claim by ITM is valid to the extent of a portion of the entire amount claimed, I must conclude that the arrest was valid and dismiss the counterclaim.
5.2 Payment under the contracts
5.2.1 General Background
[9] The issues to be determined revolve around the complex relationship between ITM and the Owners. A considerable part of the relationship is reflected in the four separate but related agreements that provided for the construction of the yacht. Thus, I begin by reviewing the background of this dispute. I will address some of the important aspects of the agreements and, in particular, the disagreement of the parties as to the meaning of the fourth (and final) contract.
[10] One important fact that, in my view, sets the scene for many of the issues that arose is that neither ITM nor Mr. Mizerit had ever constructed a yacht. The evidence is that, while Mr. Mizerit is an accomplished architect, musician and artist, he had almost no experience in designing boats and none in building them; Nautica was the first venture for both Mr. Mizerit and his company. Mr. Mizerit formed ITM specifically to build yachts and brought Mr. Brian Smythe, who is an engineer and mechanical and electrical engineer with significant experience in yacht building, to the company. Mr. Smythe was responsible for bringing ITM and the Owners together.
[11] The evidence also shows that Mr. Mizerit was very desirous of breaking into the lucrative market of luxury yacht design and construction. I think that it would be fair to say that Mr. Mizerit hoped to leverage the Nautica into a successful international business. That never came to pass. Nautica is the only yacht ever completed by ITM. Sadly, ITM ceased carrying on business in August 2002.
[12] Mr. Menendez, an educator by profession, had a dream of owning a “retirement sailboat”. He and his wife began the path to build his dream with the purchase of a “kit” for the construction of a steel-hulled, 49-foot yacht from Bruce Roberts, an Australian boat designer. The Owners, needing someone to weld the hull, discussed the project with Mr. Smythe. The discussions led to the series of contracts described below.
5.2.2 Original Agreement – 7 February 2000
[13] The first contract between the parties, dated February 7, 2000, specified only that ITM would complete the steel work for a bare hull from the specifications in a kit purchased by the Owners from Bruce Roberts. While, there was some reference in the agreement to the further phases required to complete the yacht, it was clear that separate negotiations would be required for the future phases. The contract was for payment of $42,000. This contract price did not include the cost of the kit, which was $44,594.50; this amount was paid directly to Bruce Roberts by the Owners.
[14] A clause in the agreement stated, “No alterations to the plans and specifications are to be made after the contract has been signed unless agreed to in writing by all parties”. Also, in the attached “Terms of Agreement”, clause 2.0, “Modifications or Additions”, provided that:
Any changes made in the plans or specifications during the construction of said boat must be mutually agreed upon and initialed by the Builder, and the Purchaser or their Agents on the plans or specifications as amended.
All change orders shall include information as to the effect these modifications will have on Delivery, Price, Weight and Performance. Payment terms of all additional costs to be agreed before commencement of said work.
[15] During this first phase, a number of adjustments were made. Of significance, at no time did the parties follow the formal procedure set out in the contract for altering the “plans or specification”. Rather, the parties agreed to adjustments through e-mails and telephone conversations. Accordingly, the inclusion of this clause in the first (and the next two) contracts is of little relevance. Up to the Phase 4 Addendum Agreement, the parties did not respect this clause. As discussed below, the situation changed for the final agreement.
[16] Subsequent to the signing of the first contract, the parties began discussing the completion of the yacht. As evidenced by numerous e-mails entered into exhibit and the testimony of the witnesses, it soon became clear that the Owners were prepared to have ITM provide them with a finished yacht. However, it was also evident that Mr. Menendez was worried about costs; several e-mails reflect these concerns.
5.2.3 Phase 2 Addendum Agreement – 11 April 2000
[17] On April 11, 2000, the parties entered into the Phase 2 Addendum Agreement. The contracted price for completion of the yacht to the “motor away” stage was set out as $88,033.16. The agreement also set out a preliminary list of costs for further phases of construction (to be covered by further agreements), totalling about $186,500, with the following notation:
We have prepared a list of costs per item for each stage. These figures are preliminary quotes only and will be finalized as soon as we know exactly what your requirements are in regard to the equipment, finishes etc. This cost schedule will give you a good indication of the overall budget which you will need to complete your yacht.
[18] The parties confirmed that this addendum agreement would form part of the first contract and encompass all of the Terms of Agreement set out in that contract. In addition, the parties specifically repeated that no alterations were to be made “unless agreed to in writing by all parties”.
[19] Following the execution of this agreement, ITM embarked on the construction. Once again, it appears that changes were made without strict adherence to the contractual terms regarding amendments.
5.2.4 Phase 3 Addendum Agreement – 26 June 2000
[20] On June 26, 2000, the parties entered into the Phase 3 Addendum Agreement. In consideration of $192,407.00, ITM was to complete the yacht up to and including the sail away stage. Schedule A set out the components to be covered by this Agreement, including interior finishing, sails etc. While details of costs are set out in Schedule A, the following caveat appears on Schedule A:
As there have been no detailed drawings and/or specification provided to InterTech Marine Ltd. for the completion of the said yacht, the costs per item for each stage as outlined [below] are set by InterTech Marine Ltd. using standard vessel costing procedures. It is therefore to be noted that the final costs may vary from the quoted prices and are subject to change in respect to owner’s requirements regarding on-board equipment, finishes & outfitting.
[21] Once again, the parties agreed to the original terms and conditions and reiterated that no alterations were to be made without agreement in writing. And, once again, the parties ignored the formal requirements.
[22] As construction continued, the costs escalated and the time to complete the yacht stretched well beyond the originally contemplated schedule. On a number of occasions, Mr. Menendez was advised of the need for additional funds, most of which demands were met by the Owners. By late November 2000, ITM was claiming that the total cost of the yacht was $403,702.16, of which Menendez had paid $365,596.50. The relations between the parties appear to have become a little strained by this time. In several communications between May and November, Mr. Menendez expressed concern about the cost escalations.
[23] One of the reasons for Mr. Menendez’s concern was that he was partially financing this project through Trident Funding Corporation (Trident). While a significant portion of the yacht was financed from the Owners’ personal savings, they also arranged for a US$250,000 construction loan, with an agreement dated April 27, 2001.
5.2.5 Phase 4 Addendum Agreement – 27 November 2000
[24] By November 2000, the parties acknowledged that the situation needed to be addressed in a further agreement. On November 27, 2000, the parties entered into the Phase 4 Addendum Agreement that provided for additional payments of $73,666.66. Of particular significance, the following clause was included in this contract at the specific request of Mr. Menendez:
As the work in progress has reached its final stage ITM will request no additional funds for the final completion of the yacht, other than for any additional work or change, which is specifically requested by the client and does not fall within the budget allowance of that work presently set by ITM.
[25] Before me, the parties presented differing views of the reason for and the intent of this provision. According to Mr. Menendez, the clause was requested and inserted for a number of reasons. He outlined those reasons in his oral testimony.
When the last contract came in, No. 4, I really have had enough of extra expenditures, and of course, I had to convince the Trident people that indeed these people were accomplishing what we had called for in high quality, which it was. . . . However, at that moment, I felt since we were facing the very last phase, I said, “Well, that’s – we have to put something there to make sure that no . . . “like I said in one memo in the past, “I don’t want to see any ghosts the day of the christening,”
I don’t want any hidden clauses, any hidden agenda that could rise at the moment of a christening. I want everything to be clear, completely clear. This is what I owe, this is what I paid, and this is your boat.
[26] Mr. Mizerit saw the request to include this clause as being “strictly for the bank”. He further testified that Mr. Menendez “indicated to me that for him to get this loan he needed that paragraph in there”. The result of Mr. Mizerit’s interpretation was that he did not feel that the situation had changed. His view of the agreement was, evidently, that he could continue to add costs without the formality of a written agreement and that the costs set out in the Phase 4 Addendum Agreement were, as with the other contracts, merely estimates. This, at least in part, appears to be his justification for demanding an additional $243,773.77 on August 23, 2001. The specifics of that bill are discussed below.
[27] In my view, the situation between the parties had clearly changed by the time the final formal contract was executed. Mr. Menendez had consistently expressed his concern about the costs in the final days leading up to the signing of the Phase 4 Addendum Agreement. The e-mails sent by Mr. Menendez are unambiguous; there were to be no more cost surprises. The words used in the final contract differ from those used in the first three agreements and are very clear that no further expenses were to be incurred. ITM was to complete the yacht for the $73,666.66 set out. The costs set out were fixed costs and not estimates, as had been the case in the earlier contracts. The only exception was to be if Mr. Menendez requested additions. With a very few exceptions (discussed below) no further “extras” were requested. In interpreting the contract to allow ITM to bill for all of the additional amounts, Mr. Mizerit was wilfully blind to the meaning of the final agreement. In effect, Mr. Mizerit was relying on the past informal practices of the parties to justify claiming an additional $243,773.77 to which he thought ITM was entitled. There was simply nothing in the contract that allowed for this to happen.
5.2.6 Completion of the Nautica
[28] In spite of the clarity of the final agreement, further costs were incurred. Some of these were paid for because they were “extras” requested by Mr. Menendez. Some of the e-mails evidence the extras. For example, on January 20, 2001, Mr. Menendez requested more cables of the depth finder to be hooked at the outside cockpit and a wind direction and speedometer to be installed at both cockpits. In an e-mail dated January 21, 2001, Mr. Menendez indicated his agreement to pay an additional $46,000 for: (a) $32,000 of “expenses” (not described); (b) $7,500 to correct the height of a cabin; (c) $3,500 for extra electronics; and (d) $3,000 to bring the fairing to a “quality finish”. However, the problems of rising costs continued.
[29] In a lengthy e-mail dated January 23, 2001, Mr. Mizerit advised Mr. Menendez that:
To bring the construction of the yacht Nautica to a close will still cost ITM approx. $82,500 (CAD). This is the amount of the hard costs, with ITM will have to pay for to complete Nautica, regardless of what you and I or ITM has agreed upon. We will talk forever on upon what we have agreed or not agreed, the fact still remains that, when putting all cards on the table, we both want the same thing, namely, this yacht to be finished and look presentable so that we can sell more of them. The most important and only question that remains is how we are going to pay for the remaining costs and still feel that we have both done most we can to contribute to make the Nautica dream a reality.
[30] Later in this e-mail, Mr. Mizerit set out the specifics of the monies necessary to complete the yacht. According to Mr. Mizerit, Mr. Menendez still owed $46,000 under the agreements. In addition, Mr. Mizerit advised that the balance of $36,500 (the difference between the amount owing under the contracts and the estimated $82,500 to complete the yacht) needed to be paid. He made a number of references to the use of the boat to sell sister yachts. In a very telling fashion, he described the need for this amount as follows:
Regardless of what the exact costs, which are partly a result of waiting for your funds to arrive and partly [due] to my decision to create a better interior finish as well as a good quality hull, and rather that argue who is responsible to pay for them, let us see what we both can do to pay for these remaining costs. [Emphasis added.]
[31] An indication of the position of Mr. Menendez on extra costs is contained in his response dated January 30, 2001, where Mr. Menendez first stated that he was sending another $24,726 (presumably part of the agreed-to amount). In that e-mail, Mr. Menendez wrote:
I received your last e-mail where you requested additional funds to make the boat as best as it could be. Unfortunately, I do not have any more money to invest in the boat until I receive a commission from the selling of sister boats to be constructed at your shipyard. This, I hope will take place during the Fall 2001. Should you graciously decide to enhance the boat at your own volition and expense and without my request, you are welcome to do so, provided that no commitment is implied.
I do however think that we could come out, at Fall time, with funds to finish the boat in a much fancier manner for future expositions. At this time all we can do is finish the boat with the essentials.
[32] After a number of delays, the christening of the Nautica was held on June 15, 2001. Even then, the yacht was not completed. Sails had been borrowed for the christening and other items remained to be completed. By that time (or shortly thereafter), the Owners had paid about $484,635.00 to ITM.
[33] Very importantly, on July 6, 2001, title to the yacht passed to the Owners and was registered in the United States. While title was documented in the names of the Owners, the vessel physically remained with ITM for completion of a number of outstanding items.
[34] The first indication in the evidence that ITM was still looking for additional funds came in a letter dated July 15, 2001 from Mr. Mizerit to Mr. Menendez. At that time, the yacht was finally ready to be physically delivered to the Owners. Further, it appears clear that the possibility of a sister yacht arrangement had completely evaporated. In this letter, Mr. Mizerit sets out that, on his calculation, ITM had invested US$149,778 in the yacht. There is little to explain how this amount was arrived at. However, one can assume that Mr. Mizerit is referring to the fact that ITM had not charged the Owners for the usual profit margin and perhaps other “foregone” expenses. There is mention that ITM had retained a solicitor “who is also an expert in marine law” to look into the possibilities. Mr. Mizerit proposes, in this letter, that there will be no delivery unless the Owners agree to one of three options:
- ITM takes a second mortgage on the yacht in the amount of US$150,000;
- the Owners immediately pay out 75% of the US$150,000 in cash and the other 25% in time; or
- the yacht is sold.
[35] In e-mails dated July 23 and July 24, 2001to Mr. Menendez, Mr. Canning, ITM’s business manager, referred again to the amount invested by ITM; he set that amount at $230,658 CAD (which, at the exchange rates in place at that time, equates roughly to US $160,000). Of some interest, in the first of the two e-mails, Mr. Canning also advises Mr. Menendez that the yacht has been appraised at $900,000. Further, he advises that, “Releasing Nautica to you with ‘no strings attached’ would, in effect, leave this company at your mercy”. Similar language is contained in the second e-mail.
[36] I find the tone of these last two communications to be quite threatening. Mr. Menendez, although he had paid all of the amounts owing under the contracts (and then some), was being advised that the yacht would not be delivered unless a further $230,658 was paid. ITM had obviously assumed that it was entitled to the amount claimed in spite of the failure of any of the agreements to mention the majority of the costs and in spite of very clear wording in the Phase 4 Addendum Agreement that there were to be no additional expenses.
[37] The final blow came with the detailed “last billing” dated August 25, 2001.
5.2.7 The final billing
[38] The “final billing” was sent to Mr. Menendez on August 25, 2001. In summary form, the following costs, stated to be “over and above the last contract”, included the following:
|
Direct Fairing cost to ITM |
$61,778.27 |
|
Total Design cost to ITM |
$29,750.00 |
|
Total extra Cost for finishes |
$72,750.50 |
|
Total extra work costs |
$66,120.00 |
|
Total extra Soft Costs |
$13,375.00 |
|
Summary costs to ITM |
$243,773.77 |
[39] Appended to the bill is a detailed breakdown and some explanation of the five classifications of costs. What strikes me as obvious is that a very large portion of the costs relate to costs that were incurred by ITM before the signing of the final agreement. For example, ITM claims 350 hours of design costs; the design components described were clearly completed earlier. These costs should not be allowed.
[40] The fairing had been the subject of some discussion during the process of completing the yacht and the parties were certainly aware that it was to be done prior to the final agreement. Fairing is included in the final costs set out in the agreement. These costs should be disallowed.
[41] The “Extra soft costs” included amounts for interest on loan financing, work in progress insurance and “incidental costs”. These are clearly items for which ITM should bear responsibility.
[42] With respect to the finishing costs, ITM describes these as “Total additional costs over and above originally quoted prices, which were in the contract clearly outlined to be only close estimates”. Before me, ITM argued that the agreements were always “cost plus” in nature. The problem with this interpretation of the contractual arrangement is that it does not reflect the totality of the agreements. While the original three contracts may have contained estimates, by the time of the Phase 4 Addendum Agreement, the costs were fixed. There was no intent that the costs, as of that date, were estimates; the costs were identified and ITM was to complete the yacht for the stated amount. To come back some 9 months later demanding to recover these costs as part of the agreements was never contemplated by the parties.
[43] Further, it appears that not all of the finishing costs were requested by the Owners. On this point, I refer to the statement of Mr. Mizerit, in an e-mail dated January 23, 2001, that some of the expenses were due “to my decision to create a better interior finish as well as a good quality hull”. While, in oral testimony, Mr. Mizerit attempted to distance himself from those clear words, I do not accept his explanation. Throughout the process there are indications that Mr. Mizerit made unilateral decisions regarding the quality of the finished product. As explained by Mr. Menendez, Mr. Menendez was looking for “a boat to show”, while Mr. Mizerit was building a “show yacht”. Mr. Menendez described the differing views during his oral testimony as follows:
We had – once the – we decided to finish the boat inside, and the design of the boat, I felt like it was such a good design, really an extraordinary design and I felt that if the boat – within the process, you know, it came – the idea was born that perhaps we can have a boat to show. Now, my understanding was to have a boat to show. Later on, his understanding – Mr. Mizerit’s understanding was to have a show yacht. I think – I don’t know what he meant by that in terms of what his total understanding of that was. I think it was different than mine because I just wanted a decent boat that was well done, the design would speak by itself, and I think it would have stolen the show up and down.
[44] In some cases, Mr. Menendez agreed to certain improvements after being advised of what he would be paying. Such was the case with the fairing and certain interior finishes. For both of these expensive items, the evidence shows that Mr. Mizerit proposed the improvements and that, as an incentive, offered to forego a certain amount of the labour and/or overhead costs. To the extent that Mr. Menendez agreed to pay and did pay certain additional costs for these items (either as part of the original agreements or as an additional cost), he ought not to have been presented with a bill for the foregone costs.
[45] In simple terms, ITM was using this opportunity to attempt to claim back from Mr. Menendez the amounts that it agreed – for whatever reason – it would not charge for the construction of the Nautica. In my view, none of these costs are part of the contract with the Owners. All of these amounts could have been included in the original agreements and were not. Based on a simple reading of the agreements, there is simply no basis whatsoever for a final billing of these amounts under the contracts.
[46] The costs set out in the final billing form the basis of the claim by ITM as against the Owners and the yacht Nautica. Since they are not part of the agreements, they will be disallowed with one area of exception; that being costs that are, truly, extra costs.
5.2.8 Extra Costs
[47] As noted above, in the Phase 4 Addendum Agreement, the parties agreed to the following clause:
As the work in progress has reached its final stage ITM will request no additional funds for the final completion of the yacht, other than for any additional work or change, which is specifically requested by the client and does not fall within the budget allowance of that work presently set by ITM.
[48] I agree that, if any such costs can be identified, they would fall under the contracts between the parties and would constitute a valid claim. The task, then, is to assess whether any of the costs included in the $243,773.77 were incurred for any “work or change” that was specifically requested by the Owners between November 26, 2000 and August 25, 2001.
[49] As part of the final billing, ITM listed 41 items and their costs as “not mentioned in the original Contracts, but were requested by the owner at a later date or were deemed Necessary for the operation of the yacht”. The total cost identified is $57,960. To the extent that these items were necessary for the operation or safety of the yacht, it is my view that the costs should have been included in the price of the finished yacht. A finished yacht – which is what was contracted for – is obviously one that can operate and do so safely. The fact that not each of the items was identified in the contracts does not mean that the cost of supplying the item is “extra”. It would have been impossible to list every nut and bolt that went into the construction of the yacht.
[50] Some items should obviously be considered as part of the construction of a yacht, whether a “luxury” or “ordinary” yacht. For example, I have never seen a bathroom without a mirror, regardless of the quality of finishing. Nevertheless, ITM purports to charge the Owners for “Mirrors in heads” as an extra requested item. Fire extinguishers also show up on the list. Further, once it was determined that ITM was to build a “luxury yacht”, additional items became part of the package. The level of finishing, in general, would come under that heading.
[51] Further evidence related to items listed in an e-mail dated July 2, 2001 from Mr. Menendez. ITM characterizes this message as a “wish list” from Mr. Menendez – as a list of items requested by the Owners that fall outside the scope of the contracts. I do not agree. In this e-mail, Mr. Menendez sets out 30 items that are “pending”. A review of the list confirms that it was intended to be a list of all outstanding items and not to be a list of additional requests for which the Owners could be billed under the contract. For example, “the sails and gear” are identified in the list – as are such matters as “brochure development”, “registering and documenting the boat” and “sea trials”. Thus, the list cannot be used to identify “extras” that were to be paid for by the Owners.
[52] Some “extras” were already billed and paid for. For example, the Owners were billed and paid $7,500 for correcting the ceiling height of a cabin and a further $3,500 for extra electronic equipment. The Owners and ITM had agreed on the amount to be paid for these extras. In respect of those items, I would disallow any amounts above and beyond those sums.
[53] Having reviewed the exhibits and the oral testimony on outstanding items, I am satisfied that there are very few items that fall within the category of extras for which the Owners were obliged to pay under the terms of the agreements. Such costs consist of the lettering of the yacht’s name and a few specific items described below.
[54] With respect to the lettering of the name “Nautica” on the vessel, I note that this item required significant design work by ITM, which was acknowledged by Mr. Menendez. There was some discussion of this item during the trial. Mr. Mizerit stated that the costs of designing and fixing a name would not normally be part of the cost of a yacht. Mr. Menendez acknowledged that the lettering was not written into the contract but felt that it would be customary “to have a little courtesy in that respect”. On this testimony, I accept that this would be an extra cost that should be borne by the Owners. There is evidence that a third party company contracted to supply and apply the letters for $815.52. Mr. Mizerit provided design work, which appears to have been included in the $1,150.00 described as “Gold Strips and Lettering” in the final billing. I conclude that ITM should be reimbursed for the full $1,150.00.
[55] Beyond the $1,150.00 for the “Gold Strips and Lettering”, I have also examined the list of extras appended to the final billing. I find that a few of those items fall within the meaning of “any additional work or change, which is specifically requested by the client and does not fall within the budget allowance of that work presently set by ITM”. For those items that I have found to be extras, I accept the calculations as to labour and materials costs set out by ITM. The list of extras sets out the number of days of labour and material costs for each item. ITM used $45 per hour and 8.5 hours per day for its calculations. I note that the Owners presented no evidence to dispute any of the calculations.
|
Item |
Material Cost |
Labour Costs |
|
Boom kicker/vang support |
$2,600.00 |
$382.50 |
|
Spreader lights |
$150.00 |
$765.00 |
|
Windex wind indicator |
$75.00 |
$382.50 |
|
Extra VHF in cockpit |
$300.00 |
$765.00 |
|
Extra depth sounder in cockpit |
$400.00 |
$1,147.50 |
|
Fiddles on galley cupboards |
$150.00 |
$1,147.50 |
|
Binocular holder |
$50.00 |
- - - |
|
Inside handholds |
$200.00 |
$1,147.50 |
|
Outside deck handholds |
$200.00 |
$765.00 |
|
Total |
$4125.00 |
$6502.50 |
The total, including material and labour costs, for these extra items is $10,627.50.
[56] For the “Extra Work costs”, ITM claims a global amount of $8,160.00 for overhead. It is impossible to quantify the amount of “overhead” that should be allocated to each of the allowed costs. Nevertheless, I agree that ITM is entitled to some amount of overhead for the extra items that I have found were not previously paid for under the agreements. Assuming that overhead costs would be spread evenly over the extra items, it is reasonable to assess overhead in proportion to those costs that I have allowed. Having allowed $10,627.50 of the $57,960.00 claimed, I would assess overhead owing as $1,496.21 ($10,627.50 divided by $57,960.00 times $8,160.00).
[57] When totalled, the amount owing for “work or change” that was specifically requested by the Owners between November 27, 2000 and August 25, 2001 is $13,273.71. This total includes all amounts owing for the lettering on the yacht and the “extras”. The claim of ITM should succeed for this amount. All other claims are disallowed.
5.3 Claim in quantum meruit
5.3.1 ITM’s submissions
[58] Quantum meruit is an equitable remedy that may be awarded when the Court is not able find the contractual foundation to authorize the payment of costs. Under this doctrine, the Court will find, in certain circumstances, an implied promise to pay a reasonable amount for work performed.
[59] In this case, ITM submits that, if I do not find that the claimed amounts are payable under the existing agreements between the parties, an award in quantum meruit would be appropriate. As I understand the arguments, ITM argues that the parties agreed to an arrangement with the following components:
- ITM would finish the yacht to “show boat” standards, not charging the Owners for normal profit margins, design and certain other costs;
- The boat would be shown at international boat shows and used to promote sales of yachts of a similar design (the sister yachts);
- ITM would construct the sister yachts thereby recouping the costs not earlier charged to the Owners; and
- The Owners would earn a share of the profits on the sister yachts.
[60] Because this arrangement never resulted in the sale of sister yachts, ITM asserts that the Owners have been unjustly enriched to the extent of the costs foregone by ITM during the construction of the yacht. This, in ITM’s submission, is exactly the type of situation where an award in quantum meruit is warranted.
5.3.2 Principles of quantum meruit
[61] ITM relies on some jurisprudence to support its position. The first case is Alumitech Architectural Glass & Metal Ltd. v. J.W. Lindsay Enterprises Ltd., [2006] N.S.J. No. 14; 2006 NSSC 14, a recent decision of the Nova Scotia Supreme Court. The case involved the installation of wall systems where, subsequent to the installation, the parties could not agree on whether the work was to be done on a unit price per square foot or as a lump sum. The Court found that the parties had never been ad idem on the costing of the project; there never was a contract. In that case, it does not appear that the parties disputed that something was owed and that the plaintiff was entitled to recover on a quantum meruit basis. In other words, the parties never disputed that there was an agreement to pay for the service; to that degree there was a meeting of the minds. The only question was how payment was to be calculated. As discussed by the Court at para. 41:
I am similarly satisfied that in the present circumstances, the doctrine of quantum meruit is applicable. The defendant, at the request of the plaintiff, performed work on which I am satisfied there was no meeting of the minds as to the price or compensation to be paid to the defendant. To be determined, therefore, is the value to be assigned to the work performed by the defendant, which is acknowledged by the plaintiff as having been fully performed in a competent manner.
[62] In a similar vein, ITM refers to Progress Aluminum & Insulation Ltd. v. Petrie, [2005] O.J. No. 2677 (Ont. SCJ), a case where the parties disputed the price to be paid for installing house siding. The Court found that the parties had not agreed on the terms of the contract. Applying the doctrine of quantum meruit, the Court was prepared to establish a reasonable amount for the work. Once again, there was no question that the parties had determined that the plaintiff should install the siding; the only issue was as to the costs.
[63] Similarly, in Stevens & Fiske Construction Ltd. v. Johnson, [1973] N.S.J. No. 150, 9 N.S.R.(2d) 608, extra work was specifically requested by the defendant, outside of an existing contract. The Court stated as follows, at para. 22:
22. I find that the basis of remuneration to the plaintiff, for the extras where found, must be on a quantum meruit. As to this doctrine I quote Goldsmith, Canadian Building Contracts, at pp. 99-100:
"The doctrine of quantum meruit, by virtue of which the courts will hold a person liable in certain circumstances to pay a reasonable remuneration for work performed for his benefit, is based on the theory of implied contract, or quasi-contract. This means that, although no actual agreement has been made between the parties the law will imply a promise to pay a reasonable amount, if the circumstances bringing the doctrine into play exist. It follows from the fact that payment on a quantum meruit basis can arise only as a result of an implied contract, that the [*page 619] doctrine can have no application whatever in circumstances where a contract exists covering payment for the particular work in question. A contractor will, therefore, be able to recover payment on a quantum meruit basis only if either he has performed work for an owner in respect of which there never was any agreement with regard to payment, or if work has been performed in pursuance of a contract which has been abandoned by the owner, or changed so fundamentally that the payment provisions in the contract no longer have any application to the work actually performed. A contractor who himself abandons a contract without legal justification cannot claim for work done on a quantum meruit basis, unless the owner accepts the work or agrees to pay for it.
In order to render a person liable to pay on a quantum meruit basis, the work must either be done at his request, express or implied, or he must accept the benefit of the work.
[64] In all of these cases, there was evidence of two of the three elements of a contract. Specifically, the plaintiff had offered to do the work and the defendant had accepted that the work be completed. However, the consideration element was missing. Further, in each of these cases, there was no valid contract, beyond that which was implied by the Court, in relation to the work done.
[65] With this jurisprudence in mind, I turn to the facts before me. It must first be made clear that we are not talking about the contracts for the construction of the yacht. Had ITM built the yacht at the request of the Owners with no firm agreement as to the price, the remedy of quantum meruit may have allowed ITM to recover a reasonable fee. However, this is not about whether the parties agreed to the building of a boat. It is clear that they did and that the four separate agreements, with the specified contract amounts, covered the building of the yacht. At this stage, we are considering whether there was a separate arrangement pursuant to which ITM performed work and for which there was no meeting of the mind as to the price or compensation to be paid to ITM. Only then would the facts be analogous to those in Alumitech. In other words, was there at least the foundation of an agreement that ITM would forego over $200,000 of costs in return for the Owners selling sister yachts?
5.3.3 Agreement to sell “sister yachts”
[66] What is clear from the record is that a sister yacht arrangement was under consideration from early on in the construction of the Nautica. It is also apparent that ITM was hoping to make up any costs it had foregone in the profit margins of future yacht-building contracts. However, in spite of the numerous references to the possibility of such an agreement, I cannot find that an arrangement ever reached the stage where I could find that even some elements of an agreement were in place. There was never a “meeting of the minds” sufficient to constitute a contract or, in my view, to meet the threshold set out in Alumitech or the other cases referred to by ITM.
[67] Almost conclusive in this regard is the oral testimony of Mr. Mizerit during cross-examination:
Q. Were there any discussions – if you were discussing an agreement for [Mr. Menendez] to sell boats, you must have also discussed some type of written contract in that regard?
A. Yes.
Q. Okay. When did those discussions first take place?
A. They took place later on where we wanted to crystallize what we talked about and where Mr. Menendez would become either an agent – actually, his thought was not bad, he was selling Intertech Marine yachts as well as Trident’s services to potential clients. So, as we sort of talked more about that it got crystallized and at one point I made a proposal to him and at another point he made a proposal to me.
. . .
Q. Because up to November 27, 2000 you’ll agree with me there was nothing concrete discussed between you and Mr. Menendez about him selling sister yachts.
A. When you mean – “concrete,” what do you mean by that?
Q. I mean that the plan was formulated enough that you actually had a plan, that you sat down and said, “here’s what we’re going to do, here’s how we’re going to do it, here’s who the players are going to be and here’s how it’s going to work.”
A. We had concrete discussions that that is going to happen, we just didn’t have a plan as to how that’s going to work out or what the actual agreement is going to be. The final agreement didn’t happen but there were very concrete . . . conversations between ourselves to, “Yes, this is going to happen.”
. . .
A. We had a meeting of minds that we wanted to do that, we just didn’t get to the final stage of that.
[68] This evidence falls far short of establishing an agreement between the parties. Although each party put forward various proposals and ideas, not a single detail was ever agreed to. For example, there was never agreement as to the form the relationship would take. Mr. Menendez expected a type of partnership agreement, whereas Mr. Mizerit proposed that Mr. Menendez would receive only a commission through a brokerage agent. The absence of agreement on such a fundamental term is certainly strong evidence that there was no foundation for an agreement.
[69] Can I find that there was an express or implied request by the Owners for ITM to forego certain costs? If there was, the situation could arguably fall within the jurisprudence cited by ITM. ITM is correct to point out that there was, during the construction period, some discussion as to the effect of a sister yacht arrangement. In particular, it is clear that ITM hoped to make up the costs that it had not charged to the Owners through future construction contracts for similar yachts. Mr. Menendez may even have understood that Mr. Mizerit was reducing some of his profits in contemplation, at least in part, of an arrangement such as was discussed (albeit in less than concrete terms). However, having reviewed the testimony and documentary evidence, I am unable to find any instance where Mr. Menendez ever requested, either directly or by implication, that ITM reduce its profit margin or construction costs in consideration that the Owners would promote the sale of sister yachts. The key elements necessary for a claim in quantum meruit are absent.
[70] In essence, it appears that both Mr. Mizerit and Mr. Menendez relied on the possibility of a future sister yacht arrangement to suit their individual purposes. Mr. Mizerit used the possibility of such an arrangement to attempt to obtain further monies from the Owners, some of which related to improvement decisions that were made unilaterally by Mr. Mizerit. On the other hand, Mr. Menendez appears to have referred to such arrangement to motivate Mr. Mizerit to continue working on and to complete the yacht in spite of some slow payments. Nevertheless, there was, in my view, nothing that amounted to an agreement on these matters.
[71] In short, I find that there was no agreement as to the sale of sister yachts. More specifically, there was no agreement that ITM would recover any “extra” costs (that is, costs that ITM now claims were not billed during the construction of the Nautica) through future sales of sister yachts, with Mr. Menendez using the Nautica as a “show boat”. Not only was there no meeting of the minds, not even the simplest elements of an arrangement were in place. To put it into the language of Alumitech, the Owners never directed ITM to forego costs in return for recovery of those costs through the sale of sister yachts.
[72] It was always open to ITM to propose the inclusion of provisions in any of the four agreements that related to the payment of its foregone costs. In this way, the intention to enter into a further arrangement related to the sale of sister yachts and recovery of foregone costs could have been identified and clarified. Having failed to even attempt to obtain such clarity, ITM took a risk that its foregone costs might not be recoverable.
[73] For these reasons, I decline to award costs to ITM on the basis of quantum meruit.
5.4 The Counterclaim
[74] I now turn to the Owners’ counterclaim. The Owners claim damages under a number of heads.
[75] The claims follow from the Owners’ view that the Nautica was wrongfully arrested. In other words, the Owners argue that they owe nothing to ITM in regards to the completion of the yacht. In my view, the claims related to wrongful arrest must fail. Although I have found that a large part of the claim of ITM should be dismissed, I have also concluded that the claim should succeed for a small part of the total amount claimed. As conceded by counsel for the Owners, a finding of even a small amount owing under the agreements between the parties leads to the conclusion that the arrest of the vessel was not wrongful. I accept that this is correct. Nevertheless, I note that it seems very odd that a half-million dollar yacht has been held for over five years for what amounts to $13,273.71.
[76] Since I have concluded that the arrest was lawful, I also find that ITM is entitled to the storage, insurance, movement and other expenses related to the arrest of the vessel and to interest.
[77] Accordingly, I conclude that the Owners’ claims must fail.
6. Conclusion
[78] In conclusion, I determine that judgment should issue in favour of ITM in personam against the owners and in rem against the Yacht Nautica for the following:
- Recovery of the sum of $13,273.71;
- Reasonable storage, insurance, movement and other expenses incurred by ITM in relation to the arrest of the Nautica;
- Interest from between October 1, 2001 to the date of judgment at the prime rate of interest charged by Canadian chartered banks averaged over the relevant period; and
- Failing payment within 30 days of the issuance of the judgment, an order, on subsequent motion, for the appraisal and sale of the yacht Nautica.
[79] The parties requested that they be permitted to address costs after they have seen my judgment. I agree that this would be appropriate. Accordingly, should the parties be unable to agree on the costs of this action, they may make written submissions, not to exceed three pages in length, within 30 days of the issuance of these reasons for judgment and judgment. The parties would then have another 15 days for reply, if any, not to exceed two pages in length.
JUDGMENT
THIS COURT ORDERS AND ADJUDGES that:
1. As against Ricardo Menéndez and Maria Menéndez, in personam and as against the yatch Nautica, in rem, the Plaintiff is entitled to the following:
a) Recovery of the sum of $13,273.71;
b) Reasonable storage, insurance, movement and other expenses incurred by ITM in
relation to the arrest of the yacht Nautica;
c) Interest from between October 1, 2001 to the date of judgment at the prime rate of
interest charged by Canadian chartered banks averaged over the relevant period; and
d) Failing payment within 30 days of the issuance of the judgment, an order, on
subsequent motion, for the appraisal and sale of the yacht Nautica.
2. Should the parties be unable to agree on the costs of this action, they may make written submissions, not to exceed three pages in length, within 30 days of this judgment and may reply within a further 15 days, such submissions not to exceed two pages in length.
“Judith A. Snider”
___________________________
Judge
FEDERAL COURT
NAMES OF COUNSEL AND SOLICITORS OF RECORD
DOCKET: T-1140-02
STYLE OF CAUSE: INTERTECH MARINE LIMITED v.
RICARDO MENÉNDEZ et al
PLACE OF HEARING: HALIFAX, NOVA SCOTIA
DATE OF HEARING: OCTOBER 2, 3, 4, 2006
REASONS FOR JUDGMENT
APPEARANCES:
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Brian P. Casey
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FOR THE PLAINTIFF
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FOR THE DEFENDANTS
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SOLICITORS OF RECORD:
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Dartmouth, Nova Scotia
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FOR THE PLAINTIFF
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Dartmouth, Nova Scotia |
FOR THE DEFENDANTS
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