Overhead Records and the Quantum of a Loss of Profit Claim

The Dispute

A construction project manager came out of a trial about a temple project the owner ended early with its claim for the lost profit still open. It then had to put a number on that profit, which depended on what the building would have cost and how much of the company’s monthly overhead belonged to this job. Both numbers rested on figures its director had written out himself, without the invoices, statements and records that would have proved them.

The Parties’ Positions

JM Bay Properties Inc. built its anticipated loss of profit on the construction cost estimate it had presented in August 2017, supported at the reference by a Class D conceptual estimate from a quantity surveying firm. That opinion valued the temple shown in the architect’s 2017 rezoning drawing at close to six million dollars. For overhead JM Bay relied on a calculation its director had prepared, setting a monthly figure for rent, vehicle, telephone and insurance costs. He attributed half of it to the temple project, because two other projects ran alongside, and multiplied the share across the twenty-four months he estimated construction would have taken, the same calculation the trial judge had seen in the reasons indexed at 2022 BCSC 81.

Tung Cheng Yuen Buddhist Association resisted the estimate on the ground that the design underlying it had been superseded. The City of Richmond had approved a building permit in January 2024 for a substantially smaller temple, and the association submitted that the construction value stated in that approval was the better evidence of the realistic cost. On overhead it contended that the material produced was unreliable, drawing attention to expenses on the related company’s corporate tax returns that were absent from the director’s calculation. Without supporting documentation, the association submitted, the overhead should be assessed at forty percent of the anticipated fee.

The Court’s Decision

The Registrar certified the fee at seven and a half percent of the actual construction costs JM Bay accepted, and the rezoning claim in the settled amount. On the profit claim the Registrar found the estimated construction cost could not be determined, the two sides having measured their figures against two different temple designs. The overhead could not be determined either, since of the expenses claimed only the business liability and vehicle insurance were verified by the documents exhibited.

The Registrar referred the determination back to the trial judge under Rule 23-6(7), recommending that the estimate be taken from his trial finding about the budget the association had told JM Bay it expected. Overhead was to be assessed on the percentage the association proposed, a deduction roughly two and a half times what JM Bay had claimed, leaving the recommended profit at a little over half of the amount sought at trial.

Key Lessons for Construction Managers and Project Owners

• Keep contemporaneous overhead records against each project, not a reconstruction prepared once the claim is on foot. The calculation tendered here had been created in 2020 and was unchanged four years later, and of the expenses set out on it only two were verified by the supporting documents.
• Exhibit complete statements, and confirm that each one identifies the account holder. The vehicle loan printout did not identify the borrower, and the telephone pages named neither the service provider nor the account holders and post-dated the termination by several years.
• Record the allocation of time across concurrent projects as the work is done. The apportionment rested on the director’s estimate that this project was half of the company’s work, and no record of time spent on any project was kept against which to test it.
• Parties to construction claims should be prepared for unusual and unexpected results from decisions of the court that may tend to prolong cases and cause greater expense to the litigants than expected.

The outcome of this reference turned on the evidence the parties placed before the Registrar of the Supreme Court of British Columbia and on the directions given at trial. A similar claim may resolve differently.

ATAC LAW acts for owners, construction managers and contractors in construction disputes, including references and assessments at which a claim has to be quantified in evidence.

Mike C. Stewart acted for JM Bay Properties Inc. at the reference before the Registrar.