Construction Of A Dream Home Turned Into A Nightmare: Personal Liability Of Incorporated Contractor

• Published date: 09 August 2022
• Subject Matter: Real Estate and Construction, Criminal Law, Construction & Planning, White Collar Crime, Anti-Corruption & Fraud
• Law Firm: McLennan Ross LLP
• Author: Ms Claudia Sanchez

We all dream of that perfect home, and being able to build it from the ground up is even more enticing. The ability to customize your living environment and make it "just right" for you seems like a dream come true. However, things do not always go according to plan.

That was the case in Zerbin v Vrbanek (2020 ABQB 797, aff'd 2021 ABCA 317), where David and Barbara Zerbin (the "Zerbins") found out the hard way that building your dream home can easily become a nightmare. While this case involved many complex issues such as allegations of fraud, conspiracy, defamation, and breach of contract, the focus of this article will be on the issue of a finding of personal liability against an incorporated contractor.

The Zerbins hired DN Developments ("DN") to provide construction management services for the build of their dream home and another smaller unit for their daughter. DN Developments provided its services through Darren Vrbanek, its sole principal, director, and shareholder. Under the contracts entered into by the parties, DN was the agent of the Zerbins for the purposes of obtaining quotes from third-party trades and suppliers, and it would charge its management fee as a percentage of the work performed or materials supplied. For the sake of expediency, the parties agreed that DN would handle all payments to suppliers and subcontractors on the Zerbins' behalf, and in turn, invoice them monthly.

A few years into building their home, Mrs. Zerbin attended at the business of one of their suppliers in search of countertops. She met Daniel Tran, who advised her that Mr. Vrbanek "was 'engineering' prices for personal gain". Mr. Tran mentioned that Mr. Vrbanek asked him on multiple occasions to raise his initial quotes and coerced him into paying him a $35,000.00 kickback. Following this turn of events, Mrs. Zerbin had conversations with other subcontractors who also claimed that they were asked to increase their quotes. Moreover, they informed Mrs. Zerbin that there were significant amounts owing on services or materials supplied, despite the Zerbins having paid Vrbanek in full for such services and materials. The Zerbins ended their contractual relationship with DN and finalized their projects by themselves.

According to the Alberta Court of Queen's Bench's finding, DN received an excess of $1,477,409 CDN plus an additional $39,001.41 USD for the two projects. At the time of the trial, DN had gone bankrupt, and the Zerbins contended that Mr. Vrbanek should be...