Legal Blog: Construction

Aug
14
2017

Trust Fund

Sirro Brothers Cement Finishing & Spray Ltd. v. Somerset Wallace Developments Limited 2017 Ont SCJ

Contractor brought an action for payment of monies due on contract and breach of trust. The parties disagreed as to what the defendants had to produce by way of documentation. The court held that it was reasonable for the developer to provide proof of deposits used by the developer to fund the project and a copy of the developer’s unredacted general ledger indicating what monies were paid out and to whom. All this would be relevant to the issue as to whether the developer paid all funds it received in accordance with its trust obligations.

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Aug
14
2017

Trust Fund

SGJ Northland Steel Manufacturing Inc. v. Local Decor Designs Inc. 2017 Ont SCJ

Owner sued the general and its sole officer and director because the general took deposit monies, completed only part of the project, and then abandoned the project. The judge held that the final cost to the owner of completing the project was $105,000 more than what the owner had contracted to pay the general, of which $44,000 was used to pay unpaid lien claimant subcontractors. The judge held that there was a breach of trust for which the sole officer and director would be liable under section 13 of the Construction Lien Act. The judge therefore held that the individual was liable for the full $105,000. We note that no one represented the individual or the general at the hearing. We have a problem with this decision. There was no analysis to determine why a third party would have a complaint against a trustee for breach of that trust to a beneficiary. The owner was not a beneficiary to that trust. If the owner had taken an assignment of the funds paid to the lien claimants, it may have been able to claim for the $44,000 paid to them, but there is no evidence that this took place and there is no reason, regardless, why the individual should be liable for the additional $61,000.

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Aug
14
2017

Bonds

Berkely Insurance Co. v. Rob Piroli Construction Inc. 2017 Ont SCJ

A surety agreed to post construction lien bonds to vacate construction liens on behalf of the general. As a condition for doing so, the general’s principal indemnified the surety for any loss that it might occur and, as additional security, the general undertook that it would direct the owner to pay $486,000 to the general’s lawyer and that these funds would be used as further security. The general breached its undertaking; it received $486,000 from the owner, but used the money to pay other subcontractors. The surety brought a motion for an order for specific performance requiring the general to honour its undertaking and, in the alternative, a mandatory interlocutory injunction compelling the general to honour its undertaking. The actual order would have been impossible to honour because the general no longer had any money to do so; the horse had already left the barn. However, the judge granted the order regardless. He did so because a judgment debt would have been treated as unsecured whereas the order would have resulted in a trust, which would give the surety priority over other unsecured creditors.

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Aug
14
2017

Setting Down for Trial

Niagara Millwork Inc. v. Urbacon 2017 Ont SCJ (Master)

In Toronto, the normal practice for a construction lien action is to move for an order for a reference before a Construction Lien Master. However, a claimant may still choose the ordinary method for moving an action forward for ultimate trial by a judge. In this case, the plaintiff chose the ordinary method. It then decided to set the matter down for trial without discoveries. The defendant brought a motion to discover the plaintiff and the plaintiff then brought its own motion for discovery of the defendant. In each case, the parties needed leave, under section 67(2) of the Construction Lien Act, to bring the motion and in each case leave was granted. The Master granted leave because he determined that discoveries were necessary to provide particulars of the allegations of deficiencies and delay and could also lead to a resolution of some of the issues in dispute. The Master allowed the defendant’s motion, but denied the plaintiff’s motion. The plaintiff was precluded from its discovery by virtue of Rule 48.04(1) (i.e. once a party sets down a matter for trial, the party is deemed to have been prepared for trial and is not entitled to take a fresh step in the action). There was no substantial and unexpected change in circumstances; rather, the plaintiff simply changed its mind.

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Jul
28
2017

Constructive Trust

Ciccocioppo Design/Build v. Gruppuso 2017 Ont SCJ

Time to preserve a lien came and went. The contractor issued a statement of claim claiming a constructive trust in the land on the basis of unjust enrichment. To show unjust enrichment, a party needs to show that there is an enrichment (in this case by the owner), a corresponding deprivation (in this case by the contractor for improving the land without full payment), and the absence of a juristic reason to deny recovery. The contractor’s claim was dismissed because there were 2 juristic reasons for the enrichment and deprivation. First, the parties had a contract; a contract is a juristic reason. If a party under a contract is aggrieved, that party should sue under the contract. Second, the Construction Lien Act sets out a statutory scheme providing for an interest in land in favour of contractors who have contributed to its betterment. The Act strikes a balance among all those involved in a construction project and allowing the claim of the plaintiff, who did not preserve his lien, would defeat the scheme of the Act.

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Jul
21
2017

Who’s Who

Posted in Construction

For many years we have been harping on the necessity of contractors knowing the exact name of the person with whom they are contracting. Contracting with names and styles, rather than correct corporate names, can lead to disaster. As a corollary to this thesis, general contractors (who, by definition are contractors who are contracting with an owner) have to ensure that the “owner” is really the registered owner of the land upon which the contractor is to supply goods and services. In J. Lepera Contracting Inc. v. Royal Timbers Inc., a 2016 decision of the Ontario Divisional Court, the general learned this lesson the hard way.

Development

The registered owner of a parcel of land decided that it would be beneficial to sell one part of its land and use the proceeds to develop the other. To effect that strategy, it entered into an “agreement in principle” with an American hotelier in which the hotelier would purchase a portion of the land.

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Jul
13
2017

Security for Costs Construction

Yuanda Canada Enterprises Ltd. Pier 27 Toronto Inc. 2017 Ont SCJ (Master)

Motion for security for costs against a B.C corporate plaintiff whose substantial lien had been bonded off by a non-party. The Master held that the test to obtain leave for the motion was whether the defendant had established that it had good reason to believe that the plaintiff had insufficient assets in Ontario to pay costs. This meant that the defendant had to show indicia of insolvency, not just rely on conjecture or speculation. The motion was unsuccessful because the admitted holdback was $1.3 million. The defendants claimed setoff and a counterclaim for far more than that. This was not sufficient because the defendants did not show that they had retained the basic holdback (and therefore did not necessarily have a setoff right). Further, the security to vacate the lien was posted by a non-party and usual procedural fairness to level the playing field did not arise. In obiter, the Master also noted that most of the action would have been taken up with the counterclaim and that he was loathe to have the plaintiff pay security for costs to defend itself.

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Jun
06
2017

Trust Setoff (2)

Posted in Construction

In our September 2016 newsletter, we discussed Architectural Millwork & Door Installations Inc. v. Provincial Store Fixtures Ltd., a 2016 decision of the Ontario Court of Appeal. In that case, the motions judge refused to allow a general to set off its claim against a sub relating to project #2 as a defence to the sub’s claim on project #1. He did so based on two rationales.

Rationale #1: when a sub claims against a general, relating to project #1, by way of an ordinary claim on contract, and not by way of a trust claim under the Construction Lien Act, then the general cannot claim setoff by way of section 12 of the Act on monies that the sub allegedly owes to the general on project #2.

Rationale #2: when a general does not segregate the monies due to the sub in a separate trust account and therefore breaches the Act’s trust provisions, the general cannot rely on section 12 of those trust provisions.

The Court of Appeal did not decide whether the motions judge was correct regarding rationale #1, but agreed that rationale #2 was fatal to the general’s claim for setoff. We now have another case dealing with rationale #1: 1587855 Ontario Inc. v. Contract Glaziers Corp., a 2016 decision of the Ontario Superior Court of Justice.

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