Legal Blog:

Garnishing a Lawyer’s Trust Account

Lawyers hold money in trust for a client. They render an account for their fees, which is unpaid. The client’s judgment creditor issues a garnishment against the lawyers. Must the lawyers honour the garnishment before paying their fees from trust even though, after paying the garnished amount, there will be no or insufficient money left to pay their fees? This question was decided (we think) in Richter LLP v. Big Truck TV Productions Inc., a 2015 decision of the Ontario Court of Appeal.

Tax Credit

Debtor (or “client”) was a media company eligible for tax credits. Creditor #1 was a professional firm who prepared client’s 2010 tax credit application. Creditor #2 was the assignee of a different professional firm who prepared client’s 2011 tax credit application. Client’s lawyers defended client when creditor #1 sued for payment of its fees. The lawyers ultimately negotiated a settlement between client and creditor #1.

Pursuant to the settlement, client gave an irrevocable direction to the lawyers authorising them, upon receipt of a tax credit refund from Canada Revenue Agency, to pay the monies due to each creditor and themselves and pay the balance to client. The expected $265,000 refund was to be paid as follows: creditor #1 ($52,000), the lawyers ($95,000), creditor #2 ($90,000), and client ($13,000). Unfortunately, the refund was only $150,000, enough to pay creditor #1 and the lawyers in full, but only $3,000 to creditor #2.

Safety First

The recent Ontario Superior Court of Justice decision in R v. Vadim Kazenelson, in which a project manager was convicted of criminal negligence and sentenced to 3½ years in jail after a tragic accident on a construction site, should be of interest to everyone working in the construction industry. The decision highlights the importance of safety on jobsites and makes it clear that the Court may hold project managers, and possibly other stakeholders, criminally liable for non-compliance with safety standards.

This is the first time in which a sentencing decision orders jail time for a manager under the Canada Criminal Code provisions, implemented in 2004. These provisions impose liability on organizations and managers who fail to take reasonable steps to prevent their workers from being injured.

Delay Claims (part two)

Owners and contractors, whether generals or subs, will at one time or another be faced with a delay claim. In Total Meter Services Inc. v. Aplus General Contractors Corp., a 2015 decision of the Ontario Superior Court of Justice, a sub claimed, by way of motion, for money due on contract and the general countered with a delay claim and a deduction for non-compliance with the sub’s duties to provide as built drawings and warranty documents.

Documents

The general held back $260,000, about 10% of the total contract. The sub attempted to suck and blow simultaneously. Its president stated that the sub refused to provide the documents because it had not been paid; he then stated that the sub had provided all necessary documents. The motions judge decided that the holdback was reasonable and that the issue of document production would be decided at trial.

Extras (part two)

We have discussed extras before (see Jul 1996, Jan 2012, & Nov 2014 newsletters), but the issue keeps arising, so we will discuss it again. When a prime contract or subcontract states that there are to be no changes without a written order, and there is no written order, does that bar a contractor from claiming extras? The answer is both yes and no – depending, again, on the facts. Jessco Structural Ltd. v. Gottardo Construction Ltd., a 2015 Ontario Superior Court of Justice decision, is instructive.

Contract

 A general retained a forming sub. The subcontract stated “No changes shall be made without a written order from the contractor.” This clause, or one like it, is found in most every contract or subcontract that we have seen – and we have seen many. The sub performed extras to the contract pursuant to the oral instructions of the general’s superintendent. The sub submitted its invoice for the extras and the general refused to pay. It claimed that it had never authorised the extra work in writing and relied on the “no changes” clause, including a corollary clause, which stated that all extras had to be negotiated with the contractor in advance.

Law

 Some of the older cases held that a “no changes” clause is to be interpreted strictly as a condition to be met before payment has to be made. However, more recent cases have given some leeway to a sub seeking payment against a general or a general seeking payment against an owner. If, for example, a sub can show that the sub and general have conducted themselves in a manner that varied their contract, then the general will be held to have waived the written order requirement. Alternatively, the sub can attempt to demonstrate that the parties amended the written “no changes” clause by a subsequent oral agreement – something that will be difficult, but not impossible, to accomplish.

Writing

Not only did the site super orally instruct the sub to perform the extra, he also signed purchase orders, which the sub drafted, that described the work done and the time spent. Was that enough? The motions judge said no. Although the “no changes” corollary clause did not stipulate that the negotiations had to be in writing, there had to be a negotiation. In this case, there was none. The super orally requested the work and the sub did it. The “tickets” that the sub signed – the judge referred to the purchase orders and the tickets synonymously, although they are actually very different – merely confirmed that work was done; they did not constitute an agreement that the items, and rates, listed were extras to the contract. Accordingly, the judge held that the sub did not comply with the contractual terms requiring advance written authorisation.