Legal Blog: Five Liners

Good Faith

2336574 Ontario Inc. v. 1559586 Ontario Inc. Ont SCJ

Parties entered into an agreement of purchase and sale for a commercial condominium. There was an interim closing. The builder vendor then set a closing date, as it was entitled to do. The purchaser requested an extension without giving reasons and the vendor refused the extension without giving reasons. The closing date came and, after a partial tender, the vendor’s lawyer claimed that the purchaser was in breach. The next business day, the purchaser’s lawyer notified the vendor’s lawyer that the purchaser would be in funds a day later and would complete the transaction. The vendor refused to close and claimed the $70,000 that the purchaser had previously paid. Each claimed that the other failed to act in good faith. The judge noted that good faith depended upon the relationship of the parties. If the parties had a long-term, ongoing relationship, a level of good faith might have been flexibility beyond the letter of the contract. However, commercially experienced buyers and sellers in a one-off transaction would not be expected to vary from the strict contractual terms. Accordingly, the judge held that the purchaser breached the agreement and that the vendor properly terminated it. The judge awarded the vendor the deposits of $40,000, but held that the $30,000 occupancy closing amount was not a deposit; rather, it was a payment towards the balance due on closing and had to be returned because there was no closing.

Estoppel & Laches

McMurtry v McMurtry 2016 Ont SCJ

Son commenced an action for a declaration that he was the owner of his deceased father’s shares in corporation. Mother claimed that shares passed to her as beneficiary of father’s estate. A declaration is a pronouncement of a legal relationship without an order of enforcement. The son’s request for a declaration was just that. There was no request for an order of enforcement. He did not need the court to order his mother to do anything; rather, the trustees of the estate would merely carry out their duties in the normal course. Accordingly, the Limitations Act did not apply. Mother had written a letter, on which the son relied, acknowledging that the son owned the shares. The court held that there was laches in mother’s claim because objectively she knew of all the facts that gave rise to the claim and still wrote the letter; she acquiesced to the son’s ownership. The judge also found that the son had been prejudiced by mother’s actions. Finally, the judge found mother was estopped by convention from claiming ownership in the shares; she was also estopped by her own representation that son owned the shares.

Trust Fund

Robert Nicholson Construction Co. v Edgecon Construction Inc. 2016 Ont Div Ct

The Divisional Court overturned the decision of the motions judge. The motions judge held that an owner was liable to a sub for a breach of trust because it paid the general’s associated corporation rather than the general itself. It seems that the motions judge made many errors:

a) He relied on section 7(1) of the Construction Lien Act to hold that the owner was a trustee in favour of a subcontractor. However, that section states only that an owner is a trustee in favour of a general. It is under section 8 that generals or subs are trustees for other subs.

Extras

Jessco Structural Ltd v. Gottardo Construction Ltd. 2016 Ont Div Ct

The Divisional Court, on a 2-1 split, upheld the motions judge who decided that oral instructions were not sufficient to comply with the contract and the general had not waived the contractual provisions. Therefore, regardless that the superintendent had signed the purchase order/timesheet and that the subcontractor had done the work, the general did not have to pay the subcontractor. There was a strong dissent holding that the general had waived the contractual provisions because it had issued prior change orders under similar circumstances.

Abandonment

6705058 Manitoba Ltd. v. Penguin Heating and Cooling Technologies Inc. 2016 Man QB

Under section 31 of the Construction Lien Act, a general’s lien period runs from the earlier of a number of dates. One of them is the date on which the contract is abandoned. Manitoba has the same concept for a subcontractor. The validity of the mechanical sub’s claim for lien depended upon the date that the sub was held to have abandoned the contract. The court summarised the abandonment principles as follows:

Dismissal, Order Breach

Garrett v. Oldfield, Greaves, D’Agostino 2016 Ont CA

Plaintiff brought a motion for summary judgment, lost, and was ordered to pay $10,400 in costs. The defendant brought a motion to dismiss the action because the plaintiff had not paid the costs ordered. Rule 57.03(2) allows the court the discretion to dismiss an action for failure to pay a costs order. In order to do so, a court must balance the competing interests of the parties and consider all relevant factors. The court does not wish to dismiss an otherwise meritorious action if the party owing the costs can demonstrate that the costs were not paid because that party was impecunious. Conversely, it is important for the administration of justice that a court order be followed. In this case, the plaintiff presented no evidence regarding the merits of her action or of any alleged impecuniosity. The motions judge weighed the competing interests and exercised his discretion to dismiss the action; the Court of Appeal dismissed the plaintiff’s appeal.

Tender

True Construction Ltd v. Kamloops 2016 BCCA

Invitation to tender called for tenderers to submit a sealed tender, including an appendix containing a list of subcontractors. The contractor submitted its sealed tender but forgot to include the appendix. Before the deadline to submit the bids, the contractor, who realised its mistake, sent the appendix to the owner by way of fax. The contractor was the low bidder, but the owner disqualified the bid because, in its view, the bid did not comply, strictly or substantially, with the instructions to bidders. The court held that the appendix formed part of the bid and was required to be submitted along with the bid and, as such, the bid was not strictly compliant. However, the owner had a clause allowing it the right to accept the bid if it were substantially compliant.

Arbitration

Canadian Medical Association v. EllisDon Corp. Ont 2015 SCJ

Construction was completed in 2001. The prime contract had an arbitration provision. The building was substantially damaged by fire in 2013. The owner claimed by way of a statement of claim in 2014 that improper erection of insulation boards caused the fire. The owner sued 10 defendants including the prime contractor, architects, engineers, and municipality. The plaintiff/owner then moved to have its claim against only the contractor determined by arbitration. The judge refused the motion holding that (i) the arbitration provisions was meant to apply when the project was still ongoing, not for a fire occurring 11 years after completion; (ii) the owner elected to sue multiple defendants and to permit 2 separate methods of proceeding against the contractor would be unfair.

Set-Off – Trust Fund Provisions

Architectural Millwork & Door Installations Inc. v. Provincial Store Fixtures Ltd 2016 Ont CA

The motions judge held that the general could not set off monies that it claimed due to it by the sub on project #2 against the monies that it owed to the sub relating to project #1. The Court of Appeal dismissed the general’s appeal. It agreed that neither party had pleaded the existence of a breach of a trust fund. Indeed, the defendant had pleaded that it had not been paid by the owner and therefore it had no obligation to pay the sub. Accordingly section 12 of the Construction Lien Act was not in play. More importantly, since section 12 of the CLA does not give the trustee the right to put some or all of the trust funds retained to general use, the purpose of the trust provisions were defeated and any right of set-off was extinguished. Finally, the court agreed that equitable setoff was not available because payment on one construction project was not tied to the other; the projects’ funds were segregated and the projects were undertaken at different times, in different cities, and for different owners.

Judgment Debtor Examinations

Sweda Farms Ltd v. Eggs Farms of Ontario 2016 Ont SCJ

The corporate judgment debtor refused to answer questions in a judgment debtor examination that related to property that a non-party owned. However, since the financial statements of the debtor referenced money owing to related parties and the non-party was related to the judgment debtor, there was a connection between the debtor and the non-party’s property and the creditor had a right to ask questions relating to the property of the non-party.