Legal Blog: Construction

Construction Owner

Demasi Contracting Inc. v. Farahmand 2025 Ont SCJ

A lien claimant obtained default judgment against the landowner. The claimant sought to establish priority over the existing 1^st mortgagee, arguing that the mortgagee was an “owner” under the Construction Act. The judge dismissed the motion. The judge found that the mortgagee knew about the work being conducted, but the work was not conducted at its request. More importantly, the judge found that s. 78 did not grant priority to the lien claimant over the mortgage.

Adjudication

Integricon Construction Inc. v. Stevens 2025 Ont SCJ

Construction contract called for draws to be made at various milestones. The 2^nd draw was to be made when the foundations were completed and backfilled. The owners refused to pay the full 2^nd draw because their mortgagee had determined that the 2^nd draw resulted in a 25% payment whereas the project was only 15% completed. The contractor left the job, filed a lien, and initiated adjudication. After the adjudicator found in favour of the contractor, the contractor garnished the owners. The owners dredged up the same submissions to the judge that the adjudicator rejected. The judge refused to allow a backdoor attack on the adjudication result and allowed the garnishment to continue.

Conflict

Several remedies come into play in determining the outcome of construction disputes. Normally these remedies play nicely with each other, but sometimes they conflict. One such conflict, between the adjudication remedies under the Construction Act and remedies under a bond indemnification agreement, was dealt with in Westport Insurance v. BDA, a 2024 Ontario Superior Court of Justice decision. The losing party in the decision moved for leave to appeal to the Divisional Court, which was refused in 2025.

Bond Stream

A general contractor retained a subcontractor to provide electrical supply and installation for a project. As part of the subcontract, the sub was obliged to, and did, deliver a performance bond and a labour and material payment bond. Under the bonds, the general was the obligee and the sub was the principal.

Adjudication Priorities

Westport Insurance Corporation v. BDA Inc. 2024 Ont SCJ

After a dispute, a general terminated its sub’s subcontract and claimed against the sub’s surety on the sub’s bonds. The surety advanced payments to the general under a mitigation agreement. The sub subsequently obtained an adjudication determination awarding money to it, which the general paid to its lawyer in trust. The sub and the surety each wanted those funds. The judge decided that the surety had a security interest over the money under its indemnification agreement with the sub and therefore had priority but was not entitled to immediate payment due to ongoing litigation between the parties that could affect the surety’s ultimate entitlement. The court ordered the disputed funds to be paid into court pending the outcome of those proceedings.

Deficient Reasons

Masonry Group Inc. v. Marydel Homes (Beaverton) Inc. 2025 Ont CA

Contractor and owner disagreed over payment for masonry work on a residential subdivision. Owner had paid most of the invoiced amount for work done through 2021; a balance of $193K remained in dispute. A subsequent 2022 contract for work on Lot 121 included a clause stating this balance would be added to the new contract price. Contractor registered a lien for $228K on Lot 121. Owner vacated it by paying security into court and then moved to reduce security. The motion judge reduced the security amount without giving any explanation for doing so. The judge said he would provide more reasons, but did not. The key issue involved interpreting the 2022 contract and the definition of “price” within the Construction Act to determine if the disputed balance was properly included in the lien amount. The court held that the motion judge’s reasons were insufficient, preventing meaningful review. The court set aside the order and remitted the matter to a different judge for re-determination.

Ultimate Limitation

We expect that everybody now knows about the basic limitation period: two years from the date that an aggrieved party (plaintiff) knew or ought to have known about a claim. Because the discovery or deemed discovery may not take place for many years, the basic limitation period, depending upon the circumstances, can be almost unlimited.

The discovery principle arises from the law’s reluctance to remove a right of action from a plaintiff before that plaintiff even knows that a right of action exists. For example, if a negligent motorist causes an accident that puts a pedestrian into a coma for two years, it would hardly be fair for the limitation period to eliminate the pedestrian’s right of action before the pedestrian even awakened.

However, when it enacted the Limitations Act, 2002, the legislature also understood that it had to reduce the possibility of a cause of action continuing indefinitely. It did so by way of s. 15(2) of the Act, which established an ultimate limitation period of 15 years. Accordingly, even though the basic limitation period may still be running, after 15 years the ultimate limitation period ends a plaintiff’s right of action for damages. The purpose of the ultimate limitation period is to balance a plaintiff’s right to sue with a defendant’s need for certainty and finality.

Safety

The Ontario Occupational Health and Safety Act has been described as a “remedial public welfare statute intended to guarantee a minimum level of protection for the health and safety of workers.”

As such, it allocates “various occupational health and safety duties among various classes of workplace actors, including constructors, employers, and owners.” The duties are often concurrent and overlapping such that several different actors may be responsible for the same protective functions and measures. The Act is premised on the theory that, if all workplace parties must exercise due diligence, then, when one of them fails to do so, the diligence of another may compensate for it. The purpose is to leave little to chance and make protection of workers an overlapping responsibility.

This is the backdrop of a prosecution by the Crown, represented by the Ministry of the Attorney General and the Ministry of Labour, against the Corporation of the City of Greater Sudbury arising from a death at a construction site in Sudbury.

Personal Liability

Business people use corporations for many reasons, the most important of which relate to tax (paying as little of it as possible) and liability (having as little of it as possible). Because tax is not our area of expertise, we will only discuss liability.

A corporation has a separate existence quite apart from the people who own or control it (i.e. shareholders, officers, and directors). A corporation that enters into a contract may be liable if it breaches that contract, but, unless the other contracting party can demonstrate unusual circumstances, the corporation’s shareholders, officers, and directors are not personally liable for the breach. Of course, there are exceptions to the rule and, consequently, the other contracting party often joins the principal(s), who run and own a corporation, as defendants in an action against the corporation. In many cases, it is not necessary to do this because the corporation is viable and will have sufficient assets to pay a judgment; in other cases, when it is apparent that the corporation either does not, or is unlikely to, have sufficient assets to pay a damages award, it is crucial to join its principals if there is any evidence to support personal liability.

Examples

We will discuss two 2024 Ontario Superior Court of Justice cases in which one contracting party joined, in its action against the other corporate contracting party, that party’s sole shareholder, officer, and director: To v. Psonic Inc. and Forefront Electric v. Dutchies.

Direct Payments (2)

In our October 2024 newsletter, discussing the motion judge’s 2024 decision in Demikon Construction Ltd. v. Oakleigh Holdings Inc. (Ontario Superior Court of Justice), we said, “In some cases, however, we just cannot fathom the position that the lawyers for one of the parties take.” In doing so, we implied that the lawyers for the lien claimant were taking an unreasonable position that was bound to fail. The lien claimant appealed the decision we were discussing and, now, after reviewing the reasons of the Divisional Court, we can “fathom” the position that the lien claimant’s lawyers were taking.

Recap

The construction manager of a condominium project registered a $5 million claim for lien. The developer posted security for $5,050,000 to vacate the lien from title to the condo lands. The developer later moved under s. 44(5) of the Construction Act for an order reducing its posted security by the additional $3.5 million it had paid to the construction manager’s subs. Section 44(5) gives the court authority to reduce lien security “where it is appropriate to do so.”

Construction Act (#5)

In 2018, we devoted four newsletters to the revamp of the Construction Lien Act, including its change of name to the Construction Act (the “Act“). Most of the changes to the Construction Lien Act took effect as of July 1, 2018; the prompt payment and adjudication provisions took effect as of October 1, 2019. On November 6, 2024, the Act had its first revamp. The bill making these changes has been enacted, but has not yet been proclaimed into force. Similarly, contemplated new regulations have not yet been promulgated.

Rather than a whole-scale change, the new legislation is more akin to a significant tweaking of some existing concepts in the Act. We will now review the more important of these tweaks. To meet space requirements, we will limit our comments to a prime contract scenario; however, the changes are applicable to subcontracts with only slight variations.