Legal Blog: Construction

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.

Direct Payments

In almost all legal cases, we can understand the positions of the parties. Some positions are better; some are worse. But at least they are reasonably arguable. In some cases, however, we just cannot fathom the position that the lawyers for one of the parties take. The case of Demikon Construction Ltd. v. Oakleigh Holdings Inc., a 2024 decision of the Ontario Superior Court of Justice, is one of those cases.

Motion

The construction manager of a condominium project registered a $5 million claim for lien. The developer posted security for $5,050,000 (i.e. the lien amount plus $50,000 for costs). The developer obviously needed to clear title so that mortgage money or unit sales would flow in the normal course.

Minefield

We often refer to construction lien law as construction litigation, but with security. The problem for practitioners who dabble in the area is that lien law is also a minefield waiting to blow up on unwary or inexperienced lawyers. Sometimes mistakes can be cured; often they cannot be. Fortunately, lawyers are insured and LawPro, the lawyers’ insurer, will appoint a construction lawyer who knows what to do to deal with these mistakes and sometimes turn a sow’s ear into a silk purse. One such case was Gay Company Limited v. 962332 Ontario Inc., a 2023 decision of the Superior Court of Justice.

What Happened

We are actually not entirely sure – because the references to plaintiff and defendant are interposed from what we would expect. However, we will assume that a contractor registered a lien against the lands of an owner for $767,000. But it is not quite that simple.

Exclusion Clauses

What happens when a contractor buys material from a supplier and the material that is supplied is not in accordance with specifications? Does the answer to this question change when the supplier specifically states that the contractor is to test the material before it is supplied and, if it fails to do so, can make no claim regarding the quality of the material? These questions were answered in Earthco Soil Mixtures Inc. v. Pine Valley Enterprises Inc., a 2024 decision of the Supreme Court of Canada.

Factual Background

The City of Toronto hired a contractor to remediate the effects of basement flooding in a residential area. The remediation including the removal and replacement of existing topsoil with another topsoil better suited to water drainage. The prime contract initially called for a substantial performance date of August 19, which was ultimately extended to October 15. Liquidated damages applied for every working day thereafter.

Joinder

The simple question for this newsletter is whether a statement of claim to enforce a claim for lien can also join a trust claim to that lien claim. This issue was dealt with in Devlan Construction Ltd. v. SRK Woodworking Inc., a 2023 decision of the Divisional Court. The answer to the question was dependent on statutory interpretation, an esoteric exercise that lawyers and judges often must perform, but which we normally spare our readers. But not this time. We are going to give you the reasoning behind a relatively simple answer to a simple question – if only so that you understand the intellectual exercises in which lawyers and judges must sometimes engage for a case.

Registration Complete

Gay Company Limited v. 962332 Ontario Inc. 2023 Ont SCJ

Under the Land Registry Reform Act and the Land Titles Act the registration of an instrument is complete only when the registrar certifies it. Once certified, the instrument takes its date and time from when it was originally submitted for registration. Until an instrument is certified, the party requesting its registration may withdraw it. Accordingly, in this case when a discharge of lien was registered in error, the registering party had the right to withdraw it before certification.

Adjudication Effects

Adjudication is the means by which the prompt payment provisions of the Construction Act (“Act“) are enforced. An adjudication decision will order, on an interim basis, that a party either pay or not pay money to another. It is interim because an adjudication order can be overturned in an arbitration or court proceedings. Does an adjudication decision have any other effect on the parties? This question was answered in Arad Incorporated v. Rejali, a 2023 decision of the Ontario Superior Court of Justice.

Convoluted

This case demonstrates the usual problems with a residential project. No one really knew who was contracting with whom. We have a corporate plaintiff (call it the subcontractor) and the subcontractor’s principal. We have a general contractor. And we have two owners.

Costs (2)

Speaking of costs, in Prasher Steel Ltd. v. BWK, a 2023 decision of the Ontario Superior Court of Justice, the defendants were wholly successful in a decades-long contract dispute. The trial judge was tasked with determining the appropriate scale, and award, of costs.

The defendants asked for substantial indemnity costs. The judge noted that the normal scale of costs is only partial indemnity and that a higher scale of costs is reserved for exceptional circumstances, such as reprehensible or outrageous conduct on the part of one of the parties. Here, the judge agreed that substantial indemnity costs were appropriate for several reasons:

Lien Start Date

When a subcontractor supplies materials or services (collectively, “services“) to an improvement and is not paid, it has the right to register a lien against the project lands. Under the current Construction Act, a sub has to register its lien within 60 days of the last supply of the services. Under the old Construction Lien Act, a sub had only 45 days. The lien period also starts to run upon publication of substantial performance of the prime contract, but that alternative is not the subject of this newsletter. So, when does the sub last supply its services? That was discussed in Ozz Electric Inc. v. Bondfield Construction Company Limited, a 2023 decision of an associate judge of the Ontario Superior Court of Justice.

Parties

The sub, Honeywell, supplied services; the general, Bondfield, did not pay for them in full; and Honeywell registered a lien against the project lands on February 21, 2020. This registration was based on an alleged last supply of services of January 8, 2020. The project was governed by the old Construction Lien Act so that Honeywell had only 45 days to register its lien.