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Legal Blog: Construction

Jul
07
2020

Security for Costs

Canadian Metal Buildings Inc. v. 1467344 Ontario Limited 2019 Ont SCJ

In a construction dispute, the Master set out rules for security for costs and found that security was appropriate. The Master ordered the security by stages in the litigation process. The first stage took the litigation up to and including examinations for discovery.

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Jul
02
2020

Discovery

Posted in Construction

Aside from the 15-year absolute limitation period, which, for the most part, applies regardless whether the aggrieved party even knows of its loss, discovery is the key to the running of a (standard 2-year) limitation period. The claimant must, or ought to, know that (i) the loss has occurred, (ii) it was caused by an act or omission of a specified person, and (iii) having regard to its nature, a proceeding would be an “appropriate means” to seek to remedy it. Invariably, the facts of the case drive the result. Such was the situation in Zeppa v. Woodbridge Heating & Air-Conditioning Ltd., a 2019 Ontario Court of Appeal decision.

A magnifying glass.

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Jun
09
2020

Security for Costs

Prasher Steel v. Gateman-Milloy Inc. 2020 Ont SCJ

In a construction case, with a bond, the defendant moved for security for costs. The defendant demonstrated that the plaintiff had insufficient assets to pay costs. The shareholders of the plaintiffs did have equity in their house, but were unable to obtain financing to unlock any of that equity. The judge ruled that the plaintiff had a real possibility of success against the defendant and that the plaintiff was impecunious. The judge refused the order for security, holding that such an order would preclude the impecunious plaintiff from pursuing what appeared to be a meritorious claim.

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May
08
2020

Hard Times

Posted in Construction

The Construction Act specifies times by which a lien claimant must perform certain acts or lose the benefit of the Act. By way of an example, a lien claimant must preserve a claim for lien within 60 days of the date that the lien period starts to run or kiss the lien goodbye. Invariably, as is the case with any time limitation, for one reason or another people do not comply with a limitation deadline. Some then attempt to remedy the situation and keep the lien alive. They are almost invariably unsuccessful and sometimes make a bad situation even worse. One example is set out in Pryers Construction Ltd. v. MVMB Holdings Inc., a 2019 decision of the Ontario Divisional Court.

A broken hourglass on top of a calendar.

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Apr
26
2020

Statutory Trusts & Insolvency

Urbancorp Cumberland 2 GP Inc 2020 Ont CA

Section 8 of the Construction Act establishes a trust for money being passed down the ladder into the hands of a contractor or subcontractor. Section 9 of the Act establishes a trust for the contractor if the owner’s land is sold and net funds come into the hands of the owner. In The Guarantee Company of North America v. Royal Bank of Canada, the Ontario Court of Appeal held that the section 8 deemed statutory trust satisfied the criteria for a common law trust and that, accordingly, the money in trust had priority over the unsecured funds available to ordinary creditors under the Bankruptcy and Insolvency Act. In the Urbancorp case, the Ontario Court of Appeal came to the same conclusion for the section 9 deemed statutory trust, in this case regarding the Companies’ Creditors Arrangement Act. The CCAA is a sister statute to the BIA dealing with insolvencies. As far as the court was concerned, the fact that the monitor under the CCAA arranged for the sale of the land was irrelevant; the sale was in the owner’s interests regardless that it occurred in an insolvency process.

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Apr
26
2020

Warranty and Setoff

IET International Energy Technologies Canada Ltd v. M&R Property Management Limited 2020 Ont SCJ

Electrical contractor sued a building manager for work that the contractor had performed on various buildings that the building manager managed. The building manager complained that some of the contractor’s work was deficient and therefore the cost to complete those deficiencies should be deducted from the amount otherwise owed to the contractor. The judge accepted the contractor’s evidence that (i) it provided a warranty for its work; (ii) it always honoured its warranty obligations; (iii) minor problems always arose on jobs and were always fixed; and (iv) it was never told of any of the complaints referenced in the setoff allegations. The judge held that it was incumbent upon the manager to ask the contractor to honour its warranty obligations before using other electrical contractors to do the work and that, had the contractor been asked, it would have attended to fix the problems. The judge refused to allow the setoff claims.

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Apr
26
2020

Security for Costs

Focal Elements v. TVM 2018 Ont SCJ

Owner brought a security for costs motion relating to contractor’s claim to enforce its lien. The judge first gave leave to the owner to bring the motion, both on the level playing field basis and the expediting an earlier resolution of the issues basis. The owner easily established good reason to believe that the contractor had insufficient assets in Ontario to satisfy a costs order. The contractor then had the onus to prove that it, and its shareholders, were, impecunious so that it would be inequitable to order security to be posted. Given that the contractor only produced partial financial information and information, the judge held that the contractor did not meet its onus. The judge reviewed the merits of the plaintiff’s claim on a superficial basis and could only say that the contractor might have a good chance of success on some issues and not on others. That analysis was only one aspect in the judge’s determination of whether it would be unjust to order security. Given that there was a counterclaim that could affect an increase in costs and that costs would be increased as the action continued, the judge ordered payment of $10,350 into court as security for costs for the period up to and including examinations for discovery. This case is instructive for the very detailed summary that the judge gave of the law and the considerations for a security for costs motion.

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Apr
26
2020

Contract Termination or Abandonment

Scepter Industries Ltd v. Georgian Custom Renovations Inc 2019 Ont (Div Ct)

Under the Construction Lien Act, the lien time, when there was no publishing of a certificate of substantial performance, started to run when the contract was either completed or abandoned. The court, reversing the motion judge, held that, even though the owner attempted to terminate the contract, the contractor never abandoned it until the settlement discussions, ultimately unsuccessful, were completed. Accordingly, since the claim for lien was registered within 45 days of the date that the settlement discussions completely broke down, the lien had been preserved in time. The motion judge had also said, in obiter, seemingly as consolation for discharging the claim for lien, that the contractor could always obtain a certificate of pending litigation, an interim preservation order, or an injunction to preserve its interest in the property. The Divisional Court noted “this statement is obiter dicta and is wrong.” Harsh words, but correct. A number of cases have all indicated that the Construction Act is a complete code for securing the price of services and materials against an improvement. Alternative remedies are not available. The controversy in this case would not have arisen under the Construction Act; it added a third category to start the lien period running: the date when the contract is terminated.

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Apr
13
2020

Holdback Payment and Limitation – Updated

On April 2, 2020, I notified you that the Ontario government enacted a regulation (73/20) suspending any limitation period for the duration of the emergency (commencing March 16, 2020). This created major problems regarding claims for lien, perfection of actions, and the distribution of holdback funds. I advised: “Accordingly, for the moment, payors cannot safely pay holdback – even assuming that the payors have received the holdback from other payors one rung above them on the construction ladder.”

By order in Council made April 9, 2020, the Ontario government amended O Reg 73/20 by removing its applicability to the Construction Act and its regulations on and after April 16, 2020. By doing so, the government implicitly recognised that O Reg 73/20 did apply to the Construction Act to extend times to preserve and perfect a claim for lien. Accordingly:

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Apr
02
2020

Holdback Payment and Limitation

On March 20, 2020, the Ontario government suspended any limitation period for the duration of the emergency. A copy of that regulation can be found here. This is an example of the law of unintended consequences.

It makes perfect sense for the usual run-of-the-mill limitation period (i.e. commence an action within 2 years of the day that the cause of action arose, subject to discoverability). It does not make sense for the provision of the Construction Act mandating the date upon which a claim for lien must be preserved. This date is crucial to the flow of money on a construction project. Holdback cannot safely be released until after the basic preservation dates for all liens have passed, be it 45 days or 60 days depending on whether the old Act or the new Act applies. If a payor cannot safely pay the holdback – because a construction lien could be registered far beyond the basic preservation date (relying on the extension of that date in accordance with the limitation period suspension), then payors will not pay that holdback; similarly, construction financing will not be forthcoming for the holdback.

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