Legal Blog: Construction

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.

Costs Against Non-party & Increased Costs

Prasher Steel v. BWK Construction Company 2023 Ont SCJ

The general was wholly successful against the sub. The general tried to get costs awarded against the sub’s principal, but was unsuccessful because the principal had done nothing improper during the proceedings and had not acted fraudulently or deceitfully. The judge did award substantial indemnity costs against the sub; the general had beaten its offer to settle and the sub’s lien was excessive.

Unlienable Items

Chesney v. Malamis 2023 Ont SCJ

Contractor liened for the amount specified in his invoice. It was apparent that all but $15,000 of the invoice had nothing to do with actual work being valued; it was, in essence, a claim for an equitable interest in the property being renovated. The judge noted that the damages such as loss of profits, lost opportunity costs, property management fees, and head office overhead were not improvements and were not lienable. The judge reduced the security from $173,000 to $15,000.

Adjudication and Payment into Court

Arad Incorporated v. Rejali 2023 Ont SCJ

Contractor liened for money owed. In the meantime, the parties had two adjudications: one by the contractor for money owed and the other by the owner for money overpaid to someone associated with the contractor. We gather that the adjudicator had little evidence to go on and ultimately dismissed both adjudications. He held that the contractor had been paid everything to which it was entitled and that any overpayment was made to someone other than the contractor. The owner, who had paid money into court to vacate the contractor’s claim for lien moved for the return of that money. The judge refused. He held that an adjudicator’s decision was an interim decision and that it did not bind the court; it was merely one piece of evidence. The adjudicator’s decision alone was therefore insufficient to justify the loss of the contractor’s security.

Data Dump

The Gowing/Walsh litigants in the previous case were also involved in another action dealing with another construction project. This matter had progressed beyond the pleadings stage when issues arose about the productions of documents, resulting in a 2023 motion.

Discovery

In the documentary discovery phase of litigation, parties must generally provide each other with all relevant, non-privileged documents. On a large-scale construction project, productions can involve hundreds of thousands of documents, particularly when emails informing the progression of the project are included. Before documentary discovery occurs, parties are required to agree on a discovery plan, which sets out the scope of production, including how electronic evidence is to be searched to eliminate production of irrelevant documents.

Holdback & Costs

A motion for security for costs allows a defendant to respond to a claim brought by an impecunious or out-of-jurisdiction plaintiff. A successful motion essentially establishes a pay-to-litigate system in which the plaintiff is required to proactively pay money into court to account for any adverse costs award that might eventually be awarded if it were to lose the case.

On a motion for security for costs, the defendant must first meet the initial burden of establishing that it appears that there is good reason to doubt that the plaintiff has sufficient assets in Ontario to satisfy an adverse costs award. If the defendant does so, then the onus shifts to the plaintiff to demonstrate that the order for security for costs would be unjust in the circumstances.

In Gowing Contractors Ltd. v. Walsh Construction Company Canada, a 2022 decision of the Ontario Superior Court of Justice (Associate Judge), a general contractor brought a seemingly textbook motion for security for costs. The general was sued by its sub for over $3 million. The sub was no longer in business: it had ceased operations, tendered no evidence of what happened to its assets, transferred property to a numbered company with no apparent connection, changed its registered business address, held no real property, no longer had a website, and was even named as a defendant in several other actions in Ontario. Yet, the associate judge denied security for costs, finding that the general had not even met its initial burden. The reason for this seemingly incongruous result is all in the holdback.

Personal Liability

On occasion, an unscrupulous principal sweet talks an unsuspecting owner into signing a construction contract with the principal’s corporation and either the principal has no intention to complete the project properly or has no ability to do so. Can the owner recover damages against the corporation and its principal and, if so, what damages? These issues were discussed in Li v. Zhu, a 2023 decision of an associate judge of the Ontario Superior Court of Justice.

Joinder – Trust and Lien Claims

Devlan Construction Ltd. v. SRK Woodworking Inc. 2023 Ont SCJ (Div Ct)

The old Construction Lien Act had a provision (s. 50(2)) that prohibited a trust claim being joined with a lien claim. Another provision (s. 55(1)) provided that a plaintiff could join a lien claim with a claim for breach of contract. The Construction Act changes deleted these two provisions and enacted the equivalent of old s. 55(1) in the regulations. The Divisional Court held that had the legislature wanted to allow for the joinder of trust and lien claims, it would have said so in the Act or the regulations; it did not. The court held that a trust claim could therefore not be joined with an action enforcing a lien claim.

Arbitration (3)

Arbitration clauses are becoming more and more prevalent. Unless changed by supplementary conditions, they are incorporated into every CCDC contract. Can a party simply ignore an arbitration clause and proceed with litigation in court to deal with a claim? If one party does this, can the other party, at any time, have the action stayed because the issues should be decided by arbitration? These questions were dealt with in Bombino v. Serendipity Homes, a 2022 decision of the Ontario Superior Court of Justice.

Dispute

The dispute between the parties related to a residential home project and alleged deficiencies. The contract between the parties contained a relatively wide arbitration clause. In essence, all disputes relating to the interpretation, application, or administration of the contract were to be determined by arbitration. Notwithstanding this clause, the owners commenced an action in court against the contractor.