Legal Blog

Claim

When all is lost because a general and its directors and officers are insolvent, subs attempt to look to the owner for compensation. They invariably lose these actions (see newsletters of May 2003 and May 2008), but they keep trying. One such attempt is set out in Jones’ Masonry Ltd. v. Defence Construction (1951) Limited, a 2010 decision of the New Brunswick Court of Appeal.

 Certificate

 The general produced a stat dec attesting that it had discharged all of its obligations on the contract. The owner agreed that there had been substantial performance on March 20. Based on the stat dec, the owner released to the general an $80,000 security deposit that the owner was holding.

 The general became insolvent, owing the sub $90,000. The sub claimed that from the owner. The sub alleged that it was on the site until at least May and that the owner released the security before it should have done so.

 Economic Loss

 The sub had no contract with the owner. It therefore had to sue in tort claiming pure economic loss (in contrast to compensation for physical damages). To have a cause of action in tort for pure economic loss, a claimant’s claim must fall within some existing categories (e.g. negligent misrepresentation, improper construction of a structure resulting in safety problems, etc.). There was no separate category for the sub’s claim and it therefore had to demonstrate that a new one ought to be established.

 The Court stated, “The duty of care may be framed in terms of whether Defence Construction owed Jones’ Masonry a duty not to release the security deposit to the contractor, Toryn Corporation, unless Defence Construction took reasonable measures to confirm that work on the building project was complete. Broadly stated, the duty may be recast in terms of whether owners/agents owe a duty to subcontractors not to pay monies to contractors unless and until the owners take reasonable precautions to ensure that the work was completed in accordance with the construction contract.”

 The Court held that the owner had no such duty. Even if the owner initially declined to release the security, it would ultimately have paid the money to the general, not to the sub.

 Worse, if the owner were liable, then it would have been liable to every sub for whatever the sub was not paid – even though it would have only released $80,000. This could lead to indeterminate liability, something that, for policy reasons, a court will not allow.

 The Court dismissed the claim as disclosing no cause of action at law.