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Posted on March 1, 2012 | Posted in Construction


 Normally, courts try to see through procedural barriers to arrive at a decision that deals with the issues on the merits. However, often there is a tension between procedure and the merits. Procedure attempts to strike a balance between a determination on the merits and the unfairness of a party being caught by surprise. The case of Landmark II Inc. v. 1535709 Ontario Ltd., a 2011 Ontario Court of Appeal decision illustrates the point.


 An owner and a contractor entered into a $59,000 contract for excavation, grading, and paving, payable in four equal instalments. The owner paid the first instalment by way of a deposit. The second instalment was due when the contractor had completed stripping the site. The owner did not pay the second instalment when due and the contractor stopped work, took its machinery off the site, and registered a claim for lien for $44,000.

 The owner claimed that the second instalment was not due until the 3rd instalment guideline was achieved. The trial judge quickly rejected this nonsensical contract interpretation and focussed on the real issue: damages.

 The contractor claimed that it should be paid based on the value of the work that it performed. It calculated this value by taking the total contract price of $59,000 and deducting its actual cost to perform the work that it had completed. This also makes no sense.

 The trial judge rejected the contractor’s calculation of its damages because, we assume, the calculation was simply wrong and because the contractor’s cost records were not reliable. It seems that the contractor had created its records after the contract had been terminated. The trial judge therefore relied on the testimony of the replacement contractor that the owner subsequently retained to complete the work. The replacement contractor had estimated the value of the work completed at about $16,000. After deducting the amount the owner had paid from the value of the work completed, the trial judge held that the contractor had a valid claim for the grand sum of $1,300.00.


 The paltry award was only a fraction of the contractor’s real trouble. The trial judge then held that the lien amount of $44,000 was grossly excessive in light of the actual award. Accordingly, she relied on s. 35 of the Construction Lien Act and awarded the owner $5,100.00 in damages to compensate the owner for its borrowing costs to vacate the lien.

 The trial judge then turned to the issue of costs. Although she had dismissed the owner’s counterclaim – because she held that the owner had breached the contract – the contractor ultimately owed the owner $3,800 after setting off the two damages awards. This result was better than an offer that the owner had submitted to the contractor four days before trial. The trial judge awarded the owner $55,000 towards its costs of the action, including a 6-day trial.

 Not surprisingly, the contractor was not happy and appealed to the Divisional Court. The Divisional Court dismissed the appeal with minimal reasons and awarded the owner another $10,000 in costs. The contractor then appealed to the Court of Appeal.


 The contractor first argued that the awarded damages ought to have been far higher than $1,300. It argued that a claim for the value of its work meant that it should receive all of its intended profit on the job. We cannot understand its argument. How much could its profit have been? Certainly not, say, $40,000.00. It must have been attempting to claim for the value of work it had not completed.

 In any case, the contractor mixed up the concept of contractual damages (i.e. put the contractor in the same position it would have been in had the owner not breached the contract) and the concept of quantum meruit (i.e. pay me for the value of the work that I performed). For whatever reason, the contractor only claimed for quantum meruit. Since the judge had a right to rely on the lay opinion evidence of the replacement contractor and since the trial judge felt that the contractor’s evidence of value was unreliable, the Court refused to overturn the trial judge’s assessment of value .

 The Court noted that the contactor could have (and, we suggest, should have) claimed damages in the alternative and made its election as to damages or quantum meruit at the time of judgment. However, for some inexplicable reason, it did not do so.

 Had the contractor claimed damages, then it should have received the contract price, less the cost, excluding profit and overhead, to complete the work that it did not perform on the contract, less the money it was paid. This would have netted the contractor far more than $1,300, but far less than the $44,000 it claimed. This is an example of procedure causing the contractor to receive a lower award than it ought to have received and properly so. The contractor’s pleadings warned the owner of a claim for quantum meruit, but not of a claim for contractual damages.


 The Court noted that lien claimants often file a lien claim that exceeds the value of the work that has been performed at the time of the lien. This is acceptable if the claimant intends to finish the work on the contract. Why should the claimant be forced to file more than one claim for lien?

 However, the contractor never intended to complete the contract when it liened the project. It had accepted the owner’s breach of the contract and was not going to be performing any additional work. On this basis, the contractor had a right to lien for only its actual damages, not the work that it could have done, but was not going to do.

 Accordingly, the Court upheld the trial judge’s damages award for the grossly excessive lien.


 The Court normally will not touch a costs award because it is highly discretionary – unless the Court decides that the costs were awarded on incorrect principles. The Court decided to intervene because:

 – The contractor succeeded in the central dispute regarding the contract interpretation and who breached the contract. Consequently, the owner’s counterclaim was dismissed.

 – The entire dispute arose because of the owner’s stubborn and unreasonable interpretation of the contract.

 – The contractor succeeded on the issue of whether the lien was timely.

 – The ultimate award of $3,800 to the owner was minimal.

 – The owner’s offer was made only four days before trial.

 – The award was not reasonable and was not proportional to what was at stake in the litigation.

 Accordingly, the Court decided that there would be no award of costs in the litigation, whether at trial, before the Divisional Court, or on appeal.

 Real Costs

 We suspect that each side expended close to $100,000 to fight over a claim that should have been settled quickly and fairly. Each side did not seem to realise the shortcomings of its position: the owner as to the interpretation of the contract and the contractor as to the proper calculation of damages.


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