Legal Blog

Try Anything

There are times when a litigation lawyer looks at the facts, looks at the law, and says, “Ugghh”. The lawyer then has two choices: fold on a legal action or be creative. Of course, the client has to decide whether to fund the creativity, knowing that creativity, without decent facts or law, does not have a great track record for litigation success. One such case was Don Fry Scaffold Services Inc. v. Ontario, a 2007 decision of the Ontario Superior Court of Justice.

Woe

It started with ordinary facts. Owner contracted with general to perform work. The general obtained a labour and material bond in which the owner was the beneficiary. The surety under the bond agreed that if the general did not pay the subs, the surety would. The general was unable to pay a sub and ultimately went bankrupt.

The plot now thickens. The sub looked to the surety for payment, but was sadly disappointed. The surety could not pay; it was impecunious. What’s more, the surety had never been licensed to do business in Ontario.

We do not know whether the sub was able to obtain any funds by way of a construction lien. The reasons for decision were silent in that regard. All we know is that the sub did not get paid.

Fall Guy 

The sub therefore turned its sights on the only person who had money. It commenced an action against the owner claiming that the owner had a duty of care to all subs to ensure that the surety would be solvent and that the subs, who would rely upon the bond, would be paid. The sub also claimed that the owner owed a fiduciary duty to all subs (i.e. the owner had to ignore its own interests and act in the best interests of the subs).

The owner attacked the pleadings as disclosing no cause of action at law. This means that the court looks at the statement of claim, assumes that everything the plaintiff alleges is true, and determines whether the action should still be dismissed because nothing the plaintiff alleges raises a legal right for redress.

Positions 

The owner submitted that it owed no duty of care to the sub. The Construction Lien Act and the tendering process are based on privity of contract, subject to the holdback duties of a payor. Since the owner never contracted with the sub, the owner owed no duty of care to the sub. Further, the bond created no duty for the owner to pay the sub; only the surety had that duty.

The sub argued that the bond named the owner as a beneficiary under the bond and that placed the owner in a trust relationship with the subs. Once in a trust position, the owner ought to have ensured that the surety was licensed in Ontario and was able to pay its obligations if called upon to do so.

Decision

The motions judge agreed with the owner. Claims for negligence and fiduciary duty have no place in the construction scheme, which is based on privity of contract. The sub had no contract with the owner and had no cause of action against the owner. The owner’s duties were under the holdback and trust fund provisions of the Act and no more.

The judge therefore dismissed the sub’s action. At least, the end came quickly and without inordinate costs for the sub. It would have been far worse for the sub to have suffered through the costs of an entire action and trial and then lost.