Lessons Learned

1. Document everything.
2. Anticipate the critical evidence the Court will require, both if everything goes according to plan and if the Court favours the arguments presented by opposing counsel.
3. Walk away from a fixed-price contract with the job half-done only after very careful consideration, and ideally consultation with counsel.

Construction

In 2005, Campus Contracting Inc. entered into a contract to provide material and labour for the installation of four concrete watermain pipes at the Maple Pumping Station in Vaughan, Ontario, for the amount of $1.4 million. The pipes were intended to receive and transport potable water under high pressure throughout the York region.

The contract required that the work be completed in accordance with the prime contract between the general contractor, Torbear, and the owner, the Regional Municipality of York. Campus was inter alia required to excavate the site to a certain depth, compact the bedding for the pipes to a certain density, and then connect and install the pipes to the pumping station, which Torbear would be constructing itself.

Campus’s role in the construction actually commenced in 2017. After the pipes were installed, a process that appeared to go smoothly, procedure called for them to be pressure-tested.

It did not go smoothly.

All four pipes failed their pressure tests multiple times, indicating leaks, with most of the failures occurring at the couplings and joints. The cause was not obvious, or at least not agreed-upon, and tension rose quickly between Campus and Torbear.

When Torbear declined to pay a Campus invoice presented in the course of Campus’s investigation and remediation of the faulty pipes, Campus downed tools.

Litigation

The dispute proceeded to litigation, with each side blaming the other and seeking the costs of the remediation of the pipes, some of which had been performed by Campus and some by Torbear, along with related damages.

The trial proceeded in a bifurcated manner in which the first half would assess factual and legal liability, and the second half would assess damages. This decision represents the results of the first half.

Analysis

Expert Evidence

Much of the analysis turned on the proper role, qualifications, and assessment of the evidence of expert witnesses. The Court noted that expert evidence is presumptively inadmissible, and is only allowed where impartial advice on factual matters not within the court’s general experience will play a role in the analysis.

The Court also delineated the difference between litigation experts, who are hired guns brought to the trial by the parties to provide favourable evidence – a dynamic that routinely tests the imperative that experts be neutral and objective – and participation experts, who played a personal role in the facts underlying the proceeding and possess special knowledge as a result.

Participation experts are exempt, the Court explained, from the Rule 53 provisions for evidence given at trial, although the court’s gatekeeping function still applies to ensure experts retain their proper role, e.g. in the case of participation experts, not proffering an opinion that exceeds the nature of their observation of and participation in the events in question.

Solving the mystery of the leaking pipes

The two experts in this case, one provided by each party, agreed that the supporting soil under the pipes had settled at different rates, resulting in movement of the pipes that caused strain at the joints and couplings, especially at points where casing made the attachment point rigid.

The experts disagreed, however, on the reason for the unacceptable soil settlement rate, and on whose work was responsible.

The expert for Torbear claimed that the soil under the pipe wasn’t compacted, and that there was mud at the bottom of the trench prior to the laying of gravel bedding. In support of this view, no evidence was given at trial stating or showing that mechanical compaction had occurred, which would have been necessary to bring the soil to an adequate degree of compaction.

Without evidence that a compaction test had ever been performed, the Court concluded that there was no evidence Campus had adequately compacted the soil under the pipes, and that its failure to do so was the most likely reason for the shifting of the pipes and their consequent leaks.

Was Campus owed payment on its final invoice?

On the subject of the breach of contract, Campus provided no accounting evidence regarding the amounts owed and received from Torbear, which substantially weakened Campus’s position in the context of a highly technical and sophisticated payment process in which it had a contractual obligation to comply with certain steps in order to be legally entitled to payment, including submission of invoices to a payment certifier.

It proved especially difficult for Campus that the unpaid invoice which caused it to down tools did not comply with the contractual payment process: inter alia, Campus downed tools before payment of the invoice was properly due (the 30^th day of the following month), and there is no evidence that Torbear was itself paid by the owner for the amount claimed by the invoice, which was required for Campus to be entitled to remuneration for that invoice (a “pay when paid” clause).

The Court concluded that Campus had failed to prove that it was owed money at the time it downed tools.

Abandonment or unlawful termination?

The Court recited black-letter law on the subject of abandonment: a contractor walks away from an unfinished job at their own peril, especially when the contract is fixed-price. The Court explained that lien legislation is designed to protect the interests of the contractor while also ensuring that construction projects stay on track. A major construction project has a complex schedule involving multiple dependent inputs, and a single contractor failing or refusing to complete their work can bring the entire project to a standstill:

The contractor or subcontractor must be certain that the payment is due and owing pursuant to the payment terms of the contract and that non-payment goes to the root of the contract to support the decision to not continue with the work. For if that certainty is not present, the contractor or subcontractor puts itself at peril to be liable for breach of the contract in not performing the work as mandated by the contract and be responsible for any damages flowing from the breach to perform the work mandated.

Given the Court’s finding that neither Campus’s work nor Campus’s invoice complied with the terms of the contract, there was no breach by Torbear, fundamental or otherwise. The Court had no trouble concluding that Campus, finding itself in a losing proposition where it couldn’t find the source of the leaks, and was throwing good money after bad in trying, “just wanted out of the ordeal”.

In this, they succeeded, but the bill has not yet come due. The second half of the trial will determine what Campus owes for its breach of the contract via abandonment.

The post Case Review – Campus Contracting Inc. v. Torbear Contracting Inc., 2023 ONSC 6782 appeared first on Construction Law Canada.

Lessons Learned

1. If you’re going to draft a contract, be realistic about what might go wrong.
2. If you’re going to claim a fundamental breach of that contract, the breach had better be serious.
3. If you’re going to court to fight about that contract, hire a lawyer.

Construction

The scene: a tasteful, two-storey, custom-built house in a golf-centred strata community just south of Kelowna.

The players: Carol MacLeod, the retired anthropology professor who owns the house, and Ellcar Ventures Ltd., the father-daughter team who built it for a nominal price of $400,000.

The theme: the unexpected, which became routine during construction. Unexpectedly shallow bedrock called for blasting, the slope of the lot called for a retaining wall, and land-use restrictions imposed by a nearby astrophysical observatory inflicted adaptations on the electrical plan.

An unpaid invoice caused Ellcar to down tools, and it sued for what was owed.

Litigation

The Court found the lead witness for Ellcar, Hart Buckendahl, to be a model witness – non-argumentative, unemotional, exacting and detailed in his recall, and careful to delineate matters about which he was certain or knowledgeable from those where his memory was weaker or which were outside his expertise. As we have seen on this blog, while a good impression of credibility is no guarantee of victory, it’s an excellent sign.

The Court was less kind to MacLeod, who was self-represented – “confused and confusing, indecisive and hesitant, and to be the source of many of the misunderstandings and miscommunications leading to this protracted dispute and trial.” At the height of an extended denunciation, the Court wrote:

The overwhelming impression arising from her testimony, and from the entire body of evidence, is that she desperately wished to build her dream home, with unrealistic views of what could be achieved for her budget, coupled with unrealistic views about the effects of changing specifications on the cost and efficiency of the construction. This combination of desperation and delusion continued through litigation and trial, where she threw up every possible resistance to the plaintiff’s contractual charges, no matter how unfounded, de minimis, or consumptive of valuable court time, not only to avoid payment, but also, in her words, to show that she was “not going to kow tow to someone who thinks they can push me around.”

This, dear reader, is why tradespeople prefer commercial contracts to working for homeowners, and courts prefer litigants represented by counsel.

Analysis

Just as Ellcar’s lead witness was a model to follow, the 8-page contract Ellcar drafted also turned out to be a model of its kind.

While one section of the contract states a “total contract price”, it was qualified by an express exclusion of expenses over the anticipated costs, listed by line item, and also expressly excluded any requested or necessary additions, extras, goods, or services beyond those specified in the contract. Likewise, while Ellcar provided MacLeod with detailed schedules, the contract lacks both a completion date and a “time is of the essence” clause, and the schedules were never represented as binding in either the contract or Ellcar’s communications with the plaintiff.

Browne v Dunn Rears Its Head

Against this, the defendant’s case suffered from a tendency to attempt to produce inadmissible hearsay, and contravention of the ancient tripwire Browne v Dunn, a case from 1893 that requires litigants to put statements of fact to opposing witnesses in cross-examination if the litigant later intends to claim that the statement of fact contradicts the testimony of the opposing witness. In this case, for example, MacLeod did not put to the railing installer her version of their conversations about her preferred railing colour.

Lack of Written Change Orders

The point of greatest risk might have been Ellcar’s failure to obtain written change orders before implementing some of the changes MacLeod demanded, as the contract stated “shall” occur before such work was performed. MacLeod suggested that such a failure to abide by the terms of the contract negated her obligation to pay, an argument the Court deemed “audacious”. The case law was clear, the Court wrote, that an owner cannot rely on strict compliance with a contractual provision requiring written change orders where the owner has waived that provision or acquiesced in ignoring it.

Ellcar was likewise rescued by the Court on the subject of whether the contractual obligation to “dig” the foundation included blasting through bedrock, which the Court ruled was a verb that only applied to the removal of earth and soil.

Repudiation

The Court’s analysis ultimately turned to the moment of crisis when MacLeod refused an invoice late in the project and Ellcar downed tools, never to return. Tension had been growing over indications that MacLeod was likely to dispute significant extra costs, and perhaps in an attempt to bring the inevitable forward in time, the invoice in question contained those extra costs, despite the contract stating that extras would only become payable on the last invoice.

Ellcar argued that MacLeod’s refusal to pay that invoice constituted a “fundamental breach”, also known as a “repudiatory breach”, of the contract that annulled its obligation to perform further work, including the correction of deficiencies.

Here the Court differed, explaining that repudiation, which occurs by words or actions evincing an intention not to be bound by the contract, requires a breach of the contract in a very important respect – a condition or term sufficiently critical that refusal to fulfill it represents a substantial failure of performance. It is not to be lightly found or inferred.

In this case, MacLeod at all times evinced an intention to pay some amount of the invoice, albeit less than the contractually-agreed sum, while Ellcar demanded more than the contractually-agreed sum. The Court described this dynamic as both parties engaging in brinkmanship that stretched their rights under the contract. It was not unreasonable, the Court concluded, for Ellcar to demand reassurances, but MacLeod also occupied a reasonable position that the extras, however legitimate, were not yet contractually due – no repudiation of the contract had occurred.

Ellcar was consequently found to be liable for deficiencies that MacLeod had been forced to hire other contractors to correct, in the amount of $7,000. This award was, however, dwarfed by the $101,000 the Court awarded Ellcar for the legitimate overages the Court found to be contractually owing.

The post Case Review – Ellcar Ventures Ltd. v MacLeod, 2023 BCSC 2095 appeared first on Construction Law Canada.

Lessons Learned

1. Procedural efficiency is usually possible, but cannot be arrived at by brute-forcing past the plain meaning of the controlling legislation.
2. Legislation isn’t just the statute, it’s also the regulations appended to the statute. Read the regulations, know the regulations, don’t attempt to evade the regulations to make your life easier.

Litigation

Mirella Cesario-Valela and Vito Valela are owners of property involved in a thinly-described construction dispute with Backyard XP Inc., the plaintiff and lien claimant. The Valelas sought leave to issue a third-party claim against Garrison Creek Construction Inc., alleging that Garrison is an alter ego, agent, and de facto plaintiff – as the Valelas put it, the “puppet master” of Backyard.

The Court found that the accusations had at least prima facie merit, given that the two corporations are admittedly related and that documentary evidence showed that Garrison played an active role in construction of the property.

Analysis

The Court was, however, troubled by the procedural availability of the proposed third-party order, which the Valelas requested pursuant to section 4 of the Procedures for Actions Under Part VIII  regulation of the Construction Act, which deals with third party claims in lien actions.

The Court distilled section 4 into three requirements in order to obtain leave to issue a third-party claim:

1. The motion must be on notice to the owner, as well as all persons who have subsisting preserved or perfected liens at the time of the motion.
2. The proposed claim must be for contribution or indemnity from the third party in respect of the claim against the party seeking to add the third party.
3. The court must be satisfied that the trial of the proposed third party claim will not unduly prejudice the ability of the third party or of any lien claimant or defendant to prosecute a claim or conduct a defence, or unduly delay or complicate the resolution of the action.

The Court had no trouble finding that notice was provided to all relevant parties, with the note that while not strictly required, it’s good practice to notify the proposed third party, as was done here.

The second requirement proved more difficult. The Court referenced a line of case law for the proposition that the claim must be a true claim for contribution or indemnity, not a veiled claim for damages, and observed that the Valelas included no draft of their proposed claim in their application materials and refused to answer questions posed on cross-examination as to what form of relief would be sought, before conceding during submissions that the claim against Garrison was intended to be as against a “proper party”, i.e. seeking damages and not merely contribution or indemnity.

Parties cannot be added to a lien action by way of counterclaim, the Court bluntly stated. There is no judicial discretion, regardless of any obvious litigation economies. As the Court explained, per sections 2 and 4 of the relevant regulation, the Valelas “may counterclaim against Backyard for any claim that they have against Backyard. They are not entitled advance their counterclaim against other parties.”

The Court suggested instead that the appropriate procedure was for the Valelas’ claims against Garrison to proceed in a separate action brought under the Rules of Civil Procedure, and for the parties to then “discuss”, a verb one might reasonably suspect contains a hint, whether Backyard’s lien action and the Valelas’ non-lien action against Garrison should proceed in parallel and be tried together.

The post Case Review – Backyard XP Inc. v. Cesario-Valela, 2023 ONSC 6312 appeared first on Construction Law Canada.

1. If you’re complaining that you’ve been a victim of fraudulent behavior, plead fraud or prepare for monumental disappointment.
2. Know who you’re contracting with, be clear about it in the written agreement, and don’t mistake the importance of a party to the construction project as privity of that party to the construction contract.
3. A landlord’s tendency to micromanage work done on their property may have consequences when it comes to targeting them with a builders’ lien.

Construction

Rise

In 2014, a chef named Mark Hobson approached Keith Haxton, a landlord alleged to have a reputation in Fort McMurray’s business community for “questionable ethics” and “screwing people over”, about partnering to build a fine-dining Italian restaurant in one of Haxton’s properties – a second-floor unit with a panoramic view and an excellent location near the planned site of an arena complex.

Hobson and Haxton struck a deal involving a $400,000 loan from Haxton through his company Haxton Holdings Ltd., which would also charge rent for the space, and a $200,000 investment from Hobson, as well as investment from other local figures, including a mysterious man known at trial only as “Freddy”.

Hobson incorporated Ristorante Cosa Nostra Inc. and set about construction, for which he hired Timothy Gushue and his numbered company as project manager, and interior decoration, for which he hired the mother-daughter operation Designs by Marlynn Ltd.

Decline

Ristorante Cosa Nostra opened for business in late June of 2015 and found itself in financial trouble instantly, which may have had something to do with an “extortionate” lease rate. Within a month, Hobson had informed Haxton that he was struggling to make his loan and rent payments, and Haxton had asked Hobson to cede all financial management to two of Hobson’s investors, Karen and George Collins.

Designs by Marlynn performed its last work on the project in late June. Its final invoice of $112,000 in July resulted in only partial payment in September, leaving an outstanding balance of $84,000. Gushue’s numbered company completed its project-management work in August, 2015, and issued Hobson a final invoice in October of $153,000 – an invoice which went unpaid. In December, Gushue’s numbered company and Designs by Marlynn both filed liens against the restaurant corporation and against Haxton’s fee simple estate in the commercial building containing the restaurant.

In February, Karen and George Collins asked Hobson to attend a meeting at Ristorante Cosa Nostra. Haxton was also present, as was a witness and a Commissioner for Oaths. Hobson executed a sales agreement acknowledging debt owed to Haxton for late rent and transferring ownership of the restaurant and all of its assets to Haxton in exchange for forgiveness of it. Haxton in turn sold the restaurant and its assets to a numbered company owned by the Collins’ in an agreement containing a covenant that the chattels sold were free of any encumbrance, despite the outstanding liens.

Fall

Haxton then lent Karen and George Collins $300,000 for improvements for another Italian restaurant in the same location, Asti Trattoria Italiana, and cut the lease rate by more than half. The grand reopening occurred in March, the Fort McMurray wildfire occurred in May, George Collins passed away two years later in 2018, and Karen Collins underwent a hip surgery in 2019 that resulted in complications.

In the fall of 2019, Karen Collins put a “temporarily closed” sign on the restaurant’s door, and that door never opened again. Haxton seized and sold the restaurant’s assets, and the space is now a doctor’s clinic.

Litigation

With Hobson’s restaurant corporation and Hobson himself both judgment-proof, Gushue and Christensen’s only realistic possibility of payment for their final invoices involved Haxton. To that end, they plead the existence of an oral contract involving Haxton, and failing that, unjustment enrichment, quantum meruit, negligent misrepresentation, and a valid builders’ lien on the Haxton-owned property.

Gushue and Christensen claimed that they believed they were contracting with Haxton as well as Hobson. They believed that the real backer of the restaurant project was Haxton, who was present during planning meetings, who presented himself as a heavyweight who told Gushue at the end of one meeting “don’t butcher my building” and to “protect my $500,000” (only $400,000 would eventually be loaned to Hobson), and who phoned Gushue near the end of the project about when he would be back to finish incomplete work.

Analysis

The Court found almost all of the witnesses to be less than perfectly credible, and noted that it was immediately apparent during testimony that Haxton had substantially more sophistication and business experience than the others involved in the project: Hobson and Gushue were “clearly at a disadvantage” in any dealings directly with Haxton. On the other hand, the Court noted that Hobson and Gushue were aware of Haxton’s reputation at the outset of the project, and concluded that they had gone forward “with their eyes open”.

While the Court occasionally found Haxton’s testimony suspiciously self-serving, Hobson’s clear feelings even eight years later of having been “betrayed and duped” by Haxton lessened the weight the Court placed on his competing testimony, as did Gushue’s “questionable” record-keeping and invoicing practices.

Oral Contract

In the case of both Designs by Marlynn and Gushue, the Court found that no contract existed with Haxton. Unfortunately for those parties, however much of a heavyweight Haxton came across as during meetings, he was also meticulous about both the chain of instruction and the cash flow: Hobson alone brought Gushue and Designs by Marlynn into the project, only Hobson knew the exact scope of work they were hired to complete and the exact fees they were going to charge, all invoices were submitted to the restaurant corporation, and all payment was expected from the restaurant corporation.

Negligent Misrepresentation

The Court concluded that Haxton had in fact told Gushue that he would be investing $500,000 in the project, not the $400,000 he ultimately did, but the Court could not conclude that a special relationship existed between Haxton and Gushue that would have produced the duty of care required for a finding of negligent misrepresentation: it was not reasonably foreseeable that Gushue would rely on that representation by Haxton, nor was any such reliance by Gushue actually reasonable. A brief introductory meeting in which many critical terms, like costs, fees, and drawings, were discussed only in generalities is a meeting with “too many uncertain and undetermined factors” to produce reasonable reliance or the reasonable expectation thereof.

Unjust Enrichment and Quantum Meruit

For both Gushue and Designs by Marlynn, the primary difficulty with a claim of unjust enrichment was that Haxton never directly received anything of value from either party: everything Haxton acquired was the result of the purchase of the restaurant corporation’s assets from Hobson. The Court likewise found that the deprivation both parties suffered was the result of the restaurant corporation’s failure to pay their invoices, a corporation for which Haxton was a mere creditor at the time of the non-payment.

Fraud

The ugly truth, the Court observed, was that Gushue and Designs by Marlynn’s real complaint was of fraud, specifically Haxton’s engineering of a sale of the restaurant corporation that improperly failed to note the outstanding debts and charges in the sale agreement, and fraud was not plead by either plaintiff.

Fraud, the Court explained, must be explicitly plead as it is a serious allegation, and even using the “realistic and pragmatic” framework which now applies to evaluating the contents of pleadings, a claim of unjust enrichment cannot be allowed to function as a backdoor pleading of fraud.

Builders’ Liens

The plaintiffs were no more successful in their claim of valid and subsisting builders’ liens.

By accepting the validity of the liens throughout many years of litigation and multiple days of trial, Haxton was held to have acquiesced to their validity and was estopped from challenging them. However, in order for the plaintiffs to file a lien against Haxton Holdings’ fee simple interest in its property, Haxton’s corporation would have had to qualify as an “owner” under the Builders’ Lien Act. The definition of an “owner” (inter alia) is a person having an interest in land at whose request, express or implied, and on whose credit, behalf, with whose privity and consent, or for whose direct benefit work is done or material is furnished for an improvement to the land.

The concept of a request, the Court wrote, does not require direct communication between a landlord and a contractor. It does, however, require more than mere knowledge or consent: it requires active participation. While a landlord who has been significantly involved in the design or construction of leasehold improvements can be found to have made an implied request for work to be done, that was not found to be the case here on the evidence provided.

Haxton, the Court found, was “involved in the project from the outset, knew generally what was planned, and monitored what was happening on a fairly regular basis. He was also responsible for financing the majority of the costs of the project.” But his role was passive until the work was almost entirely completed, and none of the renovations were carried out at his request or in a manner he directed.

Ultimately, while it was true that Haxton indirectly benefited from the work, since it facilitated the sale of the leasehold improvements to the Collins’ and the use of the premises to operate another restaurant, the Court determined that a landlord’s reversionary interest did not qualify as a “direct benefit”.

The Court concluded with a remarkable note that it had “tremendous sympathy” for the plaintiffs, whom it was obliged to rule against, and suggested that Gushue in particular should have had reservations about his involvement when he discovered that the majority of the financing was coming from “someone he understood to have a reputation in the local business community for questionable ethics”.

The post Case Review – 1361556 Alberta Ltd. v. Ristorante Cosa Nostra Inc., 2023 ABKB 590 appeared first on Construction Law Canada.

Lessons Learned

Don’t overplay your leverage: recognize in advance of applying for relief what you are capable of achieving with the hand you’ve been dealt.

Construction

Green Blvd. Construction Ltd. owns two lots in Coquitlam: 1405 and 1407 Pipeline Place. It entered into a contract via text message with BSSD Excavating & Landscaping Ltd. for construction services of a contested scope, but that in essence amounted to lot digging, extraction, soil and dirt removal, road cleaning, backfill, and drain installation on the two lots.

The parties agreed by text message on a price of $32,000 per lot, although there are now claims of undocumented terms, including payments to be made by installment and hauling dirt from site being an extra.

BSSD began work in November 2022 and provided two estimates matching the contracted price. In December, Green Blvd. paid BSSD $10,000 per lot, and in January 2023, BSSD invoiced Green Blvd. for $23,000 per lot – essentially (but not quite) the original contract price minus the $10,000 payments already made.

In February, BSSD’s principal stated in a text message that the work was 90% done and demanded further payment toward the agreed price. Green Blvd. objected, and BSSD conceded that Green Blvd. could withhold payment of the $46,000 outstanding under the contract until the job was done.

Later that month, Green Blvd. instructed BSSD to stop work. Green Blvd., alleging deficiencies, informed BSSD that it was fired and demanded that BSSD remove its equipment from site.

Litigation

In April, BSSD registered two builders’ liens in the combined amount of $124,000, nearly double the contracted amount. BSSD’s affidavit evidence claims that the overage is the result of the expense of dumping the soil excavated from site, which was not included in the lump sum contract.

Green Blvd. applied to cancel the liens pursuant to sections 22 and 25 of the British Columbia Builders Lien Act, which state inter alia that a lien is extinguished if not filed in the manner required by the Act. Green Blvd. specifically claimed that, as section 2 of the Act establishes only the right to a lien “for the price of the work and material, and the extent that the price remains unpaid,” BSSD’s claim for an uncontracted sum, as well as for the entire sum contracted when some work remained incomplete, vitiates the lien.

Analysis

Cancellation via Improper Filing

The Court reasoned from the common dictionary definition of the word “manner”, which refers to the way in which a thing is done. Here, there was no suggestion that BSSD failed to follow procedure, and the Court concluded that neither the price of the work nor the amount owing are captured by section 2 of the Act such that an incorrect amount claimed extinguishes a lien.

Consequently, the Court determined that the only potentially available grounds for cancellation were found in s. 25(2)(b): “the claim of lien is vexatious, frivolous or an abuse of process”. Of those possibilities, the only serious question arising was whether BSSD’s claim was frivolous. The Court cited West Fraser Mills Ltd. v. BKB Construction Inc., 2012 BCCA 89, on this point, in which the Court of Appeal wrote that a lien claimant must only clear a low bar in defence of an accusation that their claim is frivolous. If it is not “plain and obvious” that pleadings should be struck – if there is apparently a question to be tried – then a lien claim is not frivolous.

While the Court agreed with Green Blvd. that the conduct of the parties was more consistent with an all-inclusive price than with the final amount claimed by BSSD, the Court concluded that a section 25 application to cancel the lien was not the appropriate procedure to contest a lien’s quantum, and that Green Blvd. should have applied for a summary trial, or utilized section 24 (via which a lien may be cancelled upon deposit of adequate security) to apply for a reduction in the security required of it.

Cancellation via Security Deposit

The Court went on to consider arguments under section 24, but Green Blvd. once again made an aggressive demand – that the security ordered be a merely nominal amount – and once again, the Court relied on the appellate decision West Fraser Mills to explain to Green Blvd. why its demand was inappropriate:

Section 24 is no more a means of conducting a summary trial than is s. 25… It is perhaps theoretically possible for the court to find under s. 24 that it is “plain and obvious” that a lien claim is not provable, and to order nominal security on this basis. However, it seems to me that if the evidentiary record (despite being not fully developed, as it would be in the context of an action) led to such a conclusion, it would be appropriate to find under s. 25(2)(b) that the lien claim was vexatious, frivolous, or an abuse of process. Had the Legislature intended s. 24 to be used as a means by which the court can fully and finally determine the factual or legal merits of a lien, it would have said so in the section. I think the scope of enquiry under s. 24 should be approached with caution in order to avoid injustice to lien claimants who, generally speaking, have the right to have their claims fully adjudicated at trial. [emphasis added]

The Court did, however, reduce the amount of security ordered to the textually-supported agreement of $32,000 per lot. The Court cited Strata Plan LMS2262 v. Belgrove Construction Ltd., 2003 BCSC 535, for the principle that “[w]hen the question arises at the time of posting security with respect to the amounts claimed, the onus shifts to those who want full security posted to provide at least the barest of details, which would be something more than a bald statement that the monies are owing and something less than prima facie proof of the claim.”

Cancellation via the Land Title Act

Green Blvd. attempted a final hail mary by making application pursuant to sections 256 and 257 of the Land Title Act, arguing that it would experience hardship and incovenience from the registration of BSSD’s liens, namely its inability to sell the properties in question until trial.

The Court nixed this argument decisively: it held that the Builders Lien Act sets out a comprehensive code for liens filed by construction trades, and that an owner experiencing hardship or inconvenience from a builders’ lien must find its remedy in that act, not in Land Title Act remedies created for a different purpose and that would, if Green Blvd.’s interpretation were to be accepted, conflict with the outcome of the process created by the Builders Lien Act.

Costs

Both parties arguably had the opportunity – BSSD before filing an inflated lien claim and Green Blvd. when fashioning its application – to present themselves as the reasonable party and ensure a clean win, with the associated material benefit of a costs order in their favour. Instead, the Court deemed success on the application to have been divided and ordered each party to bear its own costs.

The post Case Review – BSSD Excavating & Landscaping Ltd. v. Green Blvd. Construction Ltd., 2023 BCSC 1685 appeared first on Construction Law Canada.

Lessons Learned

We here at Construction Law Canada are happy to give you the following line to pull out of your back pocket at cocktail parties: “When dispute resolution has reached an impasse a contract will be considered abandoned, whatever the claimed intent of the contractor to perform.”

We also advise you to be very, very careful about lighting money on fire with a section 47 application unless you’re sure the court won’t be required to weigh evidence or evaluate the credibility of a witness.

Construction

This is a case shrouded in mystery. The scene: a large construction project that lasted many years with significant amounts billed and paid. A slowly-evolving dispute over invoices that led to negotiations, arbitration, and acrimony. Let your imagination fill in the rest.

Litigation

Our story begins, then, with an accusation of abandonment. S3i removed its equipment from site, demobilized, and filed a lien. Ecolomondo brought a motion – this motion – claiming that per section 47 of the Construction Act, S3i failed to file the lien in time.

The lien was registered on January 26, 2023, and Ecolomondo argued that the contract was abandoned before November 27, 2022: more than 60 days and thus contrary to section 31(2)(b).

Analysis

Abandonment

Roger J began by observing that the Construction Act does not define abandonment, but that a body of case law has evolved to fill the gap.

Abandonment is now deemed to have occurred when there is a cessation of work and either an intention not to complete the contract or a refusal to complete the contract. Subjective abandonment by the lien claimant is obviously sufficient – an intention by the contractor to abandon – but when abandonment is denied, all relevant circumstances must be considered to determine whether abandonment has objectively occurred.

In fact, the Court noted, objective evidence of abandonment supersedes any claimed subjective intent by the contractor to complete the contract. “Once it becomes impractical or impossible to perform the contract, no reasonable person would persist in saying that they were ready, willing, and able to continue performing.” Where dispute resolution has reached an impasse, in other words, a contract will be considered abandoned, whatever the claimed intent of the contractor to perform.

Section 47 Procedure

Ecolomondo and S3i disagreed about whether a court can weigh evidence, evaluate credibility, and draw inferences from evidence on a summary section 47 motion under the Construction Act, as they now can in a normal summary judgment motion per rule 20 of the Rules of Civil Procedure.

It’s a fascinating discrepancy (perhaps less fascinating for counsel involved in these disputes), and this Court ultimately aligned with the decision in Built By Engineers v Coronation Medical Plaza, another 2023 decision we reviewed here: the enhanced powers available via rule 20 of the Rules of Civil Procedure are not available on a section 47 motion under the Construction Act.  Although an analogous test is used by rule 20 and section 47, these are procedurally different motions.

The Court does seem to obliquely suggest that this discrepancy is perhaps one that might be worth eliminating via amendment of the Construction Act, and this carefully-expressed mood also seems to appear in previous judgments discussing the topic. For now, though, the discrepancy remains.

Conclusion

As a consequence, in this case the Court had no choice but to declare the existence of issues requiring a trial. Ecolomondo’s evidence that it informed S3i in August of 2022 that it would not be performing any more work was contradicted by S3i’s own affidavit evidence, which was that the parties only agreed to a pause. Likewise, the parties do not agree about the veracity of the claim that the principal of S3i verbally stated in August that S3i was leaving and not coming back, nor what was said at a December meeting.

And that’s all it takes. Motion dismissed, costs of $33,000 ordered payable forthwith in order to dissuade future applicants from trying to force through section 47 motions containing triable issues.

The post Case Review – S3i Inc. v. Ecolomondo Environmental (Hawkesbury) Inc., 2023 ONSC 5071 appeared first on Construction Law Canada.

Lessons Learned

1. Construction involves the unexpected, the unexpected leads to change orders, and unless all aspects of the contractual revision are clearly documented and signed off on by the affected parties, change orders lead to complex litigation.
2. If you’re going to rely on the contractual rights granted to you by a counterparty’s default, you’d better issue a notice of default – and promptly.
3. Be exceptionally careful what you put in your pleadings.
4. Are your time sheets written on napkins and jobsite cardboard? Read on to find out why they shouldn’t be.
5. Sing like nobody’s listening, dance like nobody’s watching, write emails like they’ll be used to determine the validity of a quarter-million-dollar invoice.

Construction

661 University Avenue is the site of the UHN Centre for Cell & Vector Production, a state-of-the-art biomedical laboratory complex located in downtown Toronto, adjacent to some of Canada’s leading hospitals and research institutes. The site is also now the subject of a 42-page judgment consequent to litigation arising from construction of the laboratory in 2019.

In January 2018, the general contractor subcontracted the project’s mechanical work to Geo A. Kelson Company Limited, which sub-subcontracted the project’s sheet metal work to A. Amar and Associates Ltd. for a fixed price of $782,000. Due to both a labour shortage in sheet-metal workers and Amar’s winning bids on five separate Kelson projects that – thanks to project delays – all unexpectedly proceeded around the same time, Amar hired sheet-metal labourers from Sjostrom Sheet Metal Ltd. to bolster its own workforce.

In July 2018, Sjostrom walked off the job following a payment dispute with Amar, at which point Kelson discovered both the unexpected hiring of Sjostrom and that Sjostrom’s sheet-metal workers were the only ones on site.

Sjostrom returned to work after Kelson’s executive vice-president promised that Kelson would make all payments to Sjostrom directly going forward, bypassing Amar. Kelson then issued a “Sub-Contract Change Order” reducing the value of Amar’s fixed subcontract by approximately $62,000.

Litigation

A stitch in time usually saves nine, but in this case the stitch didn’t hold. Two related disputes eventually arose as a result of Kelson’s improvised solution to the crisis of Sjostrom walking off the job.

First, Sjostrom claimed that Kelson owed it $161,000 for several thousand hours of unpaid work. The parties disagreed about both the facts (how many hours did Sjostrom’s labourers actually work?) and the nature of Sjostrom’s contract with Kelson, including details like payment structure and whether the contract actually existed.

A second, related dispute subsequently arose between Kelson and Amar regarding who breached the initial subcontract, and whether the change order removed all sheet metal work from Amar’s scope of work. Amar was called back to site to perform sheet-metal work in late September, and if the sheet metal work had been removed from scope, that winter work would be a valid extra. If not, Amar would be eating the additional $200,000 cost of services and materials as part of its fixed-price agreement to provide all sheet-metal work on the project.

Analysis

Agreement Between Kelson and Sjostrom

The Court began with the question of whether Kelson and Sjostrom had formed a direct contract, or whether Sjostrom remained a subcontractor to Amar whom Kelson only paid on Amar’s behalf out of Amar’s subcontract funds.

The lack of a written agreement between Kelson and Amar would normally have proved to be a much greater headache, requiring evidence of a meeting of the minds on the three essential terms of a construction contract: price, scope of work, and a schedule or completion date. In this case, however, the Court found that Kelson had inadvertently admitted to the existence of a direct contract with Amar in its statement of defence, where it wrote that it “decided to retain [Sjostrom] to complete Amar’s Work directly”, that it “entered into an agreement with [Sjostrom] for [Sjostrom] to complete Amar’s Work”, and that it was “forced to re-hire Amar to perform [Sjostrom’s] scope of work”.

The Court also relied on subrule 25.07(3) of the Rules of Civil Procedure, which expressly requires a party who intends to prove a version of facts different from that pleaded by the opposite party to plead the party’s own version of the facts in the defence. Here, Kelson’s plead version of the facts did not contradict Sjostrom’s plead assertion of a direct contract.

Finally, the Court noticed that Kelson had employed s. 17(3) of the Construction Act in its pleadings, which allows a party directly liable for payment to claim a set-off against it. This, of course, would only be relevant if Kelson believed itself to have privity of contract with Sjostrom.

The Value of Sjostrom’s Work

Unfortunately for Sjostrom, it won the battle but lost the war. The Court found that Sjostrom and Kelson had agreed to an hourly rate for completion of the work, but Sjostrom’s evidence of the hours its labourers had actually worked was a mess.

Sjostrom amalgamated the overtime hours with regular hours rather than bill them as separate line items, and only tendered weekly time summaries in support of the invoices that were generated by Sjostrom’s principal, unsigned by the labourers involved, and lacking details of the work actually performed each week. When questioned about whether actual time sheets existed that had been generated by the labourers themselves, Sjostrom’s principal admitted that the labourers didn’t keep time sheets, only notes recorded on scrap drywall, jobsite cardboard, and napkins.

The final nail in the coffin was that the weekly time summaries prepared by Sjostrom’s principal were not actually transmitted to Kelson weekly, but rather en masse with each invoice, making it impossible for Kelson to monitor how much time Sjostrom labourers had spent on site or what they were accomplishing.

The Court emphasized the precedent that time spent by labourers on a project must be strictly proved given the difficulty of verifying it after the fact. Without any evidence worthy of the word of what Sjostrom had accomplished on site, its demand for compensation for $160,000 of unpaid labour was dismissed.

The Change Order

Kelson was not yet out of the woods, however. The Court’s finding of a direct contract between Kelson and Sjostrom did not answer the question of whether sheet-metal had been removed from Amar’s scope of work by the change order, or whether it merely established a credit for the work for which Kelson had paid Sjostrom.

The change order in question is a monument to ambiguity, only stating a unit price deduction and the description “work performed by others”. The Court essentially disregarded it and went looking for answers in the documentary evidence near in time to the creation of the change order, especially emails, and in the conduct of the parties after the fact.

The Court observed that the labour rate agreed between Kelson and Sjostrom had not been discussed with Amar, which the Court found “curious” if Sjostrom was still presumed to be Amar’s subcontractor. The Court also found an email from Sjostrom’s principal to Amar’s principal stating that henceforth Sjostrom would be exclusively following Kelson’s instructions and their time sheet submittal policy, and a second email exchange in which Kelson neglected to dispute Amar’s statement that the $60,000 unit price deduction in the change order represented the cost to complete the sheet metal work as contracted.

The Court had no difficulty finding that the change order removed the remaining sheet metal work from scope of Amar’s contract.

This finding would prove to cause Kelson a great deal of pain on the subject of whether it owed Amar approximately $209,000 for sheet-metal work it asked Amar to come back on site to complete that winter after Sjostrom’s dispute with Kelson began to escalate.

Kelson attempted to argue that it had only needed to employ Sjostrom in the first place because Amar had breached its contractual obligation to have sufficient manpower on site, and that it was therefore still Amar’s responsibility to finish the sheet-metal work at its own expense. Problem: all of Kelson’s rights on default flowed from the existence of a notice of default, and in the initial chaos surrounding all of Sjostrom’s sheet-metal labourers walking off site, Kelson had not bothered to issue Amar with a notice of default.

Without issuing that notice, Kelson had no right beyond the agreed value of the change order, which was $60,000, to back charge Amar for the cost of Kelson directly contracting with Sjostrom. Whether or not Amar underbid the job became, in the Court’s words, “immaterial to disposition of this trial”. Amar completed its revised scope of work in exchange for its revised fix-price payment, and when it was called back onto the site to perform work outside that revised scope of work, that additional work constituted a valid extra.

When the smoke cleared, Sjostrom came away empty-handed and Amar with a judgment against Kelson for $209,737.88 plus costs.

The post Case Review – Sjostrom Sheet Metal Ltd. v. Geo A. Kelson Company Limited, 2023 ONSC 4959 appeared first on Construction Law Canada.

Lessons Learned

1. When a client’s case is strong, attempting summary judgment is tempting, but the bar to clear is formidable and even a strong case isn’t certain to be enough.
2. The odds are not improved by presenting anything less than airtight affidavit evidence, or by failing to demolish whatever evidence the opposition has presented beyond the very shadow of reliability.
3. Know your rules of evidence. “Hearsay” is a painful description of a helpful affidavit, as is “inadmissible”.
4. Be wary of a disorganized respondent’s case improving sharply just before an application is heard.

Construction

In 2019, a numbered Ontario company purchased land and began construction on a four-storey medical building in a Markham industrial park, near the Canadian Pacific railyard.

That October, the general contractor Hari Kaush Developments Inc. hired Sun Steel Fabricators Ltd. to supply and install structural steel.

The first problem: “Sun Steel Fabricators Ltd.” didn’t exist.

5031991 Ontario Inc. was incorporated in April 2020 and belatedly acquired the registered name “Sun Steel Fabricators”, but the factual ambiguities continued to pile up. When was their work finished? Possibly November of 2021, or possibly March of 2022. Were there any chargeable extras? Perhaps eight of them totalling nearly $300,000, perhaps not. Had the general contractor Hari Kaush paid a mere $403,000 toward final settlement of the bill, or had it paid more? Undetermined.

Litigation

What is known for certain is that on May 26, 2022, the two numbered companies eventually associated with the trade name “Sun Steel Fabricators” filed a lien for over half a million dollars.

In June, Hari Kaush obtained an order vacating the lien in exchange for posting a cash security, and both sides traded pleadings.

In October, counsel for Hari Kaush conducted a cross-examination of Balwinder Dhensa, principal for both of the numbered companies. 18 undertakings were given, but several demands later, none had been answered.

In February 2023, counsel for Dhensa’s numbered companies applied to be removed as lawyer of record, and later that month Hari Kaush applied for an order pursuant to sections 47 and 44(5) of the Ontario Construction Act striking the statement of claim, discharging the lien, and returning the deposited cash security.

A week before the June application date for the striking of the claim, Dhensa’s new counsel for his numbered companies sent Hari Kaush a letter purporting to answer 16 of the 18 undertakings, and on the eve of the hearing sent a second letter purporting to answer the final two.

Analysis

The Court summarized the process for a s. 47 application according to the most recent case law: (i) the moving party must prove that there is no triable issue as to the basis on which the lien is sought to be discharged, (ii) the court is entitled to assume that both parties have provided their best evidence relevant to the issue, and (iii) competing evidence will not be weighed, nor will credibility be assessed or inferences made from the evidence presented, as a court lacks those powers in a s. 47 application.

The Court then determined that there were two issues to be resolved: the timeliness of the lien and the question of whether the lien was frivolous, vexatious, or an abuse of process.

Timeliness

The new Construction Act requires that subcontractors file a lien no later than 60 days after the last date on which services or materials were supplied: Dhensa’s lien filing would have been just in time.

The old Construction Act stipulates a 45-day deadline: Dhensa’s lien filing would have been clearly late.

Hari Kaush argued that the inception of the project predated July 1, 2018, when the new Act came into force, and that the old deadline therefore applied. The Court found, however, that there was no clear evidence in the motion materials to confirm when the project and its procurement actually began – the Court was reduced to squinting at ambiguously-marked drawings in the affidavits, and had unkind words for the state of the “best foot” Hari Kaush had put forward.

That Hari Kaush’s other supporting evidence came in the form of hearsay – affiants with no direct knowledge of the contents of the exhibits attached to their affidavits, none of which had even been attempted to be qualified via the “business records” hearsay exception – did not improve the Court’s mood.

At best, the Court concluded, the evidence raised a suspicion that the lien had been filed late, and a suspicion simply wasn’t good enough, especially when balanced against straightforward affidavits from two of Dhensa’s corporate employees, unsubjected to cross-examination, who swore to personal knowledge of work performed in the relevant time frame.

Frivolous, Vexatious, Abuse of Process

Per the Court’s helpful summary, “frivolous” is used to describe an action that is so highly unlikely to succeed that it is apparently devoid of practical merit; “vexatious” includes actions that obviously cannot succeed and that are brought for an improper purpose; and “abuse of process” is a flexible doctrine that gives the court the inherent power to prevent the misuse of its process.

These are strong claims. These claims require powerful evidence in support and anemic-to-zero evidence in opposition. As it eventuated, Dhensa and his new counsel made a spirited accounting of their case, with invoices that supported the allegations in the statement of claim and a detailed explanation of the relationship between handwritten calculations in evidence and the eight claimed extras.

Dhensa’s evidence was far from perfect, but perfection was not in the rules of engagement for that day’s battle: the Court was convinced that there were real factual issues requiring a trial, and the application failed.

Costs

The silver lining? Hari Kaush escaped without paying costs, since the application had been primarily initiated as a result of Dhensa’s “egregious” failure to respond to the undertakings from cross-examination in a timely way.

The post Case Review – 1936230 Ontario Inc. v. Hari Kaush Developments Ltd., 2023 ONSC 4718 appeared first on Construction Law Canada.

Lessons Learned

1. It’s cheaper to negotiate a resolution to a business dispute with your neighbour than it is to blaze ahead and dare them to litigate, especially if an adverse result to litigation risks significantly bogging down your construction project.
2. It’s much cheaper to negotiate in good faith than it is to arrive at the injunction hearing with a documentary record that shows no genuine attempt to resolve your neighbour’s concerns.
3. A crane trespassing into a neighbour’s airspace may or may not attract an injunction. There are degrees of thoughtlessness to such a trespass, and those that involve disruptive hours of crane operation or overhang of dangerous parts of the crane, e.g. the counterweight or loaded boom, are most likely to attract judicial ire.
4. Beware of relying too heavily on economic losses, even significant economic losses, as the primary basis for opposing an injunction.

Construction

Stober Construction Ltd. installed a crane to support a multi-tower construction project in the south end of downtown Kelowna, at the point where waterfront hotels and a commercial district give way to suburbia.

Witmar Holdings Ltd. owns three adjacent addresses containing multi-unit residential buildings, rooftop and terrace amenities, and Witmar office space that hosts six full-time employees.

The crane in question overhung the airspace of one of the Witmar addresses by approximately 20 metres, despite Witmar’s refusal to agree to an airspace access agreement earlier proposed by Stober. Inter alia, Witmar believed an overhanging crane would bring undue stress to its tenants after a July 2021 crane collapse in downtown Kelowna that led to the death of five people, one of whom was in an adjacent building when the crane fell.

Further negotiations proved fruitless, and in early 2023 Stober installed the crane anyway. This resulted in airspace violations, including as a result of the crane “weathervaning” when not in use in whichever direction the wind dictated. Weathervaning is a safety practice that minimizes wind shear that would otherwise occur when an unused crane is forced to remain perpendicular to the wind.

Litigation & Analysis

Witmar filed an application for an interim injunction preventing Stober from trespassing in its airspace. The Court turned to the battleworn three-part test for an injunction established in RJR-MacDonald Inc. v. Canada (Attorney General), [1994] 1 SCR 311 at 334, 1994 CanLII 117.

Is there a serious question to be tried?

The Court observed that the threshold at this step is low – in general, a question must merely be better than a frivolous or vexatious claim.

Is there evidence the plaintiff will suffer irreparable harm if the injunction is not granted?

The parties arrived with duelling case law. Witmar presented OSED Howe Street Vancouver Leaseholds Inc. v. FS Property Inc., 2020 BCSC 1066, a crane overhang case in which the court issued an injunction on the basis of the interruption of the enjoyment of a rooftop terrace by tenants, the potential risk presented by the crane, and the reputational harm potentially suffered by the building over which the crane was overhanging.

Stober, of course, preferred Janda Group Holdings Inc. v. Concost Management Inc., 2016 BCSC 1503, in which the court had held that intermittent crane overswing, inevitable in a busy city, was an issue that required some “give and take”, could be compensated in damages, and therefore did not qualify for an interim injunction.

Both the OSED court and this Court distinguished Janda, noting that the inference in Janda was less serious – that airspace did not involve an outdoor recreational area. The Court also observed that the “give and take” promoted in Janda had not occurred here: Stober had not made any response apparent in the evidence that adequately addressed the safety concerns Witmar raised at the start of negotiations, for example:

1. no proposed schedule which would have allowed for the use of the property by tenants without crane overswing; and
2. no proposed agreement for no-go hours or days.

Stober’s arguments turned to the harms that would be imposed by an injunction – delay, cost, the usual suspects, including delay to the residential occupancy of those who had pre-purchased units in the project.

The Court showed no mercy. “The costs…were largely incurred by itself, when it undertook a self-help remedy and erected the crane which would trespass into Witmar’s airspace without reaching agreement.”

Does the balance of convenience weigh in favour of granting the injunction?

Witmar’s primary concern was the safety of its tenants and workers, and the Court found that such a concern could not be adequately compensated in damages should the worst occur.

Balanced against this was Stober’s concern over merely monetary losses, albeit significant ones. The Court found this to be no sort of balance at all, and added in obiter:

I note that the spectre of large economic losses should not be allowed, on their own, to tip a consideration on the balance of convenience. Such consideration would weigh heavily in favour of parties with great financial means and against parties with legitimate interests which require the court’s protection, but without any significant financial means. Weighing the balance on an injunction should never be reduced to assessing the party with the greater financial wherewithal and therefore greater potential for financial loss. [emphasis added]

Given Witmar’s strong prima facie case for trespass, the prospect of irreparable harm, and the fact that the legal tension was, in the Court’s interim opinion, entirely of Stober’s own making, the outcome was never destined to be all that close.

Stober was fortunate that the injunction the Court ultimately granted was not open-ended: it was for a four-month period with leave for Witmar to reapply, accompanied by a pointed suggestion that the parties use that time to reach a negotiated agreement.

The post Case Review – Witmar Holdings Ltd. v. Stober Construction Ltd., 2023 BCSC 1378 appeared first on Construction Law Canada.

Miclex Construction Inc. v. North Central Co-Operative Association Ltd., 2023 ABKB 46 (“Miclex”), reminds us that Alberta courts will tend to accord deference to a consultant’s determination of a matter where the construction contract provides the consultant first instance authority to resolve disputes between the parties. This raises the question of what the limits of that deference are, and whether there is any basis to apply this reasoning to a determination of an adjudicator appointed under construction legislation.^[1]Such as that provided under Part 5 of the Prompt Payment and Construction Lien Act, RSA 2000 c P-26.4 the “PPCLA”, or Part II.1 of the Construction Act, RSO 1990 c C.30

Arad Incorporated v. Rejali et al., 2023 ONSC 3949 (“Arad”) illustrates the significant difference in approach that courts tend to take towards relying on the determinations of an adjudicator. In short, the much more circumscribed involvement of an adjudicator compared to the involvement of a consultant lessens the persuasiveness of an adjudicator’s determination in subsequent proceedings.

Takeaways

• Adjudicator ≠ Consultant: A consultant making a determination in a construction dispute under a construction contract has many superficial similarities to an adjudicator making a determination under construction legislation. Despite these similarities, an adjudicator’s limited involvement in the project compared to a consultant’s more involved role suggest that a consultant’s determination may receive more weight than an adjudicator’s.
• Case-by-Case Approach: While the courts tend to provide deference to a consultant’s decision, particularly depending on the context of the dispute, there does not appear to be a hard and fast rule for how the courts will handle an adjudicator’s findings. It seems likely there may be a degree of deference, but this deference will likely be assessed on a case-by-case basis, depending on the surrounding circumstances and the evidence presented and reviewed. Cases dealing with consultant deference may provide indicia for setting adjudication processes in an effort to lend more weight to the ultimate decision. Even so, adjudication determinations are likely to run up against the inherently expedited and summary nature of the process, thereby limiting their ultimate evidentiary weight.

Miclex Construction Inc. v. North Central Co-operative Association Ltd.

Consultant determinations “difficult to depart from […] without expert evidence”

In Miclex, the owner retained the contractor to construct the project under a standard form CCDC-2 stipulated price contract. Under the CCDC-2 contract, the owner appointed an architect as the consultant to administer and manage the construction contract. Part of the consultant’s duties under a CCDC-2 contract are to interpret the requirements of the contract documents in the first instance in the event of a dispute.

The contractor submitted a claim for additional costs arising from delays and extra work performed that was not contemplated in the contract documents. The consultant denied the majority of the contractor’s claims for additional compensation, leading to the contractor filing a lien for the disputed amount and bringing an application to declare its lien valid and for summary judgment under both the Alberta Rules of Court and the PPCLA.

Applications Judge Schlosser noted that the starting point for the claim was “that the consultant has considered the claims that form the basis of this lawsuit and has rejected all but the amounts that have been admitted”.^[2]Miclex at para 6. The Court cited several Alberta decisions that hold that a court will give deference to a consultant’s decision: “[u]nless the consultant’s opinion is obviously biased, patently incorrect, or displays a demonstrable and significant error, it is difficult to depart from it without expert evidence.”^[3]Miclex at para 15. The Court dismissed the plaintiff contractor’s application, finding that there was no counter veiling expert evidence, and noting that “the law is not kind to claims for unapproved extras, or claims for quantum meruit in a builders lien context”.^[4]Miclex at para 21.

Applications Judge Schlosser relied on ASC (AB) Facility Inc. v. Man-Shield (Alta) Construction, 2018 ABQB 130 (“ASC”) for the proposition that consultant determinations are to receive deference. In ASC, the court reasoned that “contractual interpretation, precedent, academic rationale, and practicality” supported giving deference to a consultant’s decisions “unless they reveal significant errors”. The court in ASC pointed out that the deference owed to a consultant stems largely from its role in construction projects, noting that they have access to the project site, expertise to evaluate the work observed, and regular interactions with the parties, the work, the contract, and the parties’ interactions under the contract. These are all advantages that a court lacks.^[5]ASC at para 19.

Arad Incorporated v. Rejali et al.

Adjudicator Determinations may not be sufficient evidence before the Court

As the courts appear inclined to defer to a consultant’s decisions, it will undoubtedly be tempting for a successful party in an adjudication to point to the similarities between an adjudicator and a consultant to seek the Court’s endorsement of an adjudicator’s determination. For instance, an adjudicator is required to have relevant industry expertise,^[6]See, for instance, s. 7(2)(a) of the Prompt Payment and Adjudication Regulation. and is empowered by legislation to have inquisitorial powers, including visiting the site and speaking to experts.^[7]S. 25(1) of the Prompt Payment and Adjudication Regulation.  Conversely, a consultant’s initial determination of a dispute is a form of contractual adjudication.

The desire to rely on an adjudicator’s determinations as the basis to seek further relief from the courts was illustrated in Arad, where the plaintiff contractor filed a lien and commenced an adjudication for monies alleged to be owing. The owner deposited funds into court to have the lien discharged from title. The adjudicator subsequently determined that no sums were owing to the contractor. The owner then applied to the Ontario Superior Court of Justice under s. 44 of the Construction Act seeking a return of the monies paid into court as security for the lien. The only evidence submitted by the owner regarding the merits of the dispute was the adjudicator’s determination.

Justice Sutherland noted that the evidentiary standard on a motion under s. 44 of the Construction Act was similar to that applied to summary judgment motions, though the issue before the Court is narrower since the material question is whether there are any amounts that may attract the security afforded by the Construction Act. Sutherland J. dismissed the owner’s motion, finding that “the determinations of the adjudicator alone do not meet the evidentiary threshold required for the court to conclude that the lien claim does not attract need for security.”^[8]Arad at para 24. In addition to the interim nature of an adjudication, Sutherland J. commented on the evidentiary issues that would stem from relying solely on the adjudicator’s determination:

The adjudicator made findings based on his opinion as an engineer and not based on the expert opinion or reports of others presented by either of the parties. His opinion was not subject to contestation by any of the parties. He made findings based on a site visit and verbal statements during the oral hearing. His findings were not all based on admissible evidence. He admitted that there was contradicting claims and statements made by the parties on the facts: the agreement and the scope of work to be performed and the worked performed. The adjudicator conceded that he did not consider the extra claims of the plaintiff for, in his opinion, he did not receive “proper evidence”. The adjudicator also decided to just rely on the documentation provided and use his own construction and engineering experience to make final determinations.^[9]Arad at para 25.

Consultants vs. adjudicators – do the roles justify a different approach?

It should be noted that Miclex and Arad are not analogous cases in terms of their context. While both cases involved the interim decision maker denying the contractor’s claim, in Miclex the contractor sought to have the court effectively overrule the consultant, while in Arad the owner sought to have the court endorse the adjudicator’s findings. What these cases do demonstrate, however, is that:

• in both instances, the court was not prepared to make a final determination of the matter; and
• the comments from the bench reflected more reasons to be deferential to a consultant’s findings than to an adjudicator’s.

It should of course be noted that each case will need to be evaluated independently based on its own facts, and that courts are likely to approach the matter on a case-by-case basis. Based on the cases and reasoning evidenced by courts to date, these appear to be relevant factors to be assessed:

• the relief sought: whether interim or final, supportive of or in contrast to the interim decision;
• nature of the interim decision: whether highly fact-dependent and technical in nature, versus a legal issue; and
• the process followed and prior involvement of the interim decision maker: whether the decision maker was familiar with and had involvement in the broader project, and what information was available to and relied upon by the decision maker.

Cases decided to date indicate that these factors tend to favour more deference being given to a determination made by a consultant that is actively involved in the project versus an adjudicator. Regardless of which interim decision maker has ruled on a matter, however, these cases do suggest that attempting to have the merits of the dispute determined on a summary basis may be an uphill battle.

The post How Much Weight Should be Afforded to an Adjudicator’s Decision? appeared first on Construction Law Canada.