New “Process Enhanced” Performance Bond coming soon. Should owners put on their party hats and break out the Champagne?

Probably not but time will tell.

In December 2011, the Surety Association of Canada (the “SAC”) approved a new form of performance bond that has several new provisions. In its press notice, the SAC says that the objectives of the changed language of the performance bond are:

  1. To bring a greater level of certainty and responsiveness to the claims process; and
  2. To encourage better and more frequent communication between the Surety and the owner (the “Obligee”) in the event of a contractor (the “Principal”) default.

These are, of course, laudable objectives and, to these ends, the new form includes:

  • The availability (at the Obligee’s option) of a “Pre-Demand Conference” to be held between the Obligee, the Principal, and the Surety prior to a Demand being made on the bond;
  • Some requirements regarding the Surety’s time to investigate and respond to a Demand made by the Obligee;
  • Some tightly prescribed rights of the Obligee to take limited steps to protect public safety and preserve and protect the Principal’s work under the contract from deterioration and damage;
  • A Post-Demand Conference to be held between the Obligee, the Principal, and the Surety to discuss what work (if any) under the contract should proceed while the Surety carries out its investigations; and
  • Clearer contact information for any Demand, notice, and other communications between parties to the bond.

Unfortunately, I’m rather underwhelmed by the new language. I can see the potential for modestly better communication through the claims process; however, I can also see the potential for very little practical change and benefit to the Obligee. For example, the new language requires the Surety to investigate and report its position on liability to the Obligee within 21 days of receiving all information from the Obligee and carrying out a site visit (should it decide to do one) following a Demand being made on the bond. However, the new language doesn’t impose a time limit for the Surety’s site visit to trigger the 21 day period and it goes on to say that if the Surety can’t complete its investigation and report its position on liability to the Obligee within 21 days – it can simply write to the Obligee and tell it that it needs more time (and say when it expects to be able to complete its investigation and report). So, the 21 day investigation and reporting requirement sounds OK until one considers that there is no set time within which the Surety must complete its site visit to trigger the commencement of the 21 days and, further, the Surety can, in any case, unilaterally extend the 21 days by simply writing the Obligee a letter stating as much. One can easily imagine this so-called “21 day” period commonly (and without consequence) turning into several months.

It will take some time after the new wording is put into use before its practical benefit (or lack thereof) to Obligees becomes apparent. However, based on my own past experiences representing clients that have made Demand on a performance bond, coupled with the soft language and lack of stated consequence to the Surety, I have my doubts that the new form will translate into a significantly better experience and outcome for Obligees.

Maybe throw the Champagne in the fridge but keep the cork in and the party hats can probably be left in the closet for the time being.

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“I said ¾ of an inch. Look – it’s right there in the contract”

D’Urzo Demolition Inc. v. Damaris Developments Inc., 2012 ONSC 1912 (CanLII), released by the Ontario Superior Court of Justice on March 26, 2012, serves as a good reminder to owners and contractors of the importance of ensuring a mutual understanding of the specifications and other requirements of the work and then properly incorporating those documents and requirements into the construction contract.  For litigation lawyers, it also serves as a good reminder of the importance of ensuring that adequate and flexible evidence of damages (whether Plaintiff’s damages or a Defendant’s claim for set-off) is obtained and brought to trial.

Basic Facts

In a nutshell, D’Urzo Demolition Inc. (“D’Urzo”) was the successful bidder to demolish structures on a property in Toronto and then mechanically reduce the rubble into smaller crush.  The owner, Damaris Developments Inc. (“Damaris”), took the position that the contract required D’Urzo to crush the concrete to ¾ inch and to also demolish curbs and asphalt and remove same from the site. D’Urzo took the position that it only had to reduce the rubble to size of 3 inches (and that a smaller crush would constitute an extra) and that demolishing the asphalt and curbs and removing same from the site was not included in the scope of work and, again, constituted an extra.  At the end of the day, D’Urzo was substantially successful at trial – Damaris succeeded only in achieving a finding that the asphalt and curbs had to be demolished – D’Urzo succeeded in convincing the Court that the contract only required a 3 inch crush, that the asphalt should not have been required to be removed from the site and disposed of, and that Damaris was in breach of the contract for failing to pay.

Take Away Notes

Of note for contractors and owners – the work was put out for tender, there were competitive bids, and the parties used a standard form (CCDC2) contract and they still ended up in protracted litigation (the lien was filed in May, 2007 and trial did not conclude until December, 2011 – almost 5 years!) arising from a failure to clearly and properly set out what work was required by the contract.  If you are going to go to the trouble of putting a job out for tender and then use a detailed and established form of contract, spend the time and money to make sure that the specifications and drawings that establish the scope of work are both clear and properly incorporated by the contract.

Of note for lawyers – Damaris claimed $50,400.00 as its back charge to remove and dispose of the asphalt and curbs and provided evidence that this was what it cost.  But Master Albert found at trial that D’Urzo only had to remove the asphalt, not dispose of it.  Because Damaris’ evidence didn’t breakdown the back charge between removal and disposal, Master Albert had only D’Urzo’s evidence that the cost to remove the asphalt was $2,643.75 and he awarded that amount. This outcome highlights the risk of evidence limited to global amounts that aren’t broken down into component parts in case of divided findings at trial.

Two recent Court Decisions affirming that the Ontario New Home Warranty Plan is for the protection of new home buyers

The courts in Ontario have held, on a number of occasions, that the Ontario New Home Warranties Plan Act (“ONHWPA”) is legislation established to protect and provide additional remedies to buyers of new homes.  These Decisions have normally arisen in the context of disputes between homeowners on one side and their builder and Tarion on the other.  Two interesting Decisions recently came down from the Ontario Court of Appeal that have, albeit in a completely different context, affirmed that the ONHWPA is remedial, consumer protection legislation. The first of these Decisions is Tarion Warranty Corporation v. Boros, 2011 ONCA 374 (CanLII) (leave to appeal to the Supreme Court of Canada refused) and the second is Tarion Warranty Corporation v. Kozy, 2011 ONCA 795 (CanLII).  In both cases, the issue before the Court of Appeal was whether the homebuilders were “builders” under the ONHWPA such that they were caught by the registration (and other) requirements of the legislation.

From a residential builder’s perspective, these cases are primarily of significance because there is now clear and strong authority that the ONHWPA can’t be circumvented or avoided by simply leaving a small portion of construction out of the contract for the buyer to complete.

From a homeowner’s perspective, there are two noteworthy things about these cases:

  1. I believe that this is the first time the Ontario Court of Appeal has so clearly and unequivocally affirmed that the ONHWPA is remedial consumer protection legislation and that it is to be interpreted broadly and liberally as such; and
  2. Under the circumstances of these cases, it appears to have been Tarion, not new homeowners, arguing for this purposive, broad, and liberal interpretation of the ONHWPA.

It will be very interesting to see what the courts do with this purposive, broad, and liberal interpretation of the ONHWPA (and Tarion’s corresponding purpose and obligations) when a good case comes along within which to test and question how Tarion assesses and handles homeowners’ claims regarding deficiencies and “unauthorized substitutions”.  Having read many, many License Appeal Tribunal and court Decisions, I’ve yet to see one that gives a comprehensive and satisfactory treatment on this important aspect of the warranty.

Tarion providing protection to Ontario’s new homebuyers?

I watched an interesting little piece on CTV’s W5 last night that dealt with several Ontario homeowners’ difficulties surrounding the heating systems installed in their new homes and their frustration in dealing with Tarion.  Click here for a link to the online article on the same piece.

Tarion provides and administers Ontario’s mandatory new home warranty program under the Ontario New Home Warranties Plan Act (“ONHWPA”) and its regulations.   Based on the W5 story and others I’ve seen, Tarion still seems to be really struggling with the concept that the ONHWPA is consumer protection legislation and that, as such, protecting homeowners is Tarion’s primary (if not sole) mandate.  There have been at least a couple of cases decided by the Ontario Courts where the Court has expressly stated that the ONHWPA is consumer protection legislation and yet the piece on W5 is just the most recent of many, many stories and articles in the media telling a very similar story.  The message – even when delivered by the Courts – just doesn’t seem to be getting through.

I’m skeptical by nature and, a few years ago, I might have chalked these media stories about problems with Tarion up to whiny homeowners and/or overzealous reporters. However, as the purchaser of two (consecutive) new homes in the last four years, I’ve had the personal displeasure of tangling with Tarion not once, but twice.  I won’t bore you with the details but I will tell you that, with both houses, I had several substantial and legitimate deficiencies that Tarion deemed “Not Warranted”.  If you’ve ever received a Warranty Assessment Report from Tarion, you will be entirely too familiar with these two words.  I’ve been litigating construction deficiency claims for more than a decade and I have a pretty good sense for what should be covered by a warranty and what probably isn’t.  Tarion knew I was a construction lawyer and I was still treated by Tarion as though I had no idea what I was talking about and would just placidly accept its patently wrong decisions.  It was a real eye-opener and I remember feeling extremely sympathetic to folks that are trying in vain to get help from Tarion and don’t have the skills or resources to take Tarion to task when it determines some of their very legitimate complaints to be “Not Warranted”.

Seeing this W5 story has renewed my interest in trying to help to educate homeowners and I will, in the near future, post some information here that Ontario homeowners dealing with Tarion might find helpful.

“Recent” amendments to the Ontario Construction Lien Act

In the age of Twitter and electronic media, it’s old news by now (the last of the amendments came into force last summer) but, in the interest of one-stop-shopping, I figured I ought to throw up a brief post summarizing the “recent” amendments to the  Construction Lien Act.

Definition of “improvement”

The definition of  “improvement” at section 1 of the Construction Lien Act has been amended and now expressly includes the installation of industrial, mechanical, electrical or other equipment on the land where the equipment is essential to the normal or intended use of the land.

It will be very interesting (for construction law nerds like myself, anyway) to see how far the courts will go in extending lien rights to installed equipment.  See my other post on this here.

Condominiums

Under this amendment (new section 33.1 of the Construction Lien Act), condominium developers will be required to publish notice of their intention to register the condominium declaration in accordance with the Condominium Act in a construction trade newspaper (the Daily Commercial News) five to fifteen days prior to registration.

This amendment will provide unpaid persons having liens notice of the pending registration of the condominium declaration so that they can preserve their lien rights before the lands and premises are legally divided into separate condominium units and title is transferred to homebuyers.

Prior to the registration of the declaration, the condominium improvement can be liened in the normal manner, even if the work of the person having a lien is to parts of the project which, after registration of the declaration, will be common elements. This amendment will provide an opportunity to avoid the much more expensive and time consuming requirement of liening the common elements of a condominium after the declaration has been registered.

Check out one of my colleague’s comments on this change here.

Affidavit of Verification

Prior to these amendments (to sections 34 and 40(1) of the Construction Lien Act), a claim for lien had to be verified by an Affidavit of Verification which was typically sworn by the lien claimant. In an effort to keep pace (or at least not fall out of sight) with the new(ish) electronic registration system for land titles documents, verifying a claim for lien by Affidavit will no longer be required.

Also, instead of cross-examining the deponent of the Affidavit of Verification, the lien claimant, the agent or assignee of the lien claimant, or a trustee of the workers’ trust fund (as the case may be) will be subject to cross examination.

Sheltered Liens

Under these amendments (to sections 44(9) and 47(2) of the Construction Lien Act), a lien claimant whose lien is sheltered under a certificate of action that has been vacated from title by Court Order will still be able to proceed with an action to enforce its sheltered lien as if the Order to vacate had not been made.

These amendments were introduced to facilitate the vacating of liens by Court Order while, at the same time, protecting the rights of sheltered lien claimants.