Potentially helpful new tools in creating and presenting evidence in delay claims

The Daily Commercial News published a short article today, written by Peter Kenter, about Expect Delaysservices and technology being offered by Systech International (with an office in Mississauga, Ontario) for the collection and presentation of evidence pertaining to the impacts of delay to construction projects.  The service and technology described are 1) visualization presentations and 2) a smartphone Site Diary App.

While, as a construction litigator, I’m certainly intrigued by the concept of, “…high-level computer-animated sequence, fully narrated, showing exactly how delays affected the staging and construction of a project” as described by the article, realistically, such a presentation is, I would expect, likely cost-prohibitive in all but the largest delay claims.

By contrast, the “Site Diary App” is, conceptually at least (I have no idea whether Systech’s app is good or not, how much it costs, whether it can be purchased as a stand-alone product or is only available bundled with other products, etc), something that might have a much broader appeal and utility.  Click here for a link to Systech’s promo/informational video for the app.

I’ve seen some really poor site diaries over the years and so the prospect of a tool with the objective of making the process of keeping a good site diary easier and better is of real interest.  Most litigators will agree (I think) that – without discounting the value of retrospective opinion evidence of experts on the causes and impacts of delays after they have occurred – the best factual evidence regarding the issues arising during a construction project will normally come from documents/records created contemporaneously with the events to which they relate.  If this app can, at a reasonable cost and in a robust, user-friendly way, assist in creating that evidence, I expect that it will become a useful and common tool in the construction industry.

If any of my readers has any experience with this app (or knows someone who does), and is willing to spend a few minutes to give me a call or send me an e-mail, I’d be interested to hear early thoughts and reviews on it.

Can an owner rely upon read-in evidence from transcripts of subcontractors’ Examinations for Discovery against the general contractor?

There are two ways to introduce evidence given by a witness examined for discovery at trial:

  1. The party who carried out the examination can use the prior evidence to impeach the witness’ evidence at trial where it differs from the evience given at the examination; or
  2. The party who carried out the examination can “read-in” portions of the transcript produced at the examination and those “read-ins” become part of the evidentiary record at trial.Answer

The recent case of Urbacon Building Groups Corp. v. Guelph (City), 2013 ONSC 5773 (CanLII) – which by the way is producing lots of interesting caselaw re construction liens in Ontario – addressed whether an owner rely upon read-in evidence from transcripts of subcontractors’ Examinations for Discovery against the general contractor.  The City of Guelph took the position that it could read-in portions of the transcripts of the Examinations for Discovery of Urbacon’s (the GC) subcontractors against Urbacon.

Much to my nerdy delight, Justice MacKenzie cited an earlier Ontario Decision and a B.C. Decision and ruled that (I paraphrase) discovery evidence can only be read in against the party who gave it.  One can easily imagine the mischief that could result from one party relying on the evidence given by X against Y when Y may not have had a chance to challenge or counter X’s evidence and I am glad that the door on this risk has been closed just a little further and, in particular, in the context of a multi-party construction lien action.

An imperfect pleading (apparently) still perfects a construction lien

ScalesA Decision (arising from a motion to have a construction lien discharged and security posted returned) in 984499 Ont. Inc. v. 1159337 Ont. Inc. et al. was released by the Ontario Superior Court of Justice on July 2, 2013, and we are – yet again – reminded how forgiving the Ontario courts can be when a lien claimant has arguably failed to comply with some ostensibly fundamental aspect of the Construction Lien Act.

The facts are (whittled down) as follows:

The Plaintiff (a general contractor for a hotel renovation) was unpaid and preserved its lien by registering a construction lien within the required time.  The owner posted security with the Court in order to vacate the lien from title and the lien claimant commenced an action.  However, the action commenced by the Plaintiff did not:

    • expressly seek to enforce a construction lien – against the security in Court or against the land;
    • mention the lien claim registered on title, the vacating order, the monies paid into court or perfection of the lien; and
    • mention or plead the Construction Lien Act at all other than to plead reliance on the trust provisions of the Construction Lien Act.

The Defendant (owner) brought a motion for a ruling that the construction lien had not been perfected in accordance with the Construction Lien Act because the Statement of Claim was not in the nature of an action to enforce the lien as is required by section 36(3) of the Construction Lien Act and that it could not be an action to enforce a lien because it pleaded the trust provisions of the Construction Lien Act and section 50(2) says that an action to enforce a lien and a trust claim shall not be joined together.

Mr. Justice Whalen dismissed the motion and, relying on Rules 1.04(1) and 26 of the Ontario Rules of Civil Procedure, allowed the Plaintiff to “cure” or “fix” the Statement of Claim to effectively bring it in compliance with the Construction Lien Act.

My own view is that this Decision is wrong and, like other similar Decisions, is in stark contrast to what I think is a better line of cases in B.C. (under its fundamentally very similar Builders Lien Act) which hold that lien legislation, while being remedial, creates an extraordinary remedy (it allows one party to encumber the property of another before judgment and creates priorities between creditors, etc) that is strictly a creature of statute and so the legislation must be interpreted strictly and the court has no discretion to depart from the express statutory requirements.  I have little doubt that if 984499 Ont. Inc. v. 1159337 Ont. Inc. et al. had been decided in B.C., the Defendant’s motion would have succeeded.  See, for example, Nita Lake Lodge Corp. v. Conpact Systems (2004) Ltd., a 2006 Decision of the Supreme Court of B.C. in which a $300K+ lien was extinguished solely because the lien claimant failed to properly name the company with which it had contracted and from which it claimed to be owed money.

While, the Ontario Construction Lien Act contains a curative provision at section 6, it does not apply to pleadings and is not so broad as to convert a Statement of Claim that does not seek to obtain or enforce a construction lien into one that does.  Similarly, this wasn’t a case where there was some poorly drafted paragraphs but it was still, in substance, a claim to enforce a construction lien as required by the Construction Lien Act such that a Rule 26 amendment could improve the pleading or fix some minor flaws.  Rather, it was an action that did not plead material facts to support a finding of a lien or claim a lien as a remedy and so the Plaintiff, in my view, had not perfected its lien as required by section 36 of the Construction Lien Act and the lien should have been discharged and the security returned to the owner.

Ontario Government to seek intervenor status in Waterloo Region’s appeal of OMB ruling

Kitchener-Waterloo’s main journalistic rag, The Record, reports that the Ontario Government will apply to the Court to become an intervenor (an intervenor is a party added to a court proceeding as a result of an interest in the outcome) in the Region of Waterloo’s appeal of the Ontario Municipal Board’s decision to open up more than 1,000 hectares of regional land to new greenfield development (compared to the 85 hectares set by the Region). As reported, if the Province’s motion is successful, the Region will have a powerful ally in its appeal.Suburban Sprawl

The significance of this appeal in shaping the development of the Region of Waterloo for future generations is obvious and many, myself included, will be watching with great interest as it unfolds.

Globe and Mail Interview: EllisDon CEO Geoff Smith: Building a different construction company

Today’s online Globe and Mail posted a short but interesting article summarizing an interview of EllisDon’s President, Geoff Smith by the Globe & Mail’s Gordon Pitts.  Read the article here.

The most interesting observation Smith makes, from my perspective is, “General contractors are not builders – we are leaders and managers and it is all about information. We manage the process of other people doing the building. If you control that information and make the process efficient, you are ahead of the game.”  Not an earth-shattering revelation by any stretch but, for those of us for whom “general contractor” still tends to invoke an image of a big guy smoking a cigarette out of his Ford F-350 caked in mud – Smith’s comment is enlightening.  Today’s general contractors are blurring the lines between “contractor” and “construction manager” and “project manager” and it is an industry becoming increasingly sophisticated. A good little read.

 

To arbitrate or litigate…that is the question

In the last decade or so, alternative dispute resolution (ADR) – mediation and arbitration – has come a long way.  In fact, a good argument can be made that the “A” in ADR could probably be dropped. Gavel

Briefly, mediation is the process of seeking a negotiated resolution/settlement to a dispute using a neutral third party to facilitate the negotiation.  There is no “decision maker” in a classic mediation.  Mediation is a process that can take place outside of litigation entirely, be engaged in the context of litigation in an attempt at pre-trial settlement, or can even take place in the context of an arbitration proceeding (Med-Arb or otherwise).

Arbitration, by contrast, is much closer to the adversarial and adjudicative process that we associate with the courts.  Sometimes arbitration is mandated by legislation or a non-negotiated contract between that parties (that one party didn’t really have any say in).  In those cases, a party might be stuck with arbitration whether it/he/she wants to be or not.  Other times, however, parties will jointly agree to forego the courts in favour of arbitration.  There are, as far as I’m concerned, only really four essential reasons that parties might opt for arbitration over litigation.

  1. Privacy – unlike court proceedings, which are public in nature, arbitration is a private process where no decisions are published and the parties can keep the evidence and outcome private.
  2. Process – parties to an arbitration normally have the opportunity to agree upon procedures and rules that are different from the Rules of Civil Procedure and thereby shape and tailor the process to suit the needs of the dispute.
  3. Speed/Cost – because an arbitration has an adjudicator hired by the parties and they are not caught in the public system “waiting their turn”, there is at least the theoretical possibility of getting a result faster than if the parties were simply to litigate (for example, in Toronto it is not uncommon to have to wait five or six months to get a 15 minute hearing for a simple procedural motion).
  4. Appeals – the parties to an arbitration can limit the rights to appeal the decision of the arbitrator.

Zafir Holdings Inc. v. Grassmere Construction Ltd., 2013 ONSC 1835 is a very recent case out of the Ontario Superior Court of Justice that demonstrates how the objectives of arbitration aren’t always satisfied in the manner that the parties may have hoped when they agreed – perhaps with flowers and butterflies floating about – to arbitrate.

Zafir Holdings was the owner and Grassmere Construction was its general contractor in relation to a large industrial construction project.  A dispute arose between Grassmere Construction and one of its subcontractors regarding some of the earthworks and that dispute percolated its way up to become a dispute between the Grassmere Construction and Zafir Holdings.  Grassmere Construction’s subcontractor got judgment at a trial against Grassmere Construction and Grassmere Construction and Zafir Holdings agreed to arbitrate the issues between them.  The arbitrator found that Zafir Holdings owed Grassmere Construction a large portion of the amount that Grassmere Construction had to pay its subcontractor (as well as other amounts in relation to other issues).  Zafir Holdings sought, and was granted, the Court’s permission (leave) to appeal the arbitrator’s decision.

In the context of this short article, this case is notable insofar as it demonstrates how the primary objectives of arbitration were probably almost entirely obliterated in the end result. Consider:

  1. Privacy – the appeal, and the very fact that I was able to read the Court’s Decision and write about it here, means that if the parties had privacy as one of their objectives (whether unilateral or mutual), that benefit of arbitration has been lost.
  2. Process – there’s no way to tell whether the parties achieved any benefit here but, insofar as the ability to modify process usually has cost as its objective, I generally doubt it.
  3. Speed/Cost – the dispute arose in 2004 or 2005 and Grassmere Construction’s subcontractor obtained its judgment in June 2010.  By contrast, Grassmere Construction and Zafir Holdings didn’t get their decision in the arbitration until November, 2012 – two and a half years later!  Given that both Grassmere Construction and Zafir Holdings were likely involved in the litigation with the subcontractor (at least to some extent) and then had to adjudicate their dispute before the arbitrator (and pay the arbitrator’s fee which was likely substantial), it’s hard to imagine how there might have been significant cost-savings in the way that it all unfolded.
  4. Appeals – Zafir Holdings has been granted leave to appeal so there was no benefit here (in fact, the motion to seek leave to appeal added a layer of cost that wouldn’t have existed if the underlying arbitration decision had been a judgment of the court).

I’m not anti-arbitration – it certainly has the potential to be a useful alternative to litigation in certain types of cases.  However, cases such as Zafir Holdings Inc. v. Grassmere Construction Ltd. highlight the reason that I believe most parties contemplating putting a mandatory arbitration provision into an agreement, or those facing a decision whether to arbitrate rather than litigate in the face of a dispute, should very carefully and deliberately consider the potential benefits of arbitration.  In such circumstances, the question should be asked: “Is there a really compelling reason that I/we should take on the cost of an arbitrator (in addition to the cost of my/our lawyers) rather than proceed in a public forum and let my/our tax dollars pay for the judge?” More often than not, in my view, the answer will be “No”.

Mike Holmes weighs in on Title Insurance

Construction deficiency claims and title insurance being two of my primary areas of practice and both being near and dear to my heart, I read Mike Holmes’ article “A flood of misinformation: Title insurance is not a home warranty” in the National Post with some interest.

I don’t agree with everything that Holmes says in the article but he got the title right anyway.  Title insurance is a specialized insurance product and, as a very general statement, protects purchasers of real property from a long list of “title” or “ownership” related problems or “risks”.  It is not, and doesn’t pretend to be, a warranty of good design and/or construction.  The title of the article seems to suggest that Holmes agrees with this proposition. So far, so good.

Where Holmes really loses me, though, is when, in discussing hypothetical homeowners who discover major construction deficiencies, he writes, “Who’s at fault? Is it the homeowner who got the renovation? Is it the contractor that was hired? Is it the title insurance company, the building inspector or the government? As far as I’m concerned, it’s all of the above.”  How can the title insurer be at fault?

A policy of insurance (be it title insurance or some other kind of insurance coverage) covers what it covers and doesn’t cover what it doesn’t cover.  For Holmes to suggest, as he does, that the title insurer is at fault in the scenario he outlined is a bit like saying that when your house gets broken into and your auto insurer won’t pay for your stolen sofa, your auto insurer is partly at fault for your loss.

In any case – I thought the article was worth mentioning as Homes has brought some good media exposure to title insurance and cast at least a little bit of light on a common misunderstanding that I see all too often in my practice.

Ontario Court of Appeal finds that the decisions of Tarion’s inspectors are “judicial decisions”

The Ontario Court of Appeal  released  Metropolitan Toronto Condominium Corporation No. 1352 v. Newport Beach Development Inc. earlier this week.  It’s an interesting case and may actually provide some useful jurisprudence in litigation involving defects and claims under the Ontario New Home Warranties Plan Act (ONHWPA).

The facts are nicely summarized at the outset of the Decision as follows:

2] The respondent Metropolitan Toronto Condominium Corporation No. 1352 (“Metro 1352”) manages a luxury condominium project in Etobicoke near the shore of Lake Ontario. It alleges that the project has two major construction defects. It claims that the sanitary sewer system was not built properly, causing toilets in the condominium units to overflow and the units themselves to flood with sewage. It also claims that a systemic failure of the exterior cladding over the project, called the exterior insulated finish system (“EIFS”), has caused water penetration in the condominium units.

[3] Metro 1352 sought compensation for these two defects under the Ontario New Home Warranties Plan Act, R.S.O. 1990, c. 0.31 (the “Act”). The administrator of the Act, the respondent Tarion Warranty Corporation, denied compensation. Instead of appealing Tarion’s decisions to the Licence Appeal Tribunal, as it was entitled to do, Metro 1352 started this litigation. It has sued Newport, the vendor and declarant of the project; Canderel, a developer related to Newport; Spampinato, an officer of Canderel; Enersys Engineering Group Ltd. and Eric Pun, the engineers on the project; and Tarion. It has asserted causes of action for breach of statutory warranty, negligence, breach of fiduciary duty and breach of contract. The engineers have been noted in default. The other defendants have not delivered a statement of defence.

[4] On its Rule 21 motion Newport asked for various forms of relief, but principally for an order dismissing the action on the ground that the litigation is an abuse of process. Newport argued that Tarion’s decisions denying warranty coverage could only be reviewed by an appeal to the License Appeal Tribunal. Either the doctrine of issue estoppel or the rule against collateral attack prevented Metro 1352 from re-litigating its claim by a civil action. The motion judge, Corrick J., disagreed and dismissed the motion in its entirety.

[5] On its appeal Newport raises three issues, which I put in the form of questions:

(1) Did the motion judge err by failing to dismiss Metro 1352’s claims relating to defects in the sanitary sewer system and the EIFS, both against Newport and Tarion, as an abuse of process?

(2) Did the motion judge err by failing to dismiss the claim for breach of warranty for defects in the sanitary sewer system on the ground that they do not constitute a major structural defect under s. 13(1)(b) of the Act?

(3) Did the motion judge err by failing to dismiss the claim for defects in the EIFS on the ground that the claim was a new cause of action added by amendment to the statement of claim after the expiry of the limitation period?

One of Newport’s arguments in relation to the first question above was that the doctrine of “issue estoppel” should – Metro 1352 having already been provided determinations by Tarion that the defects were not compensable under the ONHWPA – prevent Metro 1352 from suing Newport in Court over those very same issues.

In analyzing Newport’s argument regarding issue estoppel, one of the things that the Court of Appeal had to consider was whether Tarion’s decisions were “judicial” decisions.  To my surprise and horror (OK…not horror, near horror), the Court of Appeal disagreed with the motion judge and ruled that the decisions of Tarion’s inspectors are “judicial” in nature.

I obviously don’t know whether any of the learned judges hearing this appeal have personally gone through the process of a Tarion inspection and of finding out what Tarion deems “warranted” or “not warranted” via its Warranty Assessment Report process. I also don’t know what evidence the learned judges had before them in terms of what the inspectors do (process, rules, policies) and what sort of education and training they have.  That said, in addition to representing clients involved in disputes with Tarion, I’ve been through several Tarion inspections myself  and  “judicial” is not a word that comes to mind when I consider how the Tarion inspectors handled my claims.  In my own experience, the Tarion inspectors that determined what was deemed warranted and what was deemed not warranted:

  • Communicated regularly with both me and the builder in the absence of the other before (and after) issuing the Warranty Assessment Report, making the process far from open and transparent. Both sides can feed the inspector information without the other side necessarily knowing about it and there is, therefore, no way to know what information is being provided and what sort of verification is being done.
  • Did not hold anything that could reasonably be considered a “hearing”.
  • Don’t allow third/non-parties to be present during the inspection. If it is “judicial” or adjudicative in nature, why wouldn’t an owner or builder be permitted to have a lawyer or an expert, for example, present?
  • Adhered rigidly and inflexibly to Tarion’s “Construction Performance Guidelines” which are a useful but, in my view, imperfect and incomplete set of “guidelines”.  There is not much “judicial” analysis involved in robotically applying “guidelines” as though they are infallible and carry no exceptions.
  • Did not have any legal training.
  • Ignored large amounts of information provided to them (such as manufacturer’s installation instructions that had not been followed by our builder).  None of this showed up anywhere in our Warranty Assessment Reports and when I asked about it at the inspection, I was told by one of the inspectors that he “hadn’t looked at it”.
  • Didn’t bring a ladder or binoculars or have any way of “inspecting” second story exterior deficiencies for which they had ample and complete notice were to be assessed.  If the inspectors are tasked with inspecting deficiencies and then making a “judicial” determination regarding same, how can they possibly do so if they show up and don’t have any manner of even looking at the alleged deficiency?
  • Didn’t take note of most things either party said during the inspection. While I don’t think a detailed transcript should be required, when few notes are taken one is left to wonder how much information is actually making it onto “the record”.

At the end of the day, I think that the outcome (and most of the analysis) in this Decision is correct so it may be that not much turns, in practice, on this aspect of the Decision.  It just strikes me – as I expect it might strike many who have had the experience of actually going through the Tarion conciliation inspection and assessment process – that to call Tarion’s internal decision making process “judicial” is inaccurate and diminishes truly judicial decision making.  Just because an animal has a bill, webbed feet, and lays eggs, doesn’t necessarily mean it is a platypus.