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.

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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.

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”.

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.

An “Interest”ing Decision – A contractual interest claim gone wrong

What an awful Blog post title. My apologies.

The Decision of Madame Justice Pierce in 1188710 Ontario Ltd. v. Gartner, 2012 ONSC 6110 (CanLII) is a good reminder of how judges trying to do perceived justice between parties sometimes finds the law bent (or worse – disregarded) in favour of perceived justice.

The facts of the case aren’t particularly remarkable – contractor does work, owner takes issue with various things and doesn’t pay all invoices, contractor liens, lawsuit follows.  Same old story.  Sometimes the contractor comes out on top and sometimes it is the owner that prevails.  In this case, Pierce J. interpreted the agreement between the contractor and the owners and the evidence that was presented at trial almost entirely in favour the contractor.

The two aspects of the Decision that prompted me to write this short post are:

  1. Pierce J. found a contractual entitlement to interest and awarded the contractor interest at 5.5% per annum; and
  2. Pierce J. declared that the contractor has a lien against the Defendants’ property for an amount that includes the interest that she found to be owing.

Contractual Interest

If Pierce J. had just addressed the issue of interest as one of damages (the contractor’s losses based on interest the contractor had to pay on its line of credit or to its own suppliers) rather than as interest and if the contractor had presented better evidence on this point, I don’t think there would be an issue.  However, because Pierce J. expressly found that there was no agreement as to interest (see paras 37 & 40), I think she should have been foreclosed from awarding contractual interest.  Nonetheless, she (wrongly in my view) reasoned that a contractual obligation to pay invoices within a specified time implied an agreement to pay interest if payment was not made within that time (see para 44).  If Pierce J. were right on this, it would effectively mean that every contract that obliges a party to pay contains an implied agreement to pay interest if payment isn’t made.  I don’t think that this is the law and I don’t think this accords with longstanding jurisprudence that parties should, as a general rule, be held to their bargains – if the contractor had wanted to negotiate a contractual entitlement and rate of interest, he could easily have done so.

The next part is that there seemed to be some very loose (it seems to have been given just in oral testimony at trial) evidence that the contractor had suffered some sort of losses based on having to dip into his line of credit and charges from his own suppliers as a result of the owner not paying all of his invoices (see para 100, for example).  It was this evidence that Pierce J. used to determine the rate of “interest” that the contractor should be entitled to (5.5% was the contractor’s rate on his line of credit…so Pierce J. somehow made that the contractual rate of interest “agreed to” between the contractor and the owner).  I wouldn’t be so offended by this had Pierce J. just characterised the amount payable as damages rather than interest.  However, even then, the problem would be that she found as a fact that, “Unfortunately, there is no evidence about how much [the contractor] had to draw on his line of credit for this project, or how much interest he paid.”  In effect, she awarded damages in the absence of any evidence of the proven quantum of those damages.

I think that there should have been found to be no agreement as to interest and so only pre-judgment interest payable to the contractor pursuant to the Courts of Justice Act.  Further, should Pierce J. have been inclined to find a breach of an obligation to pay on the part of the owner, she could have still found damages to have resulted from the breach but she should have then found (on the evidence described by the Decision) that the contractor did not adduce sufficient evidence to support his claim and then awarded no damages on the basis that quantum had not been proven.  Instead we are left with, in my view, a bad Decision (on this point) that could come back to haunt other litigants arguing this sort of contractual interest dispute.

Lien for Interest

On the second point, section 14(2) of the Construction Lien Act expressly says that, “No person is entitled to a lien for any interest on the amount owed to the person in respect of the services or materials that have been supplied by the person, but nothing in this subsection affects any right that the person may otherwise have to recover that interest.”  As such, Pierce J. erred in law by including the interest she awarded the contractor in the declared amount of the lien she declared the contractor to have over the owner’s lands.  The interest should have been included in the money judgment but should not have been included in the value of the lien.

Suppliers and contractors beware! – Owner’s own defective specification triggers supplier’s warranty obligation

Hypothetical contractual provision and scenario:

“The contractor shall supply and install 8” widgits as required by the owner.  The contractor warrants that the 8” widgits will be fit for their intended purpose and that the 8” widgits will be free from all defects arising at any time from faulty design in any part of the 8” widgits.”

After the 8” widgits are supplied and installed, it turns out that 8” widgits are too long to serve their purpose and 6” widgits should have been used.  The 8” widgits have to be replaced with 6” widgits at a cost of $3,000,000.

On these limited facts, do you think a court would make the contractor or the owner bear the cost of replacing the 8” widgits with 6” widgits?

The recent decision of the British Columbia Court of Appeal in Greater Vancouver Water District v. North American Pipe & Steel Ltd. serves as a serious warning to suppliers and supply contractor about the risks that can attach to an unqualified warranty against design defects, even when the manufactured product is supplied in compliance with the owner’s (or some other third party’s) specifications.

The case arose from a contract for the supply of water pipe to the Greater Vancouver Regional District (the owner).  The owner’s specification required that the pipe have a seal coat over a fibre mat over-wrap.  The contract between the owner and the pipe supplier included provisions that the supplier:

  • “…warrants … that the Goods … will conform to all applicable Specifications … and, unless otherwise specified, will be fit for the purpose for which they are to be used. …and
  • “…warrants and guarantees that the Goods are free from all defects arising at any time from faulty design in any part of the Goods.”

The pipe was manufactured according to the owner’s specifications.  However, following the supply of the pipe, the seal coat on the pipe began delaminating.  The owner sued under the warranty for the repair costs for the defective pipe.  The pipe supplier defended itself, arguing that its warranty should be restricted to its own design or manufacture errors (not defects arising from the owner’s own specifications).

The trial judge agreed with the pipe supplier and found the above provisions to be inconsistent with one another.  She reconciled the inconsistency by resort to the rules of contractual interpretation and determined that the parties did not intend that the supplier’s guarantee and warranty (the second provision above) would extend to cover defects arising from the owner’s own specifications.  On the basis of the expert evidence presented, the trial judge found that the defect in the pipe was caused by the owner’s specifications (i.e. not some other manufacturing defect) and dismissed the owner’s claims in respect of the defective pipe.  The owner appealed.

The Court of Appeal disagreed with the trial judge and found that the contract was clear and the warranty applied regardless of whose design gave rise to the defects. The Court of Appeal found an old Supreme Court of Canada case to be applicable and determinative of the appeal.  The Court of Appeal reversed the Judgment of the Court below and found in the owner’s favour.

It’s an interesting Decision but the nub of the caution to be taken from it is found in Justice Chiasson’s closing remarks:

[Warranty clauses such as the one here] distribute risk. Sometimes they appear to do so unfairly but that is a matter for the marketplace, not for the courts. There is a danger attached to such clauses. Contractors may refuse to bid or, if they do so, may build in costly contingencies. Those who do not protect themselves from unknown potential risk may pay dearly. Owners are unlikely to benefit from circumstances where suppliers and contractors are faced with the prospect of potentially disastrous consequences. Parties to construction or supply contracts may find it in their best interest to address more practically the assumption of design risk. To fail to do so merely creates the potential for protracted and costly litigation.

This is another example of the courts deciding a contractual dispute between two parties on the basis of, “a deal is a deal even if it’s not a very fair deal” rather than on the basis of what many might consider to be the more “fair” or the “correct” outcome.

If you are a supplier or supply contractor (or even a trade or general contractor for that matter), this case gives good cause for you to pay very close attention to the warranty requirements when responding to a tender call or reviewing an owner’s proposed form of contract.  If the proposed contract requires you to manufacture or install in accordance with someone else’s specifications/instructions and the warranty/guarantee provisions then make you responsible for any defects, you might very well be responsible for the owner’s (or other third party’s) own defective specification.  Coming full circle to my opening scenario – if you are that contractor, you better be sure that the 8” widget is manufactured and installed properly and that the 8” widget is the right size or you might be $3,000,000 lighter in the pocket!

Notice (Still) Means Notice: Ontario Court of Appeal upholds dismissal of contractor’s claim for failure to provide notice of the claim to the owner as required by the contract

Hot off the presses is Technicore Underground Inc. v. Toronto (City) in which the Ontario Court of Appeal has upheld the lower Court’s decision to dismiss a contractor’s (Clearway) claim against the owner (City of Toronto) as a result of Clearway’s failure to give the City of Toronto notice of its claim within 30 days “…after completion of the work affected by the situation” as was required by the contract between the parties.

Clearway gave the City of Toronto notice for part of its claim within the 30 day period required by the contract but didn’t give notice of another, much larger, component of its desired claim until more than three years later and within the context of the litigation that was commenced following the initial notice was given.  The City of Toronto brought a motion for partial summary judgment to dismiss the portion of Clearway’s claim for which notice had not been given within the required 30 days.  The motions judge granted partial summary judgment and dismissed the bulk of Clearway’s claim (more than $2.1M) for failure to give notice as required by the contract.

On appeal, Clearway argued that:

  • the notice provision was merely procedural and required “failing which” (or my preferred, “or else…”) language to have the drastic effect of permitting the dismissal of the claim;
  • in the absence of prejudice to the City of Toronto arising from the failure to give notice, the failure to give notice should not be fatal;
  • the City of Toronto’s own failure to comply with a different provision of the contract should disentitle it from relying on the notice provision;
  • portions of the claims for which no/late notice was given were really just extensions of the parts of the claim for which notice was given; and
  • the City of Toronto waived its right to rely on the notice provision.

The Court of Appeal rejected all of Clearway’s arguments and dismissed the appeal.  In so doing, the Court relied heavily on the Supreme Court of Canada Decision in Corpex (1977) Inc. v. The Queen in right of Canada (and the BC and Ontario Decisions in Doyle Construction Co. v. Carling O’Keefe Breweries of Canada Ltd. and Bemar Construction (Ontario) Inc. v. Mississauga (City of)).  I’m not going to repeat or summarize the Court’s reasoning but, if you are so inclined, it is worth the 15-20 minute read.

For contractors and owners, the primary take-away from this Decision is the reminder of how critical it is to know what is in your contract, understand what is required in various situations, and if the contract requires that you do something – to do it!  The consequences of failing to follow the requirements of your contract are not always this dramatic (and sometimes there will be some fact or event that can relieve you from a failure to comply) but why take the chance?

For fellow lawyers, aside from the substantive utility and importance of this Decision, I think we can all take note of the increasingly obvious reality that one of the most effective, appropriate, and useful applications of the new Rule 20 regime for summary judgment motions is the early and inexpensive resolution of claims that can be determined on the basis of the interpretation of contractual provisions (and their application to uncontroversial facts).

The Unhelpful Expert

The opinion evidence of experts is not always admissible at the hearing of a motion or a trial.

The Ontario Divisional Court recently handed down its Decision in Mastermeter Products Canada Inc. v. Corporation of the City of North Bay, 2012 ONSC 1887 (CanLII).  The hearing involved an application for judicial review of the City of North Bay’s award of a contract for the supply and installation of water meters.  Mastermeter complained that it had been treated unfairly by the City in the course of its procurement process and lost out on the contract as a result.

While the Decision is primarily concerned with procurement issues, my interest in it is the Court’s ruling to exclude opinion evidence of an “expert” where the supposed expertise of the witness was on matters/issues within the expertise of the Judges hearing the application. The interesting bit for me is at paragraphs 21-23 of the Decision which read:

The Admissibility of an Expert Opinion

[21]          Counsel for the applicant proffered an expert witness statement of Rishi Kumar, M.Sc. Eng, P.Eng. Mr. Kumar was retained to provide an opinion for this application for judicial review on the following question:

Whether or not the bid process under RFP 2009-006 was conducted responsibly and with the requisite degree of fairness, openness and transparency applicable to major competitive procurement process.

[22]          Mr. Stieber, counsel for the City, objected to the admissibility of the proffered opinion on the ground that it does not meet one of the criteria for the admission of expert evidence from R. v. Mohan, 1994 CanLII 80 (SCC), [1994] 2 S.C.R. 9, in that it is not necessary to assist the court.

[23]          We agree that the proffered opinion does not meet the necessity criterion because the Court can form its own conclusion about the fairness of the City’s procedure without the assistance of the proffered expert testimony.   Therefore, the affidavit of Mr. Kumar was struck at the outset of the hearing.

Without getting into details of the rules and jurisprudence around expert evidence, as a general statement, the Court is to exercise a “gatekeeper” function – admitting the opinion evidence of experts where the subject matter of the evidence is outside of the expertise of judges (and provided it meets certain other criteria) and excluding the rest.

Legal theory aside, one of the reasons that this gatekeeper function is so important is that expert evidence can be very expensive and can drive up the cost of litigation substantially.  As such, only that expert opinion evidence which is helpful and necessary to the court to decide the case should be admitted.  This is particularly true of construction litigation where expert opinion evidence is very, very common and the lawsuit often evolves into a “battle of the experts”.

Too often, in my view, courts are prone to allowing parties to introduce “expert” evidence in areas where the judge has sufficient expertise and does not require assistance.  In my view, if litigants can have the confidence that the court will exercise the gatekeeper function properly, as it did in this case, when an opposing party serves an “expert” report that is unhelpful and unnecessary to the court in deciding the issue for which the evidence is introduced, the recipient of that report can more confidently chose to avoid the time and significant expense of responding the the report and simply seek its exclusion at the trial or hearing.

A Forest of Fees and Rights and Principle Trees – A sad but common tale of small money construction litigation outstripping its own value

There’s nothing particularly new or ground-breaking about the recent Ontario Superior Court Decision in Sierra Excavating v. Olszewski and TD Bank, 2012 ONSC 2271 (CanLII) but it is an interesting little case that highlights the importance of seeing the forest for the trees early in the litigation process.  What forest? The legal costs. What trees? The legal principles at play and the parties’ perceived rights.

The facts are a bit lengthy but not complicated and are, in summary form, as follows:

  • As a result of water intrusion into their basement, the owners of a single family house in Caledon, Ontario hired an excavation contractor to excavate around portions of the foundation of their home and carry out some work to waterproof the foundation and stop the leaks.
  • The contract price was $19,576.13.
  • The contractor carried out the work but leaks persisted.
  • A couple of subsequent attempts by the contractor to repair the leaks failed, the owners refused to pay, and the contractor registered a construction lien and sued for the $14,576.23 claimed to be owing under the contract.
  • The owners had another contractor remove and re-do the work (successfully – the leaks were fixed) and the owners counterclaimed for $40,000 for the higher cost of the second repair.
  • The Judge found largely in favour of the owners, ruling that the contractor had not done what it was hired to do and so was not entitled to a lien (or further payment) and would have to pay the owners $21,466.20 in damages for their cost to have the work re-done and done properly.

What I find important enough about this case to write this little blurb has almost nothing to do with the facts or the Judge’s decision – it has to do with highlighting how easy it can be for litigants to end up in a four-ish year legal battle (capped off with a three-ish day trial) that must have cost tens-ish of thousands of dollars in litigation costs (lawyers and experts) over what was never realistically more than a $20,000-ish fight, regardless of which side won or lost.  That is not, in my opinion, a happy outcome, even for the “victorious” owners.  At the end of the day, I would imagine that most, if not all, of what the owners were awarded will probably be gone in litigation costs and, between paying the Judgment, its own lawyer and expert, and some amount of the owners’ legal costs, the contractor is probably out somewhere north of $40,000 (on a $14,000 claim!).  Would either side have predicted its financial outcome in 2008 when the lawsuit was commenced?  I don’t know for sure but I doubt it.

This case, and countless others like it, exemplifies the need for both prospective Plaintiffs and Defendants in construction litigation to think very hard before they “dig in” for a long fight over what is, in the context of litigation, not a lot of money.  Some people and companies are rich enough to have the privilege of throwing economics out the window in favour of principle – most, however, are not.

From a lawyer’s perspective, this case bolds, underlines, and then highlights the need to have very frank and very clear discussions with our clients about the potential course and costs of litigation – particularly when there are relatively small amounts of money is dispute – so that our clients can make informed decisions about how they want to proceed and how aggressive they want to be in trying to settle their disputes.  Sometimes “small money” litigation will still go the long, expensive distance but at least the end result will then be no surprise to our clients.

On a closing note: I am not being in any way critical of the parties’ lawyers in this case – I don’t know either of them and obviously have no idea about how the litigation proceeded, whether there were attempts at settlement, or as to the overall dynamics of the litigation over its four year course.  To the contrary, my point is that the economics of virtually any “small money” construction litigation has the potential to get away from the parties over time and this case is just yet another example of this all too common problem.

“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.