The headline is a little bit dramatic but, nonetheless, an article published on May 25, 2014 in the Vancouver Sun, written by Derrick Penner, called, Leaky condo crisis rears its head again in B.C. – Buildings that weren’t fixed earlier now face even costlier repairs is an interesting read and touches on a number of the things addressed in a few of my earlier posts.
Patty Winsa’s article Degrading condo windows expected to trigger major wave of replacements in thestar.com, published March 20, 2014, discusses the potential (and sobering) costs associated with large scale glazing (glass) replacement on high-rise condo buildings as window systems approach their expected 30-35 year lifespan.
Failure and replacement isn’t imminent for many condos but if the replacement costs approach what University of Waterloo professor Dr. John Straube predicts, this is a future problem and cost that condominium corporations are going to want to get well out in front of.
Scanning the downtown skylines of Vancouver, Calgary, Toronto, and Montreal (and so on) gives one an appreciation for the prospective magnitude of the amount of money at stake.
A recent article in the Ottawa Citizen, $15.3M repair estimate leaves owners of Ottawa high-rise condo in shock, written by Hugh Adami, highlights the need for condominium corporations (the boards and ownership as a whole) to take non-localized deficiencies (in this case, water ingress) seriously and to investigate and assess them early.
If the building envelope has design and/or construction defects requiring extensive repairs, early investigation, assessment, and action may or may not have a dramatic effect on the remediation costs – the defect(s) have to be corrected regardless but early intervention can greatly reduce the repairs required to remove/replace damage (rust, rot, mould, etc) caused by the water.
However, what prompt investigation, assessment, and remediation will do is:
- reduce the chance that the Limitations Act, 2002 will become a bar to a lawsuit to recover remediation costs from those responsible for the defective design and/or construction; and
- limit the applicability and effectiveness of a defence that the condo corporation failed to mitigate its losses by stopping the damage caused by the intruding water.
In coming days I will post an article I wrote on this subject a few years ago (published in the Association of Condominium Managers of Ontario’s (ACMO) CM Magazine in 2009) but every bit as important and applicable today.
The Daily Commercial News published a short article today, written by Peter Kenter, about services 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.
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.
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:
- Pierce J. found a contractual entitlement to interest and awarded the contractor interest at 5.5% per annum; and
- 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.
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.
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!
The Globe and Mail reports today that lawsuits are underway. Click here to read the article. There probably won’t be much of interest to report for quite some time (as the case moves slowly through discovery and pre-trial procedural motions) but I will keep an eye on the case and post anything of interest.
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 short answer: Possibly sometimes, maybe.
I recently had a case where this was one of the primary issues. My client was supplying coated structural steel for a large steel building. Raw (uncoated) steel was purchased in the US, shipped to Ontario to be coated by a third party subcontractor and, once coated, the steel was then shipped to the project site (located in another Province). A dispute arose between my client and the subcontractor coating the steel regarding price and claimed extras and the subcontractor asserted a construction lien in relation to the steel already delivered to the project site and a possessory lien under section 3 of the Repair and Storage Liens Act (RSLA) over the steel still in the subcontractor’s possession.
In my view, the subcontractor’s invocation of the RSLA to assert a possessory lien over the steel in its possession (effectively holding my client’s steel hostage until my client posted security with the Court to secure its release) was a twisted and tortured application of legislation ostensibly designed to provide security to an unpaid “repairer” who had fixed a sailboat or a car or a wristwatch or some other widget (you get the idea). However, the definitions of “article”, “repair”, and “repairer” under the RSLA are so expansive that, at least at first blush, it can be argued to apply to individual items (i.e. steel) in the manufacturing process. The relevant definitions are:
“article” means an item of tangible personal property other than a fixture;
“repair” means an expenditure of money on, or the application of labour, skill or materials to, an article for the purpose of altering, improving or restoring its properties or maintaining its condition and includes,
(a) the transportation of the article for purpose of making a repair,
(b) the towing of an article,
(c) the salvage of an article;
“repairer” means a person who makes a repair on the understanding that the person will be paid for the repair;
As you can see, these definitions are extremely broad and almost any item is capable of being an “article” and almost anything that someone can do to that item (with the expectation of compensation or profit) can be considered a “repair”. The real pinch, though, is just how powerful (and some might say draconian) the RSLA is – without getting into the fine legal details, it gives the party asserting the possessory lien the ability to hold the item(s) hostage, name its price, and barring early and expensive court challenge or the posting of security, sell the item(s) without any trial or court Order. No other statute in Ontario, that I’m aware of, gives a self-declared creditor that kind of power without any kind of pre-execution/pre-sale judicial process.
Realistically, this apparent potential for misapplication of the RSLA in the manufacturing/construction process is not likely to have a frequent or significant effect on the general construction industry – the problem my client ran into with the RSLA can only practically arise when Party A delivers its own material to party B for Party B to “alter” or “improve” that material and then a dispute arises between Party A and Party B while Party B still has Party A’s “articles” in its possession. This is where Party B can hold Party A’s own material hostage to extract payment (or the posting of security) for Party A to secure its release. In the more common scenario where Party A is paying Party B money to build or “alter” or “improve” Party B’s own material, the RSLA doesn’t really work because Party B would simply be refusing to release its own material to Party A – doesn’t pack quite the same punch.
If your business (or that of one of your clients if you are a lawyer or professional advisor) involves delivering materials to someone else for them to be altered or improved, beware the RSLA. Where this is the case, the RSLA permits the parties to contract out of the repairer’s right to a possessory lien (the opening words of section 3) and doing so should be given some very serious consideration.