A recent decision by Justice Steele in the Ontario Superior Court of Justice has brought some much-needed clarity for road building contractors seeking to uphold (or overturn) an interim-binding decision of a referee under MTO’s dispute resolution procedures.

Background

In HMQ (Minister of Transportation) v. Bot Construction (Ontario) Limited, a payment dispute arose on an MTO project as a result of additional costs incurred by Bot for excavating, stockpiling, and compacting an unforeseen volume of rock material (the “Claim”).  Bot ultimately submitted the Claim to a referee in accordance with the contract’s dispute resolution procedure, set out in the February 2016 SP100S55 amendment to the contract’s general conditions.

A contractually mandated meeting was held between the parties and the referee. At the referee’s request, the referee received additional submissions and information after the meeting and before rendering a decision requiring MTO to pay Bot the sum of $341,012.70 plus HST for the Claim.  The referee’s decision was provisionally binding on the parties, subject to the right of either party to “review” the decision by filing a notice of protest within 30 days. 

The contractual dispute resolution process set out in SP100S55 does not specify a format or any procedural rules for a review of the referee’s decision.  The contract provides that either party may “resort to litigation” for a review of a referee decision.

MTO Moves to Review (and Reverse) the Referee Decision

MTO commenced an application seeking a declaration from the court that the referee’s decision was wrongly decided and for an order requiring Bot to return to MTO the payment awarded by the referee.  To our knowledge this is the first court challenge of the MTO’s unique referee process and the path to be followed in seeking review of a referee decision under protest.

The grounds advanced by MTO in challenging the referee decision included an allegation that the referee had deviated from the prescribed referee process by allowing reply submissions from Bot in response to written submissions by MTO that differed from those provided in MTO’s original field level decision to deny the claim.  MTO alleged that the referee erred by encouraging further submissions from both parties at the referee meeting.

MTO further alleged that the referee had made an error in interpreting and applying the relevant contractual provisions, particularly with respect to the contractual provisions dealing with increases in the volume of blasted rock material (compared to its pre-excavation volume) after it was placed and compacted in a stockpile by Bot.

MTO sought a review of the referee decision by the court on a summary basis to be restricted to the limited documentary record that was before the referee.  MTO took the position that this initial review of the referee decision could then be challenged a further time by the unsuccessful party with the commencement of a regular court action seeking a final decision at a trial based on a full documentary record.

Faced with the prospect of multiple proceedings to uphold the referee’s decision, Bot moved for an order to convert MTO’s application into a regular action destined for a trial that would provide a single-step to fully and finally resolve the dispute.  Kyle MacLean, a partner with Advocates LLP, argued the motion on behalf of Bot.

The Decision

In her decision on Bot’s motion, Justice Steele reviewed the relevant factors that favour converting an application into an action, which would proceed to a full trial, including the following:

  1. Where there are material facts in dispute;
  2. Where the issues to be determined go beyond the interpretation of a document;
  3. Where there are complex issues and/or credibility determinations that require the court to weigh evidence; and
  4. Where the judge hearing the application cannot make a proper determination of the issues on the documentary record.

Justice Steele then reviewed the record before the court on MTO’s application and noted that there was conflicting evidence on the central issue of how the excavated rock volume changed based on Bot’s handling and compacting operations.  Resolving the contradictory evidence on this type of issue could not be done by a review of the contract documents and would likely require evidence from the road building industry and/or experts.

Another factor in favour of reviewing the referee decision by an action leading to a full trial was the lack of a complete record of the referee proceedings.  There was no transcript or other record of the referee’s meeting with the parties, resulting in an incomplete record of the evidence considered, which prevented the court from making a proper determination of the issues on the application.

Finally, Justice Steele observed that reviewing the referee decision on an interim basis by way of an application was not required under the contract’s dispute resolution provisions.  To do so would add an additional step that would only increase the cost and time of all parties on their way to a final resolution.  Converting the application into an action and sending it to trial in the normal manner would permit the court to finally resolve the dispute on its merits.

For these reasons, Justice Steele ordered that MTO’s application to review the referee decision must proceed by way of an action. As the party challenging the referee decision, MTO would be the plaintiff and Bot the defendant. The provisionally binding decision and resulting payment that MTO had to make under order of the referee would stand until such time as a trial judge ruled that the payment need not have been made, or otherwise determined that Bot was entitled to keep the award of the referee.

Implications for Industry

This decision provides procedural clarity for road building contractors who are seeking to review (or uphold) a referee’s interim binding decision.  The lack of a complete evidentiary record for referee proceedings, when paired with the complex factual issues that are often encountered on MTO project disputes, will generally favour proceeding by way of an action for a final determination of the claim. Doing so will ensure that a contractor can secure the quickest and most cost-effective resolution of their dispute with MTO.

Advocates LLP acts frequently for general contractors encountering problems on their ICI and infrastructure projects around Ontario, including those under contract with MTO, Metrolinx, Infrastructure Ontario, and local Municipalities. We have extensive experience working with clients to assist them in preparing for and managing the MTO referee process. Contact any one of our partners or visit us at AdvocatesLLP.com , and we would be pleased to assist.

Executive Alert:  Advocates LLP argues that Notice of Delay given now and tied to Ontario’s March 17 declaration of a State of Emergency and related MOH social distancing directives – may allow you access to a compensable delay, rather than merely an excusable delay.

A PDF copy of this article may be downloaded here.

Overview

These are indeed challenging times. What lies ahead is unknown for all of us.  Things will be particularly challenging for the construction industry given the complexity of factors which must come together to ensure the successful completion of a project.  The construction industry makes significant contributions to our economy; and  so it is imperative that all participants in the industry work collaboratively to keep projects going, at least where it is safe to do so; and where projects are suspended, to manage any claims arising in an efficient and effective manner.   

In response to the many questions we have received from our clients over the last week or so, we have developed a “roadmap” to help guide you  through some potential legal impacts of COVID 19 and provide you with some recommendations to assist you as you navigate these uncertain times.

These comments are intended to help you in your consideration of the available steps to be taken in light of COVID 19 concerns. They are premised upon two common contract formats used by many of our clients in the ICI Sector. Our comments are of a general nature only and are not, and should not, be relied upon as legal advice.

Our whole team at Advocates remains “at work” though we are doing so remotely these days, to comply with both the declared state of Emergency and related Public Health orders. We are available to you to review your specific contract language and discuss your specific circumstances as together we seek to develop an optimal strategy to keep  your forces safe on site, and attempt to position your company for the challenging days ahead, to the extent that relief may be available under your own unique contract provisions.

Where Do You Start?

We are not experts in infectious diseases.  However, we do know that to avoid or curtail the spread of COVID 19 limiting or preventing close contact in confined spaces is essential.  And as we also know for some spaces, like restaurants and schools, the governments have mandated closures.  That has not been the case in the construction industry – yet.

How and/or whether you proceed with your particular project will be influenced by a number of factors; including the environment in which the construction is taking place.  For example: are you engaged in construction in an enclosed environment (ie: building construction); or, are you engaged in construction in a non-enclosed environment (ie. road building?). The risk profile will be different and unique to each project.

However, in consideration of how you move forward, we know you always recognize that the key factor in your analysis is the health and safety of your own workers, and the health and safety of all the persons on the jobsite, and the public at large. Your consideration of the health and safety of workers is both your moral obligation and also your legal right and obligation.

General Principles of Occupational Health and Safety

Occupational Health and Safety remains a foundational principle which will govern all conduct on the job site. As you well know you are obliged to take all reasonable steps to ensure your site is, and remains, safe for workers. Employees have the right to refuse to perform work where they hold a bona fide belief that they may not be safe.

Under the Occupational Health and Safety Act s.37, an Employer is obliged to disclose the presence of hazardous materials in the workplace.

If the project site is a functioning hospital facility and the Constructor cannot be satisfied that its work force is not at risk of exposure to individuals with COVID 19 this may form a basis for refusal to work. Such a contractor may have General Conditions such as those found under the CCDC2 contract which deal specifically with Hazardous Materials. Those provisions require careful consideration based on the specific facts of your job site, and we urge anyone contemplating relying upon these clauses to immediately obtain legal advice.

Specifically, under Part V of the Occupational Health and Safety Act – s. 43 (3): a worker may refuse to work, or to do particular work where they have reason to believe that the physical condition of the workplace is likely to endanger them. There are exceptions to this right that apply to workers whose work is inherently risky, or to those whose refusal would directly endanger the life, health or safety of others, such as police, firefighters, or hospital workers. In these challenging times, we are grateful for those who have chosen to assume these risks for the benefit of the greater good.

We have heard reports of workers in certain circumstances and on certain projects refusing to work over concerns about COVID 19 health and safety concerns at the job site. We are aware of concerns for emerging and pending labour shortages. Product supply shortages will inevitably follow, since the manufacturers and those downstream in the supply chain will face the same impacts on their own workforce, assuming they have managed to remain open and operational in this difficult time.

The Contract

Every contract is unique and the facts are often as important as the terms of the contract. Below we have highlighted common provisions contained in the CCDC -2 Contract and in OPSS Contracts that you should be aware of; and we have noted how such provisions may be applicable to the current issues at hand. Of course, standard contracts may have been amended by supplementary conditions, as such it is important to read your contract thoroughly before you take any steps. 

Giving Notice of Delay and Requesting Extensions of Time

The government of the Province of Ontario declared a State of Emergency on Tuesday March 17, 2020 closing many different businesses. It banned public events of more than 50 people in the declaration, which reinforced the Ministry of Health (“MOH”) directives to invoke social distancing measures, requiring people to remain a minimum of 2M from one another, and to self-isolate for 14 days in the event of illness or potential exposure to an ill person.

Maintaining a sustained work force, and also achieving historical productivity levels, seems to no longer be possible in the medium term. The full extent of the ongoing impacts cannot be determined, but there are and will continue to be real impacts to projects underway and those projects about to commence with the arrival of Spring conditions.

Regardless of your form of Contract, we encourage you to be familiar with the various notice provisions – including when you must provide notice for a claim and what details must be included in the claim. While these are unprecedented times, you do not want to risk being denied a claim for compensation or relief from penalty, for failure to provide notice in accordance with the contract.

CCDC 2 Contracts

These comments generally apply to clients constructing buildings where the likelihood of the work force having to operate in close quarters (<2M), or within a team in a more confined space seems generally to be greater than in the road and bridge building sectors.

The provincial government in the Province of Ontario declared its State of Emergency on Tuesday March 17, 2020 closing many different businesses and banning public events of more than 50 people and reinforcing the MOH’s declaration to invoke social distancing measures. This gives us a logical reference point to establish either the commencement of the delay under the CCDC2 GC 6.5.4 or alternatively to contemplate the threshold of “as soon as the need for an Extension of Time becomes evident” under GC 3.06.01 of the OPSS GC’s. It also anchors your notice to a series of events which we argue should be compensable.


Compensable Delay – GC 6.5.2

A number of General Conditions may be triggered by issues arising with COVID 19 concerns. Under CCDC-2 we consider that the least risky of the avenues open to the Contractor to give notice arises through GC 6.5 Delays. 

Under GC 6.5.2 you can argue that a stop work order has been issued not by a Court but by another “public authority”, in the form of the declaration that people must not gather in numbers larger than 50 and should not be in closer proximity than 2M from one another. If either of these limitations to the way in which work on your site can be carried out, has a practical consequence of impacting productivity or entirely precluding certain tasks, then notice of delay may be given. If the same provisions are expected to cause material shortages, notice can be given. If the 14 day self-isolation obligation (triggered under various scenarios) is expected to cause labour shortages, notice can be given.

Under this provision the Contractor may seek reimbursement from the Owner for the costs incurred as a result of the delay, in addition to being granted further time and therefore relief from liquidated damages or other delay based penalty claims by an Owner for late project completion.

You may expect from consultants or owners, an argument that the work has not been stopped by these “orders”, and that the GC 6.5.2 clause applies only to a total stoppage of work, not to “mere operational constraints” such as those imposed by Ontario’s declaration and MOH’s directives.

Our response to that is that these operational constraints do stop the work in both space and in time. They stop the work within specific job site locations – specifically for the second team member who would normally and most efficiently work within the 2M radius of every other worker then on site. They also stop the work of workers who feeling briefly ill but, unable to access any definitive test, must stay off work for two weeks, along with workers who, without being ill themselves are obliged to isolate due to potential of exposure to an untested individual who themselves felt ill or was subsequently diagnosed.

This is not a criticism of these measures, but a reflection that this new reality will produce labour shortages in a number of different ways which were not previously foreseeable. Tying your notice to the provincial declaration and MOH directives assists that argument.

GC 6.5.2 places this risk on the Owner. Since COVID 19 was not a risk contemplated by the parties, we believe it can reasonably be argued that it could not have been transferred to bidders at time of contract formation. We see this GC as the preferred approach to dealing with these consequences and any resulting delays. Timely notice then, may be critical.

Force Majeure – GC 6.5.3.4

The alternative ground for delay would be GC 6.5.3.4 for delays suffered due to any cause beyond the Contractor’s control, other than one resulting from a default or breach of the Contract by the Contractor. In that alternative scenario, the only relief is additional time with no compensation. It becomes an excusable but not compensable delay, which is not a contractor’s preferred course.

Critically – and in either case, Notice of the Delay must be given within 10 working days of commencement of the delay pursuant to GC 6.5.4.

The take-away here is that under CCDC-2 you must give Notice of Delay within 10 working days of commencement of the delay, and we recommend anchoring that Notice to Ontario’s March 17 Emergency Declaration and the related MOH directives on social distancing.

Concealed or Unknown Conditions – GC 6.4

There is a third avenue under CCDC 2 which invokes the provisions of the Hazardous substances General Conditions. We consider it to be a high risk strategy for a contractor to rely on this provision because the party responsible for the presence of the Hazardous substance on site is at risk of having to indemnify the other for the consequential cost impacts of managing that exposure. For that reason, we could only see it be given serious consideration by those contractors working at an active hospital site where patients with COVID 19 are passing close to the location of construction activities. Those circumstances arguably give rise to an identifiable and enhanced risk caused by the activities of the Owner at the site.

The argument to be followed in such a case would arise with a Notice under GC 6.4 of a Concealed or Unknown Condition at the place of work. It would be a GC 6.1.4.2 unanticipated “physical condition… of a nature which differ materially from those generally recognized as inherent in construction activities…”

To initiate this process the Contractor must give Notice within 5 days of the observance of the conditions. Hence an immediate decision to give that Notice must be made if this were to form the basis of the effort to seek time and compensation due to impacts. It should also be expected to lead to a process of engaging the Occupational Health and Safety Committee and Hospital Risk Management staff. It would be a protracted process, during which there would likely be at least a temporary suspension of work while the Owner attempted to put in place further strategies to properly deal with the hazardous conditions.

Under GC 6.4.4 it is contemplated that the unknown condition may relate to toxic substances, and if so, reference is then made to the operative provisions of GC 9.2 Toxic and Hazardous Substances

The challenge and risk arising once the Contractor directs the Owner into GC 9.2 is that the pendulum can swing both ways. The concept established by GC 9.2 is to compel the party which is found to have introduced the toxic substance to the site, to bear all the consequences of steps necessary to address the impacts from the substance. The language is broad. It could be argued to apply to both direct clean-up costs, and consequential delay costs. Caution is therefore urged, before initiating such a process. The circumstances where it might succeed are likely restricted to those where the facility is a known treatment center for COVID 19 patients supporting the inference that an elevated toxic risk, was being brought to bear on the project due to the Owner’s operations.

As you can see in the snip below, the GC 9.2 Toxic and Hazardous Substances sections also creates trailing obligations for indemnity, which should be a concern to any General Contractor.


OPSS GENERAL CONDITION CONTRACTS

We recognize different factors will generally be at play for our general contractors in the road and bridge building sector. Many projects are just about to begin work following winter shut down. They are mostly being constructed in open outside environments, and not enclosed quarters.

Regardless of these differences, our clients tell us they have the same reasonable fears about labour shortages, productivity impacts on labour when it is available, and pending material shortages or supply chain disruption. These realities are becoming apparent, and might be said by MTO or others, with hindsight, to have been evident from the date of the province’s Declaration of Emergency on March 17th.

We raise this concern now with you as our partner Jim LeBer argued a case in Court on February 5th 2020, over the proper interpretation and application of the MTO’s contract language over EOT’s and Liquidated Damages. The Judge’s decision in that case has not yet been released. However, one of the elements in dispute arose from the internal contradiction in the MTO EOT process in GC3.06.01  which requires on one hand that a request be made “as soon as the need for such extension becomes evident” while mandating the use of the prescribed form indicating the precise amount of time extension required.  Arguably, until the impact has been nearly fully sustained, you can’t know the precise duration of the impact and therefore declare “the length of extension required.” Which demand trumps: as soon as evident – or – when the length of extension required is known?

During argument in that Court process MTO’s lawyers declared that if “the length of extension required” cannot be determined then the Construction Industry should be submitting multiple EOT’s along the way, for a single delay cause, updating your anticipated length of extension required whenever it begins to appear likely your estimate will have been exceeded. MTO’s lawyers argued that is not contrary to the provision and is the practice that should be followed, rather than await greater certainty on the probable duration of the impact before submitting the EOT, assuming the need for an extension is becoming evident.

Whether the Judge accepts this position as a reasonable interpretation of what the contractor should do, our message to the Industry is clear:

MTO has argued you have failed to give timely notice and your EOT should be rejected when notwithstanding uncertainty about duration, a Contractor did not submit the EOT as soon as it can be said that the need became evident. We strongly recommend submitting an EOT now based on the March 17 Declaration of Emergency and related MOH directives on social distancing, and the resulting and known impacts of those constraints.

MTO says you must do so even without a reliable prediction of the length of extension required. This is not a practice we at Advocates have typically seen adopted by our clients, and so we bring it to your attention. The response of MTO to such notices, remains to be seen. We will be keen to observe how they will be managed by CA’s and MTO staff as well.

The language of GC 3.07.01 (d) has similarities to those discussed above in the context of CCDC2 language about public authorities – AND – is also a compensable delay.

 “A stop work order issued by a court or public authority, provided that such order was not issued as the result of an act or omission of the Contractor…” 

We believe that the same consequences of Ontario’s March 17, 2020 State of Emergency declaration and related MOH directives can be said to flow from those orders issued which stop work both within the available space at the project site, and across time for workers trying to responsibly comply with the self-isolation directive. We repeat those comments again below.

Advocates argue that a stop work order has been issued by another “public authority”, in the form of the mandate that people must not gather in numbers larger than 50 and should not be in closer proximity than 2M from one another. If either of these limitations to the way in which work on your site can be carried out, has a practical consequence of impacting productivity or entirely precluding certain tasks, then notice of delay can be given. If the same provisions are expected to cause material shortages, notice can be given. If the 14 day self-isolation obligation is expected to cause labour shortages, notice can be given.

We recommend submitting a Request for Extension of Time caused by the constraints imposed by the Declaration of Emergency of March 17th and related MOH directives, with a best “guestimate” of the length of extension and an affirmative statement that the estimate of the length of time required will be revised and updated as further certainty is gained in the passage of time.

The consequence of submitting an EOT request is that the obligation to keep DWR’s is triggered immediately for all work potentially impacted by the delay.

We frequently see claims rejected by MTO for a failure to prepare, submit and reconcile  DWR’s weekly on any project where a delay is believed to be ongoing, and where notice of an EOT has been given, (or is subsequently given at some later date).

Our recommendation is to submit your EOT now and begin immediately keeping DWR’s for all tasks which have the potential of being impacted by the impending delay. Given the wide ranging nature of the delays which could arise to both labour and material across multiple subcontractor groups, it looks like all tasks could be tracked in the DWR’s you are going to be submitting.

Conclusion

The team at Advocates remain available while working from our various remote locations. We are just a video call away. We’d be glad to hear from you! Let us know if these comments have raised specific questions or concerns for you. We are ready to review your own contract’s specific language, to consider its supplementary general conditions, and the unique facts you are facing on your job site, if you need legal advice about alternatives you may want to implement now, to preserve your options going forward.

A PDF copy of this article may be downloaded here.

Advocates LLP is proud to announce that associate lawyers Jeff Van Bakel and Kyle MacLean have joined the firm as partners.

Kyle began working with us at the end of his articling year. Since then he has consistently demonstrated his growing skills, aptitude for innovation and sound judgment while working with our team on all aspects of complex commercial disputes. Our clients have recognized his talents, and the group of those for whom he has taken on leading roles continues to expand. We are excited to affirm our great expectations of Kyle, as we welcome him into the partnership. Kyle practices in the areas of Construction Litigation and Professional Negligence.

Jeff came to us 15 months ago from Toronto where he spent 10 years working in a large and diverse commercial litigation firm. Jeff’s practice involved commercial, construction and professional disputes. He had already developed solid well-honed skills that he was looking to apply within Advocates’ practice areas serving our core group of commercial clients. Jeff’s move back to his family roots in the London area has proven to be beneficial for Advocates’ clients, while also strengthening the depth of our team. Jeff practices in the areas of Professional Negligence, Construction Litigation and Shareholder Disputes.

Welcome to the partnership Kyle and Jeff!

It is not uncommon to see invoices or purchase orders that provide for interest on overdue accounts at a rate of 2 per cent per month with nothing written about the rate of interest per year. The assumption being that anyone with a basic facility with arithmetic understands that this means that interest is payable on over due accounts at a rate not less than 24 per cent per year (with monthly compounding it is closer to 27 per cent).

Surprisingly, the Interest Act, an often overlooked, short piece of federal legislation, assumes otherwise. It has the effect of capping a creditor’s right to recover interest at 5 per cent per year where a non-mortgage debt recorded in writing expresses interest at a daily, weekly, monthly, or quarterly rate.

The result is that if your terms of sale (or quotation, purchase order, invoice, etc.) stipulates interest at a rate of 2 per cent per month on overdue accounts (and nothing more), the purchaser fails to pay, you sue to recover the debt owed, and you get judgment, then you will only be entitled to interest at a rate of 5 per cent per year (which is at least 19 per cent per year less than you intended).

Happily (or sadly, depend on when you are reading this), complying with the Interest Act is simple: state the rate of interest per year only or state both a monthly rate and its yearly equivalent. So, if you want to recover 2 per cent interest each month on overdue accounts, be sure to state the yearly rate of 26.824 per cent at the same time.

Introduction

The United States government, under the administration of Donald Trump, imposed tariffs on imports of Canadian steel and aluminum at the rate of 25% and 10% respectively, effective May 31, 2018. As a countermeasure, Canada’s Department of Finance intends to impose a reciprocal surtax (or analogous trade restrictive countermeasures) on imports of steel, aluminum, and other goods originating from the US in accordance with the Determination of Country of Origin for the Purposes of Marking Goods (NAFTA Countries) Regulations, (SOR/94-23). The countermeasures will affect only those goods imported from the US and are anticipated to take effect on July 1, 2018.

Table 1 and 2, available here: 18.06.28 Table of Tariffs, set out the entire list of imported goods that will be subject to the countermeasures. All Table 1 items will be subject to a 25% surtax and all Table 2 items will be subject to a 10% surtax. The various goods listed did not end up on the list by accident. These items were included because they are produced or manufactured in districts with an influential Republican or key Trump Cabinet Member.

For example, yogurt is the first item listed in Table 1. The Speaker of the United States House of Representatives, Paul Ryan, is a congressman from Wyoming, which is a large producer of yogurt. Additionally, the Senate majority leader Mitch McConnell is a US senator from Kentucky. Accordingly, it is by design that whiskies (which include Kentucky-based bourbons) will now be subject to a 10% surcharge. The intent was to apply pressure on districts with influential Republican incumbents.

The NAFTA negotiations are not scheduled to convene until after the Mexican presidential election is completed on July 1, 2018.  It is not difficult to envision a scenario where those negotiations drag on for a significant period of time. As a result, this escalating trade war between Canada and its largest trading partner could become the new reality for the Canadian construction industry, at least for the foreseeable future. This paper will focus on the implications for those importing steel and aluminum originating from the US for a Canadian project.

Standard Force Majeure Clauses Unlikely to Be of Assistance

The primary objective of entering into a construction contract is to allocate responsibilities (including contract price and scope of work) and also to allocate risk. The standard force majeure clause contained in a construction contract is a means of allocating risk. Essentially, a force majeure clause relieves a party from the obligation of fulfilling the responsibility under a construction contract should a certain event occur.

Force majeure clauses are often confused with the common law doctrine of frustration. Although there can be some overlap between the two concepts, they are distinct. The doctrine of frustration applies when the very essence, or fundamental aspect of the contract, becomes impossible to fulfill due to an unforeseen event outside of the control of either party. In contrast, a force majeure clause is a contractual provision intended to address situations that fall short of frustration. As a contractual provision, a force majeure clause can be flexible and tailored to address specific events. Additionally, unlike the doctrine of frustration which nullifies an agreement in its entirety, a force majeure clause can be designed to apply to a discreet, standalone obligation in the contract, as opposed to the contract as a whole. In essence, the provision addresses risks deemed unacceptable by the contracting parties.

Obviously, how the courts will interpret a force majeure clause depends entirely on the specific wording of that provision. However, many construction agreements contain boilerplate language. The key features of most force majeure clauses contain one or more of the following elements:

The Supreme Court of Canada had an opportunity to review the law surrounding force majeure provisions over 40 years ago in Atlantic Paper Stock Ltd. v. St. Anne-Nackwawic Pulp and Paper Company Limited.[1] In that case, which remains the leading authority, Atlantic Paper contracted with St. Anne to supply 10,000 tonnes of waste paper (per year) for a 10 year period. That obligation was subject only to “an act of God, the Queens or public enemies, war, the authority of the law, labor unrest or strikes, the destruction of or damage to production facilities, or the non-availability of markets for pulp or corrugating medium.” St. Anne attempted to rely upon this underlined portion of the force majeure clause to get out of the agreement. The evidence established that there was an available market for pulp or corrugating medium, however, it just wasn’t profitable based on St. Anne’s operations. The Supreme Court determined that fell short of triggering the force majeure clause and ruled it was not proper to allow St. Anne to rely upon its soaring production costs to absolve it of contractual liability.

A more analogous situation to the current trade war occurred in Tom Jones & Sons Limited v. R, an Ontario High Court decision from 1982.[2] In that case, Tom Jones & Sons (“Tom Jones”) was the successful bidder for the construction of a building for the Government of Ontario. Shortly after the bid was accepted, the parties entered into a ground lease. Thereafter, Tom Jones advised the Government of Ontario that it could not arrange financing for the project.

The agreement between the parties contained a relatively standard force majeure clause that Tom Jones attempted to rely upon to rescind the contract. However, the court ruled that Tom Jones could not avoid its obligations to the Government of Ontario by relying upon the force majeure clause. It was determined from the evidence that it was not impossible for Tom Jones to obtain financing, but due to the volatility of interest rates in the money markets at the time, it could not get financing which would have led to the project being economically advantageous.

It is noteworthy that the courts have consistently determined that a project becoming unprofitable, or creating an economic hardship for one party, is not sufficient to trigger a force majeure clause. Again, while the analysis is fact specific depending on the specific wording of the force majeure clause, it is unlikely standard provisions will allow a party to be absolved of their responsibilities in an agreement due to the imposition of surtaxes and countermeasures, unless the force majeure clause is specifically written to apply to that situation.

Common Contractual Provisions That May Provide Relief: Price Acceleration Clauses for Duties and Taxes

Although not a strict force majeure clause, many standard construction agreements contain provisions dealing with government regulations, taxes and duties. For example, the CCDC 2 Stipulated Price Contract for 2008 contains the following provision:

Although “duties” is not defined in the agreement, it would appear that the surtax or countermeasures could be construed as a tax or a duty, which would give the contracting party an automatic right to increase the contract price to the same amount as the increased surtax or countermeasure. Obviously, this provision will give increased security and assistance to suppliers that entered into fixed-price arrangements before the imposition of the countermeasures.

There is nothing preventing a party from negotiating a similar provision into their contracts and to specifically reference the Government of Canada’s anticipated countermeasures in the clause.

Further, it should be noted agreements between owners and general contractors sometimes contain a provision entitling the owner to obtain the benefit of any tax exemption or tax rebate, and these provisions generally reference “customs” and “duties”.

As a result, depending on where you are in the construction pyramid, it is possible to flow through the surtax and countermeasures to the owner of the project. It is imperative that the contracts between the parties in the construction pyramid be reviewed to determine if this outcome is feasible.

Duty to Mitigate

Whether you are dealing with a force majeure clause, or a “duties and taxes price acceleration clause”, the parties still have a duty to mitigate any losses stemming from the non-performance of a contractual obligation. A well drafted force majeure clause will also contain an express duty to mitigate.

As a result, a party seeking to rely upon a price acceleration clause, or a force majeure clause, should ensure the material that is subject to the countermeasures cannot be sourced domestically or from a cheaper market.

Notice

Generally, a force majeure clause or price acceleration clause will contain an associated notice provision which creates a condition precedent to rely upon the clause. Strict adherence to any notice provision contained in the agreement is generally required by the courts. These notice provisions allow the responding party to mitigate the effects of the force majeure event.

In our particular example, the general contractor receiving goods subject to the countermeasures may have the option to de-scope the work from that subcontractor and source an alternative, cheaper supplier of the material. In certain situations, this might be preferable to being subject to the force majeure clause or price acceleration clause.

Conclusion

There is no guarantee that this trade dispute will be brief, and, there is no guarantee the dispute will not escalate. Further, standard boilerplate force majeure clauses are unlikely to provide relief for any party that is unexpectedly subject to the Government of Canada’s countermeasures. Price acceleration clauses addressing the countermeasures, or specifically tailored force majeure clauses, should be contemplated and inserted into construction agreements in order to purposely apportion the parties’ risk.

[1] Atlantic Paper Stock Ltd. v. St. Anne-Nackwawic Pulp and Paper Company Limited,[1975] 1 SCR 580.

[2] Tom Jones & Sons Limited v. R, 31 OR (2d) 649

Registering a construction lien against a property is a significant remedy that immediately triggers certain obligations and responsibilities for an owner. For that reason, the Construction Lien Act, 1990, c. C. 30 places an obligation on the party that is registering the lien to ensure the lien amount is accurate and not inflated.

A recent decision released by the Ontario Superior Court of Justice (Divisional Court) called HMI Construction Inc. v. Index Energy Mills Road Corp., highlights the pitfalls for a lien claimant in overstating its lien amount. In HMI Construction Inc. v. Index Energy Mills Road Corp. the owner purchased an energy generating plant. HMI was hired by Index to update the building and convert it into a biomass fired cogeneration facility. A falling out occurred between the parties and HMI registered two liens in the total amount of $32,807,468.11 against the property.

Index disputed the lien amount and elected to cross examine HMI’s affiant on the lien. It was determined that HMI used a “costs plus” approach in calculating that quantum of the lien amount. In essence, HMI calculated is actual costs, materials, equipment and labour and then added a 10% markup for profit to reach $32,807,468.11. The problem with this approach was that HMI and Index were on a fixed price contract. The court determined that absent approved changed orders, a contractor cannot include in a claim for lien extra charges over and above the contract amount, despite the fact that the contractor’s costs were more than usual or expected.  After reviewing the fixed price contract, and HMI’s progress draws, the Divisional Court affirmed the lower court’s determination that the maximum lienable amount was $13,872,154.86. As a result, HMI was found to have exaggerated its lien amount by $19,000,000. Index was successful on the appeal, and only had to post $13,872,154.86 as security in order to vacate the liens. Index was also awarded costs of the lower court motion and the appeal.

It is noteworthy that the Divisional Court ruled that “HMI is fortunate indeed that the motions judge exercised his discretion not to discharge the liens entirely, given all the circumstances.” Accordingly, it needs to be highlighted that if lien claimants are haphazard in calculating their lien amounts, the court has discretion to discharge the lien entirely if it is improperly inflated. Additionally, pursuant to section 86 of the Construction Lien Act, a party (or that party’s lawyer) can be ordered to pay a severe cost award if found to have willfully exaggerated the amount of its lien. The lesson here is that caution and care needs to exercised when calculating a lien amount. Lien claimants should consult with knowledgeable counsel in order to ensure the lien is properly calculated, otherwise, they run the risk of unwittingly losing their lien rights or making themselves vulnerable to an adverse cost award.

Jeff Van Bakel

Advocates LLP

Jeff practices predominantly in construction litigation, professional negligence defence and commercial litigation. Jeff takes pride in providing advice to his clients aimed at finding solutions. When a resolution cannot be reached, Jeff regularly appears before the Superior Court of Justice, the Divisional Court and the Court of Appeal for Ontario and aggressively advocates on behalf of his clients’ interests.

The Construction Lien Amendment Act of Ontario (Bill 142) was given Royal Assent in December 2017. Among its many changes, it will introduce an adjudication process. The effective date of the necessary regulations allowing adjudication is currently set for late 2019. By that time, whether your contract includes adjudication procedures or not, these procedures will prevail.

In the 1990’s the Province of Ontario experimented with mandatory mediation as part of the Court process. It was a good thing. These days it is common for lawyers handling construction disputes, sooner or later, to find their way to a mediator to help the clients explore settlement possibilities.

This new Construction Act will introduce “prompt payment” provisions. From my perspective as a Construction Litigation lawyer, the single most significant of those changes will be the Adjudication process.

Part II of the new Act describes it as a Construction Dispute Interim Adjudication. In less than 30 days it will produce in an interim decision rendered upon a single issue in dispute, by an experienced construction adjudicator. Disputes that can be referred to these adjudicators include: payment disputes; disputes over change orders whether issued and approved or not; disputes over the release of holdbacks or other payments subjected to back-charge. The disputes may only be referred to adjudication if the contract under which the dispute arises has not been completed. Issues referred to adjudication must be dealt with on a stand-alone basis. Multiple issues cannot be referred as one dispute. Notwithstanding these rules, the parties and the adjudicator have some discretion to agree to adapt things to achieve a timely cost effective process.

Adjudicators will be vetted for their skills and training by a Ministry Authorized Nominating Authority, which will create and manage a roster from which parties may choose their adjudicator. They will either be chosen from the roster by agreement of the parties, or will be appointed by the Nominating Authority, upon the request of a party.

The Adjudication process will be expedited. Within 5 days of accepting an appointment to adjudicate the party demanding adjudication is to have submitted their supporting documentation to the adjudicator. The process thereafter is under the control of the adjudicator who is to ensure it is conducted fairly and impartially – rendering their final decision no later than 30 days from receipt of the applicant’s documents. The adjudicator may attend at the site, interview witnesses, hire experts, and has other broad powers to investigate so as to be able to render a decision with reasons in support on or before the 30th day. A late decision will be unenforceable.

An adjudicator’s decision must be acted upon by the parties within 10 days of the determination, failing which a party may suspend further work under the contract. Although it must be acted upon, the decision may be disputed by either party through subsequent litigation or arbitration. The written decision of the adjudicator will be admissible in that trailing litigation.

Together with the prompt payment provisions which require a notice of non-payment detailing all the reasons for a backcharge, the new ability to demand adjudication is going to dramatically change the payment process for our construction industry.

In a decision released September 30, 2016, Master Wiebe has provided clarity with respect to the requirements for a valid Written Notice of Lien pursuant to section 24 of the Construction Lien Act (the “CLA”).

Those familiar with section 24 of the CLA will know that it is a powerful tool for unpaid parties to use in holding up the flow of funds from an owner prior to taking the formal step of registering a construction lien.

Section 24 provides that a payer may pay a contractor or subcontractor up to 90 per cent of the price of services or materials supplied under that contract or subcontract unless, prior to making the payment, the payer has received a “written notice of a lien”.  Where the payer has received a written notice of a lien, they must retain an amount sufficient to satisfy that lien, in addition to the normal statutory holdback, before making further payment.

The question before the Court in the case of Trenchline Construction Inc. v. Unimac-United Management Corp., 2016 ONSC 6136, was what amounted to a “written notice of a lien” sufficient to require the owner to retain what is referred to as the “notice holdback”.

The Trenchline case involved Trenchline as subcontractor, Unimac as general contractor and Metrolinx as owner.  Trenchline ran into issues collecting payments from Unimac and therefore between May and December of 2011 issued what it argued amounted to ten written notices of a lien to Metrolinx claiming a total owed to it of $1,085,210.09.

Master Wiebe thoroughly reviewed the case law under both the CLA and the former Mechanics Lien Act and delineated five elements that must be present in order for a communication to amount to a “written notice of a lien”.

The first four elements identified by Master Wiebe arise directly from the definition of “written notice of a lien” found in section 1 of the CLA.  These are:

The fifth element identified by Master Wiebe, which has its origins in the Ontario Court of Appeal decision in Craig v. Cromwel (1900), 27 O.A.R. 585, was described by the Master as being “a clear warning to the payer of the notice giver’s present intention to preserve a lien.”  Master Wiebe made it clear that it is not sufficient to simply notify the payer that there is an issue with payment or even that a lien might be registered at some time in the future.  The notice must be clear that the lien claimant wants the normal flow of money to stop.

In acknowledging that written notices of lien can be, and often are, delivered by non-lawyers, on site, in real time, Master Wiebe confirmed that it is substance, not form that is important.  There is no requirement to use the word “lien” and it can be as simple as stating that the payer should stop making payments.  The bottom line is however that the notice giver’s clear and present intention to lien or require payments to stop, must be communicated.

Can you join an unjust enrichment claim with your construction lien claim in the same action? The Court of Appeal thinks not, though the Divisional Court was not so categorical.

You expect a construction lien action, by its very name, to assert a contractor/subcontractor’s statutory right, under the Construction Lien Act, to relief against an owner’s real property, or against the security posted in lieu of a claim against the real property. It is also expected that the contractor/subcontractor will include a claim for breach of contract against the party immediately above it in the construction ‘pyramid’. What has come to be a fairly common practice is to also claim unjust enrichment against everyone, the contractor/subcontractor immediately above the lien claimant, as well as the owner with whom the lien claimant often has no direct relationship. However, just because it is common practice does not mean that it will pass legal muster.

Indeed, this was the result in Yorkwest Plumbing Supply Inc. v. Nortown Plumbing (1998) Ltd., 2016 ONCA 305 where a unanimous panel of the Ontario Court of Appeal held that any unjust enrichment claims were barred by the Construction Lien Act itself, going further than, and apparently overruling, the earlier decision of a unanimous Divisional Court in the case (2014 ONSC 5655).

The Facts

The facts are fairly straightforward. Yorkwest Plumbing Supply Inc. (“Yorkwest”) was a plumbing supply subcontractor of Nortown Plumbing (1998) Ltd. (“Nortown”) on two home development projects, one owned by Intracorp Projects (Milton on the Escarpment) Ltd. (“Intracorp”) and the other by Burl 9 Developments Limited (“Burl 9”). In the course of its subcontract Yorkwest supplies material to Nortown on credit. Before the projects are finished, Nortown is bankrupt. Yorkwest claims it is owed $39,846.69 for materials supplied on the Intracorp project and $63,535.24 for materials supplied on the Burl 9 project. Yorkwest registers a general lien against both projects in an effort to secure payment from Intracorp and Burl 9. Intracorp and Burl 9 respond with a motion for summary judgment on the basis that, among other things, Nortown’s general contract with both Intracorp and Burl 9 provided that liens would arise and expire on a lot-by-lot basis, precluding the general lien registered by Yorkwest. Intracorp and Burl 9 are successful and summary judgment is granted dismissing the action and discharging the liens. Yorkwest appeals to the Divisional Court. Its appeal is dismissed. Yorkwest appeals that dismissal to the Court of Appeal. That appeal is also dismissed.

The Decisions

The main issue  at all levels of court was whether Yorkwest could sustain a general lien against the owners notwithstanding the general contract’s specific provision that liens would arise and expire on a lot-by-lot basis. In that regard, a unanimous Court of Appeal confirmed that section 20 of the Construction Lien Act permitted an owner to contract out of the default general lien provisions and that the absence of a reference in section 20 to ‘subcontract’ did not alter the analysis. Indeed, the Court indicated that a subcontractor’s right to demand information from the owner under section 39 of the Act, including whether liens expired on a lot-by-lot basis, afforded subcontractors a sufficient procedural protection to justify the refusal to permit Yorkwest to register a general lien notwithstanding that it was not privy to the contract that abrogated that right.

Intracorp and Burl 9 had also taken issue with Yorkwest’s alternative claim against them of unjust enrichment. Regardless of its claim to a lien against their real property, Yorkwest also alleged that each of Intracorp and Burl 9 has been enriched by Yorkwest’s supply of material that was incorporated into each project, that it had suffered a corresponding loss, and that there was no legal reason (such as a contract) for that transfer of value. In dismissing this aspect of the appeal, the Court of Appeal’s reasons were brief and to the point:

[53]      Section 55 of the [Construction Lien Act] allows a plaintiff in a lien action to join in the action a claim for breach of contract or subcontract. In its statement of claim, the appellant pleaded that it was not paid pursuant to its agreement with Nortown, which was named as one of the defendants. However, the appellant did not plead breach of contract as against the respondent owners, Intracorp and Burl 9, as it had no contracts with them.

[54]      The Divisional Court held that to allow claims not referred to in s. 55 to be joined in the action, such as claims for quantum meruit or unjust enrichment, would amount to a refusal to apply the plain wording of s. 55. I agree. The Act is intended to provide a summary procedure for dealing with lien claims. By including s. 55, the Act further defines the extent and intent of actions that can be brought to enforce it.

[emphasis is mine]

In doing so, the Court of Appeal upheld the result at the Divisional Court, insofar as the Divisional Court refused to permit Yorkwest to continue its action against Intracorp and Burl 9 on the basis of unjust enrichment alone. In doing so, however, it glossed over the nuance in the Divisional Court’s decision. On the issue of the unjust enrichment claim, Marrocco A.C.J.S.C., writing for the panel, had held:

[44]           [Yorkwest] submitted that its claim should be permitted to continue its action on the basis of a breach of contract. [Yorkwest] also described its claims against [Intracorp] and [Burl 9] as claims for unjust enrichment and quantum meruit.

[45]           Section 55(1) of the Construction Lien Act provides that a plaintiff in an action may join a claim for breach of contract or subcontract with a lien claim.

[46]           Section 55 (1) permits the lien claimant to advance a claim based on services performed and acknowledged as received even if the contract for the provision of those services is ultimately not proven. Section 55 (1) permits the appellant to include a claim based upon a contract even if it turns out that the appellant is unable ultimately to prove the contract. Section 55 prevents personal injury or unrelated tort claims from being advanced in a lien claim because lien claims are intended to be summary in nature.

[47]           [Yorkwest] did not plead a contract with either [Intracorp] or [Burl 9]. [Yorkwest] did not plead a breach of contract by those persons. The affidavit of Gabrielle Pizzardi provided in response to [Intracorp] or [Burl 9] motions for summary judgment does not suggest that [Intracorp] or [Burl 9] contracted with [Yorkwest].

[48]           Yorkwest’s claims of unjust enrichment and quantum meruit in its statement of claim are not based on any pleading that there was a contract between [Yorkwest] and [Intracorp] or [Yorkwest]and [Burl 9].

[49]           Allowing [Yorkwest] to join claims for unjust enrichment or quantum meruit unrelated to contracts between [Yorkwest] and those persons, amounts to a refusal to apply the plain wording of section 55 (1).

[50]           Of course, it is possible to advance claims for unjust enrichment or quantum meruit in the absence of a contract. However, such claims cannot be joined with a lien claim due to the wording of section 55 (1) of the Construction Lien Act.

[51]           Accordingly [Yorkwest’s] claims for unjust enrichment and quantum meruit cannot be joined with this lien claim and there will be no order permitting this action to continue as a claim for breach of contract, unjust enrichment or quantum meruit.

Conclusion

On its face, the Court of Appeal’s decision is categorical: if your claim is not contemplated by section 55 of the Act then it cannot be jointed in your lien action. The Court of Appeal’s decision may be distinguishable on its facts from a case where, as the Divisional Court discussed, a subcontractor joins an unjust enrichment claim in its lien action against the general contractor with whom it did have a contractual relationship. However, it would seem that the Divisional Court’s analysis begs the question: if there is a contract between the subcontractor and the general contractor, then there is either no unjust enrichment claim at all, insofar as the contract is the legal reason for the transfer in value, or there is no contract, in which case the freestanding unjust enrichment claim against the general contractor is no different than the impermissible freestanding unjust enrichment claim against the owner.

The Divisional Court’s analysis appears to be concerned with the use of quantum meruit to secure compensation for contractors and subcontractors who perform work that is truly outside the scope of their contract or subcontract, but without entering into a new written agreement with the owner or contractor as to the terms of compensation for that extra out of scope work.  Even here, it may be better to characterize the arrangement between the owner/contractor and the contractor/subcontractor for the extra out of scope work to be an oral contract to do that extra out of scope work in exchange for fair compensation, the particulars of which compensation is to be agreed to at a later date and bypass altogether the messy question of whether your unjust enrichment claim will be permitted to proceed.

In the end, Yorkwest is a clear reminder from the Court of Appeal that construction lien actions are creatures of statute designed to advance a particular and narrow subset of claims to a quick resolution in a summary way. The practical upshot is that, as a lien claimant, you may join a breach of contract claim in your lien action, but nothing else. Of course, as the Divisional Court noted, if your claim against the owner, or anyone else, is truly in the nature of unjust enrichment, then there is no bar to commencing a separate action for that relief in the usual way and subject to the usual procedural requirements, but that is a topic for another day.

Court Holds 45 Day Lien Period Can Be Met Despite Subcontractor Not Being on Site For More than 45 Days Due to Scheduled Winter Shut Down.

What happens to a subcontractor’s 45 day lien rights when the work on site is interrupted due to a scheduled winter shut down? This is the issue Mr. Justice DiTomaso decided on July 9, 2016, in Toronto Zenith Contracting Limited v. Fermar Paving Limited, 2016 ONSC 4696.

The facts were straightforward.  Fermar was the general contractor on a major road construction project. It subcontracted some of the work to Zenith.  The subcontract contemplated three winter shutdowns with Zenith thereafter returning to the site to recommence its subcontract work. Zenith started its work in 2013.  The project went through the first winter shutdown. Zenith recommenced its work and worked on site until December 19, 2014, at which time the second winter shutdown began. During the second winter shut down, Zenith performed offsite work intended to become part of the improvement of the Project, in that it prepared and submitted shop drawings, and certain materials were fabricated and picked up by Fermar in February 2015 for the site. Furthermore, Zenith’s temporary shoring system was left in place on site during the winter shut down period and Zenith’s concrete forms installed before the winter shut down were used by Fermar to pour concrete after the winter shut down.

As a result of a dispute over delays and payment, Zenith issued a notice of termination of subcontract on February 6, 2015, and registered a construction lien on March 18, 2015.

Fermar contest the timeliness of registration of the lien, on the basis that the last day of work on the site was December 19, 2015, and, as such, Zenith registered its lien outside the 45 day lien period.

Mr. Justice DiTomaso rejected Fermar’s position and held that Zenith’s lien was registered within 45 days of “the date on which the person last supplied services or materials to the improvement”.  In particular, Mr. Justice DiTomaso accepted Zenith’s contention that:

…Fermar’s submission regarding the timeliness of Toronto Zenith’s lien makes no practical or commercial sense.  It would require parties to register claims for liens within 45 days of the date of their last supply of material or labour whenever a construction project was shut down for a significant period of time (whether it by weather, stop work order, scheduling issues or coordination requirements) even though the contractor, subcontractor or material supplier knew that there was ongoing progressive work or substantial quantities of material to be supplied or delivered as required at a later date.

His Honour ultimately concluded that Zenith’s lien had not expired, and was for a lienable supply of services and materials, given that the subcontract contemplated scheduled winter shutdowns, and the extent of offsite activity being performed during the winter shutdown for the Project.

The practical effect of this decision is that a contractor’s lien rights will be kept alive during a scheduled shut down that is longer than 45 days if the contractor continues to perform off site services for the Project during that shut down.  The more interesting question is what will the Court say about a contractor’s lien rights if the nature of the Project is that no off site work is required during the scheduled shut down.