Construction Law

Recent Amendments to Construction Act

On December 6, 2018 certain amendments were made to the Construction Act, R.S.O. 1990, c. C.30 (the “Act”) in an attempt to clarify some of the issues that had been identified with the July 1, 2018 amendments to the Act. We covered the July 1, 2018 amendments in both our Spring, 2018 and Fall, 2018 Newsletters. The following is a summary of the key recently enacted amendments:

“Procurement Process”

TheAct provides that any procurement process commenced prior to July 1, 2018 is governed under the former Construction Lien Act (“CLA”). The Act initially provided “examples” of what was considered a procurement process. The recent amendments now provide an exhaustive list of what constitutes a procurement process, namely: a request for qualifications, a 

request for quotation, a request for proposals, and a call for tenders (s. 1(4)).

Substantial Performance

Where a lien does not attach to premises, for example, where the premises are a public street or highway owned by a municipality, a certificate or declaration of substantial performance of a contract must contain a concise description of the premises, including addresses, and the name and address of the person or body to whom a copy of the claim for lien must be given (s. 32(2)).

Section 39 information Requests

A lien claimant, such as a supplier, can now request the date on which the main contract was entered into, the date on which any procurement process was commenced, and the date on which the subcontract was entered into, which should help lien claimants determine whether they are operating under the Act or the previous CLA (s. 39).

Non-payment of Holdback

The Act provides that an owner can refuse to make payment of the holdback to the contractor as long as the owner publishes a notice of non-payment.However, no similar right exists for a contractor or subcontractor. The recent amendments address this problem. Now, contractors and subcontractors can also refuse to make payment of the holdback as long as they have issued the requisite notice of non-payment to the party they are contractor required to pay. Note that, on October 1, 2019, this section will be amended again to require the contractor to also refer the matter to adjudication (s. 27.1).

Long Term Leases

The amendments provide that, premises subject to a lease agreement entered into before July 1, 2018, but where the main contract for an improvement is entered into (or where a procurement process has been commenced) between July 1, 2018 and October 1, 2019, the prior Act, the CLA, applies. Otherwise, any contract entered into (or procurement process commenced) after December 6, 2019 is governed by the post-December 6, 2018 version of the Act, even where the lease was entered into prior to July 1, 2018 (s. 87.3(1)(c)).

Powers of the Authorized Nominating Authority

The powers of the Authorized Nominating Authority (the “Authority”) have been broadened and now include the ability to set fees, costs and other charges regarding adjudications, including fees, costs or charges for the training and qualification of persons as adjudicators or for the appointment of adjudicators, and require their payment. Further, the Authority may specify the amount of such fees, costs or charges, or set a method for determining same. Finally, the Authority may retain the monies collected under these powers and use them for its own purposes (s. 13.3(2)(a), (3) & (4)).

Adjudications

Initially, an adjudication was subject to any adjudication procedures set out in the (sub)contract as long as those procedures complied with the requirements of the Act. Where no procedure was provided for in the (sub)contract, then the adjudication was to be conducted in accordance with the Act. The recent amendments now provide that an adjudication must be conducted in accordance with the procedures set out in the Act, as well as any additional procedures that may be set out in the (sub)contract, provided that those procedures do not conflict with the Act. Finally, the application of any (sub)contractual procedures is subject to the exercise of the adjudicator’s power (s. 13.6).

Document Disclosure

The amendments clarify that parties are to provide both the adjudicator and the opposing party with copies of the documents to be relied upon in the adjudication (s. 13.11).

Response to Notice of Adjudication

Parties served with a notice of adjudication now have an opportunity to deliver a response in writing. However, there has been no corresponding change made to the adjudication timelines (s. 13.11.1).

Takeaways

While these recent amendments offer some helpful clarity, further amendments may be forthcoming as the industry grapples and comes to grips with the numerous changes ushered in by the Act.

Court of Appeal Protects Construction Trust Monies from Secured Creditors in Bankruptcy

In The Guarantee Company of Canada v Royal Bank of Canada, 2019 ONCA 9, the Ontario Court of Appeal found that trust funds held by a contractor for the benefit of its subtrades were not the contractor’s property and were unavailable for distribution to the contractor’s creditors in a bankruptcy.

Background

A-1 Asphalt Maintenance Ltd. (“A-1”) was involved in the paving business. Due to financial difficulties, it filed a Notice of Intention to make a proposal to its creditors under the Bankruptcy and Insolvency Act, R.S.C. 1985, c. B-3 (“BIA”). A-1 subsequently failed to file a proposal and was deemed bankrupt.

At the time of its bankruptcy, A-1 had four ongoing contracts with the City of Hamilton (the “City”) and the Town of Halton Hills (the “Town”) for which it was owed a sum of money for work performed on the projects. The City and the Town paid $675,372.27 (the “Funds”) to A-1’s Receiver, who deposited the Funds into a Paving Projects Account. Pursuant to s. 8 of the Construction Lien Act, RSO 1990 c C-30 (“CLA”), the Funds owed to A-1 formed a deemed statutory trust (the “Trust”) for the benefit of contractors and subcontractors that had worked on the projects with the City and the Town.

The Guarantee Company of North America (“GNCA”) is a bond company that had paid $1,851,852 in construction lien claims to A-1’s suppliers and subcontractors due to 

GNCA’s contractual obligations with A-1. GNCA thereafter claimed that it should be reimbursed from the funds in the Trust.

A priority dispute then arose between a number of parties. The Royal Bank of Canada, which was a secured creditor of A-1, took the position that the Funds formed part of A-1’s estate under the BIA and therefore was available to its creditors. GNCA and certain employees that worked on the projects took the position that the Funds were a s. 8 CLA Trust and must be excluded from A-1’s property. The Receiver brought a motion to the court for advice and directions to resolve the priority dispute.

Superior Court of Justice

The key issue in the case was whether the monies received by A-1, which were impressed with the Trust, were excluded from distribution to A-1’s creditors under the BIA. If the Trust was excluded then GNCA would have priority to the money in the Trust over A-1’s other creditors. If the Trust money was included in A-1’s estate under the BIA, then GNCA would have no special priority over the Trust money, and would receive a proportionate share of A-1’s assets along with A-1’s other secured creditors.

The motions judge in the Ontario Superior Court of Justice (“ONSC”) found that the Funds did not meet the requirements of a trust under the BIA. The ONSC found that the Funds were not sufficiently identifiable and there were no established means for separating them from A-1’s other accounts and maintaining their character as a trust. GNCA appealed the motion judge’s decision to the Ontario Court of Appeal (the “Court”).

Court of Appeal

The Court noted that, to be considered a trust under the BIA, a statutory trust formed under the CLA must meet the common law requirements of a trust, namely, certainty of intention, certainty of object, and certainty of subject matter.

To satisfy the certainty of intention requirement, “a court must find an intention that the trustee is placed under an imperative obligation to hold property in trust for the benefit of another.” The Court found that s. 8 of the CLA satisfies this requirement because it creates a positive obligation on contractors/subcontractors to hold debts owed from construction projects in a trust for the benefit of those that worked on the project further down the construction pyramid.

To satisfy the certainty of object the trust must specify to whose benefit the trust is for. Certainty of object in this case was made out because s. 8 of the CLA specifically states that the Trust is for the benefit of the subcontractor/contractors that added their labour to the project.

To satisfy the certainty of subject matter, the monies or property forming the trust must be sufficiently identifiable. Prior cases involving provincial statutory trusts have failed on this requirement because the trusts at issue were found to form a general charge over all of the bankrupt’s assets and thus impermissibly interfered with the BIA’s priority scheme. However, the Court found that s. 8 of the CLA does not purport to create a general charge over all of the bankrupt’s assets, but rather, only attaches to the debt owed to the bankrupt from construction projects. Debts have been found to be an appropriate form for the subject matter of a trust in previous cases.

Another significant issue that may negate certainty of subject matter is when trust monies are commingled with other accounts or converted into property so that they can no longer be ascertainable. However, the Court found that although the Funds from A-1’s multiple construction contracts had been commingled into one account, they still could be traced due to the Receiver’s careful accounting.

Accordingly, the Court found that the Trust met the common law requirements of a trust and as a result, was not the property of A-1 under the BIA, could not be distributed to A-1’s creditors in bankruptcy, and therefore remained trust funds for the benefit of the subtrades.

Takeaways

Recent years have seen conflicting decisions between courts across the country on the issue of whether construction trust funds can be made available to general creditors pursuant to the BIA. The recent trend in Ontario had been to make these funds available to creditors, particularly where the funds at issue had been comingled with other monies. This decision effectively reverses that trend, particularly where detailed accounting records assist in identifying particular funds tied to a construction project.


Court Reduces Amount of Security Owner Required to Post to Vacate Contractor’s Lien

In H.I.R.A. Limited v. Middlesex Standard Condominium Corporation No. 823, 2018 ONSC 5931, Ontario’s Divisional Court upheld an order fixing the amount of security required to vacate a contractor’s claim in an amount substantially less than the lien claim.

Background

On June 10, 2015 Middlesex Standard Condominium Corporation No. 823 (“MSCC”)andH.I.R.A. Limited(“HIRA”) entered into a contract (the “Contract”) with respect to renovations to MSCC’s four building residential condominium complex. Although the initial Contract price was $4,498,212 (plus taxes), over time the scope of work expanded such that HIRA claimed a revised price of $11,630,040 (inclusive of taxes). MSCC had paid HIRA more than $8.35 million directly, and also had discharged some its responsibilities to third parties. The relationship between the parties deteriorated over time and MSCC terminated the contract alleging defaults on the part of HIRA.

HIRA disputed the termination, alleged that MSCC owed it $3,297,925, and registered a claim for lien. HIRA thereafter reduced its lien claim to $2,744,377. By contrast, MSCC alleged that the lien claim was inflated and that the balance was only $394,954. MSCC brought a motion to vacate HIRA’s lien by posting security for $394,954, plus costs, rather than the substantially higher amount of HIRA’s lien claim.

Motion Judge’s Decision

Under s. 44(2) of the Construction Lien Act (the “CLA”), a court can vacate the registration of a claim for lien upon the posting of security in an amount the court determines is reasonable in the circumstances to satisfy the lien.

The motions judge began by noting that MSCC had the onus of establishing that the lien claim was excessive. Further, while complex issues of contested facts regarding the merits of the claim could not be determined on such a motion, “the court must do its best to ensure that the lien claimant does not falsify, mischaracterize, misstate or exaggerate its claim”. The court is also entitled to reduce the lien security required if the evidence supporting the calculation of the claim does not establish a reasonable basis for the amount claimed.

The motions judge reviewed HIRA’s lien claim and focused on two main areas of dispute:

  1. 16 unapproved change order requests made by HIRA to MSCC in the aggregate amount of $512,456, plus HST (the “Disputed CRX Claim”); and
  2. a claim by HIRA regarding the value of services, equipment and materials provided to the project during the “extended contract period”, being the period extending from the original targeted completion date until the date of termination, in the amount of $1,175,601, plus HST (the “Extended Duration Claim”).

With respect to the Disputed CRX Claim, the motions judge found that the parties deviated from the change order process required by the Contract and that HIRA had established a basis for its claim. However, HIRA failed to credit certain payments made to it by MSCC. Further, HIRA’s claim for gas line work was problematic as HIRA had originally said that the change order had been satisfied and only changed its position following termination. As such, the motions judge reduced HIRA’s lien claim, leaving a balance of $271,719.57. As the remaining disputed change orders could not be fairly resolved on the record, no further deductions were made.

The Extended Duration Claim consisted of additional overhead costs (i.e. site supervision costs, insurance, etc.). MSCC argued that these costs were covered by and included in the Contract. The motions judge held that entitlement to these amounts raised issues of credibility and reliability that should be left for trial. However, with respect to quantum, the motions judge found that, with the exception of supervision costs, the claim was “more than doubtful”, particularly because there was no evidence that HIRA or the project cost consultant had tracked costs, the claim was asserted unilaterally after HIRA was terminated, and a number of the costs were estimates only. The motions judge therefore deducted $935,360.75 of the Extended Duration Claim from HIRA’s lien claim.

After applying the foregoing deductions, the motions judge ordered that the lien could be vacated upon MSCC posting security for $1,408,905.59, plus $50,000 for costs, instead of the $2,744,377 claimed by HIRA.

Divisional Court

On appeal to the Divisional Court, HIRA argued that the motions judge made palpable and overriding errors in determining the amount of the security required to vacate HIRA’s lien.

The Court began by noting that the motions judge was entitled to reduce the amount of security required to satisfy the lien claim if the supporting evidence failed to establish a reasonable basis for the claimed amount. The Court was satisfied that the motions judge analyzed HIRA’s entitlement to the lien claim as well as the quantum supported by the evidence. The motions judge also was alive to the fact that he was not to resolve complex issues of contested facts on the motion. As the motions judge held that most of the Disputed CRX Claim and Extended Duration Claim could not be resolved on the motion, he reduced amounts only where he could determine what items that could not be properly claimed under the Disputed CRX Claim or where the evidence failed to support a reasonable basis for the costs comprising the Extended Duration Claim.

With respect to the calculation of the amount of security required to vacate HIRA’s lien, the Court held that these were strictly factual matters and were within the exercise of the motion judge’s discretion.

Aside from varying the motions judge’s order to correct a mathematical error, the Divisional Court dismissed HIRA’s appeal.

Takeaways

As this case demonstrates, the Court has discretion in determining a reasonable amount to be posted as security when vacating a registered claim for lien. Where a party seeks to post a lesser amount as security, it bears the onus of demonstrating that the lien claim is excessive. Further, the court must also ensure that a lien claimant has not exaggerated its claim. That said, because complex factual disputes will not be resolved on such a motion, the evidence must be fairly clear that a claim is excessive. Consequently, it is in the interest of both parties to ensure that good supporting records are kept so that calculations of the proper amounts owing can be introduced into evidence to support or negate, as the case may be, amounts claimed by either party.


Failure to Obtain Insurance Coverage Bars Owner's Claim Against Contractor

In Jacobs v. Leboeuf Properties Inc., 2018 ONSC 4795 (“Jacobs”), a property owner’s failure to obtain property and third party 

liability insurance coverage as required by the contract with the general contractor, barred his claim of faulty workmanship against the contractor.

Background

The plaintiff owner retained the defendant, Leboeuf Properties Inc., as general contractor to demolish the residence on the plaintiff’s property and to build a replacement residence. The contract required the owner to purchase property and third party liability insurance coverage for the demolition and reconstruction, and to include the contractor as a named insured.

The plaintiff alleged faulty workmanship by the contractor during the reconstruction of the residence causing property damage, and claimed damages for breach of contract and negligence to cover costs and expenses incurred by the plaintiff to correct and complete the work. The defendant argued that the plaintiff’s contractual obligation to insure the project and the defendant were a bar to the plaintiff’s action, and brought a motion to have the action dismissed.

The Covenant

The contract’s covenant to insure read as follows:

The Owner shall purchase and maintain in property and third party liability insurance in a form acceptable to the Construction Manager upon the entire Project for the full cost of replacement as of the time of any loss. This insurance shall include, as named insureds, the Owner, the Construction Manager, Trade Contractors, and their Trade Subcontractors and shall insure against loss from the perils of Fire, Extended Coverage, and shall include builder’s risk insurance for physical loss or damage including, without duplication of coverage, at least theft, vandalism, malicious mischief, transit, collapse, and where applicable, flood, earthquake testing, and damage resulting from defective design, workmanship or material. The Owner will increase limits of coverage, if necessary to reflect estimated replacement costs. The Owner will be responsible for any co-insurance penalties or deductibles. If the Project covers an addition to or is adjacent to an existing building, the Construction Manager, Trade Contractors and their Trade Subcontractors shall be named as additional insureds under the Owner’s Property Insurance covering such building and its content.

Decision

The Court began by noting that covenants to insure have been given a specific interpretation in case law: they not only obligate one party to obtain insurance, but also relieve the other party of liability for losses, subject to the covenant, even if such losses are caused by its own negligence. However, an exception occurs where the covenant to insure itself contains express language preserving the obligation of the contractor to be responsible for the cost of remediating its own work. Unfortunately for the plaintiff, the covenant in the subject contract did not contain such an exception, but was much more general.

The contractor also argued that, even if the plaintiff failed to obtain the requisite insurance, his commitment to obtain insurance amounts to a voluntary assumption of the risks of loss or damage to the residence. The Court agreed with this argument, and further noted that the covenant to insure provides an allocation of risks that is reflected in the price to be paid for the contractor’s services. As such, the plaintiff effectively accepted the risks of the very type of losses or damages alleged in his claim, and thus could not pursue the defendant for those losses.

The Court dismissed the action and awarded costs to the defendant.

Takeaways

The obvious lesson from this case is that an owner that is contractually obliged to obtain insurance coverage that includes the contractor as a named insured should follow through on that obligation. Where possible, it would also be prudent for an owner to include in the covenant, the exception referred to by the Court, namely, that the contractor will remain responsible for the cost of remediating its own work.


Greater Lien Exposure for Landlords Arising From Improvements to Tenants’ Premises

Due to the recent amendments to the Construction Lien Act, now known simply as the Construction Act (the “CA”), landlords face greater exposure to lien claims arising from improvements to property carried out by their tenants.

The Construction Lien Act

Under s. 19(1) of the previous Act, an unpaid (sub)contractor that supplied materials or services to an improvement on a tenant’s premises had lien rights as against the tenant’s leasehold interest only. The lien could be enforced through the sale of the lease. In order for the lien to attach the landlord’s property rather than just the tenant’s leasehold interest, the 

(sub)contractor was required to provide notice to the landlord regarding the proposed improvements in advance to the improvement being made. However, the landlord could easily avoid exposure to a lien claim if it simply responded to the notice within 15 days disclaiming any responsibility for the improvement.

The Construction Act

Under the amended Act, s. 19(1) now provides as follows:

If the interest of the owner to which a lien attaches is leasehold, and if payment for all or part of the improvement is accounted for under the terms of the lease or any renewal of it, or under any agreement to which the landlord is a party that is connected to the lease, the landlord’s interest is also subject to the lien, to the extent of 10 percent of the amount of such payment.

Accordingly, there is no longer a requirement for a (sub)contractor to provide advanced notice to the landlord of the work to be undertaken in order for the lien to attach to the landlord’s property. Rather, the lien attaches the landlord’s property if payment to the (sub)contractor for all or part of the improvement is accounted for under the terms of the tenant’s lease. In other words, if the landlord agrees to provide tenant inducements or financial assistance to the tenant in support of the improvement, the landlord’s interest in the property is subject to a lien of up to 10 percent of the amount provided.

Note that, pursuant to s. 87.3(1)(c) of the CA, this amendment only applies to leases entered into after July 1, 2018. Leases entered into before that date continue to be governed under the advanced notice scheme of the previous rule.

While it is fairly obvious that provisions in a lease that explicitly provides a leasehold improvement allowance would be caught by this provision, it is not to what extent other non-cash inducements might also be caught, although the language is broad enough to potentially catch inducements in nearly any form.

Takeaways

Landlords that wish to include tenant inducements in their leases should include a provision entitling the landlord to holdback 10 percent of the inducement until the lien period has expired, being 60 days after the work has been completed. Before releasing the holdback to the tenant, landlords should perform a title search to confirm that no claim for lien has been registered on title. Landlords can also minimize their potential exposure by having tenant’s fund the entirety of any improvement, thereby ensuring that the tenant’s pay their construction bills when due, and monitor any work being done to the tenant’s premises.


Court Offers Helpful Review of Law Governing Construction Contract Breaches & Remedies

In D & M Steel Ltd. v. 51 Construction Ltd., 2018 ONSC 2171, the Ontario Superior Court of Justice has provided a useful review of the principles governing construction contracts and claims for damages, and applied those principles to the claims of an owner and a subcontractor that had abandoned a project.

Background

Jin Yin Temple (“the Temple”) retained 51 Construction Ltd. (“51 Construction”) as its general contractor to design and construct a new building for its congregation. 51 Construction retained D & M Steel Ltd. (“D&M”) to supply and install the structural steel for the Temple’s building.

After 51 Construction failed to pay one of D&M’s invoices, the parties entered into a Tripartite Agreement wherein the Temple agreed to pay D&M directly on behalf of 51 Construction. Subsequently, D&M issued an invoice for “partial installation of canopy frames and roof deck”. However, 51 Construction advised D&M that the invoice would not be paid until D&M finished its work and passed inspection. Eventually, D&M abandoned the project notwithstanding delivery of all materials and its non-completion of the roof canopy and deck. The Temple eventually terminated 51 Construction and hired a third party to complete the construction.

D&M subsequently delivered an invoice for alleged extras, registered a construction lien, and brought an action for amounts it alleged were outstanding. 51 Construction counterclaimed against D&M for completion costs, damages, and lost opportunity. The Temple counterclaimed against D&M, and crossclaimed against 51 Construction, for deficiencies, completion costs, and delays. The claims were referred to a Master of the Ontario Superior Court for a determination and a Report.

Master’s Report

The Master issued a Report (the “Master’s Report”) that found that (a) that 51 Construction and the Temple owed D&M $1,130 under the subcontract for the extra to roll the roof corners, payable out of the holdback; (b) 51 Construction and D&M were jointly and severally liable to the Temple for delay damages for the Temple having to store roof tiles; (c) 51 Construction and D&M were jointly and severally liable to the Temple for the costs of an inspection; (d) the balance of D&M’s claim should be dismissed; and (e) the balance of the Temple’s counterclaim, and crossclaims between the Temple and 51 Construction should be dismissed.

D&M subsequently brought a motion opposing confirmation of the Master’s Report. The Temple asked that the Master’s Report be varied to allow the entirety of its counterclaim.

Superior Court Review

The motion was heard by a judge of the Ontario Superior Court. In the course of its review, the Court provided a useful summary of the law regarding breaches of construction contracts and claims for damages.

Owner breach

In a construction contract, where the owner, without justification, ceases to make payments, cancels the contract, or makes it impossible for the contractor to complete the job, the owner has breached the contract. In this scenario, the owner has no claim for damages and the contractor is justified in abandoning the work. Further, the contractor is entitled to enforce its claim for lien to the extent of the actual value of the services performed and/or materials supplied. The court may award the contractor damages for breach of contractor or damages on a quantum meruit basis (i.e. a reasonable amount for services rendered). Note that, in a quantum meruit claim, deficiencies in the work performed are deducted from the value of the work done, but no account is taken of the owner’s costs to complete the work.

Contractor breach

Defective work, or insignificant non-completion of work, generally does not entitle an owner to terminate the contract. Rather, the owner is obliged to pay for the work done and to then claim damages for the defective work, which is generally the cost of remedying the defects and/or completing the work. Further, if the defects are minor, the contractor should be permitted to remedy the defects, and an owner’s failure to permit this will reduce the amount of damages the owner can claim.

If a contractor abandons, repudiates, fundamentally breaches the contract, or fails to carry out the work, the owner is entitled to terminate the contract, claim damages for the contractor’s breach, and is discharged from its obligations to pay. However, if a contractor breaches a “severable,” “divisible” or “non-entire” construction contract, or if the contractor breaches an “entire contract” it has substantially performed, the contractor is entitled to be paid for its performed work, subject to the owner’s claim for damages for defective, delayed, or incomplete performance.

Where a contractor refuses to proceed unless paid, or demands payment before payment is due, this could amount to an intention to no longer to be bound by the written contract, and may amount to a fundamental breach or repudiation of the contract.

Finally, where a contractor loses its right to payment under the contract because of its failure to perform, if there is a fresh promise to pay on a quantum meruit basis, the contractor may be entitled to recover some amount for the work actually done and accepted by the owner.

Extras

The Court also provided a review of the principles applicable to claims for extras.

Generally, a contractor is only obliged to perform, and may only charge for, work and material included in the contract. Therefore, “extras” refer to additional work outside the contract’s scope.

In the absence of contractual provisions governing the request and payment for extras, there must be a new agreement covering any extras. A contractor can also charge for extras where it has been instructed to do the extra work or supply the extra materials. If no price is fixed for the performance of the work, the court implies a promise to pay a reasonable amount. Conversely, where work is done or materials are supplied without instructions or consent of the other party, the contractor is not entitled to charge for it.

Where an owner acquiesces to the provision of extras despite the parties’ failure to follow contractual provisions governing extras, the owner may be found to have made an implied promise to pay. Where there is an oral request for extras, the requesting party cannot avoid payment by claiming that the contract requires written confirmation.

Decision

The Court then turned its attention to reviewing the Master’s Report.

Part of the Temple’s counterclaim against D&M included the cost of storing roof tiles, which the Master awarded and which the reviewing Court held was an error.

The plaintiff only pleaded breach of contract as a basis for its claim and did not allege other causes of action, such as negligence. As the Master noted, the Tripartite Agreement did not change the relationships of owner, contractor, and subcontractor, and thus did not create a direct contractual relationship between the Temple and D&M. Rather, the Temple had merely guaranteed payment of 51 Construction’s obligations to D&M. As there was no direct contractual relationship between D&M and the Temple, there was no basis for the Temple to assert a counterclaim for breach of contract against D&M. Further, there was little explanation as to why it took six months for the Temple’s new contractor to install the roof tiles.

In reviewing D&M’s claim for payment, the Court held that payment was only required after D&M completed the work for each phase. In demanding payment it was not entitled to, D&M repudiated the contract. It further repudiated the contract when it abandoned the project before completing its work.

The Court also rejected D&M’s claim for extras. By repudiating the contract D&M was not entitled to any payments. Further, the items alleged to be extras fell within the scope of the contract, were not treated as extras by the parties, and there was no express agreement about extras. Finally, even if there were extras, D&M failed to prove their value.

The Court therefore varied the Master’s Report to disallow the Temple’s claim for storage costs, and confirmed the balance.

Takeaways

This case provides a useful overview and reminder of the key principles governing construction contracts, particularly with respect to claims of breach of contract, damages, and claims for extras. It also serves as a reminder that negligence should generally be pleaded as an alternative basis of liability in order to avoid having one’s claim defeated on the basis that a contractual relationship does not exist or is otherwise unenforceable/