Construction Law

Making Arrangements: Prompt Payment & Adjudication Take Effect October 1, 2019

On October 1, 2019 the prompt payment and adjudication amendments under the amended Construction Act, R.S.O. 1990, c. C.30, will come into force. As we covered these significant amendments in our previous newsletters, what follows is a brief review of the prompt payment and adjudication regime, followed by some things to keep in mind regarding document retention and organization to help prepare you for life under the amended legislation.

Prompt Payment

Prompt payment begins with the submission of a “proper invoice” from the contractor to the owner, on a monthly basis (unless the contract states otherwise). A proper invoice is a formal document that includes certain prescribed information, including the amount payable, a description of the services supplied, the period of supply, and how the work was authorized. Importantly, the submission of a proper invoice cannot be conditional on prior approval from the owner or the owner’s payment certifier, such as its architectural consultant, which is currently a common practice.

Where there is no dispute as to the particulars of the invoice, the owner then has 28 calendar (not business) days to pay the contractor. The contractor will then have a further 7 days to pay its subcontractor(s), who in turn will have a further 7 days to pay its supplier(s).

If a party wishes to dispute the payment requested, in whole or in part, that party must issue a notice of non-payment, in the prescribed form, detailing the precise reasons for non-payment. Where the owner wishes to dispute the amount sought by the contractor, the owner must issue the notice to the contractor within 14 days. The contractor can then issue a notice to its subcontractor(s) within a further 7 days, and the subcontractor(s) can issue a notice to its supplier(s) within a further 7 days.

Where the contractor receives full payment from the owner, but disputes the subcontractor(s) entitlement to payment, in whole or in part, the contractor must give notice of non-payment to the subcontractor(s) within 35 days of the proper invoice being given to the owner. Where the subcontractor(s) receives full payment from the contractor, but disputes amounts claimed by its supplier, it must give notice of non-payment within 42 days after the proper invoice was given to the owner.

Adjudication

Adjudication is a dispute resolution process designed to produce an interim binding decision to a construction dispute, rendered by an impartial Adjudicator, within a matter of weeks.

Where there is a dispute, for example, with respect to the value of services and/or materials supplied, one party can serve the other with a notice of dispute that sets out the nature of the dispute and proposes an Adjudicator. Within 4 days the proposed Adjudicator can either agree or decline to conduct the Adjudication. Where he or she declines, the party who gave notice must request that an Adjudicator be appointed by the “Authorized Nominating Authority” (the “Authority”), which is responsible for regulating Adjudicators, within 7 days. Note that the government of Ontario has recently appointed ADR Chambers of North York, Ontario as the Authority. 

Once an Adjudicator is appointed, the party that served the notice must provide key documents relevant to the dispute to the Adjudicator and responding party within 5 days. The responding party may also submit a response, and additional documents, to the Adjudicator and the party that initiated the Adjudication. The Adjudicator then has 30 days to render a decision, although he or she may, with the consent of the parties, request a further 14 days to render a decision. The parties can also agree to extend the deadline to any date. Any amounts ordered payable as a result of Adjudication must be paid within 10 days of the Adjudicator’s decision.

Transition Provisions

Note that the provisions with respect to prompt payment and adjudication only apply to contracts that are entered into between an owner and contractor on or after October 1, 2019, regardless of when any subcontract may have been entered into. In other words, the main contract between an owner and contractor governs whether the pre or post-amendment regime apply, including to the subcontracts that may have been entered into after October 1, 2019. Note that, in the case of a procurement process, such as a request for proposals or a call for tenders, where the procurement process commences prior to October 1, 2019, the contracts pursuant thereto will be governed under the old rules. 

Record Keeping and Organization

Construction disputes can be factually complex and can involve many volumes of relevant material and evidence. Under the prompt payment and adjudication regimes, the time available for dealing with such complexity has been shrunk dramatically. For example, upon receipt of a proper invoice, an owner needs to be able to review the invoice (perhaps with its external payment certifier), decide whether the invoice will be disputed, and if so, on what grounds, and then deliver a notice of dispute all within 14 days. As such, it is critical that internal systems and processes be implemented and arranged in a manner that can respond within the tight timelines.

Further, in the case of Adjudication, internal processes for record retention will likely prove critical. Failure to accurately record, retain, and organize project information and documents could lead to time and expense being wasted just in trying to locate documents relevant to any particular dispute. It may also result in an inability to locate critical and favourable evidence in time for submission to the Adjudicator, thus potentially damaging one’s case. These problems can become compounded once key project personnel have moved on from the project.

Conversely, good record keeping can save time and expense when it comes to preparing, reviewing and compiling documents for the Adjudicator, particularly if one is the responding party and has only five days to do so. Well-organized files that can be easily transferred to legal counsel, as opposed to a last minute scramble to compile invoices, purchase orders, change orders, emails and other documents, is obviously preferable and can lead to costs savings.

As much as possible, information and documents should be kept in a central and organized location. This can be particularly helpful in situations where materials are due within a few days, but the responsible employee happens to be on vacation that week. In addition, regular meetings regarding the progress of a project can also assist in staying on top of what is happening on site, and may help in anticipating or even preventing disputes.

Parties that have not begun considering ways to streamline their internal processes, including developing guidelines for payment approvals, dispute notices, as well record retention and organization, should begin doing so as soon as possible.

Court Limits Extent of Builder’s Risk Insurance Coverage

In Pre-Eng v. Intact, 2019 ONSC 1700, the Ontario Superior Court of Justice determined that a Builder’s Risk insurance policy was limited to the area of the building where the insured builder was performing its work, but did not extend to other parts of the building that were damaged as a result of the builder’s negligent work.

Background

A builder was hired to do renovations to a school, including repairing the roof over the school gymnasium. As a result of the builder’s negligence, rain spilled through the roof and onto the gym’s wooden floor, which caused approximately $164,000 in damages to the floor, and a further $100,000 in losses due to project delays.

Prior to commencing work, the builder obtained a Builder’s Risk insurance policy from Northbridge General Insurance Corporation (“Northbridge”) to cover any property at the project site that got damaged during the course of construction, renovation or repair. 

The builder also had a Commercial General Liability policy with Intact Insurance Company (“Intact”), which covered any damages the builder might be liable to pay as compensation for property damage caused by its work. 

The two policies were meant to be complimentary in that Northbridge would cover anything that fell within the Builder’s Risk policy, and Intact would cover everything else.

Issue

The key issue before the Court was whether the Builder's Risk insurance policy covered only the repair work being done to the roof by the builder, or whether coverage extended to other parts of the school site. If the damage to the gym floor was not covered by the Builder’s Risk policy, Intact would be responsible for covering the loss under the Commercial General Liability policy.

Positions

Northbridge argued that the Builder's Risk policy explicitly covered property under construction, and that, although the gym floors were damaged as a result of construction, they were not under construction. Therefore, the damage to the gym floor was not covered by the policy. 

Intact took the position that the Northbridge policy covered any damage caused at the project site. It argued that there was an ambiguity in the Builder's Risk insurance contract. For example, the builder’s renovation contract with the school also required the builder to do some painting. As painting generally demands putting ladders and equipment on floors, if the floors were damaged as a result, would they be considered “property under construction”?

Analysis

The Court began its analysis by noting a conflict in the jurisprudence regarding the scope of Builder’s Risk insurance. While some courts have concluded that these policies cover damage to any part of a project site caused by the insured’s negligence, other courts have held that these policies only cover damage to the part of the site on which the insured is actually working.

The Court then considered the underlying purpose of Builder’s Risk insurance. It noted that, in any large construction project, the work of one tradesperson on a small part of the project has the potential to damage or destroy a large part of the entire project. As such, every construction contract typically requires the builder to obtain a Builder's Risk insurance policy that covers both the builder and the owner of the property in the event of a loss. 

The Court also noted that although a contractor’s negligence may result in a great deal of damage to a large structure that does not require the builder to insure the entire structure before undertaking its small task. Rather, “the object of Builder’s Risk insurance is to ensure that the builder has sufficient insurance to complete his work in the event of an unforeseen failure”. 

The Court further noted that it would not be commercially viable to require a builder to obtain Builder’s Risk insurance to cover an entire building where the builder is only working on one small part of the building. Otherwise, the cost of insurance for small contractors would become prohibitively expensive.

After considering the language of the particular insurance policies at issue, the Court concluded that the words “property in course of construction, installation, renovation, reconstruction or repair” were sufficiently clear to exclude the gym floor from coverage under the Builder's Risk policy because the gym floor was not being installed, renovated or reconstructed. 

The Court further noted that Intact’s own policy, which excluded coverage for Builder’s Risk damages, also employed similarly general language. However, just because the language of an insurance policy may, of necessity, be general, does not mean it is ambiguous.

The Court thus declared that the Builder's Risk policy issued by Northbridge did not provide insurance coverage for damages to the gym floor or from the delay in completing the project, but that these damages were covered by the General Commercial Liability issued by Intact. 

Takeaways

Prior to commencing a project, where possible an Owner should insist that a contractor provide proof of not only a Builder's Risk insurance policy, but a Commercial General Liability policy as well, so as to insulate the project from damages on account of contractor negligence as far as possible. 


Parties’ Conduct Determines Architect’s Fee “Fixed” Rather Than Percentage-Based

In Riddell Kurczaba Architecture Engineering Interior Design Ltd v Governors of the University of Calgary, 2018 ABQB 11, the Alberta Court of Queen’s Bench held that the way the contracting parties had conducted themselves indicated that the contract between them was for a “fixed fee” despite some contractual language suggesting the fee was to be calculated as a percentage of construction costs.

Background

The University of Calgary (the “University”) initiated a project to construct a building that would provide both student housing and a European-style boutique hotel (the “Project”). The Plaintiff, Riddell Kurczaba Architects (“RKA”), was retained by the University as the Project architects. 

While the University and RKA were negotiating a Service Agreement, RKA commenced work pursuant to an “early-start” letter agreement. 

Over the course of construction RKA was paid for its services pursuant to a series of Purchase Orders, which authorized payment for services described in the Service Agreement, including work as described in a series of six Change Orders. 

Around March 2010, when construction was substantially complete, the parties reconciled their accounts and agreed that the amounts invoiced by RKA had been paid by the University. 

However, the University was unsatisfied with the work performed by RKA under a separate contract between them, which required RKA to provide furniture, fittings, and equipment services for the new facility (the “FFE Agreement”). The University maintained, for example, that the furniture ordered by RKA did not fit the designs planned for its hotel rooms. The University warned RKA that it would seek reimbursement for revenue losses associated with RKA’s delays in finishing the Project. 

In August 2011, RKA conducted a further review of its invoicing and found that it had inaccurately invoiced the University on a fixed-fee basis, despite its belief that it was entitled to a percentage-based fee of the total cost of construction under the Service Agreement. RKA therefore demanded the University pay around $1.8 million in outstanding fees. On May 8, 2012, RKA commenced an action seeking this additional payment.

The University maintained that it paid RKA under the terms of the Service Agreement, and that RKA was estopped from seeking further payment, or barred from doing so pursuant to the expiry of the limitation period. The University also counterclaimed seeking reimbursement of $360,047.94 in respect of RKA’s alleged negligence and/or breach of the FFE Agreement.

Issue

At trial, the primary dispute between the parties was whether the Service Agreement required the University to pay RKA in accordance with the parties’ actual billing practices, or as a percentage of the final construction costs.

Positions

RKA argued that the Service Agreement was clear that its base fee was 8.71% of the construction costs, plus further amounts for “additional services” to be paid at hourly rates, and that any lack of clarity in this regard should be resolved against the University.

The University took the position that the contract was not clear, and that the conduct of the parties provided evidence that the contract required a fixed percentage of the initial budgeted construction costs be paid, plus additional amounts for a series of negotiated fee top-ups as agreed to under the Change Orders.

Analysis

The trial judge held that the parties identified the cost of the Project as being a specific number ($18,750,000), and also identified a specific corresponding fixed fee base ($1,632,589), thus making it clear the parties intended the fee to be fixed. Further, RKA sought and received a bump in the base fee in the form of an additional contingency amount because it was skeptical of the initial budgeted construction cost. Had RKA’s base fee not been fixed, there would have been no need for such a contingency to account for potential costs escalation.

The Court also agreed that the contract provided for upward payment adjustments for basic architectural services as a result of the changes in the scope of the work as documented through the Change Order process. Thus, Change Orders were not “additional services” as RKA alleged. 

The Court thus held that “this was a fixed fee contract, with the fee being subject to upward adjustment…based on the approval of any Change Orders”. Consequently, the Court dismissed RKA’s breach of contract claim. 

Estoppel

The Court went on to note that RKA had acquiesced to the Change Order process as it was implemented. Only after the fact did it assert an entitlement to additional fees, which was well after the conclusion of the Project. The Court noted that, had RKA taken such a position at the time the Change Orders were implemented, the University could have negotiated RKA’s compensation or terminated their relationship. However, the University, to its detriment, was deprived of any opportunity to do so given the position and conduct of RKA at the time. As such, even if the Court had accepted RKA’s interpretation of the Service Agreement, it would have held that RKA’s conduct estopped it from bringing a claim.

Limitations Defence

The University also argued, if RKA’s interpretation of the Service Agreement was correct, then the limitation period began to run as soon as the construction costs exceeded the amount stated in the Service Agreement. Alternatively, the limitation period would have began to run in March 2010, when the parties conducted a reconciliation of invoices and fees.

RKA argued that the limitation period could not begin to run until the Project was complete and the construction costs were known with certainty.

For the purposes of assessing the University’s limitations defence, the Court assumed that RKA was right in its interpretation of the contract, and that it was not estopped from bringing its claim. The question then became when the facts giving rise to its claim were known or discoverable by RKA as its claim would have to have been brought within two years of that date.

The Court determined that RKA was probably aware of the essential facts suggesting the University breached the contract by March 23, 2009, which was when RKA became aware of the first Change Order. Even if this was not the case, RKA certainly became aware of these facts in March 2010 when the parties conducted the reconciliation of payments. The Court thus concluded that, even if RKA was correct in its interpretation of the Service Agreement, and was not estopped from bringing its claim, it would nonetheless have been barred from pursuing its claim by the expiry of the limitation period.

Counterclaim

With respect to the FFE Agreement, the University claimed that RKA had breached its contractual duty to ensure its services were carried out to a reasonable standard and that RKA was negligent in the manner it performed its work because there were errors made in the coordination of hotel room design and furniture layout. 

The Court noted that not all mistakes made by contractors are actionable wrongs because contractors are not held to a standard of perfection. This is particularly so on projects built on a fast-track and designed on the fly, such as this one. Rather, if a mistake is made by the contractor, it is expected that the contractor will take steps to correct the mistake. This is what RKA did. The Court thus dismissed the University’s counterclaim in respect of RKA’s alleged breach of the FFE Agreement. 

Court of Appeal

On appeal to the Alberta Court of Appeal (2019 ABCA 195), RKA argued that the trial judge erred in interpreting the Service Agreement. The Court of Appeal held that the trial judge made no palpable and overriding error in determining this issue and dismissed the appeal. 

Takeaways

Part of the confusion in this case stems from the fact that the University was in a hurry to begin the Project, and thus the underlying paperwork, including the Service Agreement, was rushed and overlooked. Contracting parties should make sure that their contractual documents are as clear as possible. Importantly, contracting parties should also ensure that the terms of their contracts are adhered to because conduct that deviates from strict contractual requirements may lead a Court to conclude that the parties intended for an arrangement that differ from the strict letter of the agreement.


Contractor’s Promise to Fix Defective Work Delays Commencement of Limitation Period

In Presley v Van Dusen, 2019 ONCA 66, the Ontario Court of Appeal determined that a contractor who promised to fix a defective septic system it had installed delayed the commencement of the limitation period against it because the Plaintiffs relied on the contractor’s expertise and promises to fix the defects.

Background

The Plaintiffs, Janice Presley and Robert Frederick (the “Plaintiffs”), were homeowners that retained the Defendant contractor, Jack Van Dusen (“Van Dusen”), to install a septic system in 2010. The other Defendant, Leeds, Grenville, and Lanark District Health Unit (the “Health Unit”), approved the proposed septic system that same year.

In spring 2011 a smell began to emanate from the septic system. Van Dusen attempted to fix this problem by replacing a failed sewage pump, but the Plaintiffs encountered further problems with the smell in the spring of 2013. Van Dusen then inspected the property and told the Plaintiffs that he could apply a load of sand to a portion of the septic bed, which could remedy the problem. Despite having numerous discussions regarding applying the sand, Van Dusen never did so. In April 2015, the appellants contacted the Health Unit, who condemned the system and issued an Order to Comply requiring the appellants to replace it.

Small Claims Court & Divisional Court

The appellants then commenced a Small Claims Court action against Van Dusen in August 2015. They added the Health Unit as a defendant in January 2016.

The issue to be determined at trial was when the appellants discovered their claims against Van Dusen and the Health Unit, and whether they commenced their action within two years of the day on which their claims were discovered, as is required by the Limitations Act, 2002, S.O. 2002, c. 24, Sched. B (the “Limitations Act, 2002”).

Under s. 5(2) of the Limitations Act, 2002, there is a presumption that a plaintiff has discovered his or her claim, or that a reasonable person in the circumstances of the plaintiff would have discovered the claim, on the day the act or omission on which the claim is based took place.

The trial judge held that the appellants’ claim was discoverable at the time there was a smell and effluent coming from the septic system in spring 2013. As such, a reasonable person would have discovered the claim by at that time. The trial judge then concluded that there was insufficient evidence to rebut the presumption under s. 5(2), and thus dismissed the Plaintiff’s claim as being barred under the Limitations Act, 2002.

On appeal to the Ontario Divisional Court, the Divisional Court upheld the trial judge’s decision.

Court of Appeal

On further appeal to the Court of Appeal, the appellants argued that the lower court judges were required to consider s. 5(1)(a)(iv) of the Limitations Act, 2002, but failed to do so.

Under s. 5(1)(a)(iv), a claim is considered to be discovered when the person bringing the claim recognizes that, “having regard to the nature of the injury, loss or damage, a proceeding would be an appropriate means to seek to remedy it”. In other words, if a legal proceeding is inappropriate, the start date for the commencement of the limitation period is postponed. In this way, this provision is meant to help deter needless litigation.

The trial judge did not consider the criterion of s. 5(1)(a)(iv), but instead stated that it was unnecessary to do so as he only had to find “the earliest date”. The Divisional Court also did not consider this criterion when upholding the trial judge’s decision. The Court of Appeal disagreed with the lower courts in this regard, and said that this criterion was “an essential element of the discoverability analysis”.

In its analysis of s. 5(1)(a)(iv), the Court of Appeal emphasized that the Plaintiffs contracted with Van Dusen because of his special training and expertise, and that they reasonably relied on that expertise. The Plaintiffs also engaged in ongoing discussions with Van Dusen and were repeatedly assured by him that the problem would be fixed. This led to their reasonable belief that the problem could and would be remedied without any need to have recourse to the courts. This was sufficient to rebut the presumption under s. 5(2).

The Court of Appeal distinguished this case from other cases where courts have held that ongoing communications do not postpone the commencement of the limitation period. The Court held that this principle only applies where a plaintiff knows that legal proceedings are appropriate, which was not the case here because the Plaintiffs did not know that it would be appropriate to seek a remedy until, at the earliest, winter of 2014. As the action was commenced in August 2015, it was well within the prescribed two-year limitation period and was not statute barred.

Regarding the delay in bringing an action against the respondent Health Unit, the Court concluded that the appellants could not have been expected to know that a proceeding against the Health Unit would have been appropriate before they recognized that they should bring one against Van Dusen. Therefore, the claim against the Health Unit was also brought in time.

Conclusion

The Court of Appeal allowed the Plaintiffs’ appeal and sent the case back to the Small Claims Court for a determination of the case on its merits.

Takeaways

It is reasonable for individuals to rely on the expertise and training of service providers they have retained. False assurances from those services provides could end up delaying the commencement of a limitation period against them. Litigants should also take care to commence actions as early as possible so as to avoid fighting over a limitations issue, which, as this case demonstrates, could involve multiple hearings at different levels of court before the claim is considered on its merits.


Full Costs Awarded Against Plaintiff That Falsified Evidence in its own Lien Action

In Marcos Limited Building Design Consultants v. Lad et al., [2019] 143 O.R. (3d), the Ontario Superior Court of Justice awarded full indemnity costs against a corporate contractor and its owner personally because the owner created false documents and told multiple lies to the Court during trial.

Background

The Plaintiff, Marcos Limited Building Design Consultants (“Marcos Limited”), built a custom home for the Defendants, Ishver and Sumitra Lad (the "Lads"). After completing its work, Marcos Limited registered a lien claim against the Lads’ property and commenced an action for $523,068.52. The Lads counterclaimed for $65,612.86 for the costs of remedying deficient work.

At trial, the Court dismissed Marcos Limited’s action, but allowed the Lads’ counterclaim. As such, the Court needed to determine the costs to be awarded to the Lads as the successful party.

Positions

The Lads sought their full indemnity costs in the amount of $578,793.29, inclusive of disbursements and HST. They also sought to have the costs awarded on a joint and several basis against Marcos Limited’s alleged principals, Manny Marcos (“Manny”) and Joe Marcos (“Joe”), personally.

The Lads argued that they were entitled to their full indemnity costs because Manny repeatedly lied to the Court and deceived the Court by fraudulently altering documents to advance Marcos Limited’s claim.

Marcos Limited argued that the amounts sought were disproportionate and not within its reasonable expectations as the unsuccessful party. 

Manny and Joe argued that they did not fall within the exceptional circumstances that permit an award of costs against a non-party, and that they had no prior notice of the Defendants’ intention to seek costs against them personally.

Joe argued that he was not an officer, director or shareholder of Marcos Limited, and had no involvement in the litigation other than as a witness. 

Scale of Costs: Substantial or Full Indemnity

The action was commenced on January 25, 2011. Since then the Lads made three offers to settle the case, none of which were accepted:

  • On August 5, 2016 they offered to settle the claim and counterclaim by having no payments be made by either party;
  • On January 3, 2017 they offered to settle the claim for $50,000.00, plus reasonable partial indemnity costs to be paid by the Lads; and
  • On April 25, 2017 they offered to settle the claim for $140,000.00, plus interest and costs to be determined by the Court.

All three offers were obviously more favourable to Marcos Limited than the results at trial. Consequently, in accordance with rule 49 of the Rules of Civil Procedure, the Lads were prima facie entitled to their partial indemnity costs up to August 5, 2016, and their substantial indemnity costs thereafter. However, the Court noted that the reprehensible and dishonest conduct of Manny moved the costs consideration beyond this prima facie entitlement.

The Court noted that full indemnity costs are justified in only very narrow circumstances to sanction particularly egregious conduct, such as when a party deliberately deceives the court. As such, “[w]hen the fair, honest and functional administration of justice is overtly and deliberately thwarted by a litigant, full indemnity costs is the appropriate sanction”. 

Manny’s conduct included fabricating or deceptively manipulating evidence, creating false paper trails and/or altered documents, and repeatedly lying to the Court. Further, Marcos Limited, through Manny, engaged in unreasonable tactics such as last-minute document production contrary to court ordered timelines, and failing to admit uncontroversial facts, which necessitated the calling of additional witnesses and extending the trial time. As such, the Court held that the cumulative instances of dishonesty and deceit shown by Marcos Limited and Manny, which became more obvious as the trial progressed, warranted full indemnity costs.

Proportionality

The Court noted that there was a lot at stake for the Lads given the size of Marcos Limited’s claim. The quantum of costs claimed by the Lads was thus proportionate and within the reasonable expectations of Marcos Limited, particularly with regard to the length of the trial and extensive volume of documents that were produced late in the process. 

Marcos Limited also combined valid and fraudulent documents, thus adding to trial preparation time and effort needed to discern the veracity and reliability of the documentary evidence. This also required the Lads’ counsel to spend significant time uncovering and demonstrating Marcos Limited’s attempt to mislead the Court.

Finally, the case took years to reach trial, and Marcos Limited’s own legal fees, including HST, were $483,789.72.

The Court thus awarded the Lads their full indemnity costs in the amount of $578,793.29. 

Personal Liability for Costs

The Lads argued that Manny and Joe should be held jointly and severally liable with Marcos Limited because they operated the company together and were responsible for its egregious litigation conduct.

The Court noted that while there was much evidence that Manny was the perpetrator of the egregious conduct, there was no evidence that the Marcos Limited was used solely to insulate Manny or Joe from potential costs liability, or that the company has no assets available to satisfy a judgment.

With respect to proper notice, the Court held that Manny and Joe received sufficient notice in the form of the Lads’ written submissions on costs, to which they were given an opportunity to respond.

The Court also held that Joe was not involved in the action to nearly to the same degree as Manny, and that it was Manny that orchestrated the scheme to deceive the Court. Therefore Joe was not to be held personally liable for costs.

Conversely, the Court found that Manny undertook numerous acts of fraud and gross misconduct during the litigation, which justified an award of costs against him personally.

Conclusion

In the result, the Court awarded the Defendants their full indemnity costs of $578,793.2 payable by Marcos Limited and Manny personally.

Takeaways

The obvious takeaway is that one should not attempt to lie to, or otherwise deceive, the Court. Where one engages in such behaviour, the Court may order costs be personally paid by such an individual. This case also serves as a reminder to litigants of the benefits of offers to settle under rule 49, which should be used not only in a bona fide attempt to settle a case, but to simultaneously improve a litigants’ prospects of costs recovery at the conclusion of trial. Clearly the Plaintiff here would have been better off had it taken any one of the offers made. Instead, it chose to create fake documents and lie to the Court in an attempt to win its case, and was made to pay the price for its actions.


Court Confirms Limits to Powers of Construction Lien Masters

In R & V Construction v. Baradaran, 2019 ONSC 1551, the Ontario Superior Court of Justice confirmed that construction lien masters do not have the powers to weigh evidence, assess credibility or draw reasonable inferences on a motion for summary judgement because such powers are reserved for judges only.

Background & Master’s Report

In this case, a judge of the Superior Court referred a construction lien matter to a master for trial. The Defendant then brought a motion for summary judgment asking that the Plaintiff’s lien action be dismissed. 

In her report (the “Master’s Report”), the master concluded that she had the powers of a judge to determine the matter via a motion for summary judgment, including by using the “enhanced powers” available under rule 20 of the Rules of Civil Procedure (the “Rules”). These enhanced powers allow a judge to weigh evidence, assess credibility and draw reasonable inferences on a motion for summary judgment.  

The master cited s. 58(4) of the Construction Lien Act (the “CLA”) as the authority for exercising these enhanced powers as it provides that a master to whom a reference has been directed “has all the jurisdiction, powers and authority of the court to try and completely dispose of the action and all matters and questions arising in connection with the action…”. 

There was no dispute that the master in fact used such powers in reviewing the affidavit evidence filed in support of the motion, and on hearing the submissions of the parties. The master dismissed the motion and awarded the Plaintiff $78,573.70.

Superior Court of Justice

The Defendant then brought a motion to a judge of the Superior Court for an Order refusing confirmation of the Master’s Report. 

The issue for the Court was simply whether the master had the statutory jurisdiction to use the “enhanced powers” under the summary judgment rules to decide the matter in the way she did.

The Court noted that Ontario’s Divisional Court had ruled elsewhere that s. 58(4) of the CLA did not extend the enhanced powers under rule 20 to construction lien masters. Although that would have been sufficient to dispose of the matter, the Court went on to conduct an analysis of this issue. 

The Court noted that, under rule 20, summary judgement must be granted where the Court is satisfied that there are no genuine issues requiring a trial. While “the Court” is commonly understood to include both judges and masters, the rules also provide that a master cannot hear a motion where “the power to grant the relief sought is expressly conferred on a judge by statute or rule”. Under rule 20, only a “judge” has the jurisdiction to utilize the enhanced powers to weigh evidence, evaluate credibility of a deponent and draw reasonable inferences.

As such, while a master can decide a matter by way of summary judgment if he or she is satisfied that there are no genuine issues requiring a trial, in coming to that conclusion he or she cannot weigh evidence, assess credibility or draw inferences. Instead, if he or she is not satisfied that there are no genuine issues requiring a trial, he or she must have the matter proceed to trial.

The Court thus held that the enhanced powers are explicitly limited to judges and cannot be used by masters, and granted an Order refusing confirmation of the Master’s Report.

Takeaways

While, as a matter of statutory interpretation, the Court’s decision appears correct, unfortunately it also appears to be contrary to both the spirit of the summary judgment rules and of the Construction Act’s imperative that the procedure in a lien action “be as far as possible of a summary character”.