ONTARIO
SUPERIOR COURT OF JUSTICE
COURT FILE NO.: 07-CV-39937B1
DATE: 2013-04-23
BETWEEN:
LEDCOR CONSTRUCTION LTD.
Plaintiff/Respondent
– and –
ATTORNEY GENERAL OF CANADA
Defendant/Applicant
Ronald W. Price, for the Plaintiff/Respondent
Ronald S. Petersen, for the Defendant/Applicant
HEARD: December 19, 2012 and by written submissions (Ottawa)
amended REASONS FOR DECISION
This is an amendment to the Reasons for Decision released April 23, 2013. The amendment occurs in the year of release for the neutral citation number.
PARFETT J.
[1] The Applicant, Attorney-General for Canada (AGC) moves for a partial summary judgment relating to claims made by the Plaintiff/Respondent, Ledcor Construction Ltd. (Ledcor) on behalf of three of its subtrades on the basis that these claims raise no cause of action as against the Crown.
[2] For the reasons set out below, the summary judgment motion is dismissed.
Background
[3] In December 2004, Ledcor entered into a contract with Public Works and Government Services Canada (PWGSC) for the construction and renovation of the Laboratory for Photonics Research Center in Ottawa. In turn, Ledcor entered into sub-contracts with various subtrades, including Toban Electric Inc. (Toban), Hydracorp Canada Ltd. (Hydracorp) and Clermont Rosa. Those contracts mirrored in many respects the terms of the contract between the PWGSC and Ledcor.
[4] The construction project was plagued with delays and was not completed until fourteen months after the anticipated completion date. As a result of the delays, Ledcor experienced significantly increased costs. In this action, Ledcor is seeking damages for the additional costs that were incurred as a result of the delays. Ledcor is claiming damages in the amount of $7,121,982.26, of which $2, 598,216.25 is on behalf of the three subtrades.
[5] Two separate actions were also commenced. Two of the subcontractors – Toban and Hydracorp – have sued Ledcor for damages also resulting from increased costs due to delay. It is these actions that Ledcor seeks to have consolidated with this action.
[6] As part of this action (Ledcor action), Ledcor is claiming for the additional costs incurred by three of its subcontractors, Toban, Hydracorp and Clermont Rosa. Ledcor alleges that PWGSC caused the delay, which created a domino effect of delay not only to Ledcor but also to the subtrades.
Issues
[7] The main issue to be decided on the summary judgment motion is whether there is a genuine issue requiring a trial on the question of whether Ledcor can carry forward the three subcontractors’ claims.
[8] There are two sub-issues:
Do the subcontractors’ claims, which are purportedly being carried forward by Ledcor in the Ledcor action, raise a reasonable cause of action against the Crown; and
Do the subcontractors’ claims amount to an abuse of process?
Positions of the Parties
[9] The Applicant alleges that Ledcor’s claims on behalf of its subtrades raises no cause of action for the following reasons:
There is no contractual relationship between the subtrades and the Crown and therefore no duty of care in tort;
The Plaintiff has not incurred any damages in respect of the subtrades;
The claim for damages by the subtrades is statute barred due to the expiry of the limitation period; and
The subtrades and the Plaintiff failed to provide appropriate notice of an intention to claim as required by the contract.
[10] Ledcor agrees that PWGSC does not have a contractual relationship with the subtrades, but argues that the contract between it and PWGSC specifically provides that PWGSC is liable to Ledcor for any costs incurred as a result of delays that it caused, and these costs include sums payable to the subcontractors. It also agrees that as of yet, there has been no determination of what, if any, damages are owed by it to its subtrades, but argues that this argument has no merit in the context of this case. Ledcor contends that the claims of the subtrades are not statute barred because all the actions – between Hydracorp, Toban and Ledcor and between Ledcor and PWGSC were commenced within the appropriate time frame. Finally, Ledcor categorically denies that no notice of the subtrades’ claims was provided to PWGSC.
[11] Essentially, Ledcor argues that the contractual relationship that it has with PWGSC creates a situation where the proper course of action is for it to claim on behalf of its subtrades and then pay them any damages owed to them as a result of any negligence of PWGSC. Furthermore, it argues that the caselaw supports this approach to the litigation.
ANALYSIS
Contractual relationship
[12] The starting point for the analysis concerning whether the lack of a contractual relationship between the subtrades and PWGSC is a bar to Ledcor’s claim on their behalf is the general contract between Ledcor and PWGSC. The relevant sections of that contract provide as follows:
GC 4.1 [T]he contractor may subcontract any part of the work;
GC 4.7 All the terms and conditions of this Contract that are of general application shall be incorporated in every other contract…;
GC 35.2 If the contractor incurs or sustains any extra expense or any loss or damage that is directly attributable to;
35.2.2 any neglect or delay that occurs after the date of the contract on the part of Her Majesty in providing any information or in doing any act that the contract either expressly requires Her Majesty to do or that would ordinarily be done by an owner in accordance with the usage of the trade,
the contractor shall, within ten (10) days of the date (…) the neglect or delay described in GC 35.2.2 occurred, give the Engineer written notice of intention to claim for that extra expense or that loss or damage.
GC 35.5 If the Engineer determines that a claim referred to in GC 35.3 is justified, Her Majesty shall make an extra payment to the contractor in an amount that is calculated in accordance with GC 47 to GC 50.
GC 50.1 Where it is not possible to predetermine the price of a change (…) the actual price of the change shall be equal to the aggregate costs of
GC 50.1.1 all reasonable and proper amounts actually expended or legally payable by the Contractor in respect of the labour, plant and material that falls within one of the classes of expenditure described in GC 50.2 that are directly attributable to the performance of the contract;
GC 50.2 For the purpose of GC 50.1.1, the classes of expenditure that may be taken into account in determining the cost of labour, plant and material are:
50.2.1 payment to subcontractors;
(…)[^1]
[13] As noted earlier, the terms of the subcontracts mirror the general contract. However, payments under the subcontract are made only after the contractor receives payment from the owner – in this case PWGSC. In addition, the subcontract indicates the following with respect to claims for delay:
17.1 If the Subcontractor is delayed in the performance of the Work by:
a) any act or omission of Owner …
17.3 Contractor … shall not be held responsible for any loss or damage sustained by Subcontractor, or additional costs incurred by Subcontractor, through delay caused by Owner…
17.6 Notwithstanding the foregoing, the Subcontractor will only be reimbursed for costs as a result of delays, if, and to the extent, Contractor is reimbursed for such costs pursuant to the Prime Contract in respect of the Work hereunder.[^2]
[14] The Applicant relies heavily in its argument on an American decision, Severin v. The United States.[^3] That case indicates that a contractor cannot sue on behalf of a subcontractor. However, it does not appear that this case has been followed in Canada. It is therefore of limited usefulness.
[15] Of much more interest is the case of Thomas Fuller Construction Co. Ltd. v. Canada[^4]. In that case, the Plaintiff contractor entered into litigation agreements with its subcontractors and sued the owner on their behalf. The court held that,
[I]n the absence of any privity between the subcontractors and Her Majesty, they have no right of action against her, particularly in these instances where claims the subcontractors may have against the main contractor would have to arise from the negligence of the main contractor, but the cause of action, as alleged by the contractor, is delay on the part of the owner. Having no cause of action against the owner, the subcontractors may not improve their position by asserting their claims though the main contractor as a nominee. This is clearly an attempt by the contractor to have this court adjudicated upon a matter for which it has no jurisdiction.[^5]
[16] A significant aspect of the above decision was the fact that the litigation agreements purported to give the subcontractors the right to sue in Federal Court – a right that they did not otherwise have. This decision was overturned by the Federal Court of Appeal on other grounds, but the appeal court did note in obiter that it would have been possible for the contractor to take the position that it was liable under its own contract to the subcontractors as part of the suit against the Crown.[^6]
[17] The Respondent argues that the issues raised by the Applicant were dealt with in a decision by a Master of this court – Ledcor Construction Ltd. v. Carleton University[^7] In that decision, the Defendant also brought a summary judgment motion seeking to dismiss that portion of the Plaintiff’s claim that related to losses incurred by the subtrades. The motion was dismissed. The Applicant contends that this decision is distinguishable on the basis that it predates the changes to Rule 20 of the Rules of Civil Procedure relating to summary judgment motions, and on the basis that the provisions of the contract dealt with by the Master was different than the contract in this matter. I disagree.
[18] The changes to Rule 20 relate primarily to the process of assessing evidence relating to summary judgment motions, not to the fundamental basis for success, which is that there is no genuine issue requiring a trial.[^8] Therefore, the changes to Rule 20 do not affect the usefulness of the Ledcor v. Carleton decision.
[19] Although the two contracts may not be identical, what is clear is that both contracts contain similar provisions. In both cases, the general contract anticipated that subcontracts would be signed and required that they incorporate by reference the terms of the general contract. Furthermore, the subcontracts both contain clauses that stipulate that the subtrades would only be paid for delay costs attributable to the owner when, and to the extent that, recovery was obtained by the general contractor from the owner.
[20] In my view, the analysis in the Ledcor v. Carleton decision is very persuasive in the circumstances of this case. In that case, the court noted:
A construction contract must be interpreted in accordance with its specific terms as informed by the statutory regimes and the realities of the construction industry. An owner engaging a general contractor on a fixed price contract is subject to the holdback and trust provisions of the Construction Lien Act but otherwise expects to be insulated from contractual or other liability to subtrades. The relationship with the subtrades is between the general contractor and those trades and it is the responsibility of the G.C. to manage the subcontracts within the envelope of the fixed price contract. Conversely all claims for additional costs or compensation because of delay or any other change to the scope of the job must be funnelled through the general contractor. Indeed, attempts by subcontractors to advance claims directly against owners have generally been resisted by the courts on favour of the scheme of relatively strict privity of contract contemplated by the Act and by contracts such as the CCDC2 (….)
In my view the interpretation of the contract and of the impact of the law of limitations which the defendant advocates on this motion would be an interpretation that fosters disputes, litigation and lien claims by subtrades. Subtrades would be required to initiate legal proceedings against a general contractor even if the G.C. is in fact complying with its obligation to attempt to recover those additional costs on behalf of the subtrades.[^9]
Consequently, I find that the lack of a direct contractual relationship between the subtrades and PWGSC is not a bar to Ledcor suing PWGSC on behalf of the subtrades.
Damages
[21] The Applicant, AGC argues that Ledcor cannot make a claim for damages that it has not itself incurred. In my view, a reasonable interpretation of the general contract and the subcontract leads to the conclusion that it is anticipated that the general contractor would attempt to recover losses experienced by the subtrades due to delays caused by the owner. Effectively, the claims of the subtrades are funnelled through the general contractor. In this scenario, the general contractor would deny direct liability to the subtrades, but argue that liability rests with the owner. As a result, there is no inconsistency in the fact that Ledcor has denied liability in its defence to the claims made by Toban and Hydracorp.
[22] Moreover, the fact that Ledcor has not as yet actually suffered any damages with respect to the subtrades is not a bar to their claim. Once again I agree with the analysis set out in Ledcor v. Carleton, where the Master stated, “In my view it is arguable that the delay provisions of the subcontracts create liability for delay damages subject to a condition precedent – being the recovery of damages by Ledcor from the owner.” The provisions of the subcontract at Article 17 indicate clearly that the subcontractors would only receive payment for costs due to delay caused by the owner if the general contractor is paid.
Limitation period
[23] Given my finding that Ledcor can claim for losses experienced by the subtrades due to the owner’s delay, it is not necessary for me to deal with this issue. Ledcor’s Statement of Claim was filed within the appropriate limitation period and Ledcor sought indemnity for costs claimed against it by its subtrades.
Notice
[24] The Applicant argues that they received no notice of the claims for costs incurred as a result of delay. However, as outlined in Ledcor’s written submissions, PWGSC received ample notice of the delay claims of both Ledcor and the subtrades.[^10]
Prejudice
[25] The final argument made by the Applicant is that they are significantly prejudiced in the conduct of the litigation by the fact that the subtrades cannot be compelled to provide details of their losses, nor can those claims be tested through the discovery process. Given that the only vehicle that the subtrades have for recovering their costs where liability rests with the owner is through the general contractor, they are clearly motivated to provide details of those costs. In addition, a failure by the general contractor to properly advance those claims could result in a claim by the subtrades of breach of contract against the general contractor. Furthermore, in this case the subtrades have consented to appearing for examination for discovery by the Applicant. Under these circumstances, it is difficult to see how the Applicant is being prejudiced.
Conclusion
[26] For all the reasons set out above, I find that Ledcor’s claims on behalf of its subtrades does raise a reasonable cause of action and therefore, the motion for partial summary judgment is dismissed.
Costs
[27] The parties should attempt to resolve the issue of costs themselves, however, if the parties cannot resolve the issue of costs, brief written submissions of no more than one page, with attachments including Offers to Settle and a detailed Bill of Costs, are to be provided with 15 days with a right of reply within a further five days.
Madam Justice Julianne A. Parfett
Released: April 23, 2013
COURT FILE NO.: 07-CV-39937B1
DATE: 2013-04-23
ONTARIO
SUPERIOR COURT OF JUSTICE
B E T W E E N:
LEDCOR CONSTRUCTION LTD.
Plaintiff/Respondent
– and –
ATTORNEY GENERAL OF CANADA
Defendant/Applicant
REASONS FOR DECISION
Parfett J.
Released: April 23, 2013
[^1]: Tab 2A, Applicant’s Motion Record.
[^2]: Tab 2C, Applicant’s Motion Record.
[^3]: 1943 WL 4198 (Ct.Cl.).
[^4]: [1992] 1 F.C. 512 (T.D.).
[^5]: Ibid., at para. 10.
[^6]: 1992 14781 (FCA), [1992] 3 F.C. 795 (C.A.) at para. 7.
[^7]: 2009 CarswellOnt 1213
[^8]: See Combined Air Mechanical Services Inc. v. Flesch, [2011] ONCA 764 at para. 44.
[^9]: Ibid., at paras. 18-19.
[^10]: See paras. 32 & 33 of Respondent’s written submissions dated February 8, 2013.