SUPERIOR COURT OF JUSTICE – ONTARIO

COURT FILE NO.: 13-56826

DATE: July 3rd, 2013

In the matter of the Construction Lien Act, R.S.O. 1990, c. C.30

RE: STRUCTFORM INTERNATIONAL LIMTED, Plaintiff

AND:

ASHCROFT HOMES CONSTRUCTION INC., et. al., Defendants

BEFORE: MASTER MACLEOD

COUNSEL:
David Dwoskin for the defendants, moving parties

Dan J. Leduc, for the plaintiff, responding party

HEARD: May 14th, 2013

ENDORSEMENT

[1] This is a motion by the defendant pursuant to s. 44 (5) of the Construction Lien Act to reduce the amount of security posted or paid into court. To grant the requested relief the court must be satisfied that the security exceeds the maximum that could possibly be recovered by the lien claimant.

[2] For the reasons that follow I have determined that the security should be reduced by approximately one third. The evidence demonstrates that there are aspects of the claim that are either not lienable or are clearly exaggerated. It is not however appropriate to engage in an extensive review of the merits and to determine the viability of contested questions of fact on a motion to reduce security.

Background

[3] The issues before the court concern a contract for formwork and concrete services in relation to a condominium project at 111 Richmond Road in the City of Ottawa. The owner of the lands is a special purpose corporation part of the Ashcroft Homes group of companies. Ashcroft is a well known developer of residential housing operating in Ottawa.

[4] The plaintiff and the defendant signed a letter of intent in August of 2011 which contemplated execution of a formal contract prepared by Ashcroft. There is a live dispute as to whether or not such a formal contract was delivered and whether or not the specific terms of that contract (signed only by Ashcroft) govern the relationship between the parties.

[5] It is not disputed that the plaintiff had agreed to supply the formwork services required by Ashcroft on a fixed price contract for $4,250,000 plus HST. It is also undisputed that for various reasons the contract took much longer than anticipated, that there were a certain number of formal change orders, and the approved amounts invoiced to Ashcroft totaled $4,976,033 inclusive of HST and holdback. Ashcroft has paid $4,250,113 and concedes it is withholding funds that would otherwise be owing to the plaintiff but for Ashcroft’s counterclaim.

[6] Ashcroft calculates the amount withheld to be $347,866 but that is because Ashcroft has a number of “change orders” which are really chargebacks for remediating disputed construction deficiencies. Without those chargebacks (representing portions of Structform’s work allegedly performed or remediated by other trades at Ashcroft’s expense) the amount withheld by Ashcroft would be $725,920. The calculations by both parties of the total amounts invoiced and unpaid are in agreement almost to the penny.[^1]

[7] The difference between the parties on how much is now owing under the contract boils down to two questions. Firstly, was Ashcroft entitled to issue change orders reducing the value of the contract to cover “remediation”? Secondly, is Ashcroft entitled to set off against the remaining value of the contract amounts it claims for construction deficiencies in particular alleged deficiencies in the elevator shaft? It is conceded that the counterclaim should not operate to reduce the lien security but Ashcroft argues that the proper amount of the lien is the contract price net of all change orders or $347,866 + $50,000 security for costs.

[8] The plaintiff did not just lien for the balance due under the contract which is by its calculation $725,920. It also liened for amounts described in its statement of claim as “Additional labour hours / loss of productivity”, $729,400.38; “Overtime premiums” $258,317.98; and, “Extended duration”, $768,710.25. Despite this somewhat unusual characterization of the damages, this is readily recognizable as a delay claim. The total of these additional amounts plus applicable HST is $1,984,764.33. The total amount of the claim for lien was therefore $2,639,126.74.

[9] The claim for lien in this amount was registered against the lands on January 17th, 2013. On February 15th, 2013 Ashcroft obtained an order vacating the lien on posting the necessary security. $1,872.039.80 was posted by letter of credit and the balance of $817,087.94 by certified cheque. The Accountant therefore holds a combination of security and cash totaling $2,689,126.74 – that is 100% of the claim for lien plus $50,000.00 in security for costs. It is this security which the defendant now seeks to have reduced.

The statutory scheme and the basis for the motion

[10] The scheme under the act provides that a lien claimant that preserves and perfects a lien against the land on which the improvement is located obtains full security against that land for the amount of the lien claim. The registration of a claim for lien may be vacated at the unilateral request of any defendant but only if the party vacating the lien posts security equivalent to the amount of the lien plus the statutory amount for security for costs. The language of s. 44 (1) of the Act is mandatory. The court must vacate the lien on being satisfied that the requisite security has been posted and the lien is then a claim against the security and not against the land. On such a motion the court has no discretion with respect to the amount of the security. The moving party must post the statutory amount of security in order to remove the lien from title.

[11] The situation is different if a motion to vacate a lien is brought on notice under s. 44 (2) or if after obtaining an order under s. 44 (1) a subsequent motion is brought to reduce the security. In those cases the Act gives the court broad discretion. By contrast to a motion without notice under s. 44 (1), when the motion is brought on notice, the court may fix the amount of security that appears reasonable or appropriate under the circumstances. Obviously these sections of the Act contemplate that the amount of the security may be less than the amount of the claim for lien.[^2] It will however only be appropriate to reduce the security if it can convincingly be demonstrated that the maximum recovery by the lien claimant will be less than the amount it has liened for.

The legal test

[12] The test to be applied on a motion of this type is similar to the test on a summary judgment motion.[^3] That is the court must be satisfied on the basis of the motion materials that there is no reasonable prospect of the plaintiff proving a lien for the amount it has claimed. Despite the analogy to summary judgment, however, it is important to note that a motion under s. 44 of the Act is not a full-fledged summary judgment motion under Rule 20. Several cases establish that a motion under the security provisions of the Act is not the venue for determining complex issues of contested facts going to the merits of the claim.[^4]

[13] The analogy to summary judgment is that the defendant must be able to show on a balance of probabilities that there is no genuine issue requiring a trial for the court to be able to conclude that the lien is inflated. The question, however, is narrower than on most summary judgment motions because there may be claims that are legitimate claims in contract or tort that are not legitimately the subject of a lien. So a critical question even if the claim itself may be legitimate is to determine what amount may legally attract the security afforded by a construction lien.

[14] The largest part of the plaintiff’s claim is for damages for delay and not all aspects of a delay claim may be lienable. To properly be the subject of a lien the claim must be reflective of the value of the work done on the improvement. That is it must come within the definition of “services or materials supplied to the improvement”[^5] and is limited to the “amount owing to the lien claimant in relation to the improvement”.[^6] Thus additional expenses incurred because the project takes longer than anticipated such as labour costs, equipment rental and similar costs of remaining on the job will readily be found to be the basis for a valid lien. Damages at large, however, such as lost opportunity costs, loss of profits or aggravated damages will not be.[^7] Additional costs incurred offsite such as administrative overhead or lost profit and even onsite office overhead costs have been held not to be lienable.[^8] If a portion of the lien claim is attributable to damages that are not properly the subject of a lien then the security should be reduced to take that into account

[15] Besides the question of lienability which it may be possible to determine on this type of motion, security can also be reduced if there are elements of the claim which are properly lienable but are clearly inflated. This will be so if the moving party defendant can establish that the maximum amount that could be recovered by the lien claimant is less than the amount of the lien.

[16] Mathematical and addition errors in calculating the lien or other admissions obtained on cross examination may be taken into account in assessing the amount of the security. That said, however, the lien claimant should not be held to a standard of strict mathematical or scientific proof at this early stage of the litigation. Given the short timelines, lien claims must often be registered using the best information available at the time and as long as the amount claimed is not grossly excessive it may nevertheless be proper. It is not inherently unreasonable to include amounts in a claim for lien that must be estimated.[^9]

Analysis

[17] Both parties filed extensive motion material. The material filed by the lien claimant primarily consisted of its own internal calculations and records showing how the claim for lien was calculated. The material filed by the owner was primarily contract documentation, project communication and transcripts of cross examination. There are numerous triable issues which will call for findings of credibility and interpretation of events and evidence. These determinations cannot be made on a motion of this nature. The issue before me is not whether the lien claimant will succeed but only whether the security posted in court may legitimately be reduced at this point in time.

[18] It is fundamental to the claim that the plaintiff asserts it was prevented from proceeding with its work in a timely manner. The plaintiff alleges that all of this was the responsibility of Ashcroft for which the lien claimant is entitled to additional compensation. In particular it alleges delay arising from excavating, shoring, backfilling and drainage delays or errors and failure of the owner to properly sequence and co-ordinate other trades.

[19] Ashcroft acknowledges that there were some delays, excavation and shoring changes including introduction of rakers, and other changes to the scope and duration of work. The project took much longer than originally anticipated. There were several change orders submitted and approved with a resulting escalation in the contract price. As mentioned earlier, Ashcroft alleges that the plaintiff abandoned the work before completing it and left substantial deficiencies which Ashcroft has had to rectify. It is conceded however that the counterclaim cannot act to reduce the security however likely it may be that some deficiency will ultimately be proven. The question of whether Ashcroft or Structform breached the construction contract is clearly a genuine issue.

[20] Similarly the question of whether Ashcroft’s standard form contract was in force or not is in issue. The letter of intent contemplated a formal agreement and it appears one was prepared and signed by Ashcroft. It is disputed that the signed agreement was ever sent to the plaintiff. What is not disputed however is the fixed price nature of the contract and the fact that there was a progress draw, payment certification and change order procedure. I cannot find on the basis of the evidence however that Ashcroft was clearly contractually entitled to unilaterally level backcharges by way of change order. At a minimum therefore the plaintiff would have been entitled to lien for the balance due under the contract which is the $725,920 referred to above and not merely the $347,866 which Ashcroft argues is the correct amount after the additional change orders (most of which are disputed).

[21] The additional claim for $1,984,764 which is contained in the claim for lien is in reality a delay claim and at least part of that claim is in my view for non lienable damages or is overestimated or both.

[22] $731,000 is claimed for “additional labour hours due to loss of productivity”. This is said to be a charge for additional labour associated with the project and which the plaintiff alleges to be a result of delays attributable to the defendants. In other words this is a charge for using more labour than was anticipated by the plaintiff when it accepted the fixed price contract. As Mr. Corazza explains, “when we estimated the price and timing for this work it was premised on performing work in an efficient manner with predictable crew sizes and a labour plan we tied to our schedule”. It is not clear from the evidence why most increased costs resulting from changes in sequencing or the problems with the drilling and excavation could not have been calculated and included in change order requests. That said, there is no doubt Structform advised Ashcroft from an early stage that it reserved the right to seek such costs in addition to the direct costs covered by their change order requests. The requested change orders contain a disclaimer to that effect.

[23] If these additional labour hours reflect labour actually used on the improvement and not already contained in the change orders then if the plaintiff is entitled to them they would properly be the subject of a lien. Whether or not the claim will be successful of course depends on whether or not they are costs that the plaintiff must absorb in delivering the fixed price contract as amended by change orders. The mechanism for estimating this charge has been set out in the material. The plaintiff estimated that the job took 10,515 labour hours more than “normal” and has multiplied that by an hourly rate of $69.37 “average rate”.

[24] This is high for two reasons. Firstly the methodology is suspect. A contractor cannot simply charge extra labour charges to a fixed price contract because it had to use more labour than “usual”. Some amount of risk of cost escalation is assumed by the contractor. Secondly some charge for extra labour is already included in the approved change orders and there is no indication that this has been backed out of the calculation. Finally, it was conceded in cross examination that $69.37 is not the average labour cost but its cost for carpenters – the highest rate. Many of these are triable issues of course and the probability of the plaintiff being unable to prove 100% of its claim is not in itself sufficient to reduce the lien security. I can however conclude on the basis of this evidence that there is no chance of the lien claimant recovering $729,400 for lost productivity. On the basis of the admissions it seems that the lien claimant could recover at the very most 2/3 of the additional hours at 2/3 of the hourly rate. This amount should therefore be reduced to $325,965.

[25] There are separate charges for “overtime” and for “extended duration costs”. The fact that there are defences to these claims does not mean that the lien claimant should be deprived of the security of a lien. It will only be appropriate to reduce this portion of the security if the claim is simply not viable. The lien claimant acknowledges that Ashcroft never authorized overtime charges or an acceleration schedule. In fact it is acknowledged there was never a change order request for overtime. These facts may ultimately defeat the claim but it is not possible to determine on this motion that claims for overtime are impossible. If overtime had to be paid to complete the work then that would be a cost that could form part of a lien claim.

[26] As above, however, the overtime claim is inflated. It was conceded in cross examination that faulty assumptions such as premium rates for overtime were used and that there was some overlap between these costs and the “loss of productivity claim”. There seems no possibility that the plaintiff can prove entitlement to overtime of more than $100,000.

[27] The extended duration costs include some costs such as crane and forming equipment as well as outside rentals such as concrete pumps. These represent claims for equipment on site for the extended duration of the contract and are legitimately lienable. Some element of the “delay costs” is simply a damage claim however and is not subject to lien rights. This would include the “head office overhead”. Similarly there are meal allowance and fuel allowance charges which are amounts that were never the responsibility of Ashcroft under the contract. These amounts must be backed out of the claim for extended duration (delay) for lien purposes. The resulting claim of $733,074.28 must therefore be reduced to $596,431.16.

[28] The claim for supervision contained in that number is problematic because supervision costs may be part of overhead, may already have been costed into change orders and may be duplicated in the “lost productivity” or “overtime” claims. The claimed supervision hours amounting to $168,230 are part of subcontracted labour supplied by ELB Technology for “engineering consulting services”. This is an example of a figure which leaves me highly skeptical but I do not think it is reasonable to try to adjudicate the question of quantum on contested evidence.

[29] Summary

[30] In summary, for the reasons set out above, in the exercise of my discretion under s. 44 (5) of the Act, the security posted by the defendant may be reduced to $1,931.227. That amount is made up as follows:

a. Claim for balance due under the contract including HST: $725,920

b. Claim for additional labour costs: $325,965

c. Claim for overtime: $100,000

d. Claim for extended duration: $596,431

e. HST on b, c & d $132,911

SUBTOTAL $1,881,227

Costs $50,000

TOTAL SECURITY $1,931,227

[31] In its motion the defendant also asked to consolidate this proceeding with action 13-56935. This is not opposed and an order may go as requested in the notice of motion.

[32] I may be spoken to concerning costs within the next 30 days failing which there will be no order as to costs.

Master MacLeod

[^1]: $725,919.83 is the number in the chart at p. 5 of the plaintiff’s record whereas $725,919.70 is the number derived by backing out the “change orders” post June 27 and the “remediation” change orders from the chart at p. 20 of the defendant’s factum.

[^2]: Ledcor Construction Limited v. Canalfa Liberty Village Homes Inc. et. al. [2008] O.J. No. 5854 (S.C.J.)

[^3]: Ledcor, supra

[^4]: See Stucor Construction Ltd. v. Brock University (2001) 13 C.L.R. (3d) 201 (S.C.J.)

[^5]: S. 14 of the Act

[^6]: S. 17 of the Act

[^7]: See K-Line Maintenance & Construction Ltd. v. Municipality of Metropolitan Toronto et. al. (1979) 1979 1924 (ON SC), 25 O.R. (2d) 17 (Div.Ct.) & Power Contracting Inc. v. Deemar Investments Ltd. (1992) 5 C.L.R. (2d) 119 (Ont. Ct. (Gen. Div.))

[^8]: Proform Construction Ltd. v. Noblestar Properties (Central) Inc. [2001] O.J. No. 4973 (S.C.J. – Master)

[^9]: See for example paragraph 10 of the Corazza affidavit of May 3, 2010.