Wallwin Electric Services Inc. v. Tasis Contractors Inc. 2015 ONSC 1612
BARRIE COURT FILE NO: 12-0680
DATE: 20150310
SUPERIOR COURT OF JUSTICE - ONTARIO
RE: Wallwin Electric Services Inc., Plaintiff
AND:
Tasis Contractors Inc., Defendant
BEFORE: J.C. Corkery J.
COUNSEL: Eric O. Gionet, for the Plaintiff
Richard J. Mazar, for the Defendant
HEARD: March 10, 2015
Judgment
[1] The plaintiff and defendants are parties to a contract as subcontractor and contractor, respectively. The plaintiff moves for summary judgment, seeking the determination of a “pay when paid” term contained in their agreement, it asks for judgment in the amount of $20,843.39.
[2] The defendant has brought a cross-motion seeking a declaration that it has no obligation to make any further payment to the plaintiff unless it receives further payment from the owner.
[3] The parties agree that the matter is appropriately determined by way of a summary judgment motion.
A. The facts
[4] The facts in this case are not in dispute.
1. The Subcontract
[5] On July 11, 2010, Tasis Contractors Inc. (“Tasis”) entered into a contract (the “prime contract”) as the general contractor with a school board (the “Owner”) for the construction of a new school.
[6] On July 12, 2010, Wallwin Electrical Services Ltd. (“Wallwin”) entered into a written agreement (the “subcontract”) with Tasis to provide electrical services for the construction of the school. The total value of the subcontract was $339,222.00.
[7] Article 4 of the subcontract deals with payment. The relevant portions read as follows:
ARTICLE 4 – PAYMENT
4.1 Subject to applicable legislation and in accordance with this agreement, the contractor shall:
(a) make progress payments to the subcontractor on account of the subcontract price in accordance with paragraph 4.2 below. The amounts of such payment shall be as approved by the contractor and certified by such person as is empowered by the prime contract to certify the amount payable by the owner to the contractor, hereinafter called "the certifier".
(b) The contractor shall pay to the subcontractor the percentage of the subcontract price which has been held back to date from the proceeding progress payments on the day following:
(i) substantial performance of the subcontract work, and
(ii) the expiration the right to claim for lien arising from the performance of the subcontract work stipulated in the lien legislation applicable to the place of building, if any, provided:
(1) No claims for lien have been asserted relating to the subcontract work pursuant to applicable lien legislation, which continues to inhibit the payment to the subcontractor pursuant to such lien legislation;
(2) The provision by the subcontractor to the contractor of a statutory declaration that all accounts for labour, worker’s compensation contracts, products, tools, construction machinery and equipment and any other indebtedness which may have been incurred by the subcontractor in the performance of the work and for which the contractor might in any way be held responsible have been paid in full except monies properly retained.
(3) Provided that, as a condition precedent, the contractor has been paid the certificate, in which such amount has been included, by the owner.
4.2 The subcontractor shall submit to the contractor for his approval before the first application for payment, a schedule of values of the work, aggregating the total amount of the subcontract price and divided so as to facilitate evaluation of application for payment
The subcontractor shall make applications for payment together with supporting statutory declarations and/or other documents when required by this agreement on or before the 25th day of each month (herein called "the submission date") to the contractor for approval and due processing covering the value of the products delivered at the site and the work performed by the subcontractor proportionate to the subcontracted price up to the 30th day of the month, whereupon payment to the subcontractor by the contractor in the amount of 90 percent of the certified sum shall become due and payable not more than thirty (30) days after the submission date or ten (10) days after certification, whichever is the later. Provided that, as a condition precedent, the contractor has been paid the certificate, in which such amount has been included, by the owner. Where the contractor or certifier makes such changes to the amount of the applications for payments as submitted by the subcontractor, the subcontractor shall be so notified promptly in writing. The subcontractor shall be given the opportunity to defend his submission without delay.
[Emphasis added.]
2. The Payments
[8] On May 31, 2012 the project consultant issued an updated deficiency list showing that there were no outstanding deficiencies with respect to the work and services provided by Wallwin pursuant to the contract.
[9] On August 29, 2012, Tasis invoiced the Owner for Draw #15 which, once accepted, would allow Tasis to apply for a certificate of substantial completion. Draw #15 indicates that the Owner was being invoiced for the final 3% of electrical work.
[10] On October 23, 2012, the total amount payable for Draw #15 was amended as a result of an Application for Payment Review. The Application for Payment Review indicates that, as of October 23, 2012, there were no outstanding electrical deficiencies and no monies were being held back for electrical deficiencies.
[11] On November 14, 2012, Tasis invoiced the Owner for the revised Draw #15 amount. On November 21, 2012, the project consultant issued Certificate for Payment No. 015 R for the amount invoiced. On December 21, 2012, Tasis was paid by the owner the invoiced and certified amount.
[12] On November 22, 2012, the project was certified substantially performed.
[13] On December 18, 2012 Tasis invoiced the Owner for Draw #16 (the holdback). At the time, the owner was of the opinion that there were deficiencies in previously certified work. Tasis subtracted $150,176.65 from its invoice for these deficiencies, which were unrelated to the work performed by Wallwin.
[14] On January 9, 2013, the consultant issued Certificate for Payment No. 016 in the invoiced amount. On January 28, 2013, Tasis was paid by the owner the invoiced and certified amount.
[15] The parties agree that:
Wallwin made regular applications for payment as provided for in the subcontract.
At no time did Tasis or the project consultant make any changes to the amount of Wallwin’s applications for payment.
At no time did Tasis or the project consultant give notice to Wallwin of any changes to the amount of Wallwin’s applications for payment.
Tasis was paid by the owner for each certificate in the amount certified.
B. The Issue
[16] The issue in this case is the interpretation of a construction subcontract payment provision that includes a “pay when paid” condition precedent to payment. Is a general contractor obliged to pay a subcontractor when the general contractor has not been paid by the owner?
[17] The answer will turn on the specific terms of a given contract and the whether the specific conditions precedent to payment contained therein have been satisfied.
C. The positions of the parties
1. The Plaintiff
[18] Wallwin claims that at the time of substantial completion, it had completed all of its work under the contract and was owed an outstanding balance of $76,812.09. Of this amount, Tasis has paid it $55,968.70 leaving an unpaid balance of $20,843.39.
[19] It submits that the “pay when paid” provisions of the subcontract have been satisfied. The condition precedent has been met as Tasis has been paid for the certificates in which the amounts claimed by it were included.
2. The Defendant
[20] Tasis does not dispute that Wallwin completed its work under the contract and that there is an unpaid balance of $20,843.39.
[21] Tasis submits that as it did not receive full payment for the Draw 15, the owner having held back $150,000, it is not obliged under the “pay when paid” provisions of the subcontract to pay Wallwin.
[22] Tasis argues that where the subcontract clearly specifies the subcontractors legal entitlement to payment is contingent upon the general contractor being paid, then the subcontractor must bear the risk of nonpayment by the owner to the general contractor; the only exception being where the reason for nonpayment by the owner is the default of the general contractor.
D. Analysis
[23] The subcontract in this case recognizes two types of payment: progress payments (Article 4.1(a)) and the holdback payment (Article 4.1(b)).
[24] Both types of payment are subject to exactly the same condition, the “pay when paid” condition (Articles 4.1(b)(3) and 4.2):
Provided that, as a condition precedent, the contractor has been paid the certificate, in which such amount has been included, by the owner.
[25] It is not disputed, in this case, that the Tasis was paid the amounts in the certificates in which the amounts that Wallwin seeks to be paid were included. Indeed, it is not disputed that Tasis was paid all the certificates issued by the project consultant. Accordingly, Wallwin is entitled to be paid
[26] That Tasis reduced its December 18, 2012 invoice by $150,000 has nothing to do with its obligation to make payment to Wallwin under the terms of the subcontract. Only if an owner fails to make payment under a certificate, is a contractor protected under this subcontract. That did not happen here.
[27] In subcontracts such as this, the proper interpretation of the “pay when paid” condition may be expressed as follows:
A contractor is obliged to pay a subcontractor when
the subcontractor makes application for payment,
neither the contractor or certifier have given written notice to the subcontractor of a change in the amount the subcontractor has applied to be paid,
the amount the subcontractor has applied to be paid has been included in a Certificate for Payment, and
the contractor has been paid that Certificate for Payment by the owner.
[28] Under subcontracts such as this, “pay when paid” does not mean that a contractor can avoid its obligation to pay a subcontractor by adjusting an invoice to allow for an owner to retain contract funds when a dispute arises over previously certified payments. The certification process creates the obligation to pay. Disagreements over subcontractor applications for payment may be resolved prior to Certificate for Payment being issued, as contemplated at the end of Article 4.2, or they may be resolved after payment, but once the above conditions have been satisfied payment must be made.
E. Conclusion
[29] The “pay when paid” condition in this subcontract is fulfilled when “the contractor has been paid the certificate.” Tasis was paid all certificates by the owner. Wallwin is entitled to payment of $20,843.39 less any adjustment for minor deficiencies that the parties agree upon. Should the parties be unable to agree upon costs, I shall receive brief written submissions with 14 days.
J.C. Corkery J.
Date: March 10, 2015