Court File and Parties

COURT FILE NO.: CV-15-526601 DATE: June 28, 2017

SUPERIOR COURT OF JUSTICE - ONTARIO

RE: Walsh Construction/Bondfield Partnership v Chartis Insurance Company of Canada

BEFORE: Master C. Albert

COUNSEL: S. Vogel and S.Reynal de St. Michel, for the defendant (moving party) G. Ackerley and J. Scourgie, for the plaintiff (responding party)

HEARD: January 10, 2017

ENDORSEMENT

1. Chartis Insurance Company of Canada (“Chartis”) moves for partial summary judgment, asking the court to dismiss the claim of Walsh Construction/Bondfield Partnership (“WB”) for payment on the performance bond issued by Chartis as surety for subcontractor Yuanda Canada Enterprises Ltd. (“Yuanda”) in respect of the exterior curtain wall contract for the reconstructed Women’s College Hospital (WCH). Chartis alleges that the action was issued more than two years after the cause of action arose and is thereby statute barred.

2. Justice Goldstein referred the Chartis action to me by judgment of reference dated April 26, 2016 Walsh Construction/Bondfield Partnership v Chartis Insurance Company of Canada, 2016 ONSC 2793 (reasons) so that it could be tried together with or consecutively to the lien claims in the related construction lien reference, proceeding under the lead file CV-13-484688, an action brought by Yuanda against WB and others under the Construction Lien Act, R.S.O. 1990, c.C.30 (the “Act”). In doing so he recognized inter alia that the issues are interwoven and that there is a risk of inconsistent findings or judgments if the actions are tried separately.

I. Background

3. The reconstruction of WCH proceeded as a multi-phase Public Private Partnership (“P3”) project. WB is the design-builder. The phases are called Phase 1, Phase 2 and Phase 2A.

4. Given that the project was expected to take six years, the prime contract contemplates that an Interim Completion Certificate would be issued after Phase 1, to be treated as akin to a declaration of substantial performance pursuant to section 32 of the Act. The contractual completion date for Phase 1 was April 29, 2013, with a liquidated damages penalty of $38,000.00 per day payable by WB if it failed to meet the Phase 1 completion date.

5. WB subcontracted with Yuanda for the exterior glazing and curtain wall for Phases 1 and 2 for the contract price of $3,833,364.54. The subcontract allows WB to set off from the contract price otherwise payable damages for which Yuanda may be responsible. The subcontract specifies a procedure for dealing with breach of contract situations: if Yuanda breaches the contract WB must give Yuanda written notice and allow Yuanda 72 hours to cure the default. The subcontract sets out the steps available to WB to deal with Yuanda’s default if Yuanda fails to cure the default.

6. The subcontract provides at Article 7.17 that Yuanda pay liquidated and other damages to WB if such damages are assessed against WB. Also, at Article 9.3, the subcontract requires Yuanda to indemnify WB for claims and losses “arising out of or resulting from (Yuanda’s) actual or alleged failure to perform …”; “delay costs”, “increased costs of performance”, “liability to third parties” and other specified damages.

7. The subcontract requires WB and Yuanda to engage in negotiations in respect of any dispute arising under the subcontract. In issue is whether such negotiations are a condition precedent to WB asserting a claim and if so, whether the parties engaged in negotiations. I draw the inference from the contractual obligation to negotiate disputes arising under the subcontract that the parties contemplated that defaults could be cured.

8. Yuanda obtained a performance bond from Chartis (bond No. 946-887) on or about April 27, 2012 for $3,833,364.54 (the “Bond”). Chartis’ liability under the Bond does not arise so long as Yuanda continues to perform the subcontract “promptly and faithfully” [2].

9. Paragraph 4 of the Bond provides that if WB declares Yuanda in default of the subcontract Chartis must respond within 15 days in one of six ways:

a) Chartis can complete the subcontract work; b) Chartis can obtain quotes from contractors to complete the work; c) Chartis can pay out the Bond amount less amounts expended; d) Chartis can deny the alleged default and liability under the Bond; e) Chartis can request an extension of up to 50 days to respond to the notice of default; or f) Chartis can elect for WB to perform the subcontract work with Chartis liable for increased costs.

10. In short, upon default by Yuanda, the Bond holds Chartis liable to correct defective work, to complete the Yuanda subcontract and to pay damages arising from the performance or the non-performance of the subcontract. According to WB this added liability is unusual in a performance bond.

11. The following chronology is relevant to the issues raised on this motion:

a) April 18, 2012: WB and Yuanda subcontracted for glazing and curtain wall. b) April 27, 2012: Chartis issued a performance bond for $3,833,364.54. c) July 16 and 23, 2012: WB gave Yuanda notices of failure to perform. In response, Yuanda retained installer Crystal Glazing Inc. d) July 31, 2012: WB sent Yuanda a letter (the “July 31, 2012 letter”) pursuant to Article 8.1 of the subcontract, giving Yuanda notice of default and 72 hours to correct the default. Chartis characterizes the letter as a “formal” notice of default within the meaning of the subcontract and the Bond. In the letter WB alleges that Yuanda caused 47 days of delay because it failed to provide sufficient manpower. WB quantifies liquidated delay damages at $52,000.00 per day. Pursuant to Article 4.5 of the Terms and conditions of the subcontract Yuanda’s obligation to pay liquidated delay damages arises when liquidated delay damages are assessed against WB. As at July 31, 2012 there is no evidence of an assessment of liquidated delay damages against WB. e) August 1, 2012: WB sent a letter to Chartis transmitting the July 31, 2012 letter to Yuanda and informing Chartis that WB would be making a claim on the Bond. Chartis did not respond to the letter within the 15 days required by the Bond. f) August 2 and 14, 2012: Yuanda denied default under the subcontract, attributing any delay to WB’s failure or inability to give Yuanda access to the site on time, to WB’s defective materials and to design changes. g) August 2012: WB and Yuanda participated in meetings about accelerating the pace of the work, including WB hiring Bass Installation as a supplementary installer to assist Yuanda. h) August 14, 2012: By letter from Yuanda to WB, Yuanda denied delaying the project and denied breaching the subcontract. Yuanda acknowledged that by WB bringing in Bass to accelerate completion, WB reduced Yuanda’s scope of work. Yuanda expressed its intention to cooperate with Bass. i) August 15-16, 2012: Yuanda did not begin installation. WB threatened to issue a notice of default. Yuanda improved its performance and WB did not issue a notice of default. j) August 21, 2012: Chartis notified WB that it had opened a file. k) August 23, 2012: WB wrote to Yuanda with the “re” line “Notice of Default Follow Up #2”. In the letter WB describes the scope of Yuanda’s work assigned to Bass and directs Yuanda to complete specified items (top of page 2 of the letter) by September 21, 2012. The letter schedules a follow up meeting for August 29, 2012 to review progress. The letter maintains WB’s assertion that Yuanda is in default and expresses hope for a successful and timely completion of Phase 1. l) October 26, 2012: WB’s Roham Pourmatin wrote to Yuanda by email allowing Yuanda seven (7) days to cure specified items. The items are characterized as “open ended items”. The mail is not drafted as a formal notice of default under the subcontract. m) October 31, 2012: WB wrote to Chartis. The reference line states “Claim by WB on Performance Bond No. 946-887”. n) November 1, 2012: By letter to Yuanda with the reference line “Failure of Performance and Default…” WB gave Yuanda notice of default regarding glass breakage and AAMA 1503 condensation failure. WB also expressed its concern that this would cause delay. WB gave Yuanda 72 hours to correct the stated defects failing which it would take the steps specified in the letter. The letter does not mention the items that had been the subject of the July 31, 2012 letter. WB gave a copy of the letter to Chartis. o) November 5 and 12, 2012: BBCG Claims Service wrote to WB advising that it would investigate WB’s claim against Chartis. The investigation included a site visit on November 12, 2012. Thereafter, according to WB, Yuanda’s performance improved. p) December 5, 2012: Chartis, through its lawyer, notified WB by letter that after having conducted an investigation it was of the opinion that Yuanda was not in default under the subcontract, that Yuanda continued to perform the contractual scope of work and that the subcontract had not been terminated. q) December 10 and 14, 2012: WB replied to Chartis’ December 5, 2012 letter accepting that the Yuanda subcontract had not been terminated and that Yuanda continued to work. WB maintained its position that Yuanda was in default and that it was sufficient for WB to declare Yuanda in default in order to trigger Chartis’ obligations under the Bond. WB continued to allow Yuanda to perform subcontract work. Yuanda’s performance improved and on December 14, 2012 its work passed air and water tests inspections. r) December 20 and 31, 2012: WB provided accounting statements (referred to as monthly status reports) to Yuanda estimating backcharges against payments otherwise payable to Yuanda. As of December 31, 2012 the report calculated backcharges of $5,663,042.68, including a large claim by WB for liquidated delay damages. s) January 31, 2013: Yuanda responded to the proposed backcharges. t) February 14, 2013: By letter to WB Chartis denied liability under the Bond on the basis that Yuanda was not in default under the subcontract. u) April 2, 2013: By letter to Yuanda using the “re” line “Failure of performance and default” WB gave notice to Yuanda that it was in default regarding broken and deficient glass and allowed Yuanda 72 hours to correct the default. On the same date WB’s counsel wrote to Chartis’ counsel stating that Yuanda remained in default of earlier defaults for which notice had been given. v) April 4, 2013: Yuanda notified WB that broken glass had been replaced. w) April 15, 2013: Chartis, through its lawyer, restated its position that Yuanda was not in default under the subcontract. x) April 22, 2013: WCH wrote to Women’s College Partnership stating its opinion that the conditions for issuing an Interim Certificate of Completion on April 29, 2013 as required by the P3 Project Agreement could not be met. Yuanda denied responsibility for delays leading to the inability to meet the April 29, 2013 interim completion date. Also on April 22, 2013, WB responded to Chartis’ April 15, 2013 letter repeating its position that Yuanda “remains in default of its subcontract”…and WB’s “claim on Chartis’ Bond #946-887 remains in place”. WB relies on this letter as the date on which the cause of action arose. y) April 23, 2013: The date of last supply of services and materials specified by Yuanda in its claim for lien registered on May 29, 2013 is April 23, 2013. z) May 14, 2013: Interim Completion of Phase 1 was achieved two weeks after the P3 contractual completion date. aa) May 3 and 27, 2013: Yuanda, by letters to WB, stated its intention to stop work if WB did not pay Yuanda within 7 days. bb) May 29, 2013: Yuanda registered a construction lien claiming payment of $2,922,309.40 for the supply of services and materials up to April 23, 2013. cc) June 6, 2013: WCH assessed and claimed $672,562.98 against WB as liquidated damages for delay. dd) June 2013: Subcontractor Black & McDonald Limited (“B&M”) registered a claim for lien and issued action CV-13-486969 claiming damages against WB for delay. That action settled, but WB blames Yuanda for the delay for which B&M claimed damages from WB. WB counterclaimed against Yuanda for delay damages in action CV-13-484688. ee) June 28, 2013: WB gave Yuanda notice that WB’s June 10, 2013 letter to Yuanda requesting information regarding Phase 2 scheduling was a Notice of Default under the subcontract. Yuanda was no longer on site. According to WB, as of June 28, 2013 Yuanda was no longer “promptly and faithfully” performing the subcontract within the meaning of section 1 of the Bond. ff) July 2013: Yuanda refused to continue as a subcontractor for the next phase of the project. WB characterizes it as Yuanda abandoning the subcontract in July 2013. gg) July 12, 2013: Yuanda issued an action perfecting its claim for lien, pleading that it continued to work on site until May 29, 2013. hh) July 25, 2013: WB sent Yuanda a change order backcharging Yuanda $14,400,085 plus HST for costs allegedly arising from Yuanda’s defaults. ii) August 2, 2013: Yuanda rejected WB’s claim for backcharges of $14,400,085. jj) April 22, 2015: WB issued its action against Chartis. Chartis defended, pleading that Yuanda’s default is a precondition to Chartis’ liability under the Bond and Yuanda was never in default of the subcontract.

12. The Limitations Act, 2002, S.O. 2002, c.24 provides at sections 4 and 5:

4. Unless this Act provides otherwise, a proceeding shall not be commenced in respect of a claim after the second anniversary of the day on which the claim was discovered.

5 (1) A claim is discovered on the earlier of, (a) the day on which the person with the claim first knew, (i) that the injury, loss or damage had occurred, … (iv) that, having regard to the nature of the injury, loss or damage, a proceeding would be an appropriate means to seek to remedy it; and (b) the day on which a reasonable person with the abilities and in the circumstances of the person with the claim first ought to have known of the matters referred to in clause (a). (2) A person with a claim shall be presumed to have known of the matters referred to in clause (1) (a) on the day the act or omission on which the claim is based took place, unless the contrary is proved.

14. WB issued this action against Chartis on April 22, 2015. The critical date for purposes of assessing the limitations issue is April 22, 2013. If WB’s cause of action arose after April 22, 2013 then the action issued on April 22, 2015 is timely. If WB’s cause of action arose on or before April 22, 2013 then the action issued on April 22, 2015 is out of time.

15. For the court to grant summary judgment the court must determine when WB’s cause of action against Chartis arose and whether the claim was issued within the prescribed two year limitation period. If determining that issue raises a genuine issue that requires a trial then the motion must fail.

II. The issues

16. Issue #1: Rule 20.04 provides that summary judgment shall be granted where there is no genuine issue that requires a trial. Does determining the issue of whether WB’s claim against Chartis is statute barred raise a genuine issue that requires a trial? Issue #2: If no trial is required the next issue is whether WB’s claim against Chartis was issued more than two years after WB’s cause of action against Chartis was discovered or discoverable.

III. Issue #1: Does the limitation period issue require a trial?

17. The Supreme Court of Canada in Hyrniuk v Mauldin, 2014 SCC 7 offered guidance in assessing when it is appropriate for a claim to be determined by way of summary judgment:

“There will be no genuine issue requiring a trial when the judge is able to reach a fair and just determination on the merits of on a motion for summary judgment. This will be the case when the process (1) allows the judge to make the necessary findings of fact, (2) allows the judge to apply the law to the facts, and (3) is a proportionate, more expeditious and less expensive means to achieve a just result.”

18. The court on this motion must first determine whether the limitations issue can be decided on the motion materials before the court or, if the motion materials are insufficient whether the evidentiary record would be sufficiently enhanced to allow the court to decide the limitations issue by way of summary judgment using the expanded fact-finding powers introduced into rule 20.04(2.1) after Hyrniak. These expanded powers apply to a reference master under the Construction Lien Act, R.S.O. 1990, c.C.30 by reason of section 58(4) of that Act.

19. The limitations issue is whether WB commenced its action against Chartis within two years from the date on which it discovered or ought reasonably to have discovered its cause of action against Chartis. The onus is on Chartis to show that there is no genuine issue that requires a trial. WB must advance its best evidence in response to persuade the court that a genuine issue exists for which a trial is required.

20. In Guarantee Co. of North America v Gordon Capital Corp. the Supreme Court of Canada determined that a limitation issue can be determined by way of summary judgment. That case arose from a claim on a fidelity bond that provided coverage for dishonest and fraudulent acts of employees. The bond included a 30 day period within which the insured was required to notify the insurer and a 24 month period within which to commence proceedings.

21. Chartis relies on the reasoning of the Supreme Court of Canada at paragraph 29 of the Guarantee case where the court determined that all that was required for discovery of a loss in that case was sufficient facts from which a reasonable person would conclude that a loss under the bond had occurred. In Guarantee the bond instrument defined “discovery” as occurring:

“when the Insured first becomes aware of facts which would cause a reasonable person to assume that a loss of a type covered by this bond has been or will be incurred, regardless of when the act or acts causing or contributing to such loss occurred, even though the exact amount or details of loss may not then be known.”

22. The Supreme Court of Canada’s reasoning in Guarantee turned on the specific definition of “discovery” in the bond in that case. There is no parallel definition of discovery in the Chartis Bond. In the absence of a contractual definition, the ordinary and common law meaning of “discovery” would apply. Guarantee is distinguishable.

23. Chartis’ obligations under the Bond do not arise while Yuanda is “promptly and faithfully” performing its contractual obligations. WB argues that for the court to make a finding that WB’s action against Chartis was issued after the limitation period had expired the court would have to make factual findings on a number of issues, including:

a) whether Yuanda was “promptly and faithfully” performing its obligations under the subcontract within the meaning of paragraph 1 of the Chartis Bond; b) whether Yuanda was in actual default under the subcontract prior to April 22, 2013; c) whether WB gave Yuanda and Chartis proper notice of default under the subcontract and the Bond, respectively; d) whether Yuanda failed to cure the default for which notice had been given; e) whether WB had incurred costs attributable to Yuanda’s defaults and the costs attributable to each default, separated as to costs pre and post April 22, 2013; f) whether WB suffered any losses and if so, when; g) whether Yuanda had any valid claims to set off against WB’s claims and if so, the quantum of the set-off claims pre and post April 22, 2013; h) whether WB and Yuanda had engaged in negotiations as a precondition to WB asserting a claim for indemnification against Yuanda under the subcontract; i) whether Yuanda breached its obligation to indemnify WB under the subcontract; j) which of Yuanda or WB breached the subcontract; k) the date on which Chartis’ liability under the Bond arose for each alleged default; and l) Chartis’ obligations under the Bond to indemnify WB for Yuanda’s defaults.

24. In issue is whether letters referred to by WB as notices of default and given to Yuanda trigger WB’s cause of action against Chartis on the Bond by giving Yuanda notice that it was falling behind schedule. According to Scott and Reynolds, and relying on the case of Trafalgar House Construction (Regions) Limited v General Surety & Guarantee Co. Limited, (1995) 11 Const. L.J. 472 (HL) quoted and relied on by Scott and Reynolds, the Bond would be characterized as an “on default” instrument and the cause of action would be discoverable from the date on which actual default occurs.

25. The Bond provides at section 1 that Chartis’ obligations are of no force and effect if Yuanda is “promptly and faithfully” performing the subcontract. Chartis’ obligations do not arise until Yuanda is in actual default. It is insufficient for WB to simply declare Yuanda in default. [6]

26. Whether WB commenced its claim within two years of the cause of action requires the court to investigate and determine when the cause of action was discovered or discoverable. The court would be required to determine if and when Yuanda went into actual default under the subcontract.

27. Whether and when Yuanda breached the subcontract and ceased to “promptly and faithfully perform” its obligations under the subcontract requires a detailed and complex investigation of all of the facts surrounding WB’s notices of default, Yuanda’s and Chartis’ responses to the notices, the activities on site that caused or contributed to delays experienced on site, whether WB or other contractors caused or contributed to the delay that WB accused Yuanda of causing, and other related factual issues. The issue is whether summary judgment is appropriate for such an investigation or whether the factual issues in dispute require a trial.

28. The court must make findings of fact about whether WB’s allegations of default by Yuanda in the various notices of default can be proven as actual defaults. Yuanda and WB engaged in meetings and the evidence suggests that Yuanda’s performance improved. The date on which Yuanda was in fact in actual default, if it was in default at all, raises a genuine issue that must be decided before the limitations issue can be decided.

29. The July 31, 2012 letter: The “re” line in WB’s July 31, 2012 letter reads: “Article 8.1 Failure of Performance and Default; 72 Hour Notice of Default”. Paragraph 3 states:

“This failure is a material breach of the terms of our agreement and Yuanda Canada Enterprises Ltd. will be responsible for both the costs to mitigate their delays (acceleration of their work and other subs work) as well as any liquidated damages that may result from (WB) not being able to fully mitigate all of the Yuanda Canada Enterprises Ltd. delays. Currently, as of Tuesday, July 31, 2012 Yuanda Canada Enterprises Ltd. has impacted the project schedule by forty seven (47) calendar days. Liquidated damages for any delay to the Interim Completion are approximately $38,150 per calendar day, plus general conditions costs for (WB), which currently are valued at approximately $15,000 per calendar day, for a total of over $52,000 per calendar day.”

30. The July 31, 2012 letter is signed by WB’s project manager Roham Pourmatin. He recites paragraph 8.1 of the subcontract and writes:

“Please be advised that this shall constitute the aforementioned Notice of Default and should you fail to commence and satisfactorily continue correction of your default within seventy-two (72) hours after receipt of this notice issued under Paragraph 8.1, and provide assurances that proper manpower and equipment wil be provided for the project, furnish and maintain the schedule and furnish and install an onsite mock-up, (WB) shall mitigate the damages resulting from your default, and take any and all means necessary to protect its interests and maintain the construction schedule. (WB) reserves all of its rights under the Subcontract and at law.”

31. In response to the July 31, 2012 letter Yuanda, disputed that it was in default and accused WB of causing delay by (i) delaying Yuanda’s access to the site, (ii) supplying deficient materials and (iii) making numerous design changes.

32. WB, through its witness Roham Pourmatin asserts that the July 31, 2012 letter was intended to be a stern warning to motivate Yuanda to improve its performance and that it was not a notice of default within the meaning of the subcontract. Mr. Pourmatin testified on cross-examination that after receiving the notice Yuanda made improvements to its performance [7].

33. In his cross-examination Mr. Pourmatin testified about the July 31, 2012 letter as follows:

211 Q. But you delivered a contractual notice… A. That’s right. 212 Q. …of default. You don’t… A. And it paid dividend. It had actually paid dividends because they came through. They came through. They work Saturdays, they work Sundays. They bring additional crews. They made improvements. 213 Q. So they cured the default? A. No, but they made improvements. 214 Q Sorry, because you said earlier they never were in default, so you’re saying they made improvements? A. They made improvements.

34. WB further asserts and asks the court to find that when WB served the July 31, 2012 letter on Yuanda it did not believe that Yuanda was in actual default of its contractual obligations.

35. According to WB, it served what it characterizes as ‘default notices’ on Yuanda in order to encourage or motivate Yuanda to work faster and complete its part of the project. WB alleges that in response to each such notice Yuanda’s performance improved. WB did not terminate Yuanda or hire a replacement contractor. Yuanda continued to perform the curtain wall subcontract work.

36. Whether the July 31, 2012 letter was a notice of default and whether Yuanda was actually in default are triable issues that must be determined to decide the limitations issue.

37. The August 23, 2012 letter: WB’s August 23, 2012 letter to Yuanda is titled “Notice of Default Follow-Up #2”. It refers to the July 31, 2012 notice of default and the August 13, 2012 “notice of default follow up letter”. The letter recites continuing delays and efforts made to mitigate the delays. The gist of the letter is that as of August 23, 2012 WB maintained its position that Yuanda was in default and had not cured the default.

38. Yuanda did not admit the alleged default. Chartis’ position is that Yuanda was not in default.

39. Whether the August 23, 2012 letter was a notice of default and whether Yuanda was actually in default are triable issues of fact that must be determined to decide the limitations issue.

40. The October 31, 2012 letter: This letter gives Chartis notice of WB’s claim Chartis under the Bond. The “re” line in the letter reads “Claim by WB on Performance Bond No. 946-887” and refers to WB’s claim against Chartis under the Bond made in WB’s August 1, 2012 letter to Chartis. WB wrote:

“ (WB) made a claim on the Bond via letter to Chartis dated August 1, 2012… Per paragraph 4 of the Bond, upon receipt of the (WB) claim, Chartis had 15 days to respond to (WB)’s claim. Chartis acknowledged receipt of the claim via letter dated August 21, 2012… Chartis stated that it would review the submitted information and contact (WB). As of October 31, 2012 Chartis has not contacted WB. Chartis has failed to act in accordance with paragraph 4 of the WB Bond.

“Yuanda’s performance on the project continues to be a failure, and WB has incurred millions of dollars in damages caused by Yuanda and Chartis’ failures. Per Paragraph 6 of the Bond, Chartis is liable to (WB) for (a)…; (b)….; and (c)…”

41. WB asked Chartis to attend on site to view Yuanda’s work. By December 5, 2012 Chartis had investigated WB’s October 2012 claim against it and taken the position that the claim was unfounded because Yuanda was not in default under the subcontract, that WB had not terminated the subcontract and that WB had allowed Yuanda to continue to perform the contractual scope of work. Chartis acknowledged that there was a bona fide dispute as between WB and Yuanda. Chartis further accepted Yuanda’s position that if there was default Yuanda had cured it and continued to perform the subcontract work under the direction of WB. Chartis closes the letter with the statement:

“…at this juncture there is no default by Yuanda.”

42. In its December 10, 2012 reply to Chartis WB maintained its position that Yuanda was in default of the subcontract and that the default was sufficient for WB to declare Yuanda in default and trigger Chartis’ obligations under the Bond.

43. Whether Yuanda was actually in default as of October 31, 2012 is a triable issue of fact that must be determined to decide the limitations issue.

44. The February 14, 2013 letter: Again on February 14, 2013, by letter from Chartis’ lawyer to WB, Chartis denied liability under the Bond on the basis that Yuanda was not in default under the subcontract. Chartis’ wrote:

…in any event, (WB)’s letter of July 31, 2012 purporting to notify Yuanda of its alleged defaults has, at this point, been superseded and/or waived by the subsequent conduct of the parties, particularly given that Yuanda has continued to complete its work on the Project…”

45. The April 2, 2013 letter: On April 2, 2013, WB issued another letter giving Yuanda notice of default and asserting that Yuanda remained in default of earlier defaults for which notices had been given. WB’s April 2, 2013 letter to Chartis stated:

“Yuanda remains in default of its subcontract on Women’s College Hospital. Contrary to the assertions you make in your February 14, 2012 (sic) letter, Yuanda has been, and remains in default of its Contract. Yuanda was, and is currently behind schedule, and substantial portions of Yuanda’s work have been found to be defective”.

46. Whether the April 2, 2013 letter was a notice of default and whether Yuanda was actually in default are triable issues of fact that must be determined to decide the limitations issue.

47. By April 22, 2013 WB determined that the April 29, 2013 deadline for the Interim Certificate of Completion would not be met. WB wrote to Chartis, repeating its position that Yuanda “remains in default of its subcontract”…and WB’s “claim on Chartis’ Bond #946-887 remains in place”. Whether Yuanda was actually in default on April 22, 2013 and if so whether it was a new default or a continuing default must be determined to decide the limitations issue.

48. The May 29, 2013 lien claim: On May 29, 2013 Yuanda registered a claim for lien claiming payment of $2,922,309 for the supply of services and materials up to April 23, 2013. In issue is whether WB’s cause of action against Chartis begins to run from the date of Yuanda’s last supply of services and materials, from the date of registration of the construction lien by Yuanda, or from some other date.

49. Yuanda had given notice to WB on May 3, 2013 that it intended to stop work if it did not receive payment for services and materials supplied. WB’s position was that after deducting backcharges for delay and other items no monies were owing to Yuanda.

50. If the evidence proves that Yuanda was justified in refusing to work because it had not been paid then WB would have been in breach of contract and Yuanda would not have been in default under the subcontract. However, if Yuanda’s cessation of work was not justified then Yuanda breached the subcontract by refusing to continue to supply services and materials pursuant to the subcontract. Whether these events constitute actual default under the subcontract raises a genuine issue that must be determined to decide the limitations issue.

Potential prejudice to Yuanda and other lien claimants

51. A detailed inquiry into the facts surrounding Yuanda’s performance of its contract, or failure to perform the subcontract as the case may be, is required to determine whether and when Yuanda went into default under the contract. For the court to make that determination, more fulsome evidence is required and the parties whose rights are affected are entitled to participate in the trial so that findings of fact can be made on a full evidentiary record. In my view a trial of those issues is required.

52. If the court finds that Yuanda was in default of its subcontract a further inquiry would be required to determine whether WB gave Yuanda proper notice of default and if so whether Yuanda cured some or all of the defaults. Upon finding that Yuanda failed to cure one or more defaults, the court would have to trace the default back to when notice was given and the damages flowing from each such default for which Yuanda is liable. These are all issues before the court in the construction lien reference to which Justice Goldstein directed the WB v Chartis action be linked for hearing together or consecutively.

53. Ascribing delay damages arising from one or more defaults is a complex matter in construction cases. Delay damage experts are generally required. At the January 16, 2017 hearing for directions WB reported that it had already served its delay expert’s report in draft form and Yuanda advised the court of its intention to deliver its responding delay expert’s report by the fall of 2017.

54. In assessing delay damages owing by Yuanda to WB an accounting will be required to assess when such damages became due and owing and whether Yuanda has any valid set-off items. The court must assess whether Yuanda is obliged to indemnify WB pursuant to Article 9.3 of the subcontract, in which case Chartis would also be obliged to indemnify WB under the Bond if Yuanda fails to do so. An analysis of the types of costs found owing is required to determine whether they fall under the indemnification provisions. An analysis of the date on which the indemnification obligation from Yuanda to WB arose is required. Next the court would have to determine whether WB complied with the preconditions to a claim for indemnification as required by its subcontract with Yuanda. The subcontract requires the parties to engage in “mutual negotiations”. Did they? And if so, were they perfunctory or genuine?

55. The court must also consider whether Yuanda failed to indemnify WB if obliged to do so. If Yuanda defaulted then the court would have to determine the extent of Chartis’ liability, ascribing damages to each of the instances of default for which the court finds Yuanda responsible. The court would also have to determine the date on which Chartis became liable to indemnify WB for the damages arising from each of the defaults.

56. The evidence required to make these determinations is not before the court on this motion. Yuanda is not a party to the action in which this motion was brought and would not be bound by the court’s findings as to its liability to indemnify WB for damages flowing from defaults under the subcontract. Nor did Yuanda participate in the motion hearing or file motion materials.

57. If the court were to decide this motion in the absence of a complete evidentiary record, including Yuanda’s evidence, there is a serious risk of inconsistent factual findings and prejudice to parties to the reference who are not before the court on this motion. Aside from the risk of inconsistent findings, there would be duplication of proceedings and a waste of the court’s and the parties’ time and resources, contrary to section 67 of the Act.

58. Relevant to determining whether summary judgment is the appropriate process to determine the Limitations Act issue is potential prejudice to other parties to the reference. Yuanda is not a party to the Chartis action and did not participate in the Chartis motion for summary judgment. WB asserts that summary judgment is not an appropriate process in the Chartis Bond action because the rights of Yuanda in its construction lien action would or could be affected, giving rise to the potential for inconsistent findings of fact.

59. Justice Goldstein, in referring the Chartis action to the master to be tried together or consecutively with the Yuanda lien claim action, recognized that there are facts and issues in common. Whether and when Yuanda went into default under its subcontract is relevant to WB’s claim against Chartis and Yuanda’s claim against WB.

60. I am concerned that if the court were to make findings of facts necessary to determining the limitations issue that is before the court on this summary judgment motion the rights of a party or parties who are not before the court would be prejudiced. In particular, determining if and when Yuanda was in default under the subcontract raises a genuine issue that requires a trial. Fairness requires that Yuanda be given an opportunity to present evidence and argument on the issue.

61. In Canaccord Genuity Corp. v Pilot, 2015 ONCA 716 the court of appeal, in the context of a motion for summary judgment in relation to one party, considered whether it would have been appropriate to apply the expanded fact finding powers introduced post-Hyrniuk. The Court of Appeal, in considering whether a trial would be necessary for some of the other parties to the litigation, wrote:

“If a trial is necessary for some of the claims against some parties in any event, it may not be in the interest of justice to use these fact-finding powers to grant summary judgment against a single defendant because of the risk of duplicative proceedings or inconsistent findings of fact.”

62. The claim against Chartis and the counterclaim against Yuanda arise from the same contractual arrangement. The factual record is incomplete and invoking the enhanced fact-finding powers of the court post-Hryniak would not be sufficient or appropriate to complete the record. The rights of parties who are not before the court would be affected, particularly Yuanda’s rights in its lien claim action against WB and WB’s counterclaim against Yuanda. There would be duplication of evidence and a risk of inconsistent findings of fact if the actions proceed separately to judgment, either summarily or by way of a trial.

63. It would not be in the interests of justice to decide the limitations issue by way of summary judgment. Chartis is part of a multi-party, multi-action reference arising from the same construction project. There are overlapping factual and legal issues, particularly regarding the complex issue of delay. The findings of fact required to determine the limitations issue raise genuine issues that require a trial.

IV. Issue #2: When did the WB cause of action against Chartis arise?

64. Given my findings on the first issue the second issue cannot be determined without a trial wherein the parties have an opportunity to lead evidence on the genuine issues described in these reasons as requiring a trial.

V. Conclusion

65. Chartis asks the court on this summary judgment motion to dismiss WB’s claim against it. For all of the reasons expressed I find that the issues raised on the motion are genuine issues that require a trial. Summary judgment is not appropriate to determine these issues. The motion brought by Chartis for summary judgment is dismissed.

66. If the parties cannot agree on costs I will hear submissions on costs at the hearing for directions scheduled for July 24, 2017.

Master C. Albert. DATE: June 28, 2017