The Opaskwayak Cree Nation in Manitoba found itself entangled with a dispute it had little to do with. They wanted subcontractors that were hired and owed money by their general contractor to be paid and thereby be able to stand aside from a payment dispute.
Razar Contracting was hired by Opaskwayak to upgrade its water treatment plant. But in order to receive progress payments, or for holdbacks to be released, the contract required Razar to provide Opaskwayak with statutory declarations confirming the subcontractors had been paid.
Razar provided 16 statutory declarations over the course of two years, declaring the subcontractors were paid. However, eight subcontractors came forward claiming that, in fact, they had not been paid. This obliged Opaskwayak to withhold $1.2 million from Razar.
“Opaskwayak had no real dispute with any of the parties, nor did it claim a beneficial interest in any portion of the $1.2 million,” write Field Law LLP partner Anthony Burden and lawyer David Di Gianvittorio.
To remove itself from further litigation, Opaskwayak brought an interpleader application seeking permission to pay the $1.2 million into court.
Razar had no basic dispute with this. However, the $1.2 million was $170,000 more than was sought by the unpaid subcontractors and represented potential overdue payment interest charges and legal costs. Razar argued the $170,000 should be paid to them directly and not to the subcontractors.
“A further issue was whether two of the subcontractors who were on the verge of settling their disputes with Razar could immediately collect their settlement from the money paid into court, or if they had to wait until all parties resolved their disputes before they could collect,” write Burden and Di Gianvittorio.
Justice Anne Turner of the Court of King’s Bench of Manitoba began by ruling the subcontractors’ claims, including those for interest, were not frivolous.
“In the normal commercial context, interest that accrues on payments due under a contract would be considered amounts owing on the contract,” she wrote. “Interest on overdue amounts may be expressly included in the terms of the contract or it may be implied such as, for example, where the interest provision is included in the invoices that are rendered under the contract.”
However, Justice Turner fell short of judging the validity of the specific claims made by the subcontractors.
“The payment into court of the full amount of the funds allows the subcontractors and Razar to present their cases for a final determination. That determination may include interest and other payments owed to the subcontractors.”
Furthermore, Justice Turner was in support of paying subcontractors as they reached payment agreements with Razar, even while others were still awaiting determination.
“In construction projects, it is often the case that one or some subcontractors are paid before others as the work project progresses,” she wrote. “There is no reason why they should have to wait until all of the other claims are resolved.”
Likewise, the justice supported Opaskwayak’s desire to use the $1.2 million payment to clear itself of the contractor-subcontractor dispute.
“As a basic principle, the court always encourages settlement of claims. Often the main goal of everyone involved is for the parties to come to a mutually-agreeable settlement rather than have a disposition imposed upon them by the court.”
Opaskwayak incurred legal costs throughout this process and applied to the court for payment from Razar. Justice Turner agreed but limited these to “tariff costs.”
Tariff costs are scheduled legal reimbursements set by the jurisdictional authority. In Manitoba, they range from $350 to $2,000.
The principles applied in this case have application elsewhere across Canada, write Burden and Di Gianvittorio.
“Owners can extricate themselves from litigation by paying disputed funds into court for others to fight over. This provides financial security for these unpaid parties, as the funds are held in a neutral location and subject only to the claims of particular claimants. It also benefits owners, as it allows them to pay funds which they have no interest in.”
John Bleasby is a Coldwater, Ont.-based freelance writer. Send comments and Legal Notes column ideas to editor@dailycommercialnews.com.
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