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Legal Notes: A tale of two project conflicts; a non-starter and one running overtime

John Bleasby
Legal Notes: A tale of two project conflicts; a non-starter and one running overtime

Construction disputes usually develop during the course of a project. Two recent provincial appeals court rulings demonstrate, however, that even conflicts at the outer edges of the time schedule can carry significant contractual risks.

First, a ruling by the Supreme Court of British Columbia clarifies the risks and obligations for contracted parties before work actually begins.

In 2019, Shelley Morris Business Services Ltd. contracted Syncor Solutions Limited to provide renovation services on two leased office spaces. Syncor conducted preliminary site visits and initiated design work. They also ordered materials such as plumbing components, millwork and kitchen cabinetry which were held by various subtrades until the expected start date in 2020.

However, work never did commence. Initially, there were delays due to COVID-19. Then in July 2020, Shelley Morris cancelled the project entirely, blaming business uncertainties. When no agreement was reached regarding payment of Syncor’s final invoices, Syncor registered two builder liens under the province’s BLA against the properties.

Shelly Morris counter-argued that since no “improvement” had actually taken place, Syncor’s liens were frivolous. The Supreme Court of British Columbia agreed.

In their analysis, Jamieson VirginPreet Saini and Jeremy Rankin of McMillan LLP explained the court determined the definition of “improvement” should not be expanded to include work performed in the absence of physical alteration to the premises. However, the court did allow that Syncor’s contractual claims against Shelley Morris remained intact.

Under the BLA, an “improvement” is defined as “anything made, constructed, erected, built, altered, repaired or added to, in, on or under land, and attached to it or intended to become a part of it, and also includes any clearing, excavating, digging, drilling, tunnelling, filling, grading or ditching of, in, on or under land.”

This includes, “work, labour or services, skilled or unskilled, on an improvement.”

What is to be learned from this case?

Virgin, Saini and Rankin suggest since contractors and subs cannot register liens after the fact for pre-construction work on projects that never begin, they should be vigilant about seeking prompt payment for any pre-construction services as soon as they are undertaken.

They also point out that, “A contractual claim is typically unsecured, unlike a builders’ lien which provides a security interest in the project and project lands.”

Therefore, caution should be exercised when ordering or preparing custom materials or supplies prior to project commencement.

Other steps that could be considered would be to initiate some assembly work, either off-site prior to commencement or onsite concurrent with any pre-construction services conducted.

At the other end of the time frame is a decision from the Ontario Court of Appeal concerning a contract between Grasshopper Solar Corporation and the Ontario Power Authority (OPA) under the Feed-in-Tariff (FIT) contract for a project that ran beyond the agreed “time of the essence” clause.

Almost three years into the FIT contract, Ontario’s Independent Electricity System Operator (IESO) — OPA’s successor — sent a letter to Grasshopper Corp. reminding them of the need to complete their operation by the milestone date in its contract. The IESO letter also provided notice that failure to achieve operation by this date would constitute a default, allowing IESO to exercise its termination rights.

Grasshopper went to court seeking a determination of its contractual rights, relying on a bulletin issued previously by the OPA which, in fact, had been later revoked by the IESO. It stated the OPA would not act upon its termination rights if a supplier could not achieve commercial operations by the contractually mandated milestone date.

The court ruled in favour of the IESO.

This decision prompts Christopher Petrucci, Julia Schatz and Mikayla Hill of Bennett Jones LLP to comment that the dispute, “highlights the danger associated with assuming that the other party is not going to assert a contractual right, even in circumstances where the other party may have expressly advised as such…. particularly if that assumption was integral to the decision to contract with the counter-party.”

John Bleasby is a Coldwater, Ont.-based freelance writer. Send comments and Legal Notes column ideas to editor@dailycommercialnews.com.

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