Central Welding found itself in a challenging position. It was subcontracted for structural steel work on a federally-owned bridge by HPN Engineering, the project’s general contractor. Central was partially paid for work completed. However, it claimed HPN was either failing or refusing to pay the $38,500 holdback.
“Central sued HPN and the owner (the Crown), alleging breach of contract, breach of the trusts created by the Construction Act, and unjust enrichment against both parties,” writes Anthony Burden, partner at Field Law LLP’s Calgary Office.
In response, the Crown “brought a motion to strike the statement of claim on the ground that it disclosed no reasonable cause of action, and was frivolous, vexatious or an abuse of process.”
Burden writes striking motions such as these requires proving the claims have no hope of success. The Crown won on all three counts.
In terms of breach of contract, there was essentially no contest. The subcontract awarded to Central involved HPN, not the Crown as owner. The contract therefore did not create any obligations for the Crown nor any rights for the plaintiff to claim against it for breach, wrote Justice James Wilcox, a point conceded by the plaintiff.
The breach of trust claim was likewise struck down. Ontario’s Construction Act and any similar provincial acts do not bind a federal Crown corporation. It’s as simple as that.
The unjust enrichment issue was more nuanced.
“For the unjust enrichment claim, the Court agreed with the owner that there were juristic reasons for its enrichment and corresponding deprivation of Central,” writes Burden.
What does the term “juristic reason” mean in this instance?
“A ‘juristic reason’ is a lawful excuse made by the defendant for its apparent enrichment at the expense of the plaintiff,” Burden told the Daily Commercial News.
“A simple example would be a fixed price contract. If the plaintiff agreed to perform work for a fixed price, and ultimately the cost to it was higher than anticipated, it does not have an unjust enrichment claim if it was paid in full per the terms of its contract,” explained Burden. “Even if the owner was enriched and the contractor suffered a deprivation, that result was within the parties’ contemplation when they signed the contract.
“In rare cases, a subcontractor’s claim for unjust enrichment against an owner may succeed if the evidence is clear that the owner intentionally withheld funds from the contractor without a valid basis to do so, and the subcontractor in turn was unpaid for its valid work,” Burden continued.
“In that scenario, the owner would not have a valid basis to refuse payment to the contractor, which potentially could lead to a valid subcontractor claim for unjust enrichment.”
In other words, the law of unjust enrichment is intended only to fill the gap where a contract is absent.
In this instance, Burden writes the existence of a contract between Central and HPN constituted a juristic reason for the Crown as owner to be enriched. If a contract exists, the contract takes precedence.
“As such, it was plain and obvious that Central’s claim against the owner for unjust enrichment disclosed no reasonable cause of action.”
Another strategy doomed to fail would have been to attempt to file a lien against the bridge in order to force payment. That would never work. It is impossible under Canadian law to have a lien enforced against government property.
Perhaps Central felt its claims strategy against the Crown was worth a try. It seems the odds were irrevocably stacked against it.
Where does that leave Central in its attempt to get paid what it believes it is owed?
Burden said that Central would still have recourse to claim payment from HPN as per its subcontract, and against commercial property and casualty insurer Northbridge Financial Corporation, also named in the lawsuit, under the labour and material payment bond.
“The only change is that AGC (Crown) is no longer a party,” said Burden.
John Bleasby is a Coldwater, Ont.-based freelance writer. Send comments and Legal Notes column ideas to editor@dailycommercialnews.com.
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