Handley Comes for Lien Court: Immediate Disclosure of Settlement Agreements Altering the Litigation Landscape in the Context of Lien Assignments

Recent case law from the Court of Appeal for Ontario has repeatedly confirmed the strict rule that settlement agreements which “change entirely” the “litigation landscape” must be immediately disclosed.[1] That case law has now impacted a lien matter for the first time.

In GH Asset Management Services Inc. v. Lo, 2022 ONSC 7218 (“GH Asset”), the Court considered whether disclosure of a settlement and assignment agreement was subject to the immediate disclosure obligation set out in Handley Estate v DTE Industries Limited, 2018 ONCA 324 (“Handley”), and if so, whether such disclosure was timely. The Court ultimately determined that the settlement and lien assignment agreement in question was not a settlement that triggered the immediate disclosure requirement. However, it warned that such agreements may trigger the rule in other cases.


The underlying dispute in GH Asset pertained to work allegedly performed by J&J Property Management Services Inc. (“J&J”) at a residential apartment building owned by Jan Ju Lo and Reng Song Lo (the “Los”). The Los entered into a contract with GH Asset Management Services Inc. (“GH Asset Management”) for property management services for the apartment building. GH Asset Management then, by verbal agreement, engaged J&J to perform maintenance and renovation services at the building.

Though GH Asset Management initially paid J&J for its services from the rental income it collected on behalf of the Los, the Los eventually began collecting the rent directly, and no further payments were made to J&J for the services it rendered. Ultimately, J&J registered a claim for lien for its alleged unpaid services, and perfected its lien by commencing an action listing the Los, GH Asset Management, and its principal, as defendants. The Los subsequently delivered a statement of defence, counterclaim, and crossclaim, asserting among other things, that GH Asset Management acted without its authority in engaging J&J. As a result, the Los alleged that it was solely liable for J&J’s damages.

GH Asset Management and J&J ultimately settled J&J’s claim on March 25, 2019, in a document referred to as a “Deed of Assignment of Lien and Lien Action and Undertaking to Produce Documents” (the “Agreement”).[2] In exchange for payment, the Agreement provided that J&J would assign its claims and liabilities related to the apartment building to GH Asset Management and release its claims against GH Asset Management and its principal. In the Agreement, J&J also agreed to provide GH Asset Management with documents and an affidavit. As a result of the Agreement, GH Asset Management was both a plaintiff (given the assignment) as well as a defendant to the action.

The Agreement was not disclosed to the Los until October 8, 2020, when GH Asset Management served a motion record that included a copy of the Agreement. The Los ultimately brought a motion to permanently stay the lien action on the basis of inadequate disclosure of the Agreement.

The Handley Principles

As set out in Handley and subsequent cases, a settlement agreement which “changes entirely the landscape of the litigation in a way that significantly alters the adversarial relationship among the parties to the litigation or the ‘dynamics of the litigation’” must be immediately disclosed.[3] The purpose of the rule is to ensure that other parties receive prompt notification of potential impacts on their litigation strategies, as well as to ensure that the Court can properly control its processes.[4] Courts need to “know the reality of the adversity between the parties”.[5]

Over the past five years, the rule has received significant attention from the Court of Appeal for Ontario, which has consistently confirmed its strictness, as well as the draconian mandatory remedy applied in cases of non-disclosure: a permanent stay of the proceeding. The principles have recently been summarized as follows:

  1. There is a “clear and unequivocal” obligation of immediate disclosure of agreements that “change entirely the landscape of the litigation”. They must be produced immediately upon their completion;
  2. The obligation extends to any agreement between or amongst the parties “that has the effect of changing the adversarial position of the parties into a co-operative one” and thus changes the litigation landscape;
  3. The obligation is to immediately disclose information about the agreement, not simply to provide notice of the agreement, or “functional disclosure”;
  4. Both the existence of the settlement and the terms of the settlement that change the adversarial orientation of the proceeding must be disclosed;
  5. Confidentiality clauses in the agreements in no way derogate from the requirement of immediate disclosure;
  6. The standard for disclosure is “immediate”, not “eventually” or “when it is convenient”;
  7. The absence of prejudice does not excuse a breach of the obligation of immediate disclosure; and
  8. Any failure to comply with the obligation of immediate disclosure amounts to an abuse of process. The only remedy to redress the abuse of process is to stay the claim brought by the defaulting, non-disclosing party.[6]

The Court’s Analysis

In GH Asset the Court held that the Agreement did not constitute a settlement which triggered the rule.

The Court distinguished the Agreement from the various settlements at issue in the recent decisions rendered by the Court of Appeal on the basis that, unlike in those cases, there is statutory authority for the assignment of a lien pursuant to the former Construction Lien Act.[7] Further, the provision in the Agreement requiring J&J to provide evidence and an affidavit was necessary for GH Asset Management to prove the claims J&J assigned to it given that the settlement preceded documentary disclosure by J&J in the action.

As such, the Court found that the Agreement did not alter the adversarial orientation of the parties in a material way:

  • the fact that J&J and GH Asset Management were formally adverse in litigation was not “dispositive of the ‘reality of the adversity’ between them” (i.e. the fact that the parties were adverse on the face of the pleadings was not conclusive of the actual litigation landscape);[8]
  • GH Asset Management and the Los were already adverse in interest prior to the settlement;
  • J&J had not altered its adversarial position: the fact that it was now providing documents and evidence to GH Asset Management, its assignee, was of no moment because the Agreement did not require J&J to tailor any evidence to support GH Asset Management’s newly acquired claim against the Los. It would be open to both the Los and GH Asset Management to argue about how the documents should be treated in determining liability, just as if J&J had remained the plaintiff;
  • GH Asset was not involved in preparing the affidavit of J&J’s principal. Unlike some of the other cases decided under Handley, there was nothing in the Agreement suggesting that the settlement was conditional on GH Asset Management’s approval of the affidavit (sometimes referred to as a “proffer” of evidence), a situation which, in some circumstances, may alter the litigation landscape; and
  • the position of the Los in the litigation was unchanged because GH Asset Management was simply pursuing J&J’s assigned claim as against them.


GH Asset is the first decision of which we are aware that applies the Handley principles – which have been the focus of a sea of recent litigation – in the construction lien context. As noted by the Court in this case, “settlement agreements by their nature will have an impact on the litigation landscape”, and “cooperation between litigants does not necessarily fundamentally alter that litigation landscape”.[9] However, the Court of Appeal has also cautioned that where parties are unclear about their disclosure obligations, they can bring a motion for directions.[10] Given the strictness of the rule and the draconian nature of the remedy, litigants in lien matters would be well advised to become familiar with the Court of Appeal’s recent case law on this issue. As another Court recently held in another Handley decision, “better to be safe than sorry.”[11]

[1] Handley Estate v. DTE Industries Limited, 2018 ONCA 324.

[2] GH Asset Management Services Inc. v. Lo, 2022 ONSC 7218 at para 9.

[3] Poirier v. Logan, 2022 ONCA 350 at paras 47-48; Handley Estate v. DTE Industries Limited, 2018 ONCA 324 at para 39.

[4] Pettey v. Avis Car Inc. (1993), 13 OR (3d) 725 (Ont Gen Div).

[5] Handley Estate v. DTE Industries Limited, 2018 ONCA 324 at para 39 citing Moore v. Bertuzzi, 2012 ONSC 3248.

[6] CHU de Québec-Université Laval v. Tree of Knowledge International Corp., 2022 ONCA 467 at para 55. Additional principles can be found in Crestwood Preparatory College Inc. v Smith, 2022 ONCA 743 at para 43.

[7] See Section 73 of the former Construction Lien Act.

[8] GH Asset Management Services Inc. v. Lo, 2022 ONSC 7218 at para 33.

[9] GH Asset Management Services Inc. v. Lo, 2022 ONSC 7218 at para 43.

[10] Crestwood Preparatory College Inc. v. Smith, 2022 ONCA 743 at para 43(d).

[11] Poirier v. Logan, 2021 ONSC 1633 at para 61 aff’d 2022 ONCA 350.

Rare Example of Partial Summary Judgment in a Construction Matter Upheld

Motions for partial summary judgments are typically frowned upon by the judiciary in Ontario. The Court of Appeal for Ontario has repeatedly held that such motions should be granted only rarely, and only where an issue “may be readily bifurcated from those in the main action and that may be dealt with expeditiously and in a cost-effective manner”.[1] Otherwise, there is a risk that findings made in the summary judgment motion will be inconsistent with findings made following the trial of the balance of the action.[2]

Moreover, where a key witness is facing credibility issues, partial summary judgment motions are almost never granted. Judges prefer to assess credibility in the flesh; it is understandably difficult to assess on a paper record.[3]

However, partial summary judgment, while rarely granted, is not always refused. In its recent decision in Learmont Roofing Ltd. v Learmont Construction Ltd., 2022 ONCA 894, the Court of Appeal upheld a rare example of a successful partial summary judgment emerging from a construction dispute which developed between a general contractor and subcontractor as part of a CCDC stipulated price contract in respect of a commercial roof replacement.

The Decisions

The case involved a dispute between a general contractor (Learmont Construction Ltd.) and a roofing subcontractor (Learmont Roofing Ltd.). Despite their names, the two parties were not related. The subcontractor had agreed to perform all the work for the project. In this arrangement, the contractor would receive the entirety of the payment from the owner (who was not a party to this dispute) and retain 5% of the gross amount of each invoice billed. The subcontractor would then receive 95% of the total amount billed for that work.

The owner paid each of the five invoices rendered by the contractor for the completion of the entire scope of work. The owner did not set off against any invoices and for the purposes of this case appeared to have no concerns with the work performed by the contractor/subcontractor. Despite having received full payment, the contractor only remitted the amount owing to the subcontractor for four of the five invoices (invoices 1, 2, 3 and 5 were paid to the subcontractor in full). The principal of the contractor – Mr. Boer – later explained that he had refused the payment for the fourth invoice because he believed that the contract price had been inflated as part of a corrupt scheme whereby the lead engineer on the project would have his cottage roof installed by the subcontractor at no charge. Mr. Boer deposed to having attended a meeting where this was admitted. Mr. Boer also claimed that the contractor did not have the funds to pay the subcontractor.

The subcontractor commenced an action to recover the amount owing, $138,134 for invoice #4.  The contractor commenced “a myriad of counterclaims”, including for fraud and conversion.

Notwithstanding the rarity of the relief, the subcontractor successfully obtained partial summary judgment on its claim. The motion judge granted the relief finding, among other things, that Mr. Boer’s “speculative allegation” regarding the corrupt scheme was not a genuine issue requiring a trial: there was no evidence that the price had been inflated for the benefit of the engineer, or that the engineer had failed to properly certify the value of the work done. Indeed, the subcontractor provided a cheque representing full payment by the engineer for his cottage roof as well as an email in which the engineer expressed appreciation for the work done and stated that the amount owing would be paid in full. The motion judge also found no “credibility issues” raised by the contractor.

Moreover, Mr. Boer’s suggestion that the contractor did not have the funds to pay the subcontractor the remaining amount was “obviously disingenuous”. The motion judge found that the funds received from the owner had been diverted to Mr. Boer for his personal benefit or the benefit of his holding company. Mr. Boer was therefore “liable for the breach of the [contractor’s] trust obligations under the Construction Act, R.S.O. 1990, c. C.30, as he failed to remit the amount owing to [the subcontractor].”[4] As a result, Mr. Boer and his holding company were jointly and severally liable for the full amount owing to the subcontractor.

Finally, the motion judge rejected the risk of inconsistent findings. Far from being intertwined with the subcontractor’s claim, the slurry of counterclaims made by the contractor were entirely separate.

The Court of Appeal upheld the motion judge’s decision, including her conclusions that there was no risk of inconsistent findings and that the evidentiary record did not give rise to any credibility problems: “We agree that the appellants raised no genuine issues requiring a trial. Further, after reviewing the evidentiary record, the motion judge concluded that it did not give rise to any credibility problems. We see no palpable and overriding error justifying appellate interference with the motion judge’s findings.”[5]


Partial summary judgments are difficult to obtain; it can even be challenging to convince the Court to schedule such a motion. Nevertheless, they remain an option to claimants or defendants in the right circumstances. This may be particularly so when considering clear and apparent breaches of the trust obligations imposed by the Construction Act in circumstances such as those in the present case.

Furthermore, making allegations which would seem to raise credibility issues may not prevent a partial summary judgment where those allegations lack any evidentiary foundation. Moreover, parties should consider carefully whether their claims (or counterclaims) are intertwined with other parts of the litigation. If not, partial summary judgment is an option that warrants further discussion with counsel.

[1] Butera v Chown, Cairns LLP, 2017 ONCA 783 at para 34.

[2] Butera v Chown, Cairns LLP, 2017 ONCA 783 at paras 26-29, 33.

[3] Trotter v Trotter, 2014 ONCA 841 at para 55.

[4] Learmont Roofing Ltd. v Learmont Construction Ltd., 2022 ONCA 894 at para 17.

[5] Ibid at para 21.

Tall Ships Development Inc. v. Brockville (City): The Ontario Court of Appeal Reaffirms the Court’s Narrow Basis for Setting Aside Arbitral Awards

In the recent decision of Tall Ships Inc. v. Brockville (City)[1], the Ontario Court of Appeal has again emphasized that courts will be reluctant to set aside arbitral awards under the Arbitration Act where the parties in their arbitration agreement choose only to permit appeals on questions of law.


This matter arose out of a public-private partnership between the City of Brockville (the “City”) and Tall Ships Landing Development Ltd. (“Tall Ships”) with respect to the development of a waterfront property along the St. Lawrence River which included a mixed residential/commercial condominium and a Maritime Discovery Centre attraction (“the Project”). The Project was undertaken to revitalize downtown Brockville. The anticipated total capital cost of the Project was $12,000,000, and the Project had an estimated construction budget of $7,400,000 as set out in the Purchase Agreement.

Various disputes arose between the parties following the completion of the Maritime Discovery Centre which was approximately 6,000 square feet larger than originally designed and approximately $1,800,000 over budget, which included disputes relating to: (1) remediation costs, (2) construction cost overruns, and (3) interest costs (the “Tall Ships Claims”).

Pursuant to the parties’ arbitration agreement, the Tall Ships Claims were submitted to arbitration for resolution. Following a four-week hearing, the arbitrator dismissed the Tall Ships Claims through three separate arbitral awards. Tall Ships appealed the arbitral awards to the Superior Court of Justice. Notably, the arbitration agreement only provided for appeals on questions of law. On appeal, the application judge found in favour of Tall Ships and set aside all three arbitral awards.

The City appealed the application judge’s decision to the Ontario Court of Appeal and argued that the application judge erred in finding errors of law as the questions before the arbitrator were, in fact, questions of mixed fact and law which did not give right to a right of appeal in accordance with Ontario’s Arbitration Act and the parties’ arbitration agreement. Tall Ships, on the other hand, argued that the arbitrator committed extricable errors of law, breached their rights to procedural fairness, and that the application judge was correct in her determination.

Ontario Court of Appeal Decision

The Ontario Court of Appeal allowed the City’s appeal and held that the application judge erred in categorizing the matters at issue as extricable questions of law finding that the issues were questions of mixed fact and law. In reaching its decision, the Ontario Court of Appeal made a number of key observations in relation to each of the Tall Ships Claims, described briefly below.

The Court of Appeal found that judges in exercising their appellate functions “should not be too ready to characterize issues as issues of law because doing so may render the point of consensual arbitration nugatory.”[2] In this regard the Court cited the Supreme Court’s decision in Ledcor Construction Ltd. v. Northbridge Indemnity Insurance Co, 2016 SCC37, [2016] 2 S.C.R. 23 at para 113 where it was noted that “the circumstances in which a question of law can be extricated from the interpretation process will be rare.”

Remediation Claims

The arbitrator rejected Tall Ships’ claim for environmental remediation costs as the process for claiming such costs were governed by the Brownfields Agreement which provided for a 15-day deadline to provide notices of dispute which was not adhered to by Tall Ships. In addition, the arbitrator held that the remediation claims were statute barred.

The application judge allowed Tall Ships’ appeal and concluded that the arbitrator erred in relying on an implied “time of the essence” clause which was not advanced or argued which violated Tall Ships’ right to procedural fairness and that the reliance on an “unargued theory” was an error of law in accordance with Section 45 of the Arbitration Act.

The Court of Appeal held that the application judge erred in finding that Tall Ship’s right to procedural fairness had been breached, as the arbitrator did not read a time of the essence clause into the contract, but rather considered the Brownfields Agreement and the factual matrix as a whole as part of the arbitrator’s detailed and extensive reasons, and that the arbitrator’s use of the term “time of the essence” was incidental in nature.

The Court of Appeal found that this issue was a question of mixed fact and law which was not subject to appeal.

Construction Cost Overruns Claims

The arbitrator concluded that Tall Ships was responsible for the construction cost overruns under the contract based on the language of the contract and the factual background as Tall Ships did not inform the City of the potential overruns despite its knowledge that the Project would be larger and substantially more expensive than originally estimated. In this regard, the arbitrator held that Tall Ships did not reasonably perform its duty as construction manager and breached its duty of good faith in arbitrarily withholding such information. The arbitrator also dismissed Tall Ships’ claims for unjust enrichment on the same basis as denying the claim in contract.

The application judge allowed Tall Ships’ appeal and held that the arbitrator, among other things, erred in law in concluding that Tall Ships breached certain obligations which were not advanced or argued, failed to apply the appropriate legal analysis for implying contract terms, and misinterpreted the duty of good faith.

The Court of Appeal held that, similar to Tall Ships’ remediation claim, the primary error committed by the application judge was in mischaracterizing the issues as errors of law rather than mixed fact and law. The Court of Appeal explained that the arbitrator’s analysis of this claim involved the interpretation of the contract as a whole within the broader context of the Project as a whole which was a matter of mixed fact and law and which was not subject to appeal.[3] The Court of Appeal also rejected Tall Ships’ unjust enrichment claim on the same basis.

Interest Claims

The arbitrator rejected Tall Ships’ claim for interest costs based on the principle of estoppel as Tall Ships did not advise the City it would be claiming interest on the invoice at the time, and only advanced such a position in its Statement of Claim.

The application judge allowed Tall Ships’ appeal and held that the arbitrator incorrectly held that Tall Ships was required to inform the City of its intent to claim interest, and that the arbitrator’s conclusion relying on the principle of estoppel was unfair.

The Court of Appeal held that the arbitrator committed no extricable error of law, and that this was a finding of mixed fact and law which are not subject to appeal.


The Court of Appeal’s decision highlights the Court’s deference to arbitrators and the arbitral process as a whole.[4] In this regard, and as explained by the Supreme Court of Canada, as a matter of public policy, judges exercising such appellate powers under Section 45 of the Arbitration Act should exercise caution when extracting questions of law from the contract interpretation process as “[f]ailure to exercise such caution will result in the very inefficiencies, delays and added expense that choosing an arbitral process seeks to avoid.”[5]

Overall, the Court of Appeal was clear that the court system should not be treated as an appeal route for parties attempting to set aside an arbitral award. The decision provides parties with increased certainty about the final and binding nature of arbitration decisions.



[1] 2022 ONCA 861.

[2] Tall Ships Development Inc. v. Brockville (City), 2022 ONCA 861 (“Tall Ships”) at para 16.

[3] Note that Tall Ships conceded that it was not able to dispute the arbitrator’s findings that it breached the duty of good faith. See Tall Ships at para 84.

[4] See, for example, Tall Ships at para 2.

[5] Tall Ships at para 3, citing Sattva Capital Corp. v. Creston Moly Corp., 2014 SCC 53, [2014] 2 S.C.R. 633, at paras. 54-55; Teal Cedar Products Ltd. v. British Columbia, 2017 SCC 32, [2017] 1 S.C.R. 688, at paras. 45-47.

Social Media Pump and Dumps: A Warning for Canadian Influencers

On December 13, 2022, the SEC announced charges against seven social media influencers in connection with a pump and dump scheme they promoted on Twitter and Discord. The announcement shines a light on the ability of influencers to manipulate markets for their own benefit.

A ‘pump and dump’ scheme generally involves a company (or its principals) issuing false or misleading announcements to inflate the trading price of its securities. Once the perpetrators have inflated the price (the ‘pump’), they liquidate their own holdings of the securities at the inflated price making a significant profit (the ‘dump’).[1]

Pump and dump schemes are usually prosecuted by Canadian securities regulators under the fraud and market manipulation provisions of the relevant provincial securities legislation. In Ontario, that provision, section 126.1 of the Securities Act, provides:

126.1 (1) A person or company shall not, directly or indirectly, engage or participate in any act, practice or course of conduct relating to securities, derivatives or the underlying interest of a derivative that the person or company knows or reasonably ought to know,

(a)  results in or contributes to a misleading appearance of trading activity in, or an artificial price for, a security, derivative or underlying interest of a derivative; or

(b)  perpetrates a fraud on any person or company.

The advent of social media influencers has created a variation on the traditional pump and dump. Rather than a company pumping the price of its own securities through misleading public announcements (and occasionally the use of manipulated trading to create the appearance of an active market for the securities[2]), individuals with no connection to the company – but having large social media followings – promote that company’s securities on their social media platforms. After their followers have themselves invested in the company’s securities (creating the ‘pump’), the influencers liquidate their holdings without telling their followers (the ‘dump’).

The SEC’s charges allege exactly this:

According to the SEC, since at least January 2020, seven of the defendants promoted themselves as successful traders and cultivated hundreds of thousands of followers on Twitter and in stock trading chatrooms on Discord. These seven defendants allegedly purchased certain stocks and then encouraged their substantial social media following to buy those selected stocks by posting price targets or indicating they were buying, holding, or adding to their stock positions. However, as the complaint alleges, when share prices and/or trading volumes rose in the promoted securities, the individuals regularly sold their shares without ever having disclosed their plans to dump the securities while they were promoting them.

The defendants allegedly obtained profits of USD $100 million through the scheme.

Given the relative ease with which significant social media influencers could operate a pump and dump scheme, it is surprising that Canadian authorities appear to have pursued few similar cases. Indeed, we were unable to locate any direct analogues to the SEC case amongst the Canadian English-speaking regulators.

Nevertheless, Canadian influencers should be very careful about promoting securities on their platforms. Prudence suggests that they should disclose any interest they have in the securities of a company they are discussing, and avoid overstating the attributes of the company or the benefits of holding its securities.

The SEC case also highlights the need for securities regulators to be vigilant in their market monitoring.  Just because large price fluctuations do not appear to be driven by a company’s press releases does not mean that market manipulation is not occurring through other means. That said, it will likely be challenging for regulators to locate influencers operating these schemes unless complaints are made.

Want to learn more about market manipulation in Canada? We last wrote about this topic in February 2021 in the context of the GameStop Short Squeeze.

[1] See e.g. Sulja Bros. Building Supplies, Ltd. et al. (Re), 2011 ONSEC 16.

[2] See e.g. Paolucci (Re), 2020 ONSEC 32.

Brockman v. Valmont Industries Holland BV, 2022 BCCA 80 – The British Columbia Court of Appeal Clarifies the Limitation Period Rules for Continuing Conduct


On February 25, 2022, the British Columbia Court of Appeal issued reasons for judgment in Brockman v. Valmont Industries Holland BV, 2022 BCCA 80 (“Brockman”).

This case provides important clarification about how the two-year limitation period applies to a shareholder’s claim in oppression where the oppressive conduct is continuous and ongoing. The Court of Appeal clarified that a limitation period begins to run when the prospective claimant has discovered the wrongful conduct, and not when that conduct ceases.

Limitations Act

The Limitations Act, SBC 2012, c 13 (the “Limitation Act”), states that most claims have a basic two-year limitation period to be filed. This means, if a claim is not properly filed within the two-year period, the prospective claimant may not be able to recover their losses. This two-year period ordinarily starts from the date the prospective claimant has discovered the wrongful conduct.

However, some situations are more complex and the conduct giving rise to the claim is not so discrete. So, when does the two-year limitation period start for wrongful conduct that began years ago and is presently on-going? The Court in Brockman answers this question and provides clarity as to when the limitation period clock starts.


The claimant, Mr. Brockman, indirectly through his holdings company holds 20% of the shares in Valmont West Coast Engineering Ltd. (“VWCE”). VWCE is a leading company in the Canadian utility market.

In 2008, Valmont Industries Inc. (“Valmont Industries”), the respondent, indirectly acquired a majority interest in VWCE through one its subsidiary companies. Valmont Industries eventually came to own 80% of VWCE making it both the parent company of VWCE and its majority shareholder.

Mr. Brockman claims that since 2008, Valmont Industries has exercised its control over VWCE and directed VWCE not to bid in the Canadian utility market in which it operated, thereby allegedly depressing VWCE’s share price. Then in 2018, Valmont Industries exercised its option to buy out Mr. Brockman’s shares of VWCE at this lower value, which Mr. Brockman claims gave rise to a claim.

The primary question before the Court was: has the two-year limitation period expired on this claim making it statue-barred or does the on-going nature of the conduct refresh the clock? In short, the answer is that a limitation period begins to run when the cause of action arises (i.e., when the wrongful conduct is discovered), and not when the conduct is remedied or concluded.

The Trial

On December 31, 2018, Mr. Brockman filed a petition seeking relief from the oppressive conduct of Valmont Industries pursuant to section 227 of British Columbia’s Business Corporations Act, SBC 2002, c 57. Mr. Brockman alleged that Valmont Industries, as VWCE’s parent company, engaged in oppressive or unfairly prejudicial conduct towards its subsidiary for over 10 years.

The trial judge agreed with Mr. Brockman’s claims and held that Valmont Industries did not allow VWCE to operate as a going concern and thereby affected VWCE’s ability to compete and grow within its market. The trial judge held that Mr. Brockman’s claim was not statute-barred by operation of the Limitation Act because the oppressive behaviour was an ongoing and continuing course of conduct, as opposed to multiple discrete acts.

Valmont Industries disagreed with the trial judge and believed the Court erred in concluding the oppressive conduct had not triggered the running of a limitation period. Valmont Industries appealed the decision.

The Appeal

In its decision, the Court of Appeal examined the wording of section 6(1) and section 8 of the current Limitation Act. Section 6(1) reads “Subject to this Act, a court proceeding in respect of a claim must not be commenced more than 2 years after the day on which the claim is discovered”. Section 8, of the Limitations Act, further clarifies the element of discoverability by holding:

“… a claim is discovered by a person on the first day on which the person knew or reasonably ought to have known all of the following:

  • that injury, loss or damage had occurred;
  • that the injury, loss or damage was caused by or contributed to by an act or omission;
  • that the act or omission was that of the person against whom the claim is or may be made;
  • that, having regard to the nature of the injury, loss or damage, a court proceeding would be an appropriate means to seek to remedy the injury, loss or damage.

The Court of Appeal held, from its examination of the legislation, that the wording of the statute indicates that the limitation period begins to run when the action is discovered, not when it is remedied or concluded. Meaning, even if the injurious conduct is continuous or ongoing in nature, the limitation period clock is triggered when the conduct is discovered.

In Brockman, the Court of Appeal held that “oppression, even if it is ongoing, has a starting point; at some juncture, a pattern of conduct becomes oppression”. The Court held that Mr. Brockman could not claim his damages from 2008 to 2016 because the two-year limitation period on those damages had lapsed. However, Mr. Brockman could recover his damages from the last two-years as the limitation period has yet to bar those claims.

Final Remark

In allowing the appeal, the Court of Appeal provided clarification on how the two-year limitation period applies to a shareholder’s claim in oppression where the oppressive conduct is continuous and ongoing. As a result of this decision, any person who feels they have a claim under section 227 of the Business Corporations Act due to unfairly prejudicial conduct should act promptly to file their claim as soon as is practicable.

Peace River v Petrowest: Lessons Learned for the Construction & Infrastructure Industry

In Peace River Hydro Partners v. Petrowest Corp., (“Peace River”), the Supreme Court of Canada rendered a decision that provides guidance in addressing the operation of arbitration agreements in the context of insolvency proceedings – a topic of interest in the broader economic context of rising insolvencies. Here, we consider the implications of this decision in the construction context.


Peace River was a partnership of several construction companies that was formed to build the Site C hydroelectric dam and generating station in British Columbia. Peace River subcontracted some of its scope of to work to Petrowest, an Alberta construction company (who was also a constituent member of Peace River), and certain of Petrowest’s affiliates. As part of this arrangement, Peace River and the Petrowest companies executed several clauses confirming that any disputes between the parties would be referred to arbitration (the “Arbitration Agreements”).

Partway through the project, Petrowest began to suffer financial difficulties, as a result of which the Alberta Court of Queen’s Bench (as it then was) granted an order under the Bankruptcy and Insolvency Act (the “BIA”) appointing a receiver to manage the assets of the Petrowest companies. The terms of receivership order empowered the Receiver to, among things:

  • disclaim, abandon or renounce the debtors’ (i.e. the Petrowest companies’) interest in property;
  • initiate the prosecution of “any and all proceedings” with respect to the debtors and their property;
  • assign the debtors into bankruptcy, become their trustee in bankruptcy, and take all steps reasonably required to carry out its role as trustee in bankruptcy;
  • “cease to perform any contracts of the Debtors”; and
  • “receive and collect all monies and accounts” owing to the debtors.

The Receiver brought a civil action against Peace River for funds that Peace River allegedly owed to the Petrowest companies. In response, Peace River applied under s. 15 of British Columbia’s Arbitration Act for a stay of proceedings on the basis of the Arbitration Agreements.

Decisions of the Courts Below

In reviewing Peace River’s application, the chambers judge was faced with two key issues: (1) whether s.15 of the Arbitration Act was engaged; and (2) if so, whether the court nevertheless had the jurisdiction to decline a stay based on section 15(2) of the Arbitration Act. With respect to the latter issue, one of the bases under section 15(2) for refusing a stay would be if the Arbitration Agreements were “void, inoperative or incapable of being performed”.

In respect of the first issue, the chambers judge concluded that section 15 was engaged, given that all of the elements of that test were met. On the second issue the chambers judge concluded that she had “inherent jurisdiction”, flowing from the BIA, to override arbitration agreements governed by the Arbitration Act, and that the exercise of this power could function in one of two ways: (a) it could render an arbitration clause incapable of being performed or inoperative; or the BIA could prevail over s. 15 of the Arbitration Act based on the principle of paramountcy.

The chambers judge thus exercised her “inherent jurisdiction” to reject a stay, finding that s. 183 of the BIA empowers superior courts to disrupt contractual rights where doing so is necessary to achieve fairness in the insolvency process and to promote the underlying objectives of the BIA, such as the administration and protection of a bankrupt’s estate. In this case, enforcing the Arbitration Agreements would entail multiple overlapping arbitrations resulting in significant cost and delay as compared to a single judicial proceeding.

Peace River appealed, but the Court of Appeal dismissed the appeal – albeit on different grounds from the chambers judge. The Court of Appeal rejected the proposition that a court has inherent jurisdiction under the BIA, and instead grounded its decision in the doctrine of separability. In particular, the Court of Appeal observed that an arbitration clause is to be treated as its own self-contained contract, even when contained within an underlying contract. On that basis, the Court of Appeal concluded that a receiver could disclaim an otherwise valid arbitration agreement even though it adopted the underlying contract for the purpose of suing on it.

The Court of Appeal found that the Receiver had disclaimed the Arbitration Agreements by bringing the claim against Peace River, and that the Receiver was not a party to those agreements. Therefore section 15 of the Arbitration Act did not apply, or in the alternative, the disclaiming of the Arbitration Agreements rendered them “inoperative or incapable of being performed. Peace River was subsequently granted leave to appeal to the Supreme Court of Canada.

The Supreme Court’s Decision

A five-judge majority dismissed the appeal, albeit based more narrowly on a finding of statutory jurisdiction under the BIA to find arbitration agreements inoperative in the receivership context, thereby engaging the exception under section 15(2) of the Arbitration Act where an arbitration agreement is “void, inoperative, or incapable of being performed”. In reaching its conclusion, the majority made several important observations, which we discuss below.

The Relationship between Arbitration Law and Insolvency Law

First, the majority observed that there is a tension between arbitration law and insolvency law, particularly at a time when these areas both feature prominently in the commercial arena. At a general level, arbitration and insolvency are to some extent opposites, insofar as insolvency entails a centralization of proceedings while arbitration involves a decentralized approach to dispute resolution. This opposition has become particularly notable as the popularity of arbitration in Canada has continued to rise, while insolvencies have in turn risen as a result of the COVID-19 pandemic. As the majority therefore observed, it is not uncommon for parties in a dispute governed by an arbitration agreement to find themselves faced with an insolvent counterparty.

In the result, the majority noted that this tension impacts the forum in which a given dispute will be resolved, and that courts must assess the enforceability of arbitration agreements in the context of parallel insolvency proceedings on a case‑by‑case basis. In that regard, there is a presumption in favour of arbitral jurisdiction insofar as it prioritizes expediency, procedural flexibility, and specialized expertise. However, that presumption may be rebutted to the extent that arbitration would compromise the orderly and efficient conduct of a receivership, in which case a court can take control of proceedings pursuant to its statutory jurisdiction under the BIA.

Legislative Framework for Declining a Stay of Proceedings

Notwithstanding that Peace River arose in the context of British Columbia’s Arbitration Act, the majority nevertheless observed that its analysis of the relevant provisions was largely applicable in relation to arbitration legislation across Canada, given that different provinces’ arbitration legislation generally contains the same structure as it relates to stays of proceedings.

On that point, a court must consider first whether the technical prerequisites for a stay are met, and if so, it must then consider whether any exceptions apply such that a stay should be refused. In relation to the first issue, there are typically four prerequisites:

  • an arbitration agreement exists;
  • court proceedings have been commenced by a “party” to the arbitration agreement;
  • the court proceedings are in respect of a matter that the parties agreed to submit to arbitration; and
  • the party applying for a stay does so before taking any “step” in the court proceedings.

In respect of these four prerequisites, the majority made two notable observations:

  • first, requesting the other party’s consent to an extension of time to file a defence does not constitute a “step” in court proceedings, insofar as the purpose of such a request is to decide whether or not to take a step, and there is no election to proceed with the action; and
  • second, a receiver may be a party to the insolvent party’s pre‑receivership arbitration agreement, given that the receiver is claiming through or under the party named in the arbitration agreement. The majority addressed this issue at length, determining that this conclusion was consistent with principles of statutory interpretation and the overall aim of arbitration legislation.

In respect of the exceptions to a stay, the majority noted that the operative exception in this case pertains to whether the arbitration agreement is “void, inoperative, or incapable of being performed”, and that in turn, there were two live issues on this point:

  • whether a receiver’s purported disclaimer of an arbitration agreement renders it “void, inoperative or incapable of being performed”; and
  • whether the Arbitration Act permits a court to find an arbitration agreement “inoperative” or “incapable of being performed” due to a receivership.

In respect of the first point, the majority observed that a receiver cannot unilaterally disclaim an arbitration agreement and thus render it void, inoperative, and/or incapable of being performed. This would be contrary to the text and intent of section 15 of the Arbitration Act, and would “diminish the presumptive enforceability and overall predictability of arbitration agreements”. Rather, where a receiver initiates court proceedings without prior judicial approval in a dispute covered by an arbitration agreement, the court must decide whether to exercise its jurisdiction under the BIA to decline to enforce the agreement under the applicable arbitration legislation.

In respect of the second point, the majority concluded that a court may find an arbitration agreement inoperative where arbitration would compromise the orderly and efficient resolution of a receivership. The majority’s analysis yielded several significant points:

  • a narrow interpretation of the words “void, inoperative or incapable of being performed” is desirable, insofar as it promotes the enforcement of arbitration agreements;
  • the term “void” is relatively settled, and understood to mean “intrinsically defective” according to the ordinary rules of contract law, including when it is undermined by fraud, undue influence, unconscionability, duress, mistake, or misrepresentation;
  • the term “inoperative” does not have a universal definition, although in the context of arbitration law, the term has been used to describe agreements which, although not void ab initio, “have ceased for some reason to have future effect” or “have become inapplicable to the parties and their dispute”. The making of a receivership order may be grounds for a court to find an arbitration agreement inoperative insofar as the order stays all claims against the debtor, but that is not to say that a court must decline a stay in favour of arbitration given that they might instead conclude that arbitration is more expeditious;
  • the term “inoperative” also does not always cover scenarios where a receiver initiates court proceedings on behalf of a debtor, given that insolvency law generally stays claims brought against a debtor while permitting claims brought on its behalf to proceed. Again, the court will still have to decide whether litigation or arbitration is more expeditious; and
  • the term “incapable of being performed” refers to where “the arbitral process cannot effectively be set in motion” because of an impediment beyond the parties’ control, such as the unavailability of the arbitrator specified in the agreement, or the dissolution of the chosen arbitral institution.

The majority therefore observed that the broad and flexible powers granted to superior courts under the BIA supported the proposition that courts are empowered under the BIA to find arbitration agreements inoperative. That being said, the majority also observed the importance of providing guidance regarding how to ascertain whether an arbitration agreement is inoperative in the context of insolvency proceedings, and identified the following non-exhaustive list of factors:

  • the effect of arbitration on the integrity of the insolvency proceedings – that is, whether the arbitration would facilitate or inhibit the orderly and expeditious administration of the insolvency proceedings;
  • the relative prejudice to the parties from the referral of the dispute to arbitration – that is, the court should override the arbitration agreement only where the benefit of doing so outweighs the prejudice to the parties.
  • the urgency of resolving the dispute – that is, determining whether arbitration or the insolvency proceeding would be the more expeditious forum; and
  • the applicability of a stay of proceedings under bankruptcy or insolvency law – that is, if applicable bankruptcy or insolvency legislation imposes a stay that precludes any proceedings, including arbitral proceedings, against the debtor;
  • any other factor the court considers material in the circumstances – that is, a residual discretion of the court to weigh other relevant circumstances.

Application to the Facts of Peace River

Bearing all of the foregoing in mind, the majority concluded that although Peace River had established an arguable case that the prerequisites for a stay were met, the Arbitration Agreements were nevertheless inoperative such that the statutory exception to a stay was engaged.

In particular, the exception was engaged on the basis that “[t]he inexpediency of the multiple overlapping arbitral proceedings… [was] the determinative factor in this case”. Arbitration in this case would been a “chaotic” process involving four separate arbitrations with seven different sets of counterparties, the funding for which would have been taken from the Petrowest companies’ estates, and also involved claims against entities who were not parties to the Arbitration Agreements (meaning there would have to be parallel litigation).

Notably, the majority also observed (albeit briefly) that the Court of Appeal misapplied the doctrine of separability, finding that  separability does not apply absent a challenge to the validity of the underlying contract or of the arbitration agreement itself.

The Concurrence

A four-judge concurrence agreed with the majority in the result, but relied on a different rationale – specifically, the receivership order itself. The receivership order contained provisions which authorized the Receiver to sue in court or before an arbitrator, as well as to disclaim the Arbitration Agreements, all based on what the Receiver believed would promote the orderly and efficient resolution of the receivership. On this basis, the concurrence concluded that the terms of the receivership order effectively rendered the Arbitration Agreements inoperative.

The concurrence reached this conclusion notwithstanding that the Receiver had not expressly disclaimed the Arbitration Agreements, given that the Receiver’s action of suing in court effectively amounted to a disclaimer.

In addition, the concurrence sought to clarify that its position was not tantamount to the proposition that a receiver can unilaterally revoke a valid arbitration agreement, as only a court can make a finding that such an agreement is inoperative. The concurrence further clarified that this question is distinct from the issue of whether a receivership order authorizes a receiver to disclaim an agreement, given that where a receiver’s action is challenged, it is the court that determines whether receiver has acted in compliance with the receivership order.

Ultimately, the concurrence agreed that if the receivership order did not authorize the Receiver to sue in court, the BIA nevertheless provided the court with statutory jurisdiction to declare the Arbitration Agreements inoperative and to reject a stay, given that the multiplicity of arbitrations would have compromised the orderly and efficient resolution of the receivership.


At a high level, the majority emphasized the importance of upholding Canada’s commitment to arbitration as a forum for dispute resolution, as evidenced by their rejection of the proposition that a receiver may unilaterally disclaim an arbitration agreement. However, the majority’s solution may create more uncertainty than it resolves, insofar as the process of a receiver seeking to avoid a pre-insolvency arbitration agreement will involve a heavily fact-driven analysis performed by a court in order to arrive at a discretionary conclusion.

In any event, the majority’s analysis nevertheless raises a number of interesting issues in the construction law context and more broadly.

First, as it relates to construction projects, this case presented something of an atypical scenario. Rather than a single, consolidated arbitration, this case would have entailed several distinct but related arbitral proceedings with a multitude of different counterparties.

This was arguably due to the contractual arrangement between Peace River and Petrowest, whereby (1) Petrowest was both a constituent member of Peace River as well as the entity to whom Peace River subcontracted work, and (2) the subcontracting occurred by way of both a formal subcontract and various purchase orders. This arrangement departed from the usual practice on major infrastructure projects, where the constituent partners of the “Project Co” will in turn create another special-purpose vehicle (whether that be a joint venture or an incorporated company) to perform the construction work, and formalize that relationship by way of a single subcontract.

By contrast, it will be interesting to see how Peace River is applied in more typical cases, where arbitration is not the patently inferior option. For example, as readers will know, it is not uncommon for subcontracts to contain ‘drag-along’ provisions which compel participation in an arbitration arising from a related contract (such as the prime contract); if a series of disputes were to arise between a general contractor, the owner, and subcontractors, these disputes could conceivably be consolidated into a single arbitration.

This would also be consistent with two general propositions common to construction law and the law of insolvency: first, that lien legislation contemplates lien actions proceeding as a class action, rather than separate proceedings for each claimant; and in the insolvency context, that a supervising court’s initial order will often include a carveout for the protection of lien rights (e.g. registration and perfection) or an alternate “lien regularization” regime (see, for example, Comstock Canada Ltd. (Re),  2013 ONSC 6043). In case of multiple lien claimants on a project with an insolvent general contractor or owner, there may be a credible argument in favour of proceeding by way of class arbitration, where the relevant contracts permit.

Second, it will be interesting to see how Peace River is applied in the context of arbitration legislation that does not contain similar language to the “void, inoperative or incapable of being performed” exception. As the majority observed, this language is derived from the Model Law and the New York Convention, as a result of which it is found in the vast majority of arbitration legislation across Canada. However, certain legislation employs different language to identify exceptions, therefore creating a degree of ambiguity as to how Peace River might apply.

For example, Ontario’s domestic arbitration legislation Arbitration Act, 1991 includes the following exceptions to a stay: …the court may refuse to stay the proceeding in any of the following cases:

  1. A party entered into the arbitration agreement while under a legal incapacity.
  2. The arbitration agreement is invalid.
  3. The subject-matter of the dispute is not capable of being the subject of arbitration under Ontario law.
  4. The motion was brought with undue delay.
  5. The matter is a proper one for default or summary judgment.

From the foregoing list, the closest comparable to the “void, inoperative or incapable of being performed” exception is likely the invalidity exception. However, recent case law arguably suggests that “invalid” is more closely analogous to “void” rather than “inoperative”[1] – as a result, there is a lack of clarity as to how an Ontario court, faced with a similar issue under domestic arbitration legislation, might resolve the issue.

Finally, to the extent that a receiver may be required to apply to court in order to affirm the correctness of its attempt to disclaim an arbitration agreement, such a step may arguably compromise the efficiency of proceedings insofar as such an application would entail fully briefing the issue and in turn awaiting a decision from the court. Ultimately, if a party is committed to slowing proceedings, they may very well still have that opportunity by way of a stay application.


[1] See, for example, Uber Technologies Inc. v. Heller, 2020 SCC 16, where the Supreme Court of Canada found that an arbitration agreement was invalid under Ontario’s Arbitration Act, 1991 because it was unconscionable. In Peace River, the majority at paragraph 136 identify unconscionability as a basis for finding an arbitration agreement void.

Common Construction Project Delivery Model Options and Rationales

The success of a construction project can depend on the selection of the appropriate project delivery model. A “project delivery model” is a system that defines the relationships and responsibilities of the parties, allocates risks between them and structures the general sequence of activities required to deliver a project. Determining the appropriate project delivery model requires careful consideration at the earliest stages of a project. Below we generally outline four project delivery models: design-bid-build, design-build, construction management “at risk”, and “traditional” construction management.

1.      Design-Bid-Build (e.g. CCDC 2)

In this model, the owner directly engages a consultant to prepare design and construction documents for the project. Once complete, a general contractor is separately engaged by the owner to build the project based on the design and construction documents. Generally, the consultant will stay involved in the project and continue to act for the owner throughout construction. The consultant will administer the contract on the owner’s behalf and ensure that the project is being built to its design. If there are defects in design, the owner will have the right to bring a claim against the consultant. If there are defects in construction, the owner will have the right to bring a claim against the general contractor.

The design-bid-build model is suited for projects where the design is developed first as part of an initial project phase, an owner wants more control over the design, and for simple or fixed-price projects.


Advantages Disadvantages
·         Construction work can be competitively priced based on the design.

·         Allows the price of construction to be known before it begins.

·         Potentially fewer contractor-initiated change orders which effect price due to design certainty.

·         Potentially attracts a larger pool of bidders with the skill and resources needed to perform the work.

·         More risk for design errors or changes on the owner as compared with a design-build model.

·         Can result in schedule inefficiencies, less innovation, and issues with constructability of the design due to the separation of roles.

·         If the owner has not been previously involved with the general contractor then the general contractor is a relative unknown at the time construction begins.

·         Potential for “finger-pointing” to occur between the general contractor and the consultant when issues arise.

2.      Design-Build (e.g. CCDC 14)

In this model, the owner engages a single design-build entity to prepare the design and build the project based on the owner’s statement of requirements or performance specifications. The owner should still directly engage its own consultant to advise on and assist in preparing the owner’s requirements or specifications if it does not have the capacity to do so in-house. The success of a design-build project will often depend on the proper preparation of the baseline specifications. Although the design-builder does have responsibility for design of the project, realistically when design disputes or defects arise the design-builder will often argue that the issue resides in the specifications. As a result, even a design-build arrangement does not permit the wholesale transfer of design risk.

The design-build model is suited for more complex projects where more innovation is required, or in circumstances where the owner is not set on a particular design.


Advantages Disadvantages
·         Single point of contact and generally single point of responsibility for design and construction.

·         Relatedly, the owner is able to shift significant risk for both onto the design-builder.

·         Potential for less conflict and fewer constructability issues due to both design and build services being provided by the same entity.

·         Provides opportunity for concurrent design and construction activities, which allows a project to be “fast-tracked”.

·         Typically there are fewer bidders with the resources or interest in assuming the dual design-build role.

·         No opportunity to obtain competitive prices for construction work after design.

·         Greater risk that the project will not fully meet the owner’s expectations or preferences as the design-builder will typically prioritize price over value.

·         Price of construction cannot be precisely determined until design is finalized, which could potentially result in more contractor-initiated change orders.

3.      Construction Management

In this model, the owner engages a construction manager at an early stage to provide certain advisory services and potentially construction services for its project. Once the design is complete, the construction manager may act as a ‘pure’ manager that engages trades on behalf of the owner  (the “traditional” model) or the construction manager may effectively become a general contractor and enter into contracts with individual trades (the “at-risk model”). Either way, the owner directly engages a consultant to prepare the design. The construction manager does not take on any design risk. If there are defects in design the owner will have the right to bring a claim against the consultant.

a.      “Traditional Construction Manager ” (e.g. CCDC 5A)

The construction manager acts as an agent of the owner during pre-construction and possibly during construction. If retained during construction, the construction manager provides advisory services to the owner and acts as a limited agent in administering and overseeing the trade contracts on the owner’s behalf, but the owner retains all of the contracting risk. The construction manager’s only risk is with respect to the quality of the construction management services rendered. The construction manager is not at risk if the cost of construction exceeds its budget, although generally the construction manager will develop a construction budget.


Advantages Disadvantages
·         Significant efficiencies can result from having a professional on-site manager whose sole function is to guide the project to an efficient completion.

·         The Owner can rely on a professional to act on the owner’s behalf and in the owner’s interest, without competing interests of their own.

·         A construction manager can help compensate for an owner’s lack of construction experience.

·         On a simple project, a construction manager may be an unnecessary complication and expense.

·         The construction manager has very little actual responsibility for the project. The construction manager does not take any risk for cost, schedule, or quality of work.

b.      “Construction Manager At Risk” (e.g. CCDC 5B)

The construction manager acts as an agent of the owner during pre-construction, but once construction begins the construction manager assumes the risk for construction and acts as a general contractor. Under a CCDC 5B, the construction manager will develop a construction budget at the pre-construction phase, and generally following completion of design, the construction manager and the owner will execute a change order to finalize their agreement on the price and terms of the construction scope if they opt to proceed with that option.


Advantages Disadvantages
·         Can achieve the benefits of both construction management and a fixed-price contract.

·         The construction manager serves as a single point of responsibility for all construction work.

·         Can provide enhanced design constructability due to the opportunity for early collaboration and “fast-track” construction.

·         The construction manager is generally required to share the trades bids / proposals, providing transparency and allowing the owner to choose.

·         It can be challenging to structure a construction manager at-risk contractual arrangement that provides the owner with good value.

·         The transition from construction manager to general contractor can be confusing and result in issues. The two roles have different risk profiles and it can be unclear where one scope ends and the other begins.

·         As a result, the CCDC 5B requires extensive amendment to the transitional and construction provisions in order to protect the owner. This requires transactional costs and lead time at the beginning of a project.

Regardless of the project delivery model selected, owners should note that cost of most risks flow directly or indirectly to the owner of a project. Construction contracts allocate responsibility for certain risks, but there will typically be a cost associated that is reflected in price. Knowledgeable contractors will, as a condition of accepting risk, add a risk premium to a fixed price contract to cover the possibility that the risk will occur. If risk is not transferred under a contract, then the owner retains responsibility for that risk and will pay for it if it transpires. As a general principle, construction contracts thus seek to allocate risk to the party who is best able to manage that risk, in order to minimize the overall cost to the project of the risk. This is an important overarching consideration in selection of a project delivery model.

Singleton Reynolds Contributes Construction Chapter to Lexology’s Global Getting the Deal Through Series

Bruce Reynolds, Sharon Vogel, Nicholas Reynolds and Natasha Rodrigues have provided a comprehensive overview of construction law in Canada as part of Lexology’s global Getting the Deal Through series. The construction (Canada) chapter is now available online and in print.

Lexology’s Getting The Deal Through provides international expert analysis in key areas of law, practice and regulation for corporate counsel, cross-border legal practitioners, and company directors and officers. Throughout this edition, and following the unique Lexology GTDT format, the same key questions are answered by leading practitioners in each of the jurisdictions featured.

This easy-to-use reference guide provides comparative analysis and expert local insight into the field, offering detailed overview of the laws, regulations and common procedure across a range of international jurisdictions. In addition to construction, topics covered include: local insights on foreign entry into the local market; licensing procedures; competition and bribery considerations; contract and insurance matters (including PPP and PFI; joint ventures; tort claims; and indemnity); labour and closure of operations; rights to payment; force majeure; dispute resolution mechanisms; environmental law; applicable investment treaties, tax treaties, currency controls, and revenue, profit and investment removal controls; and recent trends.

About Lexology

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About Singleton Urquhart Reynolds Vogel LLP

Singleton Reynolds is a preeminent Canadian construction and infrastructure law firm. Our peers and clients recognize our lawyers as the best in the construction industry. Over thirty years of leadership in Canadian construction and infrastructure law is complemented by a broad offering of legal services, with a focus on finding solutions to complex legal problems, and providing service excellence in our approach and execution. While the core of our business remains rooted in construction and infrastructure, we also offer our clients an extensive range of legal services in the fields of commercial litigation, professional liability, product liability, corporate commercial law, commercial real estate, employment and labour law and business immigration.

Ontario Decision Suggests Priority of Lien Claimants Over Building Mortgages Limited to Statutory Holdback Amount

A recent decision at Ontario Superior Court (Commercial List) held that when a project owner is in receivership, lien claimants are limited to priority – to the extent of any deficiency in the owner’s holdback – over all building mortgages combined rather than each building mortgage separately. That is to say, the maximum priority in a lien claim over multiple building mortgages is 10 per cent of the price of the services or materials that the claimant actually supplied to the project under the contract or subcontract.

In BCIMC Construction Fund Corp et al. v. 33 Yorkville Residences Inc. et al.,[1] three lien claimants provided services to the owner  of a condominium development project, who became insolvent. The property was sold by the receiver and there was a dispute over the distribution of the proceeds. The three lien claimants were unpaid, and no holdback had been retained by the project owner. Under Ontario’s Construction Act,[2] the project owner is required to retain a 10 per cent holdback for each potential lien claimant. Section 22(1) provides:

  • Each payer upon a contract or subcontract under which a lien may arise shall retain a holdback equal to 10 per cent of the price of the services or materials as they are actually supplied under the contract or subcontract until all liens that may be claimed against the holdback have expired or been satisfied, discharged or otherwise provided for under this Act.

There was therefore a “deficiency” in the owner’s holdback in the full amount of the holdback, namely 10 per cent of the price of services actually supplied by each lien claimant. Under s. 78(2) of the Construction Act, lien claimants have priority over “building mortgages” to the extent of any deficiency in the holdback. Section 78(2) provides:

  • Where a mortgagee takes a mortgage with the intention to secure the financing of an improvement, the liens arising from the improvement have priority over that mortgage, and any mortgage taken out to repay that mortgage, to the extent of any deficiency in the holdbacks required to be retained by the owner under Part IV, irrespective of when that mortgage, or the mortgage taken out to repay it, is registered.

The three lien claimants brought a motion to determine the method for determining the amount of the deficiency to which the priority applies under s. 78(2) of the Construction Act. They argued that the reference in s. 78(2) to “a mortgage” in the singular meant that they were entitled to a priority of 10 per cent against each building mortgage. There were two building mortgages, so under their interpretation of s. 78(2), they would each be entitled, in effect, to 20 per cent, rather than the holdback of 10 per cent.

Justice Penny rejected their argument, citing the 1999 decision in GM Sernas & Associates Ltd. v. 846539 Ontario Ltd. (c.o.b. Grand Oak Group Ltd.).[3] That case also involved two mortgages: a “building mortgage” and a “subsequent mortgage,” which, per s. 78(5) of the Construction Act, is a mortgage “registered after the time when the first lien arose.” Justice Penny concluded as follows:

Section 78(2) provides priority to a mortgage taken with the intention to secure the financing of an improvement “to the extent of a deficiency” in the owner’s holdback. There is only one owner’s holdback and, if there is a deficiency, only one priority deficiency claim (Sernas, paras. 18 and 20). The lien claimants’ priority in respect of the deficiency took effect against the first mortgagee, because it is a building mortgage. Once effect was given to that priority, there was no more deficiency (Sernas, para. 23). The honouring of the lien claimants’ priority under s. 78(2) against the first building mortgage fully satisfied the deficiency and the situation was restored to what it would have been had the owner, as required by s. 22 of the Act, withheld the correct amount by way of holdback in the first place. This is not, as the lien claimants would have it, a “contest” between each priority claimant and each building mortgagee. There is one pot of money, one 10% holdback deficiency which is available for the priority payment. The lien claimants’ interpretation unreasonably seeks to expand “to the extent of any deficiency” to a multiple of that number.[4]

Justice Penny also noted that Ontario’s Legislation Act, 2006 provides that “words in the singular include the plural and words in the plural include the singular”,[5] and thus concluded that “not much weight can be placed on the use of the singular ‘mortgagee’ and ‘mortgage’” in s. 78(2) of the Construction Act.[6]

He went on to describe the purpose of the Construction Act:

  • [C]ontrary to the lien claimants’ submission, there is no broad principle that the Act should be interpreted to favour lien claimants. Rather, it is well accepted that the Act is remedial legislation that provides a means for contractors and subcontractors to obtain payment for labour and material supplied to a property, while balancing the competing interests of owners, contractors, subcontractors, and mortgagees in the construction process. Indeed, the parties seem to agree that the true object and purpose of the Act is to balance the interests of the various parties in the construction process and to fairly allocate risk and benefit between those who fund construction and those who provide services and materials. Section 78(2) is an important element in that balancing done by the legislature.
  • In rejecting an argument that the narrow purpose of the Act is to protect lien claimants, the Divisional Court in RSG Mechanical Incorporated v.1398796 Ontario Inc., 2015 ONSC 2070, held that when the Act is read as a whole, it reveals no underlying policy directed solely to protecting lien claimants. Further, there is no suggestion in the Act that the interests of lien claimants should be favoured above the interests of mortgagees “beyond the value of the holdbacks the legislation requires” (para. 29).[7]

This quote may be compared with Supreme Court of Canada’s comments in Clarkson Co. Ltd. v. Ace Lumber Ltd.,[8] with regard to The Mechanics’ Lien Act,[9] which was replaced by the Construction Lien Act, now the Construction Act. In an oft cited passage, the Supreme Court of Canada quoted with approval from the dissenting opinion at the Court of Appeal:

  • The lien commonly known as the mechanics’ lien was unknown to the common law and owes its existence in Ontario to a series of statutes, the latest of which is R.S.O. 1960, c. 233. It constitutes an abrogation of the common law to the extent that it creates, in the specified circumstances, a charge upon the owner’s lands which would not exist but for the Act, and grants to one class of creditors a security or preference not enjoyed by all creditors of the same debtor; accordingly, while the statute may merit a liberal interpretation with respect to the rights it confers upon those to whom it applies, it must be given a strict interpretation in determining whether any lien-claimant is a person to whom a lien is given by it.[10] [Emphasis added]

However, in Ace Lumber, the Supreme Court of Canada was addressing the issue as to whether a lien could be created for the price of rented equipment, while in RSG Mechanical Incorporated v.1398796 Ontario Inc.,[11] the Divisional Court was addressing the interests of mortgagees with respect to funds beyond the statutory holdback[s]. In that case, the appellant suggested that the “overarching intention” of the then Construction Lien Act was “to favour lien claimants above the interests of mortgagees beyond the value of the holdbacks the legislation requires.”[12] The appellant cited the Report of the Attorney General’s Advisory Committee on the Draft Construction Lien Act, April 8, 1982. In rejecting the appellant’s view, the Divisional Court quoted from the same report, where it states:

  • The priority [a lien has over a building mortgage to the extent of any deficiency in the holdbacks] applies irrespective of whether the mortgage was registered prior to or subsequent to the first work being done on the improvement. In the opinion of the Committee, subsection 2 [s. 80(2)] provides a reasonable balance between the interests of the mortgagees who finance the construction of the improvement and the lien claimants who do the actual work on the improvement.[13] [emphasis added]

The Divisional Court therefore concluded that the Construction Lien Act was intended to balance the competing interests of mortgagees and lien claimants, such that s. 78(2) of the Construction Lien Act (now the Construction Act) subordinates the interests of building mortgagees to those of lien claimants with respect to a deficiency in the statutory holdback[s], but only to the extent of the deficiency.

In light of BCIMC Construction Fund Corp et al. v. 33 Yorkville Residences Inc. et al., it is important for lien claimants to keep in mind that their statutory priority over building mortgages will be limited to a maximum of 10 per cent of the price of the services or materials actually supplied to the project.

[1] 2022 ONSC 2326 [BCIMC].

[2] R.S.O. 1990, c C.30.

[3] [1999] O.J. No. 3714, 48 C.L.R. (2d) 1, 91 A.C.W.S. (3d) 347 (Sup. Ct.) [Sernas].

[4] BCIMC, supra note 1 at para. 21.

[5] S.O. 2006, c. 21, Sched F., s. 67.

[6] BCIMC, supra note 1 at para. 24.

[7] Ibid at paras. 27–28.

[8] [1963] S.C.R. 110 [Ace Lumber].

[9] R.S.O. 1960, c. 233.

[10] Ace Lumber, supra note 8 at para. 11.

[11] 2015 ONSC 2070.

[12] Ibid at para. 29.

[13] Ibid at para. 28, citing the Report of the Attorney General’s Advisory Committee on the Draft Construction Lien Act, April 8, 1982 at 179.

Singleton Reynolds Lawyers Recognized in the 2022 Lexpert/ALM 500 Directory

Bruce Reynolds, John Singleton and Sharon Vogel have been featured in the 2022 Lexpert/ALM 500 Guide. This directory profiles lawyers who are identified by peers and clients as “Most Frequently Recommended.”

The identification of leading practitioners for the Lexpert/ALM 500 is based upon comprehensive survey work across the country, which has been ongoing since 1994. The process targets lawyers acknowledged as leaders in their respective fields, lawyers prominent in professional organizations, and lawyers otherwise enjoying significant recognition from their colleagues.

About The Lexpert/ALM 500:

Produced in collaboration with American Lawyer Media, The Lexpert/American Lawyer Guide to the Leading 500 Lawyers in Canada (the Lexpert/ALM 500 Directory) profiles the “Most Frequently Recommended” lawyers across Canada in approximately 35 practice areas identified via an extensive, annual peer survey.

The Lexpert/ALM 500 Directory features articles highlighting cross-border legal issues and recent developments of importance written by leading practitioners across Canada.

Learn more at: https://lexpert.ca/500

Critical March 1, 2022 Deadline for Preserving Non-Domestic Water Rights Nears

In 2016, British Columbia’s new Water Sustainability Act (the “WSA“) came into force and requires all non-domestic groundwater users – including farmers and ranchers, oil and gas companies, mine and smelter operators, water bottling companies, pulp and paper companies and small businesses – to apply for licences by March 1, 2022 to preserve their water rights. Existing groundwater users risk losing their historic water rights if they fail to apply before the fast-approaching deadline.

Prior to the WSA, the use of groundwater or well water in British Columbia was largely unregulated and capturing groundwater under common law was deemed a right. Now groundwater users must play by the same rules as surface users who withdraw water from rivers, streams and lakes. Under the WSA, anyone who diverts and uses groundwater for anything other than household use is required to obtain a water licence and pay water fees and rentals. A water licence is not required for “domestic purposes”, which essentially means the use of water for household purposes by occupants of single family private dwellings (for the complete definition, see section 2 of the WSA).

March 1, 2022 is the deadline to apply for a water licence for “existing groundwater users” – those who were using groundwater from a well or dugout on or before February 29, 2016 for non-domestic purposes such as irrigation, commercial or industrial use. Historical groundwater users who apply for licences before March 1, 2022, will be assigned “priority dates” based on when they first drew groundwater. This historical date is crucial because older licences get priority access to water in times of water scarcity.

Consequences for missing the March 1, 2022 deadline can be significant. First, existing groundwater users who miss the deadline will be unauthorized and must stop using water immediately. They will not be able to use the water until their licence is granted, something which can take years rather than months, given current processing delays. Further, those who miss the deadline will be treated as a “new user”. They will lose recognition of their historical date of first use and end up at the back of the queue. Their application for a licence may even be refused in water-stressed areas. In addition, anyone who continues to use water after the deadline without a licence commits an offence under the WSA and is liable to significant fines and even imprisonment, including daily fines for continuing offences. Applications made after the deadline will not benefit from the waived application fee and may require costly studies to support an application. Finally, property values could decline if there is no water licence attached or if the licence has a much later priority date.

If you are using groundwater for non-domestic purposes and have yet to apply, we recommend that you act now to secure your water rights. Further information regarding application requirements, as well as a link to the online licence application portal, are available here.

If you need assistance with your licence application or have questions regarding the impending deadline, please contact Mark Thompson, Mike Nienhuis or any member of our Commercial Real Estate Group.

British Columbia Deducts CERB Payments In Wrongful Dismissal Claim

The British Columbia Supreme Court recently issued its first decision on whether the Canada Emergency Response Benefit (“CERB”) payments should be deducted from severance awards in a claim for wrongful dismissal in the case of Hogan v 1187938 BC Ltd., 2021 BCSC 1021. In deducting the CERB payments from the ultimate award, the decision highlights the overarching principle to ensure that dismissed employees are treated equitably but do not receive a windfall as a result of collecting CERB payments.

Mr. Hogan, an employee for almost 22 years, was temporarily laid-off in March 2020, as a response to the impacts of the pandemic, and ultimately dismissed in August 2020. He had received $14,000 in CERB payments prior to his dismissal.

The Court determined Mr. Hogan was constructively dismissed and that 22 months was the appropriate notice period. The Court then turned to the issue of damages and mitigation, and found that CERB payments constituted mitigation income and should be deducted from wrongful dismissal damages for, inter alia, the following reasons.

  1. Unlike EI benefits (which are not deductible from a wrongful dismissal award as an employee may be required to repay EI benefits to the government upon receipt of severance), CERB payments are not required to be repaid.
  2. CERB payments are not private insurance and therefore are not considered to be delayed or deferred earnings rightfully belonging to the employee.
  3. The CERB payments raised a “compensating advantage” issue. If the CERB payments were not deducted from the damages award, the dismissed employee could end up in a better position than he or she would have been if there had been no wrongful dismissal at all.

The BCSC in the Hogan decision is a departure and distinguished the decision of Iriotakis v. Peninsula Employment Services Ltd. in which the Ontario Superior Court of Justice did not reduce the employee’s entitlement to damages in lieu of reasonable notice by the amount of CERB he had received.  The primary reason for the differing outcome was that in Iriotakis, the employee would not be compensated for all of the income he lost, as it would not account for his significant loss of commission that he received in addition to his salary

This is the first BC decision to discuss the impact of CERB payments on severance awards and is a reminder of the uncertainty within Canadian authority on the matter. While the decision confirms that CERB may be considered mitigation income properly deducted from severance awards, whether it will result in a reduction will be a case specific analysis.  One thing is evident, CERB payments are now a relevant and possibly important consideration for employers when assessing severance packages.

Nelson (City) v Marchi, 2021 SCC 41: The SCC provides clarity on the Core Policy/Operational Distinction

Following the first heavy snowfall of the season, the City of Nelson (the City) put into action its snow clearing plans in accordance with its existing written and unwritten policies. Among the tasks completed by the City that day, employees plowed the parking spaces in the downtown core creating snowbanks along the sidewalks blocking access from cars that would park in the newly cleared spots and businesses along the sidewalk. Having plowed the parking spaces and created the snowbanks, City employees continued down their list of priorities before returning to clear the snow banks later that week. In the interim, Taryn Marchi (Marchi), was injured while she attempted to cross the snowbank between her parked car and the cleared sidewalk.

Marchi subsequently commenced an action against the City in negligence, alleging a breach of the standard of care owed by the City to those using its streets and sidewalks. The City defended the claim, principally on the basis that the City did not owe Marchi a duty of care as its decision with regards to how and when to clear sidewalks in the downtown core was a “core policy” decision and therefore immunized from judicial review per the second stage of the analysis outlined in Just v British Columbia [1989] 2 SCR 1228. The City was successful at first instance, while Marchi was successful on appeal to the BC Court of Appeal.

Just established that public authorities owe a prima facie duty of care to users of public highways, but that, at the second stage of analysis, such a duty may not be imposed where there is a valid basis for its exclusion. The Court in Just highlighted two potential bases of exclusion: statutory exemption from liability or where the duty of care arose out of a “true” policy decision. As a further refinement, while the policy decision itself would not give rise to tort liability, the operational implementation of that policy could give rise to a duty of care in negligence. While the policy/operations distinction has been a key determination for public authorities since Just, it has often been difficult to determine in advance and given rise to significant risk at trial.

Following further appeal by the City, the Supreme Court of Canada has now taken the opportunity to provide a framework for structuring the second stage of the Just analysis as to whether a duty of care should not be imposed on the decision of a public authority as a “true” policy decision as opposed to an operational implementation of that policy.

Reviewing the relevant case law, the Supreme Court of Canada identified four factors that could assist in assessing the nature of a public authority’s decision:

  1. the level and responsibilities of the decision-maker;
  2. the process by which the decision was made;
  3. the nature and extent of budgetary considerations; and
  4. the extent to which the decision was based on objective criteria.

As a caveat to these newly identified categories, the Court cautioned that the mere presence of budgetary, financial, or resource implications does not determine whether a decision is a core policy, and that the presence of the word “policy” in a written document of the labelling of a plan as a “policy” is not determinative.

In setting out the above factors for consideration, the Court underlined that each must be considered in light of the primary rationale for shielding core policy decisions from liability in negligence: the separation of powers. Decision-makers in the executive and legislative branches must be free to carry out their respective competencies, accountable to the electorate, without the potential chill of judicial oversight.

Applying the proposed analytical framework to the facts before them, the Court found that the City’s decision to create the snowbanks without clearing a path for pedestrians constituted an operational decision giving rise to a duty of care. The policy documents did not mandate the creation of the impugned snowbank; the supervisor responsible for the execution of the plan did not have authority to deviate from the existing policy documents and was not democratically accountable; the plan was not arrived at following a consideration of various interests, and indeed did not appear to have been discussed at all; budgetary decisions were involved, however, they were day-to-day concerns rather than high-level ones; and, the facts upon which the decision were based could be objectively reviewed by the Court – namely, did the snowbanks pose an unreasonable risk of harm.

As a further note, the Court found that the trial judge fell into error when he identified the policy decision under review as the City’s general snow removal policy and priorities for street cleaning, not the manner in which the particular street on which the incident occurred was cleared. The Court clarified that, as the duty attaches to the negligent conduct alleged – in this case how the particular street was cleared, the policy/operational analysis must be based on the particular conduct. Failure to identify the impugned conduct with precision is likely to give rise to a conflation of numerous decisions and provide an overbroad immunity to a public authority on the basis of policy.

Having found that the City had failed to establish that its street clearing decision was a policy decision and having determined that the City did owe Marchi a duty of care, the Court remitted the matter back to the trial court for a further hearing. Whether the City had breached the applicable standard of care and whether they caused Marci’s injuries therefore awaits the further reasons of the trial division.

There is little doubt that there has been debate at the local government level as to how to apply the policy / operational distinction, and that the Supreme Court took this opportunity to clarify the issue, but it may come at a very difficult time for local governments under considerable stress to adjust services to meet the ongoing needs of the pandemic and the resulting economic challenges they face. Following Marchi, we can expect to see more cases commenced and maintained against local governments in the construction, highways, and road maintenance areas and may well see an increasing reluctance of local governments to assume responsibility for new obligations.

Pair of Ontario Decisions Demonstrate Importance of Adherence to Contractual Notice Requirements

With a pair of recent decisions, Ontario Courts have signalled that a contractor intending to pursue a claim against an owner must take care to adhere to contractual notice provisions, or risk having its claim dismissed entirely, especially in cases of governmental owners. In these recent cases, claims by contractors were dismissed on interlocutory motions for summary judgment, without making it to trial, in circumstances where the Court found that the contractors failed to provide notice as required by the contract.

Furthermore, in a third case, the Divisional Court recently granted leave to appeal the decision of a lower Court refusing to grant summary judgment in similar circumstances, suggesting that we’ll soon hear further on this issue from an appellate Court.

The Cases

  1. Tower Restoration v Attorney General of Canada[1]

In Tower Restoration, the contractor, Tower Restoration Ltd. (“Tower“), brought an action against the owner, the Attorney General of Canada (“Canada“), claiming an additional post-completion payment of $1,003,621.82 arising from a contract for the replacement of windows at Millhaven Maximum Security Penitentiary.[2]

Prior to commencing legal proceedings, Tower submitted its claim to Canada for consideration. After approximately 3 months, Canada rejected Tower’s claim.[3] Canada advised Tower that if it disagreed with the rejection of the claim, it could exercise its options under the dispute resolution provisions of the contract,[4] which required Tower to submit a Notice of Dispute to Canada within 15 days of receiving its rejection of the claim.[5] However, Tower took no action until almost two years later, when it wrote to Canada asking for a reconsideration of the claim.[6] Canada did not respond to Tower’s request, and accordingly, Tower commenced legal proceedings.

Canada brought a motion for summary judgment, asking the Court to dismiss Tower’s action for failing to provide a Notice of Dispute in accordance with the provision of the contract. However, Tower argued that through conversations between the parties, Canada’s conduct prior to its rejection of the claim had given Tower the “impression” that it would be “dealt with fairly at the conclusion of the work” with respect to payment.[7] Tower took the position that its case should proceed to trial so it could call further evidence to support its position that Canada, by its conduct, effectively waived strict requirement to the contractual notice provisions.[8]

Notwithstanding Tower’s arguments, the Court sided with Canada, noting that Tower was a sophisticated commercial enterprise engaged in a multi-million-dollar contract with the government, and that Tower knew it would have to comply with the terms of the contract.[9] The Court found that the terms of the contract regarding notice were “crystal clear”, and further noted the policy rationale behind binding notice provisions such as in this case, that the defending party ought to be allowed to consider options in response to a prospective claim and take corrective action.[10] With respect to Tower’s waiver argument, the Court noted the fact that Canada had “never once” paid Tower outside of the strict processes contemplated by the contract, and rejected that Canada had, by any conduct, waived compliance with the applicable notice provisions.[11] Accordingly, the Court granted summary judgment to Canada and dismissed Tower’s action.

  1. Elite Construction Inc v Canada[12]

In this case, the contractor, Elite Construction Inc. (“Elite“), brought an action against the owner, Canada, seeking $4,165,772.77 in additional compensation under the contract in relation to delays and extras, in the context of a contract for construction of a 96-cell unit and related infrastructure within Collins Bay Correctional Institution.[13]

The contract contained two applicable notice provisions: one requiring Elite to give Canada notice of its intention to claim for an extra, loss, or damage within 10 days of the alleged cause of same,[14] and another that required Elite to submit a Notice of Dispute to Canada within 15 days of the receipt of any decision or direction of Canada (including a Change Order) which Elite disagreed with.[15] Elite did not provide notice of its claims, or a Notice of Dispute, strictly within either of the applicable notice periods under the contract.[16] In response to Elite’s legal action, Canada moved for summary judgment on the basis that Elite failed to comply with the notice provisions of the contract, and was thereby precluded from pursuing its claim.[17]

Elite argued that it provided notice of its claims in various forms, including Contemplated Change Order Summaries, informal email and letter correspondence, and requests for extension of time.[18] To that end, Elite argued that on a project with “many moving pieces”, and with representatives of both Elite and Canada in constant communications, that a dispute was not “crystallized” until there was a breakdown of communications, and that a 10-day time period in which Elite had to provide notice, running from a particular date as asserted by Canada, was inapplicable.[19]

In the alternative, Elite argued that Canada had waived strict compliance with the notice provisions of the contract by various dilatory conduct, [20] including the “extensive time” Canada took for the approval of certain Change Orders, although Elite acknowledged that the contract did not specify a timeline for the approval of Change Orders. Elite also relied on Canada allegedly permitting it to complete work outside of the terms of the contract in the absence of a formal Change Order, which Elite characterized as an example of Canada waiving strict compliance with the contract.[21]

However, the Court ultimately agreed with Canada with respect to the waiver and notice issues.

With respect to notice, the Court stated:[22]

[Elite] was required to put its best foot forward on this summary judgment motion brought by Canada. Its argument that a deeper dive into the evidence would reveal the elusive [contractual] notice that it purportedly sent must be rejected. The “grumblings of a contractor” are not sufficient to constitute notice[.] The purpose of the notice period benefits both parties but importantly gives the owner the opportunity to determine its options. […] It is not surprising that, if [Elite] was entitled to more compensation, it would have to adhere to the contractual provisions set out in the public-tender contract for this large scale project. Canada was able to demonstrate that there is no issue requiring a trial and the action should be dismissed.”

With respect to waiver, the Court rejected Elite’s arguments and noted that it had “not satisfied its burden of demonstrating that Canada had a full knowledge of some deficiency that might be relied upon by [Elite], an unequivocal and conscious intention to abandon the right to rely on it, and that Canada, by its conduct, communicated this to [Elite]”.[23] The Court also noted a provision of the contract which provided, in any event, that the failure of either party to require performance by the other party of any particular provision was not to affect the right of that party to thereafter enforce that provision.[24]

Accordingly, as in Tower Restoration, summary judgment was granted and Elite’s claim was dismissed on the motion.

Discussion and Implications

The above decisions are a signal from the Courts that it will enforce contractual notice provisions where the circumstances warrant their enforcement. Each case is fact-dependant but applicable notice provisions will not be lightly set aside. Accordingly, in both of these cases, claims were dismissed at the summary judgment stage.

In Tower Restoration, Justice Mandhane explained the policy rationale behind the requirement that notice provisions be strictly adhered to, having particular regard to the use of public funds in the contract at issue in that case:[25]

The Supreme Court of Canada and other appellate courts have explained that, in construction contracts, the purpose of binding notice provisions is to provide the other party with sufficiently detailed information to allow it to consider its options and take corrective action before the contractor pursues a claim […].

These policy rationales are germane to disputes arising from government construction contracts, which involve sophisticated commercial enterprises, a competitive bidding and selection process, use of public funds, contracts of adhesion, and which have precedential value beyond the immediate parties […].

However, in Tower Restoration, the contractor’s failure to provide a Notice of Dispute within the required timeline occurred after the completion of the project, meaning there may not have been corrective action that could have been taken by Canada in response.[26] Furthermore, in Elite Construction, the Court specifically noted the support for the proposition that failure to comply with notice provisions acts as a bar to a contractor’s claim, even in the absence of prejudice to the owner.[27] Taken together, the cases suggest that adherence to notice provisions is required, notwithstanding lack of prejudice to an owner.

These cases also send a strong message with respect to the concept of waiver: in the absence of clear and informed waiver of compliance with the contract provisions and notice requirements, the Court may be hesitant to hold that waiver is established. That said, these cases do not preclude the operation of the doctrine of waiver, depending upon the case-specific circumstances.

For contractors, these cases should serve as a reminder to take the notice provisions in the contract seriously. Oftentimes, when a project has “many moving pieces” and the parties are otherwise in “constant communications”, such as in Elite Construction, contractors can be hesitant to adhere to notice provisions for commercial reasons. However, with this pair of decisions, the Courts have signalled that contractors may be foregoing any claim should they fail to provide proper notice.

Subcontractors should also take note. In many cases, subcontracts expressly incorporate prime contract conditions by reference. In such cases, subcontractors will need to ensure they: (1) carefully review prime contract provisions to be incorporated into the subcontract; and (2) adhere to notice provisions as may be required.

Looking Ahead

Previously, in another action, a summary judgment motion was brought by Canada against H.R. Doornekamp Construction Limited (“Doornekamp“), seeking the dismissal of Doornekamp’s action on similar grounds as in Tower Restoration and Elite Construction – being Doornekamp’s alleged failure to comply with the applicable dispute resolution provisions and to provide the required notice of its claims.[28] However, in that case, Canada’s motion was dismissed, as the motion judge determined that genuine issues for trial remained with respect to Canada’s reliance on the applicable provisions.[29] However, following Tower Restoration and Elite Construction, on June 7, 2021, leave to appeal the above decision was granted to Canada.[30] Accordingly, industry participants can expect appellate-level guidance with respect to this area of law.

[1] 2021 ONSC 3063 (Ont Supt Ct) [“Tower Restoration“].

[2] Ibid at paras 3, 11.

[3] Ibid at paras 11-13.

[4] Ibid at para 13.

[5] Ibid at para 14.

[6] Ibid at paras 14-15.

[7] Ibid at para 20.

[8] Ibid at para 18.

[9] Ibid at para 22.

[10] Ibid at paras 19, 25-26.

[11] Ibid at paras 20-21.

[12] 2021 ONSC 562 (Ont Sup Ct) [“Elite Construction“].

[13] Ibid at paras 3, 5, 9.

[14] Ibid at para 34.

[15] Ibid at paras 39-41, 72-73. The terms of the contract are available here.

[16] Ibid at paras 72-73. Although Elite provided proper notice of certain components of its claim, those components were dismissed on their merits (see e.g. para 108).

[17] Ibid at paras 31-32.

[18] See ibid at para 53.

[19] Ibid at para 51.

[20] Ibid at para 83.

[21] Ibid at paras 81-87.

[22] Ibid at para 122.

[23] Ibid at para 91.

[24] Ibid  at para 90.

[25] Tower Restoration at para 26.

[26] Tower Restoration at paras 10, 24.

[27] Elite Construction at paras 68-69.

[28] H R Doornekamp Construction Ltd v Attorney General of Canada, 2019 ONSC 3101 (Ont Sup Ct).

[29] See ibid at paras 57-59.

[30] H R Doornekamp Construction Ltd v Attorney General of Canada, 2021 ONSC 4096 (Ont Div Ct).

Sidhu Growers v. McConkey: The Impact of Evidentiary Considerations on Damages Assessments

The Supreme Court of British Columbia recently released its decision in 602491 B.C. Ltd dba Sidhu Growers v. J.M. McConkey & Co. Inc., 2021 BCSC 1300. This product liability case involves a blueberry nursery that claimed the plastic pots/containers that it had purchased were defective, thereby resulting in compromised blueberry plant growth and financial loss. Singleton Reynolds represented the Defendant, J.M. McConkey & Co. Inc (“McConkey”), and persuaded the Court to make an award to the Plaintiff, 602491 B.C. Ltd dba Sidhu Growers (“Sidhu Growers”), which was a significantly reduced amount of damages than asserted. In rendering the decision and assessing the quantum of damages, the Court considered evidentiary issues of credibility and spoliation, as well as legal issues related to breach of warranties and causation.

Background Facts

Sidhu Growers is an Abbotsford-based blueberry nursery that is co-owned and operated by Harry Sidhu (“Mr. Sidhu”) and his brother. This action concerns Sidhu Growers’ business which primarily propagates blueberry nursery plants for sale to commercial blueberry growers. McConkey is a Washington State horticulture goods manufacturer and distributor in the business of manufacturing plastic products such as pots and trays.

In June 2012, after testing out some samples, Mr. Sidhu ordered and received about 157,000 square plastic pots from McConkey. For the 2013 growing season, Mr. Sidhu again purchased pots from McConkey, and approximately 800,000 blueberry plant plugs were transplanted into the pots. By early July 2013, he noticed that the blueberry plants were not growing uniformly and had poor colour. A number of the pots had a plastic flashing covering some of the drainage holes in the pots, and inconsistent drainage holes in the pots used was identified as a potential cause.

Sidhu Growers commenced legal action against McConkey on January 7, 2015. Though the majority of its 2013 crop was eventually sold, Sidhu Growers claimed over $800,000 in damages. Sidhu Growers alleged that it had incurred the additional work of having to repot, hand water, hand prune or otherwise dispose of the plants as a result of the defective pots. Furthermore, since the 2013 plants required more time to grow to a marketable level, it took up space that would have been used for new plants, thereby causing loss of sales through displacement.

The Court’s Decision

The Court ultimately found that McConkey had breached the implied warranty that their pots were reasonably fit for the purpose of growing blueberry plants, as a result of some of the pots having flashing over some of the drainage holes in the pots. Furthermore, for a portion of Sidhu Growers’ blueberry crop, McConkey’s pots caused or contributed to increased time for the plants to mature to a saleable condition or failure to reach saleable condition. However, the Court found that the loss suffered by Sidhu Growers was significantly less than what they claimed and, as a result, awarded significantly reduced damages.

Evidentiary Shortcomings of the Plaintiff

Sidhu Grower submitted that Mr. Sidhu was an “unsophisticated litigant”; however, the Court noted his business acumen, familiarity with litigation, and prior demonstrated understanding of the importance of proof diluted that characterization. In relation to its 2013 plants, Sidhu Growers was sued by their customer J & J Farms Ltd. (“J & J Farms”) for allegedly delivering diseased plants. In defence, Sidhu Growers and its experts maintained that the entire crop of blueberry plants were healthy and fit for sale. For the present action, which overlapped in time and issues with the J & J Farms litigation, Sidhu Growers and its experts maintained that a number of the blueberry plants were unhealthy. The Court noted that the failures of Mr. Sidhu and his expert Mr. Baumann to disclose their involvement in the J & J Farms action and their inconsistent testimonies negatively affected their credibility. More specifically regarding Mr. Sidhu’s credibility or reliability, the Court also noted his failure to keep records of his operations, and his lack of details regarding the specifics of his business and past loss.

The evidentiary issue of spoliation was also raised in this case. McConkey pointed to Mr. Sidhu’s disposal of an alleged 100,000 defective pots said to contain unrecoverable plants, saving none, over three and a half years despite having started legal action during that period. McConkey submitted that they were entitled to a rebuttable presumption that the disposal of pots constitutes evidence that was harmful to Sidhu Grower’s case. While the Court found that spoliation was not established, the Court noted that Mr. Sidhu’s disposal of pots was one of the many evidentiary shortcomings in Sidhu Growers’ case.

Breach of Warranties

The Court found that a number of McConkey’s pots breached the implied warranties based on sections 18(a) and (b) of the Sale of Goods Act as they were not fit for purpose and not of merchantable quality. In making this finding, the Court noted that a significant number of pots did not meet the quality standard set by McConkey themselves in respect to flashing over the drainage holes. McConkey also understood the importance of drainage holes and consistency across the batch of the pots for Sidhu Growers’ blueberry plants. The Court reasoned that a reasonable commercial purchaser for blueberry plant pots upon examination and observing the flashing occluding in varying degrees the drainage holes of the pots should have and would have rejected the pots.


Sidhu Growers submitted that the inconsistent and compromised drainage in the McConkey pots caused the injuries to its crop and business. It claimed that excessive water retention prevented the plant plugs from forming roots and caused dieback of the roots by asphyxiation.

An expert report prepared by Mr. Baumann was tendered to support Sidhu Growers’ position on causation. He opined that the source of the 2013 crop’s growth problems was the inconsistent drainage caused by the lack of holes or partially occluded holes on the bottom of the pots. In response, McConkey’s experts pointed out several deficiencies in Mr. Baumann’s investigative methodology such as his small sample size of just four potted plants and the absence of any laboratory testing. As a result, the Court was not persuaded by Mr. Baumann’s extrapolation of the test results and noted his failure to use laboratory testing. Furthermore, the Court was concerned that Mr. Baumann had lost sight of the difference between being an advocate for his client and expert for the court. Specifically, the Court noted his involvement in the J & J Farms litigation; his initial role as an advisor to Sidhu Growers; his subsequent role as its expert during litigation; and the inconsistencies between his J & J Farms report and his report for this action despite the overlap in time and issues. These issues reduced the weight the Court placed upon Mr. Baumann’s expert evidence.

Overall, the Court found it more likely than not that many plants were negatively affected by poor water drainage caused by occluded drain holes. However, the Court did not accept that the entire or even a substantial group of plants in the McConkey pots were harmed. The Court further determined that poor drainage holes were one of multiple causes for Sidhu Growers’ plant problems in 2013. Other causes included overwatering, over fertilization, poor media mix, and temperature. These findings were taken into account for the assessment of damages.

Quantum of Damages

McConkey submitted that if causation were to be established, then the extent of the damages is considerably lower than the amount asserted by Sidhu Growers, and that there was no reliable evidence as to the quantum of the loss. The Court agreed and noted that Sidhu Growers largely relied upon Mr. Sidhu’s frail recollection and impression to establish its significant claim. Mr. Sidhu stated that he had never experienced significant plant loss prior to the events that spurred this action, but McConkey adduced evidence to the contrary in the form of an email sent by Mr. Sidhu to Mr. Baumann that contained detailed information regarding the annual loss of specific varieties over several years. The Court took the losses set out in the email as reflective of normal regular occurrence and declined to accept the entirety of Sidhu Growers’ substantial claim based on Mr. Sidhu’s unconvincing evidence.

McConkey further submitted the limitations of the expert reports tendered by Sidhu Growers. The experts – Mr. Baumann and an accounting expert Greg Williamson – used unverified data provided by Mr. Sidhu in their reports and failed to incorporate information that was disadvantageous to Sidhu Growers’ claim.

The Court took into account the issues with Mr. Sidhu’s reliability; the limitations of the expert reports; Mr. Baumann’s observation of the good health of the entire blueberry crop in 2014; the annual loss of plants in the normal course at the nursery; as well as various other findings to conclude that the overall loss both in numbers and the values asserted by Sidhu Growers was much smaller than claimed. Ultimately, the Court awarded $123,673 to Sidhu Growers – significantly less than the amount claimed.

Note that this decision is currently being appealed by Sidhu Growers.


Product liability claimants often assert significant injuries and substantial monetary loss arising from an alleged defective product. However, manufacturers and distributors should keep in mind that the quantum of damages awarded by courts can be significantly reduced from the amount claimed in certain circumstances. In this case, McConkey was successful in lowering the damages sought by Sidhu Growers in an amount over $800,000 to an award of damages at approximately fifteen present of the claimed amount. This decision highlights several factors that courts will consider to assess and determine the quantum of damages, including the reliability and credibility of experts and witnesses, and evidentiary issues that weaken causation and lead to a diminished claim.

Singleton Reynolds Named Construction Law Firm of the Year by Chambers Global in Canada

Singleton Urquhart Reynolds Vogel LLP has been named Construction Law Firm of the Year and is recognized in the Top Tier by Chambers Canada. This year, the firm continues to be ranked Band 1 in the construction law category, has the most Band 1 construction lawyers in Canada, and is also being recognized for commercial litigation.

Throughout the research process, the firm received exceptional client feedback:

A premier construction boutique offering excellent bench strength with expertise pertaining to project development, claims and disputes, and construction arbitration. Represents an enviable roster of municipalities, public authorities and international clients across public and private developments. Frequently called upon as counsel across a range of sectors including energy, transport and public infrastructure. The firm is further distinguished for its work on the development of federal legislation. It has offices in Vancouver and Toronto.

A Client enthused:

“The firm excels in giving excellent advice based on deep legal knowledge and true subject matter expertise. The team is focused on construction dispute resolution, provides a very high level of service, and their professionalism is unparalleled in construction law.” Sources praise “Their knowledge of construction law and experience in construction claims litigation.”

The following lawyers were listed: Helmut Johannsen (Construction, Band 1), Bruce Reynolds (Construction, Band 1), John Singleton (Construction, Band 1), Sharon Vogel (Construction, Band 1), Stuart Hankinson (Construction Arbitration) Peter Wardle (Commercial Litigation).


About Chambers Global

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About Singleton Urquhart Reynolds Vogel LLP

Singleton Reynolds is a preeminent Canadian construction and infrastructure law firm. Our peers and clients recognize our lawyers as the best in the construction industry. Over thirty five years of leadership in Canadian construction and infrastructure law is complemented by a broad offering of legal services, with a focus on finding solutions to complex legal problems, and providing service excellence in our approach and execution. While the core of our business remains rooted in construction and infrastructure, we also offer our clients an extensive range of legal services in the fields of commercial litigation, professional liability, product liability, corporate commercial law, commercial real estate, employment and labour law and business immigration.

Carillion, the Companies’ Creditors Arrangement Act and Construction Lien Act Trusts: Confusion (again) regarding certainty of subject matter and commingling of funds

The Companies’ Creditors Arrangement Act (“CCAA“) proceedings involving Carillion Canada and related entities (collectively, “Carillion Canada”) have been an ongoing area of interest for the construction industry since proceedings began in early 2018. Recently, Ernst & Young, (in its capacity as Monitor of Carillion Canada in the CCAA proceeding) (the “Monitor“), brought a motion seeking a declaration that certain funds received in relation to various construction projects were deemed statutory trust funds pursuant to the Construction Lien Act (“CLA“) (and now the Construction Act).

The decision from the Commercial List of the Ontario Superior Court may, to a degree, result in uncertainty surrounding how these trusts operate in the context of insolvency, bankruptcy, and creditor protection proceedings, as well as the extent to which contractors on projects to which the CLA applies can mix trust funds with non-trust funds in certain types of bank accounts without the trust funds potentially losing their status as property separate from that of the insolvent.




Carillion plc, the UK parent company of Carillion Canada, commenced insolvency proceedings in early 2018, which in turn precipitated Carillion Canada’s CCAA proceedings. Prior to that, Carillion Canada carried on business as a group of construction companies providing services on various projects throughout Ontario. In the course of providing services on Ontario construction projects (prior to the commencement of the CCAA proceeding), Carillion Canada received nearly $29 million in funds from project owners, which funds were impressed with a trust in favour of unpaid subcontractors and suppliers pursuant to section 8 of the CLA (the “CLA Trust Funds”).

Prior to the CCAA proceedings, HSBC’s UK entity (“HBSC UK”) provided banking services to Carillion Canada, including a cash sweep service whereby cash was “swept” daily from Carillion Canada’s local accounts and deposited into corresponding accounts in London, England (the “Cash Sweep“). More specifically, during the Cash Sweep: i) the net amount in the accounts of each member company of Carillion Canada were “swept” into an HSBC Canada account (the “Canadian Master Account”); ii) the net cash of the Canadian Master Account was “swept” into a corresponding account in the United Kingdom (the “UK Account”); and iii) the UK Account and certain bank accounts of other affiliated global Carillion entities (collectively, the “Pooled Accounts“) were offset against each other and appropriate interest charged or earned on the net balance. The CLA Trust Funds were included in the Cash Sweep and accordingly were subject to the offset and interest calculations relating to the Pooled Accounts. The Cash Sweep process was terminated upon commencement of the Canadian CCAA proceedings.

The Monitor requested of HSBC UK that it return the CLA Trust Funds on the basis that they constituted trust funds in Ontario. However, HSBC UK advised that it was entitled to set-off the funds in the UK Account against the negative balances in other equivalent accounts that had participated in the pooling exercise, but it agreed not to exercise its right of set-off without first providing fourteen days’ notice. As of the date of the Commercial Court hearing, HSBC UK had not delivered such notice.

The Monitor brought this motion seeking a declaration that the Trust Funds were subject to a trust pursuant to section 8 of the CLA, and an Order requiring HSBC UK to transfer the funds to the Monitor for distribution to the trust beneficiaries.


The Motion Judge’s Decision


The Court considered whether the alleged CLA Trust Funds satisfied the three certainties necessary to establish a trust at common law (being certainty of intention, certainty of subject matter, and certainty of objects). If so, pursuant to the Court of Appeal for Ontario’s decision in The Guarantee Company of North America v Royal Bank of Canada, 2019 ONCA 9, the CLA Trust Funds would not be subject to set-off by HSBC UK , as the funds would not have been the property of the insolvent.

To the contrary, as set out in a brief set of reasons dated March 2, 2021, the Court found that the CLA Trust Funds were not identifiable as they had been “irreconcilably commingled and converted among nine different bank accounts held by seven different companies in two countries.” The Court declined to accept the Monitor’s request that, in order to address this, the Court recognize a “proprietary interest” in the UK Account (into which the CLA Trust Funds had been swept) as this would result in an “impermissible floating charge” over that account. The Court noted that tracing in equity could not be used to create a “floating charge” over the UK Account and, further, tracing in equity “cannot be used to enforce a CLA trust in an insolvency proceeding where identification of specific trust property is impossible.” The finding that the alleged CLA Trust Funds could not be readily identifiable as they were not separately accounted for was found to be “fatal” to the Monitor’s position.

The Monitor’s motion was dismissed.

The Monitor has sought leave to appeal the Court’s decision to the Ontario Court of Appeal. Importantly, the Monitor has alleged in its materials filed on the motion for leave to appeal that the pooling of the Pooled Accounts was only “notional”, meaning that the funds in the UK Account (including the CLA Trust Funds) were not actually commingled with the funds from the other Carillion accounts. Although this was not addressed in the motion judge’s reasons, it may prove to be significant should the Monitor be granted leave to appeal.




The motion judge’s decision raises a number of issues in respect of the application of the current jurisprudence regarding trusts.

Most fundamentally, the motion judge’s reasons may result in conflation of the ability to ascertain funds that are the subject matter of a trust with the ability to trace such funds. The latter issue engages the question of whether, or how, certainty of subject matter can be lost in certain circumstances. Fundamentally, the question is ultimately whether trust beneficiaries are able to trace the funds in order to seek a remedy in circumstances where trust property has been misappropriated.

As the Court of Appeal for Ontario clarified in two recent cases, The Guarantee Company of North America v Royal Bank of Canada, 2019 ONCA 9 and Urbancorp Cumberland 2GP Inc (Re), 2020 ONCA 197, the provisions of the CLA establish certainty of subject matter such that valid trusts are created vis a vis bankruptcy and insolvency legislation, and therefore such trust funds are excluded from the insolvent/bankrupt’s estate.

Here, the motion judge’s finding on this point is arguably contrary to these two decisions, given the motion judge’s finding that the Monitor was effectively seeking a floating charge over all of the funds in the UK Account rather than a proprietary interest in specific property, which finding apparently interdicted the Monitor’s attempt to establish certainty of subject matter and trace the res of the trust. That being said, it bears noting that this finding was premised upon the Court’s observation that the Monitor sought the recognition of a “proprietary interest” in the UK Account itself, rather than an interest in the CLA Trust Funds specifically; accordingly, the framing of the relief sought may have influenced the Court’s conclusion that the Monitor was, in essence, seeking an impermissible floating charge.

We are also respectfully of the view that the motion judge’s finding in relation to the “floating charge” issue, may have forestalled a more fulsome consideration of the analysis as to the tracing of the CLA Trust Funds from the original account to the UK Account. If there was indeed a valid statutory trust pursuant to the CLA, equitable tracing should have remained available to the Monitor (on behalf of Carillion Canada), which should have allowed for the tracing of the CLA Trust Funds into the UK Account (where the CLA Trust Funds were allegedly then notionally pooled with non-trust funds). That being said, it bears noting that the motion judge based this conclusion on the premise that such tracing could not occur “where identification of specific trust property is impossible” meaning this conclusion may have been based upon specific the factual findings in this case, and in particular on the specific banking arrangements involved. Unfortunately, the wording of the decision in this regard was somewhat lacking in clarity.

Similarly, common law tracing would remain available in circumstances of mixed bank accounts, so long as the property remained identifiable (which the motion judge found was not possible on the facts in this case)(see Foskett v. McKeown [2000] UKHL 29; and BMP Global Distribution Inc v Bank of Nova Scotia, 2009 SCC 15).

Finally, and perhaps most importantly for members of the construction industry, it remains to be seen what clarification, if any, the Court of Appeal may provide in relation to the issue of commingling of trust funds. The motion judge did not suggest as a general proposition that commingling eliminates the possibility of tracing. However, the motion judge did find on the facts that the extent of the commingling of the alleged CLA Trust Funds, which were “converted among nine different bank accounts held by seven different companies in two countries,” rendered tracing impossible as the CLA Trust Funds were not separately accounted for and therefore could not be identified.

As a general rule, however, tracing is available even if the trust property passes through several different bank accounts, and only ceases to be traceable if the property ceases to be identifiable (e.g. where the money is spent on other services, squandered on meals, or gambled away), which principle was affirmed in the Guarantee decision. The critical issue is therefore whether the extent of the commingling of trust funds can result in the property ceasing to be identifiable. In that regard, the Court in Guarantee observed that it is “only when commingling is accompanied by conversion and tracing becomes impossible that the required element of certainty of subject matter is lost.”

With that in mind, it appears that the critical issue may be primarily a factual one of the extent to which funds can be commingled before certainty of subject matter is lost. The Monitor has argued in its materials for leave to appeal that the CLA Trust Funds flowed up the Carillion banking pyramid and then sat in the UK Account because they were only “notionally” pooled; by contrast, HSBC UK has argued in its materials that there was extensive commingling in the form of funds being deposited and withdrawn between accounts at all levels of the Carillion banking pyramid (what HSBC UK refers to as a “fountain”). In our view, clarification of the extent to which funds can be commingled before certainty of subject matter is lost would be a helpful development.

Depending on the answer to the foregoing issue, it may be challenging to fully reconcile the current jurisprudence, resulting in practical difficulties for the construction industry in similar circumstances, or the issue may become simplified. In this regard, it must be appreciated that construction companies typically commingle CLA trust funds with other funds in a general bank account and need to know in advance the extent to which they can commingle such trust funds before running afoul of the law. If, out of an abundance of caution, construction companies err on the side of maintaining separate and distinct project-specific accounts, they would undoubtedly be faced with additional administrative costs. This, in turn, could have the effect of depleting funds that could otherwise be utilized in delivering construction services and materials, in the result potentially limiting contractors’ financial flexibility on projects that remain subject to the old CLA.

By contrast, the CLA’s successor, the Construction Act, requires that trust funds must be held in a bank account in the trustee’s name, and that the trustee must maintain written records with respect to the trust funds that details: (1) the amounts that are received into and paid out of the funds; and (2) any transfers made for the purposes of the trust. A separate trust account is not required for each project, such that trusts funds from different projects can be deposited into the same account and, importantly, are deemed to be traceable. Accordingly, contractors can take a measure of comfort in knowing that in respect of projects under the Construction Act, they will have greater protection from situations such as that which arose in relation to Carillion Canada’s insolvency.

We await with interest the results of the Monitor’s motion for leave to appeal.

Concurrency Clarified: Ontario Superior Court of Justice Favours Flexible, Practical Approach to Assessing Concurrent Delays

The Ontario Superior Court of Justice has confirmed that a realistic, practical approach should be adopted in allocating fault and damages arising from concurrent delays involving multiple project participants. The Court has also confirmed that to be considered “concurrent”, delays may overlap, but need not be identical in duration.

The Court’s Approach

In the recent case of Schindler Elevator Corporation v. Walsh Construction Company of Canada,[1] the Court considered damages arising from alleged concurrent delays caused by a number of subcontractors, including Schindler Elevator Corporation (“Schindler“), in relation to the construction of the Women’s College Hospital Capital Redevelopment Project (the “Project“). Schindler made a claim against the design-builder, Walsh Construction/Bondfield Partnership (“WBP“) on this P3 Project, for unpaid amounts. WBP counterclaimed and sought set-off against Schindler for, inter alia, damages arising from delays. WBP asserted that Schindler ought to be held liable for a share of WBP’s losses proportionate to Schindler’s contribution to the overall delay because a significant portion of the delays allegedly caused by Schindler were concurrent with delays by other subcontractors. Accordingly, the Court was required to consider the concepts of causation and damages in the context of concurrent delays.

The Court determined that, in relation to concurrent delays arising in complex construction scenarios, fault ought to be examined through a “material contribution” lens, rather than by strictly applying the “but for” test; that is, because it will usually be “impossible” to determine whether the alleged delays and losses would have been incurred “but for” the conduct of one particular contractor/subcontractor/supplier, the courts will tend to evaluate fault based upon whether a particular party’s conduct “materially contributed” to the overall delays and resulting damages.[2] Courts will then generally break the overall delay into its component parts and apportion time, responsibility, and associated damages.[3]

Schindler asserted that delays it was alleged to have caused were not on the critical path of the Project, and accordingly, did not cause any damages which may have been incurred by WBP.[4] Schindler, through its expert, took the position that to be considered “concurrent” with the delays caused by other Project participants, such that the delays allegedly caused by Schindler could form part of the basis for an award of damages to WBP, the delays caused by Schindler must have been co-critical and co-controlling, and parallel in time and identical in duration with the other subject delays, which they were not.[5]

The Court rejected Schindler’s approach to concurrency, and instead found that “concurrent” delays need not occur at exactly the same time and instead could be overlapping, and that, in reality, such delays rarely occur in exactly identical duration.[6] The Court stated that it viewed Schindler’s position as akin to a “but for” analysis, which could unfairly lead to one party being held solely responsible for a particular delay, even where the evidence supports a finding against multiple parties delaying a project.[7] One can also envision a scenario where, if such an approach were to be applied, the injured party would be left with no recourse despite multiple actors contributing to a project delay.

Ultimately, the Court held that there was insufficient evidence to support to a finding that Schindler’s work caused or materially contributed to overall critical path delay, but that Schindler’s work did delay immediate successor events, and assessed damages on that basis.[8]


Due to the prevalence of alternative dispute mechanisms on large, complex construction projects in Canada, case law with respect to assessment and allocation of fault of concurrent delays is relatively rare. Accordingly, even though the Court’s analysis affirms an approach to concurrent delays that has been applied in previous cases, the guidance afforded by Schindler is valuable given the lack of reported decisions on the topic.

Project participants can apply the guidance from Schindler by ensuring robust documentary and other record-keeping practices with respect to project scheduling. In addition, participants should ensure adherence to any notice provisions in their contracts with respect to delay. In the event a dispute arises, it will be critical that parties be able to show the effect of any relevant activities on the overall project progress and with respect to any asserted delays.

[1] 2021 ONSC 283 (Ont Sup Ct) [Schindler].

[2] Ibid at paras 292-294.

[3] Ibid at para 303.

[4] Ibid at para 345.

[5] Ibid at para 346.

[6] Ibid.

[7] Ibid.

[8] Ibid at paras 347-348.

Wastech v Greater Vancouver Sewerage: Uncertainty Remains

The Supreme Court’s decision in Greater Vancouver Sewerage and Drainage District v. Wastech Services Ltd (“Wastech”) clarifies the scope of the duty to exercise a contractual discretion reasonably, establishing that the duty is only breached where the discretion is exercised in a manner unconnected to its purpose. As well, the decision clarifies that a party can act in its own commercial best interests, even if its counterparty is deprived of all or substantially all of the benefit of the contract. These are welcome clarifications. However, and as with the Court’s decision in CM Callow Inc. v Zollinger (“Callow”), the majority decision also raises questions about the precise scope of the duty given the findings regarding the requirement of reasonableness.




Wastech and Greater Vancouver Sewerage (“Metro“) were parties to a long-term waste removal agreement, which provided Metro with the discretion to allocate waste among various. In 2011, Metro substantially re-allocated the waste between different destinations, which increased Wastech’s costs such that it could not meet a “Target Operating Ratio” (which represented the proportion of Wastech’s costs versus revenues). Various adjustments were provided for in the agreement, but the parties had consciously chosen not to provide adjustments beyond a certain threshold. As a result, the operating ratio was several percentage points higher than the target. In the result, given Metro’s reallocation, Wastech did not achieve its Target Operating Ratio.

Wastech initiated arbitration, arguing that a term should be implied or that a duty of good faith should apply, such that Metro could not exercise its discretion in a way that would deprive Wastech of the opportunity to achieve the Target Operating Ratio. The arbitrator declined to imply a term, but found that Metro had failed to give “appropriate regard” to Wastech’s legitimate interests or expectations, and that this constituted “dishonesty” for the purposes of the duty of good faith as explained in Bhasin. Metro successfully sought leave to appeal the arbitrator’s award to the British Columbia Supreme Court (“BCSC“).


Decisions of the Courts Below


Metro appealed on the basis that the arbitrator 1) erred in finding that Metro’s conduct was dishonest and in bad faith, and 2) confused the organizing principle of good faith (which is not a duty) with a free-standing duty. The BCSC declined to review the first ground, as it would trespass on the arbitrator’s fact-finding jurisdiction. On the second ground, the BCSC concluded that since the arbitrator had ruled against implying a term, and since duties of good faith (apart from the duty of honest performance) existed only as implied terms, it was not open to find a duty of good faith (or a breach of such duty). The BCSC rejected the argument that if a contract provides one party with a contractual discretion without expressly stipulating that the discretion is unfettered, then that discretion must be exercised reasonably.

Wastech appealed to the British Columbia Court of Appeal (“BCCA”), which upheld the BCSC’s decision but found the BCSC had created confusion by making unnecessary additional remarks. The BCCA observed that Canadian law recognized that a contractual discretion cannot be exercised so as to “nullify the benefits reasonably expected to be obtained from the contract by the other party”. To this extent, a contractual discretion must be exercised in a manner consistent with the parties’ expectations. However, those expectations must be found in the agreement, and the exercise of the discretion must nullify those expectations – not simply infringe upon them. Here, the parties had expressly considered and rejected a contractual term that would have protected the expectation for which Wastech was seeking a remedy.

The BCCA also observed that “dishonesty” in the context of bad faith entails some subjective element of improper motive (e.g. malice, untruthfulness, ulterior motive, or recklessness), rather than the failure to reach an objective standard. Thus, a remedy would only be available where a contracting party undermines their counterparty’s contractual expectations in bad faith.


The Supreme Court’s Decision


The Majority

Writing for the majority, Kasirer J declined to address the applicable standard of review based on his finding that the outcome of the appeal did not depend on the standard of review.

With respect to good faith, the majority made several important findings. First, the majority concluded that the duty to exercise a contractual discretion in good faith requires the parties to exercise their discretion in a manner consistent with the purposes for which it was granted in the contract. This behaviour amounts to the “reasonable” exercise of discretion, while exercising a discretion in a manner unconnected with that purpose will be unreasonable.

Notably, the majority also confirmed that the purpose of the discretion can often be discerned from the text of the clause in question, but where the discretion is general in nature, the purpose will only be discernable by reading the clause in the context of the contract as a whole. In the latter circumstance, a court will have to construe the ambit of the discretion.

Relatedly, the majority observed that the determination of whether a party’s exercise of a discretion resulted in “substantial nullification” of the other party’s benefit is not the correct method of determining whether that party exercised their discretion in good faith. The Court noted that a party, in exercising a discretionary power, is “merely doing what the other party agreed it could do in the contract”.

In addition, the majority confirmed that as a general proposition, the range of reasonable outcomes will be smaller for a contractual discretion that is susceptible to objective measurement – such as operative fitness, structural completion, mechanical utility or marketability – but will be relatively larger for a contractual discretion that is more subjective – such as matters involving taste, sensibility, personal compatibility, or judgment. More broadly, exercising the discretion capriciously or arbitrarily will be contrary to the purpose of the discretion.

Perhaps most importantly, the majority concluded that the duty is a general doctrine of contract law, as is the case with the duty of honest performance, rather than an implied term. Although the terms of the contract will shape the precise form of the duty, parties will be unable to contract out – entire agreement clauses, for example, will not be able to preclude the application of the duty.

Finally, the majority noted that recourse to Quebec’s civil law was of no assistance to Wastech in this case because Wastech had not alleged that Metro had acted “imprudently or negligently, in an intemperate manner, or with an intention to harm”, and because, even accepting the applicability of the Quebec concept of a duty to cooperate, that duty was not applicable in this case.

Parenthetically, the majority also observed that the duty of honest performance was not at issue in this case, since there was no allegation that Metro lied or knowingly misled Wastech. However, the majority also appeared to suggest that the duty of honest performance also plays a part in determining whether a party has exercised a contractual discretion in good faith; unfortunately, the majority did not expand on this brief observation, such that it remains a point of some uncertainty.


The Concurrence

Writing for the concurrence, Brown and Rowe JJ. agreed that the appeal should be dismissed, but differed from the majority in four respects.

First, the concurrence concluded that because the arbitration legislation applicable in this case referred to an “appeal” of the arbitral award, the appellate standard of review (correctness on questions of law, palpable and overriding error for questions of fact) applied.

Second, the concurrence disagreed that where a discretion is unfettered on its face, a court must nevertheless determine the contractor’s general purpose and then refer to that purpose to determine the limits of the discretion. In the concurrence’s view, this approach undermines freedom of contract and distorts the parties’ bargain by imposing constraints to which they did not agree.

Third, the concurrence took issue with the majority’s suggestion that the duty of honest performance is a preliminary step in assessing whether there has been a breach of the duty to exercise discretionary powers in good faith, noting that this unnecessarily conflates two distinct doctrines of good faith and creates conceptual confusion. In this regard, the concurrence reiterated the same concern that Brown J had expressed in Callow v Zollinger.

Fourth and finally, the concurrence observed that recourse to Quebec law was an unnecessary digression and inappropriate in the circumstances. In this regard, the concurrence reiterated another concern that Brown J had expressed in Callow v Zollinger.




Wastech has conclusively established in Canadian common law a duty to exercise a contractual discretion in good faith as a doctrine of general application rather than an implied term, making it consistent with the duty of honest performance first articulated in Bhasin. This fact is particularly significant for those contracts where a contractual discretion is ostensibly unfettered, since a court will nevertheless read in certain limits to such “unfettered” discretion. In particular, the discretion must be exercised in a way that is connected to the purpose for which the contract granted that discretion.

Importantly, the majority decision also raises a number of questions that make the exact boundaries of the duty uncertain, and difficult to predict whether a discretion will be found to have been exercised reasonably.

Bearing in mind that a discretion exercised in a manner unconnected with the purpose for which the contract granted the discretion will be unreasonable, the decision raises the question of whether a discretion exercised with good intentions in circumstances not contemplated by the discretionary clause or the contract could nevertheless amount to a breach of the duty.

This dovetails with another concern, being the uncertainty surrounding how a court will determine the purpose of a discretion. While the exercise may be more circumscribed where the clause in question is narrow in its application, determining the purpose of a discretionary clause of general application may prove more challenging. The majority concluded that courts will read the clause in the context of the contract as a whole, which does not leave readers with a precise understanding of how best to draft contracts in a manner that preserves the enforceability of a discretionary clause.

The majority’s potential suggestion of the duty of honest performance as a preliminary step in assessing whether there has been a breach of the duty to exercise discretionary powers in good faith may be clarified in subsequent cases, given the concurrence’s observation that this phraseology potentially conflates the two distinct duties and reiterates the same concern raised in the concurrence to Callow.

Bearing all of the foregoing in mind, Wastech represents an important step forward for good faith in the Canadian common law, but presages a potentially uncertain future concerning the limits to the exercise of a contractual discretion. We look forward to seeing how this area of law continues to evolve as Wastech and Callow are interpreted by lower courts.

After the GameStop Short Squeeze, What Does Market Manipulation Mean in Canada?

An Exciting Week

Last week was an unusual week for retail investors. Instead of seeing large investment firms dominating the markets as usual, investors watched as a loosely organized band of Reddit users savaged institutional investors who had been betting on the decline of GameStop Corp (NYSE: GME).

Their strategy was relatively simple: knowing that Wall Street was short selling GME shares at a tremendous rate, and also believing that GME was undervalued, members of /r/wallstreetbets began buying up large volumes of shares and refusing to sell. This resulted in institutional investors not being able to cover their short positions, causing the share price to skyrocket. This is called a “short squeeze”.

By the close of markets on Friday, short sellers had suffered billions in losses as they were forced to cover their positions by purchasing shares at the new high price, to the extent they were able to purchase them.

In practical terms, we have just witnessed one of the single largest private redistributions of wealth in history, and possibly the birth of a new form of coordinated retail investment strategy.

More controversy erupted on January 28, 2021 when one of the online brokerage apps being used by retail investors purchasing GameStop shares, Robinhood, restricted trading of GameStop shares on its platform. As a result, many users were unable to sell their shares at the new high price, depriving them of potentially significant gains at the expense of Wall Street. Some have alleged that Robinhood’s move came as a result of pressure from Citadel Capital – one of Robinhood’s major partners – which was trying to prevent further losses. A class action has already been commenced.

Unsurprisingly, after witnessing history being made this week, many investors – big and small – are asking questions about market manipulation.

Market Manipulation in Canada

In Canada, many of the provinces’ securities legislation contains provisions prohibiting market manipulation.[1] The main provision in Ontario is s. 126.1(1)(a) of the Securities Act, RSO 1990, c S.5:

126.1 (1) A person or company shall not, directly or indirectly, engage or participate in any act, practice or course of conduct relating to securities, derivatives or the underlying interest of a derivative that the person or company knows or reasonably ought to know,

(a) results in or contributes to a misleading appearance of trading activity in, or an artificial price for, a security, derivative or underlying interest of a derivative, […]

(2) A person or company shall not, directly or indirectly, attempt to engage or participate in any act, practice or course of conduct that is contrary to subsection (1).

Notably, the provision prohibits conduct which a person or company “reasonably ought to know” falls into one of the two categories in paragraph (a). This means that a person or company may be liable despite having no actual intention of effecting either an artificial price or misleading appearance of trading activity.

In many provinces’ securities legislation, as above, there is a distinction between “artificial price” and “misleading appearance of trading activity”. The decisions of the Alberta Securities Commission (“ASC“) in particular are helpful to understanding what these different terms mean.

In Re Podorieszach [2004] ASCD No 360, the ASC described an “artificial price” as a “price that differs from the price that would result from the market operating freely and fairly on the basis of information concerning true market supply and demand”:

Normal-course transactions between buyers and sellers, operating at arm’s length, reflect real demand and supply; whatever the effect on price, it can be said to be a genuine market effect.  If, however, demand or supply is distorted, then price will likely also be distorted – no longer reflective of real market demand and supply, it will be artificial.

A variety of trading strategies can be used to create artificially high (or low) prices for securities. A few are set out below. One wonders whether a brokerage intentionally restricting trading of a security on its online platform in order to artificially lower a share price would also qualify.

On the other hand, “misleading appearance of trading activity” relates more to the bona fides of trading. It may or may not be directed at creating an artificial price.[2] Decisions dealing with “misleading appearance of trading activity” tend to look to the motivation behind the transactions. For example, “spoofing” may be considered a course of conduct which results in a misleading appearance of trading activity. In one case, the spoofing involved the use of non-bona fide direct electronic access orders, which were designed to impact the National Best Bid or Offer. The orders would then be cancelled before they could be filled.[3]

A more common example is wash trading, in which the buyer and seller of the securities are the same. Although appearing as a purchase-and-sale transaction like any other (and therefore creating the impression of trading),[4] the ultimate ownership has not changed; it is a ‘wash’. Wash trading is a deceptive practice which can be used to create the false appearance of market liquidity and generate artificial prices.

The British Columbia Securities Commission (“BCSC“) has created a list of “recognized hallmarks” of attempts to manipulate the market:

  • Wash trades;
  • Trading with the object of inducing others to purchase;
  • Trades or orders that lead to an artificial price for a security;
  • Trades or orders that create a misleading appearance of trading activity;
  • Orders made without a bona fide intention to deliver the cash or securities necessary to settle the trade;
  • Trades through nominee accounts;
  • Pre-arranged trades;
  • Market domination;
  • Uptick trades;
  • Involvement in opening and closing trades;
  • High closing; and
  • Uneconomic trading.[5]

Although market manipulation can clearly take many forms, the classic example is a “pump and dump” scheme, which often involve non-bona fide trading in order to create an artificial price the subject securities. The decision of the BCSC in  Re Lim, 2017 BCSECCOM 196 provides a good illustration.

In that case, two individuals acquired a dormant public shell corporation (called URBF) and began orchestrating purchases of URBF shares by themselves and other participants in the scheme. This was done in order to establish a price for, and create interest in, the shares. At the same time, the two individuals were also publishing “tout sheets” which declared that the URBF had “solved the global food crisis” with its “unique technology”. These sheets did not disclose that URBF had spent only $12,000 on equipment, had no other assets, and was not carrying on any business apart from promoting its shares.

Having artificially created a demand for the shares and increased their price (the “pump”), the two individuals then sold 4.8 million URBF shares to public investors for USD $4.8 million (the “dump”). The BCSC concluded that the two individuals had intentionally created an artificial price for the shares contrary to s. 57(a) of the BC Securities Act and imposed an array of sanctions.

Summing Up

The fallout from the GameStop short squeeze will be fascinating to watch. The SEC has signalled that it may be investigating Robinhood, and it is likely considering whether and how to respond to the short squeeze itself. Any steps the SEC takes will be watched closely by Canadian regulators.

Are you or your firm looking for assistance with a securities regulatory enforcement action? Please contact Peter Wardle and Evan Rankin.

[1] See e.g. Ontario Securities Act, RSO 1990, c S.5, ss 126.1(1)(a) and 126.4; British Columbia Securities Act, RSBC 1996 c 418, s 57; Alberta Securities Act, RSA 2000, c S-4, s 93(1), Saskatchewan Securities Act, SS 1988-89, c S-42.2, s 55.1; Nova Scotia Securities Act, RS, c 418, s 132A(1)(a); New Brunswick Securities Act, SNB 2004, c S-5.5, s 69(a).

[2] See e.g. Campbell, Re (2013), 36 OSCB 3630 (Ontario Securities Commission). However, this matter was not fully litigated as it was resolved on the basis of an agreed statement of facts and settlement agreement.

[3] K2 & Associates Investment Management Inc. (Re), 2018 ONSEC 52 at paras 5-6. See also De Gouveia (Re), 2013 ABASC 106 at para 107.

[4] De Gouveia (Re), 2013 ABCA 106 at para 49.

[5] Siddiqi (Re), 2005 BCSECCOM 416 at para 114.