In a recent Alberta decision, a construction company went to court to obtain payment of close to $600,000, after the building owner withheld the money, claiming deficiencies.
Building Owner Claims Deficiencies
A daycare hired a construction company to build a daycare facility.
The original contract amount was $950,000 plus GST. There were some change orders with the most significant one being for the supply of utility connections to the property in the amount of $155,971.
As a result of the change orders, the total price of the contract was $1,124,976 and the total amount billed by the construction company was $1,080,687.
While the contract included payment provisions for progress payments, which were to be submitted through the project consultant, the construction company did not do so, and the daycare did not engage the consultant to review invoices, or object to them, or insist that progress invoices be submitted through the consultant. In fact, there was little to any involvement of the consultant.
Nonetheless, the construction company posted a certificate of substantial performance on September 14, 2018; the daycare did not dispute or challenge that the certificate was appropriate.
However, the daycare withheld approximately $588,000 (more than 50% of the contract price), despite the fact that it had been using the building for the purpose for which it was intended and that it had been doing so since shortly after the construction company’s last invoice.
The construction company went to court seeking summary judgement for the amount of $588,082.
The daycare challenged the application for summary judgment, saying that there were substantial deficiencies, and that there were significant issues of merit for trial. The daycare claimed that there were $250,000 in deficiencies, and it said that it might have a delay claim against the contractor in a significant amount over and above the deficiency claim.
Court Finds for Construction Company
The court began by stating the importance of parties actually using a consultant during the construction process — a consultant who was not used in this case:
“The consultant has an important function under the contract. By having accounts submitted for payment through the consultant, an owner who may or may not be sophisticated in construction matters receives a review of the contractor’s invoices, and assistance with any issues that arise during the course of construction. On the other hand, while the contractor’s invoices are subject to review, it can take some comfort in knowing that they are being reviewed by a knowledgeable person with professional obligations, as opposed to an owner with a vested interest in the project and minimizing costs. As such, in an ideal setting, the consultant is often a form of buffer between the contractor and the owner.[…]
There is a process […] under the contract which involves the consultant, and the owner did not engage that process. To the contrary, the owner, with the assistance of the consultant, sought an occupancy permit and commenced the operation of its business. The facility has been used for its intended purpose as a daycare facility since then.”
The court then turned to the issue at hand, stating:
“I am left with a case where many deficiencies are alleged, but few are illustrated with significant evidence.”
The court acknowledged that at least some of the initial deficiency claims appeared to have an arguable basis for requiring a trial; however, the court noted that on a summary judgment application, it could not resolve the individual deficiencies on an item by item basis.
The court then noted that the last day of work that was specified in the construction company’s builders’ lien was September 18, 2018. Based upon the total contract price of $1,124,976, the normal 10% holdback under the Builders’ Lien Act would have therefore been $112,497.
Under the circumstances, the court concluded that the daycare’s decision to unilaterally withhold $588,082 from an agreed-upon purchase price would not be a fair or just result.
As a result, the court granted a partial summary judgement for a net amount of $475,584, which was the $588,082 claimed minus the 10% builders’ lien holdback. The court explained its decision as:
“While normally set off cannot be made against the 10% portion of the lien fund, there are no subcontractor liens in this case, and the issue is directly between the contractor and the owner. I choose the statutory holdback amount for several reasons. One is that it fairly encompasses and covers the deficiencies that were claimed shortly following completion. Some of those alleged deficiencies were quantified and some of them were not quantified. In addition, the contract […] has specific terms dealing with final payment so the holdback amount would appear to be a proper place to draw a line between what the action should be about, and what it should not be about. The certificate of substantial performance was not challenged when issued, and the owner claimed an occupancy permit, so there is no reason that [the construction company] should not at least be paid for everything up to, but short of, the final payment stage.”
Finally, the court declared the construction company’s builder’s lien against the land to be valid with respect to at least the amount for which partial summary judgment had been granted. As a result, it ordered that the preliminary amount of $475,584 would be paid within 60 days, failing which the construction company would have leave to apply to have the property sold in the ordinary way.
The knowledgeable Calgary construction lawyers and staff at DBH Law understand the complex risks of both multimillion-dollar and smaller construction projects and the expensive disputes that can arise when something goes wrong in all cases. We handle all elements of a construction relationship. We can proactively advise and help draft important documents such as contractor and subcontractor agreements and similar, to make expectations clear and eliminate as much risk as possible. We can also represent you in any litigation or other dispute resolution that may be needed if a dispute arises.
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