Lessons Learned
- Preparation to dispute payment to a contractor should focus on ensuring that claims made by the owner agree with the owner’s documentary record regarding value received, including documents generated by their construction manager.
- Motions in lien litigation are of a deliberately summary nature, and a summary judgement of one or more matters in dispute may occur in the course of a motion even if not formally sought by either party.
- In a lien involving a stipulated-price contract, the owner/developer cannot prevent payment of subcontractors from the holdback funds.
Construction
Homes by DeSantis (Lake) Inc. is the owner and developer of the Grimsby condo project AquaZul Waterfront Condominiums, a mid-rise complex built on the Lake Ontario shore. In December 2017, DeSantis contracted concrete-forming services and materials from Halton Forming, which subcontracted the work to Sutton Forming, Inc.
In July 2019, DeSantis’ construction manager certified that the project was over 95% complete, triggering an obligation to make a payment to Halton by DeSantis. The developer refused to pay, alleging deficiencies, causing Halton to default on its payment to its subcontractor Sutton in the amount of approximately $1.1 million.
Litigation
Between October and November, Sutton registered and perfected its lien, and the registered lien claims of Sutton’s sub-sub-contractors were sheltered under Sutton’s perfected lien pursuant to the Construction Act.
In August 2020, Sutton notified DeSantis that the minimum undisputed holdback was sufficient to satisfy the claims of Sutton’s sub-sub-contractors, and funds were ultimately released for five of the six sub-sub-contractors, excepting Pilosio, an Italian scaffolding, formwork and shoring company.
DeSantis’s refusal to release funds to Pilosio led to a motion to confirm the correct amount of the holdback and to oblige DeSantis to pay Pilosio’s claim from it, which the motion judge ordered, as well as finding that the correct amount of the holdback was approximately $638,000.
Analysis
DeSantis appealed both the amount of the holdback and the order to pay Pilosio.
Holdback Types
In determining the questions on appeal, the Court cited the 2009 Superior Court decision Urbacon Building Groups Corp. v. Guelph (City), which held that the Construction Act creates two holdback obligations: the basic holdback of 10% of the contractual value of services and materials supplied, and the additional holdback of “any additional amount owed by the payor to the contractor on the contract which was performed.”
The distinction between the two types of holdback is critical, the court in Urbacon observed, because an owner is entitled to set off claims against a contractor in calculating the overall obligation, but set-off claims cannot be applied to reduce the owner’s obligation below the amount of the basic holdback.
Evidence of Value
The Court found that the motion judge had correctly cited and followed Urbacon, and approved of the motion judge’s use of the July 2019 completion certificate issued by DeSantis’s construction manager to assess the total value of the contract and derive from that the correct holdback figure.
Further, the Court noted that the motion judge was entitled to reject “bald assertions” by DeSantis respecting the holdback calculation and that the failure of DeSantis to amend the July 2019 payment certificate in the time and manner allotted by the contract to do so supported an inference that the payment certificate was a credible statement of the value of materials and services provided.
Summary Judgement
DeSantis next argued that the motion judge had in effect granted an unapplied-for summary judgement on a contested claim by DeSantis regarding deficiencies by Halton’s sub-subcontractors. The Court supported the motion judge, who had relied on s. 67 of the Construction Act (procedure should “as far as possible be of a summary character”) and Urbacon’s interpretation of s. 67: “the holdback provision, along with the rest of the Act, is designed to protect the subcontractors at the lower end of the pyramid from the hardship of litigation delay. There is no reason for subcontractors with clear entitlement to wait until the issues between the major parties are completely disposed of.”
Setting Off Against Subcontractors
The Court added that in this context – a stipulated-price contract – DeSantis had no actionable interest in the accounting between Halton and its subcontractor(s). Any dispensation to subcontractors was in fact a credit to DeSantis against whatever balance was ultimately deemed to be owing by DeSantis to Halton itself. A deficiency claim by DeSantis affects release of the holdback to Halton. Unless Halton also asserts a deficiency claim “down the ladder” against its own subcontractors, the DeSantis deficiency claim does not affect the eligibility of the subcontractors to receive holdback funds.