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VRCA forum outlines shifting construction legal landscape

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by Russell Hixson

David Volk, an attorney with Jenkins Marzban Logan LLP, gave the construction industry an update on the shifting landscape of the legal world at the Vancouver Regional Construction Association's Construction Leadership Forum on May 6 in Whistler, B.C.
VRCA forum outlines shifting construction legal landscape

Volk started his presentation by talking about a case involving a painting company to illustrate the danger of filing inflated liens. Atlas Painting was a painting subcontractor hired on a $1.3-million fixed-price contract. But after disagreement ensued near the end of the project, Atlas was terminated and immediately filed a $1.2 million lien.

"The question is, is it always a good idea to put as much into your lien as possible?" said Volk.

Soon after negotiations started, Atlas agreed to reduce the lien to $452,000. But the owner took a hard line and would not post a bond for the "pie in the sky lien claim," said Volk. The owner took Atlas to court with documentation of what could realistically be owed and dozens of other cases Atlas had been involved in.

"The court told Atlas that they should have known better," said Volk, explaining the court saw that Atlas had massively inflated the lien to try and get the largest settlement.

While the court didn't cancel the lien due to the complexity of the underlying contract dispute, it was set at $100,000.

"And that was generous based on the largely unrebutted evidence," said Volk.

Next, Volk presented an insurance case involving the Epcor Tower in Edmonton. A window washing company was contracted to clean the windows at the end of construction work to rid the tower of dust.

Bristol, the window washing company, damaged the windows by using dull or inappropriate blades to scrape off the dirt, Volk described.

"So many of these windows were damaged that there was going to be a $2.5 million replacement cost on this $30,000 cleaning job," he said.

An insurance claim was made, but the policy had an exclusion for "making good on faulty workmanship."

Ledcor claimed on the policy, but the claim was denied.

The case went to trial in 2013 and it was found that damage to windows was not excluded. There was much back and forth in court but finally in the Supreme Court of Canada it was decided it was covered, as this was "all risks" insurance.

"The reason why had a lot to do with what type of insurance it is," said Volk, explaining the courts were hesitant to set a precedent that would enable insurers to advertise all risks insurance but pick away at coverage in the fine print.

The court said the cost of redoing faulty workmanship is limited to the cost of cleaning the windows, not the entire replacement.

Volk also presented what he called his favourite tendering case ever, where a company sued for profit on a job that ultimately made no money.

Elan Construction was the lowest bidder of 10 by about $400,000 for the general contract for an arena project owned by the South Fish Creek Recreational Association (SFCRA). The project went to another company because there was a "sole and unfettered discretion" clause which allowed it to pick someone based on a matrix-based point system.

"But that clause doesn't mean you can do whatever you want," said Volk.

When investigated, it was found SFCRA didn't even follow its own rules in awarding points in its complex system, which if applied would have favoured Elan. Things got complicated when Elan sued for $705,000 in missed profits despite the fact that poor weather, design problems and issues with subcontractors caused Chandos, the winning bidder, to incur heavy costs.

The court reminded them that a damage award must place them in the same position as if the breach had not occurred, which would have included many of the same problems. The judge reduced the award to $1,000.

Volk also explained a recent bond case. In Valard Construction v. Bird Construction, the construction project was to build a large garage and work was subcontracted to a firm called Langford, which failed to pay Valard since it was insolvent.

Valard chose not to lien the project out of concern they would "rock the boat," and Valard would lose out on further oilsands work, Volk stated. Valard eventually sued Langford in February 2017 and obtained default judgment (Langford didn't dispute) but the company was insolvent.

There was a bond, which is a requirement of subcontracts between Bird and Langford that Langford provide a Labour and Material Payment Bond. This essentially says that if Langford couldn't pay up, they could get money from the bond. Bird was a trustee on that bond, so they were sued by Valard, who said Bird should have told them about that bond.

It went to the Alberta Court of Queen's Bench, who said Bird is not required to inform subcontractors about the bond. This may yet go to the Supreme Court of Canada, Volk said, and if the Supreme Court goes against the Court of Queen's Bench decision it could affect many other projects.

"If the Supreme Court rules on this, it will effect everyone's practice when it comes to these bonds," said Volk. "You will have another step to do on your laundry list of things to do."

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