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TACC Construction Ltd v Ajax Audley Developments Ltd, 2017 ONSC 5143

TACC Construction Ltd (“TACC”) constructs sewers and water mains, and Ajax Audley Developments Ltd (“Ajax”) is a developer who was working on a residential subdivision in Ajax, ON called Mulberry Meadows. Ajax planned this development in seven stages, or Phases. The agreements, allegedly “contracts,” were for the production of mass earthworks, underground services, and roads in the subdivision.

TACC claimed that the agreements were for the entirety of the project, but Ajax claimed that the agreements were only for Phase 1A and 1B. TACC and Ajax executed five agreements, titled Contract A, B, C, D, and E. Each agreement called for TACC to complete the work as required by that contract’s documents, and each agreement listed those documents along with terms to be incorporated within them, such as information for tenderers, definitions, general conditions, and so on. The contracts each had different dates for completion, ranging from May 2009 to November 2011.

In early 2012, a pricing dispute arose and came to a point in 2014, when Ajax called upon TACC to complete the work under Contract D – the dispute, which concerned the price adjustment clauses in Contracts D and E, was resolved by a consultant, who ruled in Ajax’s favour. On December 24, 2014, TACC registered a lien against lots in Phase 1B and in Phases 2 through 7. The lien was, according to TACC, for supplying concrete curb, sidewalk and asphalt, and related matters. This work was related to Contracts D and E.

Narrowly, the issue for the court to decide was whether the parties had entered one contract or five. If they entered five separate contracts, TACC’s lien was not registered in time based on both the dates of the Contracts and on the date of the adjudicated dispute in July of 2014. Ajax would thus succeed in their application for an order discharging that lien, and would also get back the significant funds it had paid to court. If, however, TACC and Ajax entered only one contract, TACC was potentially entitled to the lien.

TACC argued that the contract was for the entirety of the work: namely, for Phases 1 through 7. Since TACC had already performed work on the first phase, it was, the company argued, entitled to general liens according to section 20 of the Construction Lien Act, which states that if an owner enters a single contract for improvements on more than one of the owner’s properties, any person who is supplying services or materials under that contract can choose to have their lien follow the form of that contract – meaning that the person can have a general lien registered against each of the premises for the price of services and materials.

Ajax, however, argued that TACC had only provided work and materials on Phases 1A and 1B, and thus was not entitled to register a lien against lots in Phase 1B or in Phases 2 through 7. Ajax also requested that the court remit a large payment – over $700,000 – to it after discharging TACC’s lien.

The approach to interpreting contracts was determined by the Supreme Court of Canada in Sattva Capital Corp. v. Creston Moly Corp., 2014 SCC 53 as a “practical, common-sense approach” that attempts to determine both what the parties intended at the time the contract was signed, as well as the scope of the parties’ understanding. Courts thus read contracts, insofar as possible, in their ordinary meaning, and follow other rules of interpretation, such as that when a contract is not ambiguous, it must be given its literal meaning.

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Answer

How Many Contracts Are There?

The judge ruled that TACC and Ajax did enter five contracts, meaning that TACC did not register their lien in time. TACC’s lien was held to be invalid, and Ajax’s funds were restored to them. Here the court found that the language of the contractual provisions was clear, with no ambiguity – thus, there is no reason to look beyond the literal meaning of the text. As the judge holds, “if there had been but one agreement, there would be no sense to be made of the facts of their being five agreements, each with their own defined scope of work” (para 27). While the tender materials for the subdivision were bundled into two phases, the work was clearly specified to be laid out in five individual contracts. Moreover, some of the provisions in the general conditions and the supplementary general conditions – mostly those governing payment of holdbacks – were more consistent with a finding of five contracts.

Interestingly, after ruling that five separate contracts were entered, the judge continued to hold that in her view TACC was not entitled to a lien under section 20 of the Construction Lien Act whether there was one contract or five because, with the exception of Phase 1B, it had not supplied work or materials to the other lots.

This case illustrates how important it is for contractors to ensure that liens offer the protection they expect, and for owners to structure their contracts in ways that avoid this kind of confusion. These kind of disputes lead to inevitable time delays, damaged relationships, and cost overruns – not to mention the legal costs when issues like this end up in court.

 

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Readers are cautioned not to rely upon this article as legal advice nor as an exhaustive discussion of the topic or case.  For any particular legal problem, seek advice directly from your lawyer or in-house counsel.  All dates, contact information and website addresses were current at the time of original publication.