In Ozz Electric Inc. v Bondfield Construction Company Limited, 2023 ONSC 31151, the Ontario Superior Court of Justice determined whether the lien of a subcontractor was expired in the context of the insolvency of Bondfield Construction Company Ltd. ("Bondfield").
This decision provides a helpful review of the factors and evidence that are important in establishing the date of supply and determining whether a lien has expired, in addition to how courts assess bona fide supply.
Background
The construction lien in this case related to a holdback for construction being completed by the now insolvent Bondfield ("the Project") for St. Michael's Healthcare ("SMH").
Bondfield incorporated ProjectCo, a special purpose company which subcontracted the design and construction of the Project to Bondfield. Bondfield subcontracted the supply and installation of various types of equipment ("the Subcontract") to Honeywell Limited ("Honeywell"). The work commenced in 2017, but in August 2018, Bondfield ceased paying certain subtrades and claims for lien were registered.
In December 2018, Honeywell signed a ratification agreement with Bondfield's bonding company ("Zurich") to insure Honeywell's continued supply, which directed Honeywell to begin taking instructions from EllisDon Ltd. ("EllisDon"). On December 18, 2019, the court-appointed monitor of Bondfield ("the Monitor") delivered a letter to Honeywell notifying them that Bondfield had run out of funds "so that Honeywell may cease incurring additional costs at this time," with work ceasing two days later if a funding solution was not achieved.2
Justice Conway issued an order ("the Conway Order") on December 20, 2019, that lifted the receivership stay as against ProjectCo, and which, among other things, permitted SMH to exercise certain remedy rights under the Project Agreement to engage necessary parties to move the Project forward. There was no evidence, however, that Honeywell received the Conway Order before January 8, 2020.3
The following day, SMH sent a letter advising Honeywell that it wanted to meet with Honeywell to discuss next steps on the Project. The same day, an employee responded by email confirming Honeywell was prepared to meet.4
On January 8, 2020, the Monitor sent Honeywell another letter indicating that Bondfield had failed to secure further funding and that Honeywell must "not incur any further financial obligations to its subcontractors."5 This letter stated that SMH had the right under the Conway order to engage subcontractors to move the Project forward and if Honeywell was engaged by SMH in this regard, this would not be as a subcontractor of Bondfield.
Honeywell registered its claim for lien 44 days later, alleging it supplied services and materials from December 2015 to January 8, 2020, and subsequently commenced a lien action.6
A lien vetting committee that was established at a trial management conference to vet the remaining subtrade claims for lien ("Lien Vetting Committee") reported that the claim for lien of Honeywell in the amount of $1,639,821.60 ("Honeywell lien claim") was registered too late and therefore expired. Honeywell disagreed. The court heard a one-day summary trial on the issue of the timeliness of the Honeywell lien claim.
Decision
Issue #1: Has Honeywell proved its claimed last date of supply?
Wiebe AJ. noted that, under the applicable former Construction Act ("CA"), where there is no published certificate of substantial performance of the contract at the time and the relevant subcontract was not certified completed at the time, section 31(2)(a)(ii) of the CA provides that the only measure of whether the subcontractor's lien has expired is whether its claim for lien was registered on or before the 45th day following "the date on which the person last supplies services or materials to the improvement."7
Honeywell asserted it last supplied on January 8, 2020, and its claim for lien was registered 44 days after, and was therefore timely.
Wiebe AJ. noted the only evidence on this issue failed to demonstrate the last date of supply. Specifically, Wiebe AJ. evaluated the affidavit of Mr. Donald Thibodeau ("the Affidavit"), who was the Lead of Contracts and responsible for the negotiation of the Subcontract, but not for its day-to-day execution. Wiebe AJ. noted a number of evidentiary deficiencies in the Affidavit, which contained bald statements and had little corroborative evidence. On balance, the evidence was not credible.8
Notably, Wiebe AJ. observed that for the project's first of three scopes, the holdback invoices for "progress to date" from December 20, 2019 to February 18, 2020 only differed by two cents, suggesting there was essentially no progress made between these dates.9 No progress whatsoever was noted regarding the second scope of the project.10 Regarding the third scope, although a difference of $38,451 was found between invoices dated December 12, 2019 and February 18, 2020,11 no evidence was provided to substantiate that amount being invoiced, casting doubt as to the amount and value of the work conducted.12 Timesheets and supplier invoices between December 20, 2019 - January 8, 2020 were also not provided by Honeywell, which could have substantiated the exact time that Honeywell's forces worked on the Project.13
Additionally, for the first time in the proceedings, Honeywell also claimed they were "ambushed" and alleged that they believed the last date of supply would not be contested. Wiebe AJ. found that, given it was Honeywell's onus to prove its claimed last date of supply, Honeywell would have needed to demonstrate that the Lien Vetting Committee "clearly and unequivocally admitted this fact to avoid having to prove it."14 Not only was there no evidence to substantiate these allegations, the evidence suggested that Honeywell was actually given early notice by the Lien Vetting Committee to prove their last date of supply.15
In short, due to the lack of corroborative evidence in the Affidavit to prove the work was being completed up until January 8, 2020, the court held that Honeywell failed to prove its claimed last date of supply, and that the Honeywell lien claim had expired.
Issue #2: If the claimed last date of supply was proven, has Honeywell proved that it amounted to bona fide supply?
Honeywell failed to prove the supply amounted to a bona fide supply under its subcontract.
Although it was determined that Honeywell failed to prove its claimed last date of supply, the judge was compelled to provide comments about whether Honeywell's supply was bona fide. Demonstrating a bona fide supply would have required Honeywell to prove that the supply was "a genuine, good faith advance of the scope of work under its Subcontract."16
Supply of services and materials after a subcontractor lien claimant knows or ought to have known of the termination of a subcontractor supply contract has been found to not amount to bona fide supply.17 A lien claimant has a positive obligation to make inquiries as to the state of a project, particularly if there are a series of unpaid accounts.18 Based on the evidence before him, Wiebe AJ. found Honeywell had not made sufficient inquiries, and had acted unreasonably in incurring additional costs after receiving Zurich's letter to Honeywell, which explicitly stated the purpose of the notice was to prevent Honeywell from incurring additional costs pending the resolution of these funding issues.19
Key Takeaways
- Parties must carefully select their affiants and evaluate whether the affiant has the requisite knowledge to provide evidence regarding the key issues in the case.
- Additionally, this case offers an important reminder that lien claimants have a positive obligation to clarify ambiguous points in assessing bona fide supply.20 This obligation will not be satisfied if parties fail to follow up to clarify directives regarding a construction project.
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Footnotes
1. Ozz Electric Inc. v Bondfield Construction Company Limited, 2023 ONSC 3115 ("Ozz v Bondfield").
7. Ibid at para 19 (emphasis added).
11. Equivalent to only 1.54% of the total final invoice (final holdback invoice amount: $2,491,194.75).
12. Ozz v Bondfield at para 21, sub i).
15. Ibid at para 30. This included an email that the lawyer for Ozz wrote to Honeywell's then lawyer that expressly identified the problem with the Honeywell supply and holdback invoices and contentious claimed last day of supply. This email was found by the judge to have given notice to Honeywell that it had to prove its claimed last date of supply and that its invoices impeded that process.
18. Ibid at para 45, citing to Cos Shore Inc v Unimac-United Mgmt Corp, 2017 ONSC 4813; Clarkway Construction Ltd v 2247129 Ontario Inc, 2016 ONSC 3991.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
