Canadian Pressure Testing Technologies Ltd v EllisDon Industrial Inc, 2022 ABKB 649

Court of King’s Bench of Alberta Citation: Canadian Pressure Testing Technologies Ltd v EllisDon Industrial Inc, 2022 ABKB 649 Date: 20220929 Docket: 2003 16612 Registry: Edmonton Between: Canadian Pressure Testing Technologies Ltd Plaintiff/Applicant - and - EllisDon Industrial Inc Defendant/Respondent _______________________________________________________ Memorandum of Decision of the Honourable Applications Judge B. W. Summers _______________________________________________________ [ 1 ] By Desk Application the Plaintiff applies for

summary judgment against the Defendant in the amount of $98,301.00, as well as other related relief. [ 2 ] The Defendant was the general contractor for Early Site Works for a petrochemical plant in Sturgeon County (the “Project”). The Defendant entered into a subcontract (called “Services Agreement”) with the Plaintiff pursuant to which the Plaintiff provided pressure testing services for piping on the Project. [ 3 ] The payment provisions under the Services Agreement were as follows: 5.1 In consideration of the provision of Services by Service Provider (Plaintiff), ED (Defendant) agrees to pay Service Provider the following (the “Fees”): See attached

Schedule “A” 5.2 All Fees will be invoiced by Service Provider by delivery of an original invoice to the address of ED. Service Provider shall reference Agreement Number herein on all invoices. 5.3 ED shall pay to the Service Provider monthly progress payments net of any applicable Holdback and such payments shall become due and payable no later than five (5) business days after the ED receives payment pursuant to the terms and conditions of the Prime Contract from the Owner in respect of such Services and as the amounts of such payments are certified by the Owner or the Consultant.

Any change in the fees payable hereunder must be approved in advance by ED in writing. 5.4 The parties acknowledge and agree that any further services to be provided by the Service Provider during the Term other than

the Services must be approved in writing in advance by both parties before the Service Provider can perform such services. For greater certainty, in the event that any additional services are performed by Service Provider without written agreement of the parties, ED shall not be required to pay Service Provider any fees or other amounts in respect of such services. [ 4 ] The Plaintiff performed services for the Defendant under the Services Agreement. All work performed by the Plaintiff was requested and approved by the Defendant.

The Defendant paid the Plaintiff for all of its work, except for the final invoices totaling $98,301.00 (“Unpaid Invoices”). The Defendant has not paid the Unpaid Invoices because the Owner has not paid the Defendant. The Unpaid Invoices are part of Change Order Request COR-110 in the amount of $766,534.20 that the Defendant submitted to the Owner.

This Change Order Request is part of a much larger dispute between the Defendant and the Owner in the approximate amount of $41 million, which is currently being arbitrated. [ 5 ] The Defendant takes the position that it is not required to pay the Plaintiff until it gets paid by the Owner.

The rationale for that position put forward by the Defendant is the following phrase within clause 5.3 of the Services Agreement: “… and such payments shall become due and payable no later than five (5) business days after the ED receives payment pursuant to the terms and conditions of the Prime Contract from the Owner in respect of such services …” (“the Critical Term”).

The Defendant asserts that the Critical Term is a so-called “pay when paid clause”. [ 6 ] The Plaintiff, on the other hand argues that clause 5.1 of the Services Agreement establishes the Defendant’s obligation to pay the Plaintiff, and that the Critical Term (in 5.3) is a “pay no later than” clause.

The Plaintiff asserts that the Critical Term does nothing to alter the Defendant’s payment obligation under clause 5.1, but rather merely fixes an outside date for the Defendant to make payment. [ 7 ] Each party references cases in support of its argument. [ 8 ] The Plaintiff refers to A & B Mechanical Ltd v Canotech Consultants Ltd et al, 2013 MBQB 287 .

In that case the critical payment clause in the subcontract between the contractor and the subcontractor was: Payments will be made monthly in progress estimates as approved by the Architect and/or Engineer and the Contractor’s Superintendent covering 92.5% of the value of the work completed by the Sub-Contractor to the end of the previous month, such payments to be made five days after the Contractor receives payment for such work from the Owner. [ 9 ] The subcontract incorporated the terms of the Prime Contract including the following: 10.3 The Owner shall make payment to the Construction Manager on account in accordance with the provisions of

ARTICLE A-8 PAYMENT no later than fifteen (15) days following the date of receipt of an application for payment. [ 10 ] Chief Justice Joyal of the Manitoba Court of Queen’s Bench found that the Plaintiff A & B Mechanical had made out a prima facie case that it was entitled to payment as it had satisfied the only condition precedent of providing statutory declarations and pursuant to the Prime Contract payment was due to A & B.

With respect to the contractor’s reliance on the critical payment clause, he stated (at paragraph 21): With that having been done by A & B (ie the provision of statutory declarations), in order for the clause in question to be interpreted as a true pay-when-paid clause and consequently to be interpreted as a waiver by A & B of its right to be paid (conditional upon Canotech receiving payment from 5994731), the clause would have been required to have clearer language such that it would have alerted A & B to that prospect. [ 11 ] The Plaintiff also referred to the case of Arnoldin Construction & Forms Ltd v Alta Surety Company, 1995 NSCA 16 (“ Arnoldin ”) .

In that case the bonding company for the contractor Gem Construction denied liability under its bond for amounts due to a subcontractor on the basis that general contractor Gem Construction was not obligated to pay until it had been paid by the Owners. The subcontract provided that any amounts claimed by the subcontractor during construction “shall be due to the subcontractor on or about one day after receipt by the Contractor of payment from the Owners”.

The subcontract also provided that the final payment would be made upon acceptance of the subcontractor’s work “and within thirty days after payment has been received from the owner”. [ 12 ] The Nova Scotia Court of Appeal ruled in favour of the subcontractor, stating the following: There is a difference between the progress payment provision and the final payment provision in Clause 2. Under the former it is provided that the balance of the requisition "shall be due" on or about one day after the contractor is paid by the owner.

Whereas under the latter it is provided that the final payment "shall be made" on acceptance of the work "and within thirty (30) days after payment is received from the owner." The final payment clause shows an intention that upon acceptance of the subcontractor's work payment was required to be made within thirty (30) days after payment has been received by the contractor. As the final progress billing shows the appellant's work was 100% complete, we are dealing with the

interpretation of the final payment provision of the Contract. As the word "after" is defined to mean "later" or "following" a reasonable

interpretation of the payment provision is that it is but a timing device as to when the balance calculated as owing under the subcontract was to be paid. This must be so as the focus of the final payment provision is that payment shall be made within thirty (30) days after payment is received from the owner. This was a standard form of contract used by Gem. Had Gem intended that nothing would be owing or payable to a subcontractor upon completion of the work unless payment was received from the owner, the contract ought to have contained clear words to denote such an intention.

Appropriate words would have been that the balance claimed by the subcontractor for the completion of the work pursuant to the terms of the subcontract would only be paid "if” the owner paid the contractor. The word "if” is defined in the Oxford Dictionary as meaning "on the condition or supposition that". To impose on a subcontractor a term that payment was conditional on the contractor receiving payment from the owner would require the clear language of the nature I have identified.

Any provision intended to diminish or remove the subcontractor's right to be paid should clearly state that and set out the circumstances in which the subcontractor will not be paid following the completion of his work. Such a provision should not only be clear but specific, that is to say, it will not be inferred as the intended effect of a clause which addresses some other less fundamental term or provision of the contract such as the timing of payments to the subcontractor in relation to the time when the owner pays the contractor.

[13] Conversely, the Defendant’s brief asserts that there is another line of authority, that should be followed in this case.

The casesthat the Defendant relies upon are set out below. [14] In Timbro Developments Ltd v Grimsby Diesel Motors Inc, (1988) 32 CLR 32 (Ont CA) (“Timbro”), the Court had toconsider the following clause: Payments will be made not more than thirty (30) days after the submission date or ten (10) days after certification or when we have beenpaid by the owner, whichever is the later. [15] In a 2-1 Endorsement, the majority ruled that this was a pay when paid clause and because the Defendant had not been paid, ithad no obligation to pay the subcontractors.

In dissent, Finlayson JA stated that the clause dealt with the timing of payments and in nosense put the subcontractors at risk that they would not be paid. Leave to appeal was not granted by the Supreme Court of Canada. [16] The second case relied upon by the Defendant is Kor-Ban Inc v Pigott Construction Ltd, [1993] OJ No 1414 (“Kor-Ban”).In that case, the clause at issue specified that payments to a subcontractor were due “provided the amounts of such payments are certifiedby the architect” and “five (5) days after payment of such amount has been received by the Contractor from the Owner”.

Madam JusticeBell of the Ontario Divisional Court followed the majority in Timbro and found that the clause in the case before her was notdistinguishable from the clause under consideration in Timbro. [17] There are a number of other cases that I find to be helpful, that were not cited by either party.

Applied Insulation Co Ltd vMegatech Contracting Ltd, (1994), 22 CLR (2d) 251 (“Megatech”); Crompton v Norman Hill Realty Inc, [1995] OJ No 3407; Smith-Peat Roofing and Sheet Metal Ltd v Matassa Inc, [2000] OJ No 5011; Harris Steel Ltd v Seaboard surety company of Canada, (ON SC); 6157734 Canada Inc v Bluelime Enterprises Inc, [2016] OJ No 1418; Cardinal Contracting Ltd v SekoConstruction (Vancouver) Ltd, 2017 YKSC 51 (“Cardinal”) and Online Security Inc v Maxion Construction Management-TheUptown Inc, (ON SCSM) (“Online”) are all cases that have considered pay-when-paid (or in one case “paid-when-certified”) clauses and/or the decisions in Timbro and/or Kor-Ban. [18] Interestingly enough, all of these decisions except Cardinal are Ontario lower court decisions that would be bound byTimbro.

Most of these lower court Ontario decisions distinguish, minimize or ignore Timbro (and prefer to follow the reasoning inArnoldin). In Online, the Court said this: 34. …(counsel for the defendant) submitted that Timbro Developments was the leading case on pay-when-paid clauses. Iobserve, however, that the court’s per curiam endorsement appears to fall within that class of brief endorsements which “haveprecedential value but they should not be construed to support broad overarching principles which are not specifically addressed inthem.”: see R. v.

Timminco Ltd./Timminco Ltée (2001), (ON CA), 54 O.R. (3d) 21 (C.A.), at para. 36. 35. In my view the pay-when-paid clause at issue in 61557734 Canada Inc. v. Bluelime Enterprises Inc., supra, was quite clearthat the subcontractor would “in no event” be paid “unless and until” the contractor was paid by the owner. By contrast, the clausein Timbro Developments was less clear - as is apparent from the division of opinion in the Court of Appeal.

But the clause in the case atbar, in my view, is still less clear than the clause which Finlayson J.A. found to completely fail to put the subcontractor on notice that itwould not get paid at all if the owner failed to pay the contractor. [19] I find the reason for decision in Megatech also of potential application to this case. In that case the Court relied upon an obiterstatement of Madam Justice Bell in Kor-Ban to avoid the application of Timbro as follows: 16 In Kor-Ban Inc. v. Pigott Construction Ltd. [reported (1993), 11 C.L.R. (2d) 160 (Ont. Gen.

Div.)], Bell J. deals with the defenceof “only due when paid”.

The defence becomes available when the contract between the contractor and the sub-contractor states thatamounts between the contractor and the sub-contractor do not become due to the sub-contractor unless and until the contractor has beenpaid by the owner. 17 At p. 14 of that decision, Bell J. states [at p. 177 C.L.R.]: the contract between Pigott and Kor-Ban had the following provision: Payment to be made as follows: Ninety percent (90%) of the value of complete work done by the Sub-Contractor, and Ninety Percent (90%) of the value of materialsdelivered to the site from time to time as the Work progresses, provided the amounts of such payments are certified by the Architectunder the terms of the contract between the Owner and Contractor, and Five (5) days after payment of such amount has been received bythe Contractor from the Owner ... 18 Relying on the Court of Appeal’s decision in Timbro Developments Ltd. v.

Grimsby Diesel Motors Inc. (1988), 32 C.L.R. 32(Ont. C.A.), Bell J. accepted that the clause in the contract specified a condition precedent to legal entitlement to payment from thecontractor to the sub-contractor. 19 At p. 28 of her judgment, Bell J. states [at pp. 185-186 C.L.R.]: Thus, the issue is whether there has been any act or default on the part of the general contractor which has been the cause of the owner’sfailure to pay the general contractor.

If there has been, then the general contractor would not be entitled to rely on a clause such as s. 12,in the subcontract in this case. [20] In the case before me, I take it from the evidence that the Defendant did not have the prior approval of the Owner for thework under Change Order Request COR-110 (which includes the Unpaid Invoices). In cross examination on affidavit, counsel for thePlaintiff asked the Defendant’s witness to confirm this several times and the witness said that he did not know. However, the work withrespect to the Unpaid Invoices predates Change Order Request COR-110 by several months.

[ 21 ] In

summary, I am not going to follow Timbro . It is not binding on me. It appears to have been minimized, distinguished and ignored to the point that it has little precedential value. I take as a correct statement of the law the following (from Arnoldin ): To impose on a subcontractor a term that payment was conditional on the contractor receiving payment from the owner would require the clear language of the nature I have identified.

Any provision intended to diminish or remove the subcontractor's right to be paid should clearly state that and set out the circumstances in which the subcontractor will not be paid following the completion of his work.

Such a provision should not only be clear but specific, that is to say, it will not be inferred as the intended effect of a clause which addresses some other less fundamental term or provision of the contract such as the timing of payments to the subcontractor in relation to the time when the owner pays the contractor . [ 22 ] In this case, I do not think that the Critical Term reaches the point of clarity required by the law in order to be considered a true “pay when paid” clause. The Critical Term is at the least ambiguous as it can clearly be interpreted as a “pay no later than” clause.

Furthermore, following Megatech, I find that the circumstances are such (the failure of the Defendant to obtain the prior approval of the Owner for the work) contributes to my finding that the Defendant should not be able to rely on an

interpretation that the Critical Term is a true “pay when paid” clause. [ 23 ] The Plaintiff referred to a “Subcontractor’s Bill of Rights” on the Defendant’s website to support its argument. Given my conclusion on the proper

interpretation of the Critical Term, I need not consider this provision. [ 24 ] I grant

summary judgment to the Plaintiff in the amount of $98,301.00. If there is any question as to interest, costs and other consequential items of relief, such may be addressed before me in morning Chambers. Application submitted as a Desk Application. Dated at the City of Edmonton, Alberta this 29 th day of September, 2022. B. W. Summers A.J.C.K.B.A. Appearances: Louis M. H. Belzil, KC Rackel Belzil LLP for the Plaintiff/Applicant Ryan P. Krushelnitzky and Jonathon Austin Field LLP for the Defendant/Respondent