Unavoidable litigation: 

When cooler heads won’t prevail  

BY ROBERT KENNALEY

You may have heard us say that if you don’t end up with a problem client from time to time, you probably don’t have enough clients. This is a story of just such a business reality. 

In 2011, a CNLA member contracted to install a landscape design for a homeowner, who began to question the contractor’s methods. He demanded the right to approve the work, to instruct the contractor’s workers, to have work ripped up and reinstalled his way, and to have additional work performed at either no cost, or at his unilaterally-proposed rates. Although stunned, the contractor did his best to accommodate the homeowner, in the hopes of avoiding a protracted dispute. The homeowner then (with the straw that broke the camel’s back) insisted that a 10-12 ft. retaining wall be constructed out of natural stone, at no additional cost. The contract clearly specified pre-engineered pre-cast, that no engineering had been included in the price and that the wall could not be built to code out of natural stone.

Upon it becoming clear that the wall could not be built as the homeowner wanted it (and when the contact was approximately 50 per cent complete), the homeowner terminated the contract and accused the contractor of bad faith, in addition to a wide range of contractual breaches and negligence. He also accused the contractor of damaging his property and advised that he would be suing for substantial damages.

The lawyers got involved, but the homeowner reiterated that he had years of experience in construction and would prove a substantial claim against the contractor at trial. With litigation on the horizon, the contractor liened for the balance owing, to protect his security in the property. The homeowner then counterclaimed for $500,000. The counterclaim included for the completion of the contract, (complete with natural stone wall), even though the contract had not been invoiced in full. To protect his cost position, the contractor offered to accept 50 per cent of what was owing, if the homeowner would drop the counterclaim and call it a day. The owner refused, and for over three-and-a-half years insisted that he required a substantial payment to settle.

Lump sum from insurer
Perhaps thankfully, the homeowner’s laundry list of complaints included allegations that the contractor had damaged his front door, garage floor and barbecue, along with existing trees. The contractor was thus allowed to call on his liability insurance policy, to defend the allegations. Rather than appointing a lawyer to defend the property damage claims, the insurance company preferred to pay a lump sum payment to the contractor, to pay the anticipated defence costs as well as a healthy premium to cover any possible liability to the homeowner.  

Shortly after litigation began, it was revealed that the homeowner had been secretly recording his conversations with the contractor about the wall and his various other complaints. Although the homeowner insisted that they would help him at trial, the recordings revealed (as did the written communications between the parties) that the homeowner had not raised the vast majority of his laundry list of complaints until he issued his counterclaim. 

Unpredictable, litigious homeowner  
The homeowner retained an ‘expert’ who was neither a P.Eng. nor a Certified Engineering Technologist (CET), and who based his conclusions for the most part on what the homeowner had told him. He then gave mere ‘approximate estimates’ of what the complaints were worth and fired his lawyer — about a week before trial. 

The homeowner’s motion for an adjournment (for a year-and-a-half) was denied. His new lawyer didn’t see many prospects for the homeowner’s case and reasonable settlement discussions finally ensued.  A deal was for the most part struck. Even then, it had been discovered in the weeks before trial that the homeowner had already sued his builder in 2010, for many of the same items he was now suing the contractor for. This had not been disclosed. The homeowner insisted that he should be able to force the contractor to settle without any assurance that the contractor would not be dragged into the builder action. 

In the end, it appears the homeowner ended up paying between $350- and $370,000 to get out of the litigation. This included an agreed-upon 75 per cent of the contractor’s claim, an amount paid to the contractor as costs (which was three times the amount paid on the claim) and the amounts paid to his own lawyers (about $150,000). He paid this when he could have paid half the claim, and nothing more, at the onset of litigation. 

The contractor, on the other hand, ended up with approximately twice the value of his claim in his pocket, and after legal fees were paid in full. This was only possible because the contactor had accepted a lump sum payment from the insurance company to defend and assume the risk of the homeowner’s property damage claims. Still, the contractor would have happily taken half his claim to avoid the whole nightmare. He might even have walked away with nothing. He experienced firsthand how litigation can be time-consuming, all encompassing, stressful and uncertain — and how, sometimes, the other side will force you to engage.

I’m not sure there is much of a moral to this story, but it is worth telling. Sometimes you get a live one. Sometimes, you can’t get out of it. It is, unfortunately, part of life in the big city of business. Even more so, perhaps, in the construction business. The moral is that it can happen to anyone — so be prepared. Good contracts and good record keeping will help. So will good advice. In this case, the pressure of the lien and the offers to settle eventually did their job. Finally, the contractor in this case had to have patience, because sometimes these things just have to run their course … 

Robert Kennaley has a background in construction and now practices construction law in Toronto and Simcoe, Ont. He speaks and writes regularly on construction law issues and can be reached for comment at 416-368-2522 (Toronto), 519-426-2577 (Simcoe) or at kennaley@mclauchlin.ca. This material is for information purposes and is not intended to provide legal advice in relation to any particular fact situation. Readers who have concerns about any particular circumstance are encouraged to seek independent legal advice in that regard.