Introduction

In the case of Quality General Contractor’s Inc. v. Wu et al,[1] (“Quality General Contractor’s Inc.”), the Ontario Superior Court of Justice addressed two key issues: (1) whether there was a valid and binding oral contract, specifically an enforceable guarantee,[2] between a subcontractor and the project owners; and (2) whether the subcontractor’s construction lien claim was valid, specifically, whether the subcontractor’s claim for lien was preserved in time.

The court concluded that the conduct of the parties, when assessed objectively, showed that there was no enforceable contract between the subcontractor and owners, as the essential elements of an enforceable contract—offer, acceptance, consideration, certainty of essential terms and intent to create a legal relationship—were missing. Addressing the theme of legal sufficiency, and finding no factual foundation for alleged acts of part performance, the court further held that the alleged guarantee was unenforceable under the Statute of Frauds,[3] which requires guarantees to be evidenced in writing.

With respect to the validity of the subcontractor’s claim for lien, the court found that the claim for lien was invalid due to untimeliness (i.e., the claimant’s applicable lien period had lapsed), as the subcontractor failed to prove the timeliness of its claim for lien.

Irrespective of the size and/or nature of a construction project (and while the authors appreciate that the primary focus during the execution of a construction project is on, among other things, achieving progress on time and budget and addressing practical challenges – not necessarily on anticipating or documenting potential disputes), the decision in Quality General Contractor’s Inc. serves as a useful reminder of, among other things:

  1. the importance of stepping back and fleshing out and identifying a construction project’s “pyramid” or “ladder,” specifically, ascertaining the relationship(s) between the various stakeholders involved in any given construction project and monitoring the financial stability of parties involved (primarily the financial stability of direct contractual privies);
  2. the value of maintaining contemporaneous records and the use of detailed site diaries and time sheets as best practices for tracking work and/or progress and supporting potential claims for unpaid work and/or delays and/or ongoing work;
  3. formalizing amendments and/or agreements in writing to try to avoid disputes, and generally papering intentions as much as possible through written memorialization, even if by way of emails and/or text messages;
  4. the principle of objective determination of contract formation, and the five hallmarks of enforceable contracts: offer, acceptance, consideration, certainty of essential terms, and intention to create legal relations; 
  5. the distinction between lienable versus nonlienable supply and distinguishing between deficiency corrections and substantive lienable work;
  6. ensuring invoices are timely, accurate, and aligned with actual work completed and claims being asserted, and taking clear and swift steps to, as appropriate and applicable, issue default notices and/or suspend work and/or terminate a contract when payment issues arise; 
  7. ensuring and maintaining clear communication on construction projects to avoid misunderstandings or unintentional obligations including regarding payment expectations; and
  8. the relevance and connection between holdback obligations under Ontario’s lien legislation and the existence of valid liens.[4]

Factual background of the dispute

This case involved a motion (converted into a summary trial on consent) by the project homeowners (the “Owners”), for an order: (i) declaring that the lien of a subcontractor, namely, Quality General Contractor’s Inc. (“Quality”), for unpaid renovation work, had expired; and (ii) to discharge Quality’s lien. The Owners hired Ranna Homes and Renovations Inc. (“Ranna”) as the general contractor in respect of certain main floor and basement renovations, and Rana subcontracted most of the work to Quality. By October 2018, Ranna had stopped paying Quality and accrued outstanding accounts. Quality claimed that on October 31, 2018, the Owners orally agreed to cover both past and future unpaid accounts owed by Ranna if Quality continued working on the project, which the Owners denied.

On March 8, 2019, Quality registered a claim for lien for $90,279.42, listing January 24, 2019, as the last date of supply and Ranna as the party supplied to. On April 23, 2019, Quality commenced the lien action and registered a certificate of action, alleging the existence of an oral agreement with the Owners. While Quality obtained a default judgment against Ranna for the unpaid amounts, the Owners, in their statement of defence and crossclaim, argued that Quality’s construction lien had expired. The matter proceeded under sections 45 and 47 of the Construction Lien Act, [5] specifically on the basis of a summary trial on the validity (timeliness) of the Quality claim for lien and the existence of the alleged oral agreement between the Owners and Quality.

Key issues and the positions of the parties

Given a concession in respect of the issue of which version of Ontario’s lien legislation applied to and governed the subject contract[6] which predated July 1, 2018 (i.e., the old one or new one), the Ontario Superior Court of Justice in Quality General Contractor’s Inc. focussed on and considered the following two key issues:[7]

  • Whether there was a contract between the Owners and Quality, and, if so, what was it, and what were its terms; and
  • What was Quality’s last date of supply?

With respect to the issue of whether the alleged oral agreement between the subject and otherwise non-privy parties existed, Quality relied on the testimony of its president, who claimed the alleged agreement arose during discussions with the Owners. Quality argued that its continued work after October 31, 2018, demonstrated reliance on the alleged guarantee from the Owners. In invoices dated January 30, 2019 Quality assigned responsibility to the Owners for additional work and Ranna’s debts, and Quality relied on site diary entries and communications with the Owners. The Owners denied the existence of the alleged agreement, emphasizing the lack of written confirmation or documentation to support it. They also argued that such an agreement made no business sense, as it could result in them paying twice for the same work. The Owners also pointed to their payment records, which showed they only ever paid Ranna, not Quality, and that the Owners only made a monetary gift to an employee of Quality, undermining the claim that they had assumed direct financial responsibility for Quality’s accounts.

Regarding Quality’s last date of supply, Quality claimed it performed lienable work on January 25, 2019, relying on invoices issued after this date and site diary entries to support its position. The Owners, however, argued that the last valid date of supply was January 7, 2019, with any subsequent work limited to deficiency correction. The Owners pointed to payment records which showed no substantive work was done after January 7th and testified that the house was “clean and empty” on January 26, 2019 – as post-construction cleaning was performed by another trade (namely Aspen Cleaning) on January 21 and 22, 2019.

Analysis

The Contract Issue

The court found no enforceable contract between Quality and the Owners, as key elements of a contract—offer, acceptance, consideration, certainty of essential terms and an intention to create a legal relationship—were not established.[8] There was no written confirmation of an offer or acceptance between Quality and the Owners, and the court found it unlikely that Quality would not have documented in writing such an important agreement. The Owners’ denial was deemed more credible, as the court agreed that such a guarantee would have exposed them to the risk of paying twice for the same work.

The court also found that Quality’s continued work and pursuit of payment from Ranna indicated it had not suspended or terminated the subcontract, undermining the claim that a guarantee was necessary. The court found that an intention to create a valid guarantee would have involved and required negotiations and an accounting of Ranna’s debt, but no such evidence was produced. Furthermore, given that the alleged agreement was characterized as a guarantee and not a construction contract, the alleged agreement would have been unenforceable under section 4 of the Statute of Frauds [9] which requires guarantees to be in writing.

Quality also issued invoices to the Owners dated January 30, 2019, but the court found these invoices lacked credibility, concluding that these invoices were created to support Quality’s narrative of an oral guarantee. The invoices were not mentioned in earlier correspondence and described work either already billed, completed by the Owners, or not performed. In light of these findings, the Court concluded that no valid or enforceable guarantee existed between Quality and the Owners.

The last date of supply

As the Construction Lien Act applied, Quality, as a subcontractor without a certificate of substantial performance or certificate of subcontract completion, had forty-five (45) days from its last date of supply to register its construction lien. Since Quality registered its claim for lien on March 8, 2019, it needed to prove that the last date of supply was on or after January 22, 2019.

The court found that Quality failed to prove it supplied services or materials on or after January 22, 2019. Quality admitted no work was done on January 22nd, 23rd, or 24th, and its claim of work on January 25th was dismissed as the relevant site diary entries appeared self-serving.[10] Furthermore, the court found that a key witness for Quality was deemed unreliable due to inconsistent testimony, and the absence of time sheets led to an adverse inference. Even if Quality completed work on January 25th, it was classified as deficiency correction, which the court emphasised is not lienable and does not extend the lien period. Thus, the court concluded that Quality’s lien had expired due to untimeliness.

Key takeaways

The decision in Quality General Contractor’s Inc. highlights several foundational principles essential for the administration of construction contracts and projects. For example, it highlights the importance of clearly defining the scope of work and ensuring that any changes or additional work are properly documented and agreed upon in writing, especially when dealing with guarantees or financial commitments from non-privies. The case also demonstrates the necessity of maintaining detailed and transparent records of work and costs, such as invoices and time sheets, to support claims for payment. Additionally, the decision underscores the importance of distinguishing between lineable work and post-completion deficiency corrections, as only the former can extend lien timelines. Lastly, it also serves as a reminder that contractors and subcontractors should act decisively in response to non-payment by suspending or terminating contracts when necessary, rather than continuing work without resolution. Granted the focus regarding construction contract performance during the execution of a construction project should be on, among other positive things, achieving progress on time and budget as opposed to potential disputes, as these very principles actually help ensure smooth project management, minimize legal risks, and protect the rights and interests of all parties involved in construction projects.

[1] Quality General Contractor’s Inc. v. Wu, 2024 ONSC 2909.

[2] As opposed to a construction contract, i.e., a contract for construction services and materials to a project.

[3] Section 4 of the Statute of Frauds, R.S.O. 1990, c. S.19.  In this case, it appeared undisputed that the project owners retained Ranna, and that Ranna in turn retained the claimant entity (subcontractor) Quality.  Despite these privity lines, the allegation in this case was that the owners, under an alleged oral agreement reached, promised to pay Quality’s past and future accounts to Ranna in respect of the subject project.

[4] In this regard, the court stated the following at paragraph 58 of the decision:

In my directions of October 19, 2023 I speculated that, if the Owners succeeded on all the issues (which they have), there would still be an issue of holdback to be determined. This is incorrect as the relevance of the holdback issue depends on the existence of proven subtrade liens. There are no other claims for lien in this reference, and I found that the lien of Quality is expired. Without liens, the Owners’ holdback liability to Ranna subcontractors is at an end.

[5] Construction Lien Act, section 45.

[6] As between the Owners and Ranna.

[7] At the Section 45 motion, the court ordered that the motion be converted into a summary trial to address the issues listed, as well as to determine which version of the Construction Act applied—the old or the new. However, during closing arguments, Quality conceded that the old Act applied, as the contract between Ranna and the Owners clearly pre-dated July 1, 2018. As a result, the Court only dealt with the remaining two questions.

[8] See Bellsam Contracting Limited v. Torgerson, 2023 ONSC 468 (CanLII), at paras. 35-36; See also Ethiopian Orthodox Tewahedo Church of Canada St. Mary Cathedral v. Aga, 2021 SCC 22 (CanLII), [2021] 1 SCR 868, at paras. 35, 37-38.

[9] Statute of Frauds, RSO 1990, c S.19, s 4.

[10] The court found that the site diary entries lacked credibility and were deemed “unconvincing”. The court further commented that Quality did not produce time sheets which would have been critical documents and the strongest evidence with respect to the date of last supply.