Date: 20001026
Docket: T-624-90
BETWEEN:
JANES NOSEWORTHY LIMITED, as Trustee of the
bankrupt estate of Giovannini's Construction Limited
Plaintiff
- and -
HER MAJESTY THE QUEEN
Defendant
REASONS FOR ORDER
MacKAY, J.:
[1] Upon motion of the plaintiff, pursuant to Rule 220(1) of the Federal Court Rules, 1998, the Court is asked to determine certain questions set out by the parties in an agreed statement of facts. Prothonotary Aronovitch ordered that the questions agreed upon be determined by the Court in lieu of a trial of this action.
[2] The agreed statement of facts and the agreed questions concern the Trustee's right to certain funds following the bankruptcy of Giovannini's Construction Limited (the "Company"). That Company had been awarded a contract for construction of a breakwater at Sibley's Cove in Newfoundland. In accord with the contract, the Company purchased a performance bond and a labour and material payment bond from the Halifax Insurance Company, which became the surety for performance of the contract. The surety was obliged to step into the role of the Company in the event of the latter's default.
[3] The construction contract provided for periodic payment by the defendant (the "Crown"), in accord with requests for payment on invoices submitted, subject to a portion to be held back by the Crown pending completion of the project. A request for payment of about $152,300.00, submitted by the Company on September 30, 1988, for work done and materials supplied, was approved, and subject to an agreed hold back payment of the balance, $144,680.66, was approved. In fact payment was not made to the Company before it ceased work on October 25, 1998, and before the defendant was advised by a bank on October 28 of the Company's earlier assignment of book debts to it.
[4] On December 1 the Crown then advised the Company that it was deemed to have abandoned the work, and acting under the contract the Crown called upon the surety to complete the contract. Thereafter the Crown paid claims of certain third parties in relation to supplies that had been provided to the surety, and it arranged for certain payments to be made in relation to claims by the surety for completion of the work.
[5] In August 1989, the Company was adjudged bankrupt and the plaintiff was appointed Trustee of the estate of the bankrupt Company. The Trustee then made a claim for payment to it for the value of work completed and materials provided for which the Company had claimed on September 30, 1988, and had not been paid. Ultimately, the Trustee commenced this action by statement of claim dated March 1, 1990, seeking payment from the Crown of the amount claimed by the Trustee as owed to the Company.
[6] The agreed statement of facts, including the agreed questions to be answered by the Court as approved by Prothonotary Aronovitch for this proceeding, are set out in Appendix A to these Reasons.
The issue
[7] As provided by paragraph 16 of the Agreed Statement of Facts, the parties agreed that questions to be determined in this proceeding are:
| (a) Is the plaintiff trustee entitled to the amount authorized for payment on October 5, 1988 ($144,680.44) or the amount stated as the value of the work completed and materials provided as of September 30, 1988 ($152,295.20)? |
| (b) Assuming that some of the work completed or materials provided between September 30, 1988 and December 1, 1988 were completed or provided by Giovannini is the plaintiff trustee entitled to that amount? |
[8] When this matter came on for hearing counsel for the plaintiff advised the Court that the plaintiff Trustee's claim was limited to $144,680.44, the amount authorized for payment on October 5, 1988, and further that the Trustee no longer claimed in this action for payment for work completed or materials provided between September 30, 1988 and December 1, 1988.
[9] In the result the only issue argued before me and the only issue here dealt with is whether the plaintiff Trustee is entitled to the amount authorized for payment to the Company on October 5, 1988, i.e., $144,680.44.
The positions of the parties
[10] For the plaintiff Trustee it is urged that as Trustee in bankruptcy of the Company's estate, it is entitled to payment of the amount approved for payment to the Company on October 5, 1988, i.e., the amount claimed for work and materials provided to September 30, 1988 less the hold back agreed under the contract.
[11] In support of that submission counsel relies principally upon Re Jason Construction Ltd., [1972] 29 D.L.R. (3d) 623, 6 W.W.R. 203, 17 C.B.R. (N.S.) 158 (Alta. App. D.), and upon Re Newtown Construction Limited (1983), 45 Nfld and P.E.I. R and 132 A.P.R. 239 (Nfld., T.D.), cases which are said to be analogous to this. In the first case a construction contractor, having contracted to construct a building, arranged for a performance bond as required under the contract and proceeded with the work. Its first claim for payment under the contract was certified by the architect, and a cheque for that amount less an agreed hold back was issued and paid to the contractor. When it presented the cheque at the bank for payment the owner had issued a stop-payment order, having learned, after the cheque was issued, of a general assignment of book debts to the bank by the contractor. Soon thereafter the contractor made an assignment in bankruptcy, bringing into play a provision of the contract permitting the owner to terminate the contract and to finish the project. The owner did so and called upon the surety to complete the contract in accord with its bond.
[12] When the project was completed, the sum certified by the architect, and for which the cheque had been drawn, was claimed by the Trustee in Bankruptcy, by the bank and by the owner of the building as a set-off against the increased price of its completed construction by the surety. The Court of Appeal in that case upheld the trial judge who had disallowed the claim of the Trustee, and the claim of the owner to set-off the amount against increased costs of construction. In the result the bank, assignee of book debts by the contractor, was found entitled to the amount claimed. The Court held the critical time was the date when the debt came into existence, i.e. the date when the architect certified payment, for then the debt "became the property of the respondent" (the bank).
[13] In Newtown, the Government of Newfoundland, being indebted to Newtown Construction for contract work it had performed, by interpleader sought determination of who, among Newtown's creditors claiming the money owed, was entitled to payment. Ultimately, the claims requiring determination of their relative priority were that of the bank as assignee of Newtown's book debts under an assignment registered prior to Newtown's default under the contract and that of the surety which completed the contract after Newtown's default. Mr. Justice Goodridge, as he then was, recognized the priority of the bank assignee in the circumstances of that case.
[14] The Trustee here urges that on October 5, 1988, when the Company's claim was approved for payment in the amount fo $144,680.44, it was entitled to payment. The work had not then been taken out of the Company's hands, it was not then in default and no right of set-off then existed. The Trustee, ultimately standing in the place of the Company for the benefit of its creditors, was entitled, so it was urged, to payment of the amount approved for payment.
[15] For the respondent it is urged that the Trustee's claim could not be other than the claim of the Company and that claim was subject to the terms of the contract. It specifically provided for the circumstances that arose in this case, by clause 38 which provided in part:
| 38.1 The Minister may, at his sole discretion, take all or any part of the work out of the Contractor's hands, and may employ such means as he sees fit to have the work completed if the Contractor |
| 38.1.1 has not, within six days after receiving notice given by the Minister or the Engineer in accordance with GC11.1 remedied any delay in the commencement or any default in the diligent performance of the work to the satisfaction of the Engineer; |
| 38.1.2 has defaulted in the completion of any part of the work within the time fixed for its completion by the contract; |
| 38.1.3 has become insolvent; |
| 38.1.4 has committed an act of bankruptcy; |
| 38.1.5 has abandoned the work; |
| 38.1.6 has made an assignment of the contract without the consent required by GC3.1; or |
| 38.1.7 has otherwise failed to observe or perform any of the provisions of the contract. |
| 38.2 If the whole or any part of the work is taken out of the Contractor's hands pursuant to GC38.1. |
| 38.2.1 the Contractor's right to any further payment that is due or accruing due under the contract is, subject only to GC38.4, extinguished, and |
| 38.2.2 the Contractor is liable to pay Her Majesty, upon demand, an amount that is equal to the amount of all loss and damage incurred or sustained by Her Majesty in respect of the Contractor's failure to complete the work. |
| 38.3 If the whole or any part of the work that is taken out of the Contractor's hands pursuant to GC38.1 is completed by Her Majesty, the Engineer shall determine the amount, if any, of a holdback or a progress claim that had accrued and was due prior to the date on which the work was taken out of the Contractor's hands and that is not required for the purposes of having the work performed or of compensating Her Majesty for any other loss or damage incurred or sustained by reasons of the Contractor's default. |
| 38.4 Her Majesty may pay the Contractor the amount determined not to be required pursuant to GC38.3. |
[16] It is the defendant's position that in the circumstances, any claim by the Trustee is subject to clauses 38.2.1, 38.3 and 38.4 of the contract and, since no payment to the Company had been determined under clause 38.3, no payment is due to the Trustee. Moreover, it is urged that by approving an amount for payment on October 5, 1988, no property interest in that amount was transferred. Rather at most, the Company could claim a right to sue for that amount. Under the contract, that right was subject to the provisions of clauses 38.2.1 and 38.3. Thus, any right of the Company to payment was extinguished and no amount of the "progress claim that had accrued and was due prior to the date on which the work was taken out of the contractor's hands ..." was determined to be payable to the Contractor or its Trustee, as clause 38.3 provided.
Conclusion
[17] Neither Jason Construction nor Newtown are on all fours with the facts of this case. Here the claim is by the Trustee against the owner of the project, not a matter of sorting priorities of claims by others against the owner. Here the assignee of the Company's book debts, a bank, had no claim to be recognized since it had failed to provide notice to the Crown of the assignment as required by the Financial Administration Act, R.S.C. 1985, c. F. 11, ss. 68, 69. Moreover, in neither of the cases relied upon by the plaintiff trustee did the contract between the Company and the Crown, under which the work was done and the claim was raised, provide specifically for the circumstances that did occur.
[18] In this case, in my opinion, the contract provides by clauses 38.2.1, 38.3 and 38.4 for the circumstances that here occurred and the provisions there set out were not met. It is true, as the plaintiff submits, that at October 5, 1988, when payment of a specified amount to the Company was approved, the Company was not in default and it was continuing work under the contract. Approval of payment may well have created a right to sue under the contract, but it did not result in any transfer of property interests in the sum approved. It constituted "an amount ... of a progress claim that had accrued and was due prior to the date on which the work was taken out of the Contractor's hands ..." within clause 38.3 of the contract. Under clause 38.2.1 the Company's right to claim payment of that amount was extinguished when the work was taken out of the Company's hands.
[19] By agreement between the Company and the Crown, particularly clause 38, it was settled that the Crown might take the work out of the Company's hands, for cause, and arrange for its completion by another. If that were to be done, the agreement provided that any outstanding claim of the Company that accrued and was due prior to the taking of the work out of the Company's hands, was payable only as the Crown may decide by clause 38.4, in an amount determined by the Engineer, as provided in clause 38.3. No such determination was here made.
[20] Since, under the contract, the claim of the Company could not be pursued in the circumstances as they turned out, the plaintiff trustee has no claim against the Crown.
[21] In the result, my answer to the only question to be resolved in this proceeding is, No, the plaintiff trustee is not entitled to the amount authorized for payment on October 5, 1988, i.e., $144,680.44. By separate Order that answer is given. Costs are awarded to the defendant on the
usual party and party basis, in an amount as the parties may agree, or failing agreement, then in accord with Column III of Tariff B under the Court's Rules.
(Signed) W. Andrew MacKay
JUDGE
OTTAWA, ONTARIO
October 26, 2000
T-624-90
REASONS FOR ORDER
APPENDIX "A"
AGREED STATEMENT OF FACTS
| 1. On or about May 21, 1985 Giovannini's Construction Limited ("Giovannini") gave a General Assignment of Book Debts to The Bank of Nova Scotia (the "Bank"), which assignment was registered at the Registry of Deeds and Companies for the Province of Newfoundland on May 29, 1985 as No. 16584. Her Majesty the Queen ("Her Majesty") was never given notice of the assignment in accordance with section 69 of the Financial Administration Act, RSC, c. F-11. |
| 2. On or about 21 July 1988, Giovannini entered into a contract with Her Majesty as represented by the Minister of Public Works, to construct a breakwater at Sibley's Cove, in the Province of Newfoundland (the "Contract"). The Contract was a unit price contract with the amount to be paid by Her Majesty not to exceed $841,650.00. The Contract was to be performed by December 1, 1988. |
| 1. The Terms of Payment of the Contract provided in part as follows: |
| .1 Subject to any other provisions of the contract, Her Majesty shall pay the Contractor, at the times and in the manner hereinafter set out, the amount by which |
| .1.0.0.1 the aggregate of the amounts described in TP2 exceeds |
| 1.1.2 the aggregate of the amounts described in TP3 |
| and the Contractor shall accept that amount as payment in full satisfaction of everything furnished and done by him in respect of the work to which the payment relates. |
| 2.1 The amounts referred to in TP 1.1.1 are the aggregate of |
| 2.1.1 the amounts referred to in the Articles of Agreement, and |
| 2.1.2 the amounts, if any, that are payable to the Contractor pursuant to the General Conditions. |
| 3.1 The amounts referred to in TP 1.1.2 are the aggregate of the amounts, if any, that the Contractor is liable to pay Her Majesty pursuant to the Contract. |
| 3.2 When making any payment to the Contractor, the failure of Her Majesty to deduct an amount referred to in TP3.1 from an amount referred to in TP2 shall not constitute a waiver of the right to do so, or an admission of lack of entitlement to do so in any subsequent payment to the Contractor. |
| 4.1 For the purposes of this Term of Payment, "payment period" means a period of 30 consecutive days or such other interval as is agreed between the Contractor and the engineer. |
| 4.2 The Contractor shall, on the expiration of a payment period, deliver to the Engineer in respect of that payment period a written progress claim that fully describes any part of the work that has been completed, and any material that was delivered to the work site but not incorporated into the work, during that payment period. |
| 4.3 The Engineer shall, not later than ten days after receipt by him of a progress claim referred to in TP4.2, |
| 4.3.1 inspect the part of the work and the material described in the progress claim; and |
| 4.3.2 issue a progress report, a copy of which he will give to the Contractor, that indicates the value of the part of the work and the material described in the progress claim that, in his opinion, |
| 4.3.2.1 is in accordance with the contract, and |
| 4.3.2.2 was not included in any other progress report relating to the contract. |
| 4.4 Subject to TP1 and TP4.5, Her Majesty shall, not later than 30 days after the issue of a progress report referred to in TP4.3, pay the Contractor |
| 4.4.1 an amount that is equal to 95% of the value that is indicated in that progress report if a labour and material payment bond has been furnished by the Contractor, or |
| 4.4.2 an amount that is equal to 90% of the value that is indicated in that progress report if a labour and material payment bond has not been furnished by the Contractor. |
| 4.5 It is condition precedent to Her Majesty's obligation under TP4.4 that the Contractor has made and delivered to the Engineer a statutory declaration described in TP4.6 in respect of a progress claim referred to in TP4.2. |
| 5.1 Neither a progress report referred to in TP4.3 nor any payment made by Her Majesty pursuant to these Terms of Payment shall be construed as an admission by Her Majesty that the work, material or any part thereof is complete, is satisfactory or is in accordance with the contract. |
| 7.1 Without limiting any right of set-off or deduction given or implied by law or elsewhere in the contract, Her Majesty may set off any amount payable to Her Majesty by the Contractor under this contract or under any current contract against any amount payable to the Contractor under this contract. |
| 3. The General Conditions of the Contract provided in part as follows: |
| 37.2 If the Contractor does not complete the work by the day fixed for its completion by the Articles of Agreement but completes it thereafter, the Contractor shall pay Her Majesty an amount equal to the aggregate of |
| 37.2.1 all salaries, wages and travelling expenses incurred by Her Majesty in respect of persons overseeing the performance of the work during the period of delay; |
| 37.2.2 the costs incurred by Her Majesty as a result of the inability to use the completed work for the period of delay; and |
| 37.2.3 all other expenses and damages incurred or sustained by Her Majesty during the period of delay as a result of the work not being completed by the day fixed for its completion. |
| 38.1 The Minister may, at his sole discretion, take all or any part of the work out of the Contractor's hands, and may employ such means as he sees fit to have the work completed if the Contractor |
| 38.1.1 has not, within six days after receiving notice given by the Minister or the Engineer in accordance with GC11.1 remedied any delay in the commencement or any default in the diligent performance of the work to the satisfaction of the Engineer; |
| 38.1.2 has defaulted in the completion of any part of the work within the time fixed for its completion by the contract; |
| 38.1.3 has become insolvent; |
| 38.1.4 has committed an act of bankruptcy; |
| 38.1.5 has abandoned the work; |
| 38.1.6 has made an assignment of the contract without the consent required by GC3.1; or |
| 38.1.7 has otherwise failed to observe or perform any of the provisions of the contract. |
| 38.2 If the whole or any part of the work is taken out of the Contractor's hands pursuant to GC38.1. |
| 38.2.1 the Contractor's right to any further payment that is due or accruing due under the contract is, subject only to GC38.4, extinguished, and |
| 38.2.2 the Contractor is liable to pay Her Majesty, upon demand, an amount that is equal to the amount of all loss and damage incurred or sustained by Her Majesty in respect of the Contractor's failure to complete the work. |
| 38.3 If the whole or any part of the work that is taken out of the Contractor's hands pursuant to GC38.1 is completed by Her Majesty, the Engineer shall determine the amount, if any, of a holdback or a progress claim that had accrued and was due prior to the date on which the work was taken out of the Contractor's hands and that is not required for the purposes of having the work performed or of compensating Her Majesty for any other loss or damage incurred or sustained by reasons of the Contractor's default. |
| 38.4 Her Majesty may pay the Contractor the amount determined not to be required pursuant to GC38.3. |
| 39.1 The taking of the work or any part thereof out of the Contractor's hands pursuant to GC38 does not operate so as to relieve or discharge him from any obligation under the contract or imposed upon him by law except the obligations to complete the performance of that part of the work that was taken out of his hands. |
| 4. In accordance with the terms of the Contract Giovannini provided to Her Majesty a performance bond and a labour and materials bond both dated July 26, 1988, in which The Halifax Insurance Company ("the Surety") was surety. |
| 5. A request for payment, dated September 30, 1988, was forwarded to Her Majesty covering the period up to September 30, 1988. It was authorized for payment on October 5, 1988. The amount of work completed and materials shown as on site as of September 30, 1988 was $152,295.20. After holdbacks the amount approved for payment was $144,680.66. This amount was not paid to Giovannini. |
| 6. Around October 25, 1988, Giovannini ceased work at the work site. |
| 7. On October 28, 1988 the Bank, by letter from the manager of its Rowan Street branch, advised Her Majesty of its assignment. By a further letter from counsel on November 14, 1988 the Bank advised Her Majesty of the assignment. |
| 8. On December 1, 1988, Her Majesty, having formed the view that Giovannini had abandoned the Contract, wrote to Giovannini stating this and stated further that pursuant to General Condition 38 of the Contract, the Contract was being taken out of Giovannini's hands. Her Majesty called upon the Surety to complete the Contract. |
| 9. Another request for payment, dated May 31, 1989, was forwarded to Her Majesty by the Surety. This request was for work completed or materials delivered for the period from April 1, 1989 to May 31, 1989. The amount of work completed and materials delivered in that period is shown as $178,844.93 and the total work completed and materials delivered as of May 31, 1989, as $396,418.00. The value of the work done and material delivered in performance of the Contract prior to April 1, 1989, would therefore be in the maximum amount of $217,573.07. |
| 10. Although Giovannini asserts that it is entitled to an additional $150,000 as of the time of the default, it is Her Majesty's position that evidence would have to be called to determine how much of the work completed and materials delivered between September 30, 1988, and December 1, 1988, was completed or delivered by Giovannini and how much was completed or delivered by the Surety. The maximum amount of this work is $65,457.87. ($217,573.07 less $152,295.20.) |
| 11. Subsequent to the receipt of the request for progress payment dated May 31, 1989, Her Majesty paid to the Surety the sum of $231,916.66. |
| 12. A further request for progress payment, dated July 15, 1989, was received by Her Majesty from the Surety for the period from May 31, 1989 to July 15, 1989, stating that further work had been completed or materials delivered in the amount of $267,000.00. This request stated that the total work completed and materials provided as of July 15, 1989 was in the amount of $663,976. Subsequently Her Majesty paid to the surety the sum of $254,180.10. |
| 13. By an amended receiving order granted by the Supreme Court of Newfoundland dated 4 August 1989, Giovannini's Construction Limited, (The "Bankrupt"), was adjudged a bankrupt under the Bankruptcy Act, R.S.C. 1970, c. 33 (The "ACT"). The Plaintiff was appointed trustee of the estate of the bankrupt. |
| 14. In February of 1990 Her Majesty made further payments under the Contract. In accordance with the terms of the Contract Her Majesty deducted and retained the sum of $37,020.63 from the monies otherwise payable on account of the late completion of the Contract. Her Majesty, with the agreement of the Surety, paid to Revenue Canada, Labour Canada and Harbourview Supermarket Limited debts incurred by Giovannini in performing the Contract in the amount of $28,293.13. The amount of $319,644.88 was paid to the Surety. Subsequently the amount of $32,730.00, which had been withheld by Her Majesty pending confirmation that certain other claims arising from the Contract had been paid was paid to the Surety. |
| 15. Copies of the Articles of Agreement, the Terms of Payment and the General Conditions of the Contract, the Performance Bond, the Labour and Materials Bond, the Bank's letter of October 28, 1988 and counsel's letter on behalf of the Bank of November 14, 1988 are attached hereto and form part of this agreed statement of facts. |
| 16. The questions to be determined in this Motion are: |
| (a) Is the plaintiff trustee entitled to the amount authorized for payment on October 5, 1988 ($144,680.44) or the amount stated as the value of the work completed and materials provided as of September 30, 1988 ($152,295.20)? |
| (b) Assuming that some of the work completed or materials provided between September 30, 1988 and December 1, 1988 were completed or provided by Giovannini is the plaintiff trustee entitled to that amount? |
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