Managing relationships with critical suppliers is critical to any construction project. A major subcontractor who stops work or leaves a project can bring operations to a standstill. In those situations where one party has undue influence and time is short, lawyers may need to be brought in to get the project back on track.
The first point of contact for remedial action are always the contractual conditions. If there is a provision in the contract that requires work to continue even during a dispute, it can be very helpful. Further protection is provided when performance bonds are available for termination. It becomes more difficult if the contract does not explicitly state what happens during a dispute and if it does not provide a specific remedy if the subcontractor stops work or threatens to stop work.
If a subcontractor refuses to continue the work, the party trying to finish the work has the option to file a lawsuit and then apply for an injunction as part of that legal process. An application for an injunction is an application for an interim court order that compels a party to do or not to do something. Such orders are usually intended to ensure that the parties can protect their rights as best as possible while the dispute to be determined in the proceedings is being resolved. This is often described as “maintaining the status quo” until the litigation is finally resolved.
In order to obtain an injunction, a party must always prove three things. First, they would suffer “irreparable harm” if the order were not issued. “Irreparable” in this context generally means damage that: (a) cannot be quantified in monetary terms, such as a loss of reputation in the marketplace; or that (b) is too great to be refunded in damages by the other party. In the event of the imminent closure of a major construction project, this first requirement is often met, but requires the interim party to prove that the damage caused by the work interruption is more than just a quantifiable financial expense.
Second, the party requesting the injunction must prove that the balance of expediency speaks in favor of issuing the injunction. This depends on whether the granting or rejection of the injunction causes major direct damage during the duration of the legal dispute. This second factor is very factual. The party requesting the injunction will want to demonstrate the significant impact that the cessation of work would have on the larger project and schedule. The person entitled to temporary injunction will want to argue against it, why he should not be forced to continue working on a project against his will.
Ultimately, the judge pending the motion has to judge the strength of the interim party’s claim. The threshold to be set for this third factor depends on whether the injunction is rightly classified as prohibitive, which requires a party to refrain from doing something, or whether it is mandatory, according to which a party must take positive steps, to do something.
Although similar in many ways, the characterization of the injunction sought can be very important. A positive procedure (injunction) tends to cost time and money and is more difficult for a court to enforce. Accordingly, courts set higher thresholds for the issuance of mandatory preliminary injunctions than for bans. In order to obtain an injunction, the party must demonstrate that their case is “very likely to succeed in court”. For an injunction, however, the party only has to prove that their case is “neither annoying nor frivolous”.
Given the lower threshold for an injunction as opposed to a mandatory restraining order, the design of a proposed restraining order can be of critical importance. For example, if a drainage contractor threatens to remove their trucks from a construction site, the party wanting to keep the project going can design the requested order to prevent the removal of the trucks (interim injunction) while the truck owner wishes to that the court sees this as an order to continue working on the project (an injunction).
While mandatory injunctions are more difficult to obtain and therefore much rarer than unaffordable ones, they are not impossible. In one case in Quebec, a subcontractor stopped work on starting a $ 15 million project because of an outstanding payment of $ 42,544.78, removed its machines from the site, and did not resume work even if it did the main contractor presented checks for the full amount. The Québec Superior Court held the subcontractor’s argument in favor of the subcontractor’s right of termination to be “at least doubtful” (“au moins douteux”). This, combined with the fact that significant and irreparable damage would result if the work were not carried out, and that a performance guarantee was in place to ensure that the subcontractor did not work free of charge, caused the court to order the subcontractor to continue Working on the foundation.
Although the Quebec Civil Code often makes it more likely that injunctions will be issued in this province than anywhere else in Canada, injunctions are not uncommon in other provinces. For example, the British Columbia Supreme Court has ordered building contractors to take steps to stabilize a precarious slope that, if failed, threatened condominium development. In another case, that court allowed a contractor to take control of a subcontractor’s equipment to complete a road construction project when it seemed unlikely that the subcontractor would complete the project on time.
An injunction is not without risk. In addition to the high initial threshold that must be reached in order to be eligible for the injunction, the interim party must undertake to pay damages – de facto a promise that, in the event of an unsuccessful trial, it will compensate the other party for compliance with the injunction. This may include paying for the profit that the subcontractor would have made on another project had it not been forced to work under the injunction. However, very few cases make it to court. Often, the injunction serves as a catalyst for the parties to reach a negotiated solution that is almost always less expensive than lengthy and protracted litigation.
However, when time is of the essence and negotiations fail, an injunction – whether mandatory or prohibitive – may be available.
Andrew Parley is partner and head of the Construction & Infrastructure Practice Group at Lenczner Slaght, Canada’s leading litigation firm. He focuses on commercial disputes and represents individuals and companies of all sizes in courts of all levels in Ontario, including the Supreme Court of Canada. Its clients include Crosslinx Transit Solutions, Aecon, British Energy, 407 ETR, the Gupta Group, McDonalds Restaurants of Canada, BMO Nesbitt Burns, SNC Lavalin Inc. and the Government of Canada.