Certificate of substantial performance errors could be remedied by courts
by Dan O'Reilly (Daily Commercial News - December 13, 2010)
Not all Certificates of Substantial Performance or Certificates of Completions of Subcontracts will be thrown out by the courts because of errors, participants at a Construct Canada seminar learned.
Under Section 6 of the Construction Lien Act, some minor or technical mistakes in the certificates can be remedied by the courts, said Anna Esposito, a certified specialist in construction law and head of the construction law group of Pallett Valo LLP.
But the section is subject to interpretation, won’t apply in every situation, and shouldn’t be considered a panacea for sloppiness when preparing the certificates in the first place, she said.
No certificate, declaration or claim lien is invalidated by reason only of failure to comply strictly with the Act, “unless in the opinion of the court a person has been prejudiced thereby and then only to the extent of the prejudice suffered”— which she explained meant one of the parties had been harmed, financially or otherwise.
Using some real cases as reference, Esposito said there are two major questions judges need to ask when considering using the section to remedy an error.
The first question is whether the error is a minor or technical irregularity. If it is not, section 6 cannot be applied. If the error is deemed minor, the second question is whether a party has suffered prejudice as a result. However, the party claiming to have been prejudiced has to prove that, she pointed out.
Under the Act a contract is considered to have been substantially performed when the improvement to be made under the contract — or a substantial part of it — is ready for use or is being used for the purposes intended.
There is also a “money test” to confirm substantial completion based on the value of the work left to do. It can’t exceed three per cent of the first $500,000 of the contract price, two per cent of the next $500,000 and one per cent of the balance.
For example, a $2 million contract would be deemed to be completed when the costs to complete the contract, or cure any known defects, is $26,000 or less.
In addition to strictly adhering to that formula, some basic information has to be included in every certificate such as the names and addresses of the owner and contractor, a short description of the improvement and the street address, if any, of the premises.
And yet that information isn’t always provided, said Esposito, citing one case law example. Not only were the owner and contractor’s addresses missing, so too was the address of the property where the construction occurred.
“Despite all these shortcomings, the court still used the section to cure the defects as there was no evidence that anyone was prejudiced by these deficiencies and omissions. This is a very generous interpretation of section 6.”
She also referred to a number of cases where the court rulings would seem to people not versed in the law to conflict with each other.
“What is found to be a minor irregularity is very fact specific and varies from case to case. For this reason, the case law is this area can be somewhat inconsistent,” she explained.
It probably didn’t come as surprise to audience members when Esposito pointed out lien rights expire 45 days after the Certificate of Substantial Performance has been published and after that period, if no liens have been registered, the owner can safely release the holdback funds to the contractor.
But she also subtly suggested that suppliers of services and materials have to be on their toes and know exactly when the certificate was published. Arguing for a preservation extension beyond the 45-day period just because they weren’t paying attention and missed the publication won’t be upheld by the courts.