Collecting Construction Debts in Small Claims Court
By: Francesca Maio (Mississauga Board of Trade - December 2011)
Collecting Construction Debts in Small claims Court
Are you owed $25,000 or less, but don’t want to sue for fear that your legal costs may be greater than the amount owed? If yes, consider bringing your claim to the Small Claims Court (SCC) – touted as a form of quicker, cheaper justice.
The primary advantage of the SCC is lower cost, since it doesn’t require a company to be represented by a lawyer. In January 2010, the SCC’s monetary limit was increased from $10,000 to $25,000, hoping to encourage and increase its use.
In the construction industry, there may be an added reluctance to use the SCC because of general confusion and contradictory opinions concerning its authority to enforce rights under statutes, such as the Construction Lien Act.
While anyone can bring an action to collect on a debt, suppliers of services and materials in the construction industry have two unique remedies. The first is the right to prosecute a lien, which cannot be exercised in the SCC. The second is a trust remedy, which the appellant court recently confirmed can be heard by the SCC.
All money filtering down a construction pyramid to pay for labour and materials on a project are ‘trust funds.’ The person who receives payment is not entitled to pocket that money until all of his or her suppliers, in connection with that project, are paid in full. Otherwise, a breach of trust is committed.
Where this kind of misappropriation of trust funds has occurred, the unpaid supplier or trade is permitted to ‘pierce the corporate veil’ and bring an action against not only the defaulting corporation, but also every director, officer, and person who has effective control of the corporation. The only limitation, of course, is that the amount claimed be under $25,000, excluding interest and costs. If a claim is slightly higher than $25,000 it may still be worthwhile to waive the excess in order to take advantage of the benefits of the SCC system.
For helpful resources and guides on how to do-it-yourself at the SCC, visit the Ministry of the Attorney General’s website at http://www.attorneygeneral.jus.gov.on.ca/english/courts/scc/.
Francesca Maio is a member of the Construction Practice and Commercial Litigation Practice at Pallett Valo, the largest business law firm in Mississauga.