RC117 MarApr 2025 - Magazine - Page 30
LEGAL
to recover damages arising out of the Flow-Through
Claims from TTC. This approach proved problematic, as
the Court refused to accept that TTC—as the owner—
should be found liable to Walsh for the subcontractor’s
losses. Speci昀椀cally, the Court described the Flow-Through
Claims as “untenable” and noted that “the attempt to
place liability upon the owner for the subcontractor’s
damages, where the owner has not contracted with the
subcontractor and where the contractor has e昀昀ectively
removed itself from the picture, is not right.”
The Court’s rationale regarding the Subcontractor
Agreements e昀昀ectively barred the Flow-Through Claims
as a result of the Subcontractor
Agreements.
Speci昀椀cally, with regards to
the Assignment Liquidating
Agreements, according to the
Court, Walsh could only recover
the subcontractors’ losses
from TTC if Walsh admitted
liability, thus establishing the
subcontractors’ losses as its
own. However, an admission of
liability in respect of Walsh’s delay claim would undercut
any fault on the part of TTC and could preclude recovery
entirely.
As acknowledged in an earlier decision (Ledcor Construction Ltd. v. Attorney-General of Canada) relied upon by
the Court in Walsh v. TTC, “in the absence of any privity
between the subcontractors and [the owner], they have
no right of action against [the owner], particularly in these
instances where claims the subcontractors may have against
the main contractor would have to arise from the negligence
of the main contractor, but the cause of action, as alleged
by the contractor, is delay on the part of the owner.”
Likewise, in respect of the Non-Assignment Liquidated
Agreements, the terms of the agreement itself proved
fatal. The very fact that Walsh would only be contractually
liable to pay its subcontractors for the subcontractor’s
losses if TTC was held liable to those subcontractors is
contrary to a 昀椀nding that TTC is liable to Walsh directly
for those same losses.
This 昀椀nding echoed an earlier decision (Ledcor
Construction Limited v. Carleton University) where the
Court held that “[the general contractor’s] attempts to
ensure that it incurs no liability to its subtrades for delay
unless it recovers from [the owner] creates a circular
argument which makes it impossible to prove [the general
contractor] itself has su昀昀ered the added costs sustained by
the subtrades.”
Importantly, the Walsh v. TTC decision remains under
appeal and the Canadian construction bar vigilantly
awaits the outcome of that appeal, including in respect of
昀氀ow-through claims.
Ultimately, 昀氀ow-through claims present a potential
challenge to general contractors. As tempting as at it may
be to resolve subcontractor claims early, the terms of such
settlements are critical in determining whether the general
contractor will be successful in seeking to 昀氀ow-through
such settlement costs to the owner.
As tempting as at it may be to resolve subcontractor claims early, the terms of
such settlements are critical in determining whether the general contractor will be
successful in seeking to flow-through such settlement costs to the owner.
In Walsh v. TTC, advancing a 昀氀ow-through claim
without the direct involvement of a subcontractor proved
fatal to both the general contractor and some of its
subcontractors.
In this case, the general contractor Walsh Construction
(“Walsh”) advanced a number of claims against the
owner, Toronto Transit Commission (“TTC”), arising out
of the construction of the Steeles West Subway Station in
Toronto. Amongst those claims were two classes of claims
brought by Walsh on behalf of its subcontractors (the
“Flow-Through Claims”).
Notably, the Flow-Through Claims did not arise from
existing claims by the subcontractors against Walsh—i.e.
these were not third-party claims brought by Walsh
against TTC. Rather, Walsh entered into agreements with
the subcontractors to resolve the Flow-Through Claims
as between themselves only and subsequently sought
compensation for the Flow-Through Claims from TTC.
In considering these claims, the Court described Walsh’s
agreements with its subcontractors as follows:
ASSIGNMENT LIQUIDATING AGREEMENTS—With some subcontractors,
Walsh paid “an amount that represents all of the contract payments due and payable to the subcontractor” in
exchange for an assignment of the subcontractors’ claims to
Walsh and a release of liability; and
NON-ASSIGNMENT LIQUIDATING AGREEMENTS —With other subcontractors, Walsh again paid “an amount representing the
contract payments due and payable to the subcontractor”
but instead in exchange for a release of Walsh under the
condition that “[if] Walsh were able to recover anything
from TTC with respect to the subcontractor claims, it was
to pay it to the subcontractor less a percentage for overhead, markup and costs incurred.” In the event of a global
recovery, the subcontractors would receive a pro-rated
recovery.
Consequently, the agreements that Walsh entered
into with its subcontractors placed the onus on Walsh
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