Case Comment: 2099082 Ontario Limited v. Varcon Construction Corporation

Contractor’s Conflicted Warranty Language Shut Down on Appeal

Not all warranty provisions are created equal when it comes to construction contracts. Individual warranty provisions may vary in length of time, scope, and the degree of fault required to trigger those obligations.

The case 2099082 Ontario Limited v. Varcon Construction Corporation (“Varcon”) serves as a warning that conflicting provisions in multilevel contract documents may prolong costly litigation and make the difference between a successful or failed warranty claim.

In addition, a party’s refusal to produce relevant evidence prior to a hearing risks gutting its defence and undermining any resulting appeal.

Background: unpaid holdback, soil compaction and septic backup

In this case, the court was required to resolve a dispute related to non-payment of statutory holdback by the contractor, Varcon Construction Corporation (“Varcon”), to its subcontractor, 2099082 Ontario Limited, carrying on business as AWD Contractors (“AWD”).

AWD’s scope of work related to, among other things, excavation, piping, backfilling and soil compaction. AWD’s claim was for the modest holdback amount of $39,064.87.

One year after AWD started a civil action to collect its holdback from Varcon, the septic system at the project failed. Native soil settled underneath the Project’s sewage pipes, deflected the pipes and caused the sewage system to back up. The failure occurred within the 12-month warranty term in AWD’s subcontract.

Varcon alleged that AWD had improperly compacted the native soil and sought to hold AWD responsible for its sewage remediation costs. AWD maintained that native soil was called for in the subcontract, its compactions had been tested by a third-party expert, Inspec-sol Inc., and the compaction test results had met the required standard. There was a further conflict between the expansive warranty language contained in the prime contract versus the subcontract’s narrower indemnity provision.

From the issuance of AWD’s claim to Varcon’s appeal, the litigation lasted nearly five years. Early in the process, AWD brought an early successful motion for summary judgment for unpaid holdback. The holdback amount of $39,064.87 was ordered to be paid into court. On that same motion, Varcon was given leave to amend its pleadings to advance a counterclaim of $150,000 against AWD for remediation costs. The action proceeded through discoveries. AWD brought a second motion for summary judgment to dismiss Varcon’s counterclaim in its entirety.

As will be explained below, AWD’s summary judgment motion was only partially successful, resulting in an order that the action proceed to trial. Both Varcon and AWD appealed.