By Doug Hallett
A decision by city council on whether to appeal the Urbacon judgment won’t come until at least mid-July.
On Monday, city staff briefed council behind closed doors on the judgment in the $20-million breach-of-contract lawsuit brought against the city by Urbacon, the contractor fired from the city hall building project in 2008.
Council “listened to the information staff provided and asked questions,” Mayor Karen Farbridge said in a news release after Monday’s meeting. “There was no direction given by council tonight.”
On June 16, the city received the reasons for Justice Donald MacKenzie’s ruling in the case. Since then, staff have been reviewing the 64-page ruling, which gives the reasons for the judge’s decision in favour of Urbacon, which had been delivered in March.
The city has reserved the right to appeal the court’s ruling.
“Administration’s role now is to give council its best recommendations for moving forward,” Guelph’s chief administrative officer, Ann Pappert, said in the release. “We will be doing that at the next closed meeting of council on July 14.”
If it doesn’t appeal the judge’s ruling, the city would likely seek to reach a financial settlement with Urbacon to try to avoid a second trial, which would otherwise be held to determine the amount of damages to be paid by the city.
Justice Donald MacKenzie of the Ontario Superior Court of Justice was blunt in his ruling, saying the city had not acted in good faith in the lead-up to Urbacon’s firing in 2008.
He ruled that city hall has orchestrated a “notice of events of default” that was issued by the architectural firm of Moriyama and Teshima, the project consultant. This notice helped lay the groundwork for the firing.
The notice of events of default, issued by Moriyama and Teshima “under the direction or orchestration by Guelph, is invalid and thereby negates any justification by Guelph of its termination of Urbacon,” the judge ruled.
“The failure by Guelph to perform its obligations in good faith under the contract invalidates any justification for Guelph’s termination of Urbacon on the contract,” he added.
The “most flagrant example of the failure of Guelph to act under the contract in good faith,” the judge said, was “the contrivance” by city official Murray McCrae “on behalf of Guelph in orchestrating” Moriyama and Teshima in preparing and issuing the notice of events of default. This notice from the consultant was “the precursor or foundational act for Guelph’s termination of Urbacon.”
McCrae, who was the city’s manager of corporate property, was the city’s main contact with those working to build a new city hall. No longer employed by the city, McCrae was a main witness for the city at the trial. Hans Loewig, who the city’s chief administrative officer at the time of the Urbacon firing, didn’t testify at the trial, which took place last year.
McCrae testified that “the decision to terminate Urbacon was not exclusively his and referred to other city personnel, including Mr. Hans Loewig,” the judge noted.
In July 2006, Toronto-based Urbacon Buildings Group Corp. was awarded a $42-million contract as general contractor for the construction of a new city hall and for the conversion of the old city hall into a provincial offences courthouse. After many delays in the city hall project, the city fired Urbacon in September 2008. The $42-million contract included about $32.5 million for the new city hall and $9.5 million for the POA courthouse.
After Urbacon filed its $20-million lawsuit in the fall of 2008, the city filed a $5-million counterclaim lawsuit against Urbacon. However, the judge dismissed this counterclaim in March while ruling that the city was liable.
The judge said the main issue in the case is this: “When and under what circumstances does default by a contractor in a building contract in meeting time milestones for the work in a construction project entitle the owner to terminate the contract and cause the contractor and its agents to be removed and barred from the site?”
Deciding this issue came after the judge sat through 40 trial days during the first half of 2013.
“The volume of documents . . . in this case have all threatened to cause the forest to be lost in the trees,” he noted in last week’s ruling.
Another evocative phrase in the judge’s ruling came when he wrote about the emphasis placed by a trial witness on “harsh language” used at some tense meetings in 2008 between city and Urbacon officials over construction difficulties and delays.
“Although some emphasis had been placed upon this aspect of the alleged tension,” the harsh language didn’t mean much under the circumstances, the judge said. In fact, he said, “it would be somewhat surprising if such tension and disagreements did not result in language that might not ordinarily be heard at a church social.”
The “distinction between breach of contract and fundamental breach of contract” is at the heart of the liability issues in this case, Justice MacKenzie wrote.
“The question that is central to the disposition of this case is not whether Urbacon may have been in breach of its obligation under the contract, but whether the acts comprising any breach or breaches were in law a fundamental or substantial breach by Urbacon of its obligations under the contract,” he wrote.
“If such acts or omissions were not at law a substantial or fundamental breach by Urbacon, then Guelph as the other contracting party would only have a remedy in damages against Urbacon” – not a right to fire Urbacon.
“In this case, the onus was on Guelph to establish that Urbacon was in fundamental breach of its obligations under the contract. Guelph has failed so to do. In such a situation, Guelph’s termination of Urbacon was not justified,” he ruled.
Justice MacKenzie also called into question the city’s decision to summon city police to the city hall construction site after the firing.
“Guelph required the municipal police to attend at the site and, without prior notification, to effect the removal from the building site all Urbacon staff and any subtrades working on the site,” he said. “There was no indication, let alone occurrence, of any breach of the peace in the course of the termination and removal of Urbacon and its forces from the site.”