Anatomy of a DisasterAnatomy of a DisasterPart IIPart II

© Duncan W. GlaholtFebruary, 2004

1. A Web of 1. A Web of Relationships in Relationships in

ContractContract

ACE(A & B)

Jack of Diamonds

Tenderno geotechnicalresponsibilities

Snake Eyes Lending

Feb. 1, 2000

Commit-mentletter

KingContractors

Ltd.

$10m modified CCDC Lucky Streak

GuaranteeCompany$5m P&P Bonds

March 30, 2000: “First Spade”Nov. 2000: “Fully enclosed”Feb. 2001: “Fully poured”

Sub Sub Sub

Workers Suppliers

Property & GCLDeuce Insurance

CGL AutoBuilder’s Risk

Tenants

$ leakage to other jobs

30 liens

6 geotechnical reports Sub-

Cons.

Sub-Cons.

2. A Web of 2. A Web of Relationships in DebtRelationships in Debt

s. 44 – Lien

Bonds

s. 5 – contract to

conform

Contracts Bonds

Liens

HB

Q: Does a lien help King?

A: No.

1. CCRA (federal taxation super-priority)

2. CCAA (federal reorganization statute)

P&PBonds

3.BIA (federal insolvency statute – forgeneral creditors only)

Contracts Bonds

LiensQ: Does a lien help

King’s subs?

A: Yes, if they have paid their own trades

Contracts Bonds

LiensQ: Does a lien help

workers & suppliers?A: Yes, big time!s. 78 – Priorities

s. 81 – Worker’s priority

3. A Web of Relationships in 3. A Web of Relationships in TortTort

1.1. Tort = Judicial shifting of losses for injury Tort = Judicial shifting of losses for injury or wrong done to person or propertyor wrong done to person or property

2.2. Tort = NegligenceTort = Negligence

3.3. Independent of ContractIndependent of Contract

4.4. Need to prove duty, breach of duty & Need to prove duty, breach of duty & damagesdamages

5.5. ““Anns” testAnns” test

Anns v. Merton London Borough CouncilAnns v. Merton London Borough Council, , [1977] 2 All E.R. 492 (H.L.)[1977] 2 All E.R. 492 (H.L.)

(1) Is there a sufficiently close relationship (1) Is there a sufficiently close relationship between the parties […] so that, in the between the parties […] so that, in the reasonable contemplation of the authority, reasonable contemplation of the authority, carelessness on its part might cause damage to carelessness on its part might cause damage to that person?  If so,that person?  If so,(2)are there any considerations which ought to (2)are there any considerations which ought to negative or limit negative or limit (a) the scope of the duty and (a) the scope of the duty and (b) the class of persons to whom it is owed or (b) the class of persons to whom it is owed or (c) the damages to which a breach of it may give (c) the damages to which a breach of it may give rise?rise?

4. Process Issues4. Process IssuesProblem:Problem:1.1. Liens get their own court (CLA procedure)Liens get their own court (CLA procedure)2.2. Insolvency proceedings get their own court Insolvency proceedings get their own court

(Commercial List)(Commercial List)3.3. Tort claims get their own court (Superior Court)Tort claims get their own court (Superior Court)4.4. ADR can be chosen in any or all of the above. ADR can be chosen in any or all of the above.

Parties create their own court.Parties create their own court.

Solution:Solution:““Connecting Orders”Connecting Orders”

Owner’s Eye ViewOwner’s Eye View(Pro’s and Con’s)(Pro’s and Con’s)

ACE

Lender’sMonitor

(Do they oweAce a duty?)

Consultants &Designers

(Causation issueNo “economic”

settlements)

Contractor(action in debt

stayed under BIA)

Insurer(faulty design and

Workmanshipexclusion)

Subcontractor’s Eye ViewSubcontractor’s Eye View

Sub

Claim onPayment

Bond

Claim inKing

Bankruptcy

Lien(outside

King Bankruptcy)

Trust(outside

KingBankruptcy)

Insurer’s Eye ViewInsurer’s Eye View

PrioritiesPriorities

Remember first principlesRemember first principlesNo free rides!No free rides!No unjust enrichment!No unjust enrichment!

Section 78Section 78

Question 1: is it a building Question 1: is it a building mortgage?mortgage?

yesyes: mortgagee loses priority for : mortgagee loses priority for deficiency in holdback, period.deficiency in holdback, period.

nono: go to Question 2: go to Question 2

Section 78Section 78

Question 2: When did the first lien arise?Question 2: When did the first lien arise?

Answer: Answer: BeforeBefore mortgage registered or fully mortgage registered or fully advanced? advanced?

mortgagee has priority until lien registered or mortgagee has priority until lien registered or written notice of lien receivedwritten notice of lien received

Answer: Answer: AfterAfter mortgage registered and either fully mortgage registered and either fully or partially advanced?or partially advanced?

mortgagee gets mortgagee gets lesserlesser of of

- actual value when first lien arose- actual value when first lien arose

- all advances made without notice- all advances made without notice

Section 78Section 78

Question 3: Is it a homebuyer’s mortgage?Question 3: Is it a homebuyer’s mortgage?

Answer: If it is, the above scheme is Answer: If it is, the above scheme is irrelevant and the mortgagee has priorityirrelevant and the mortgagee has priority