May 15, 2010
Keeping track of who’s who in construction
By Robert Kennaley
McLauchlin & Associates
Most of you have incorporated your businesses. Incorporation is, of course, an excellent way to manage tax obligations and better protect from personal liability. Yet, often it seems incorporation is very much taken for granted in the construction context, such that problems do arise. Sometimes, the problems can be very significant and expensive.
It is not unusual for even large companies to drop the ball and fail to keep up with registrations. You might be surprised how often we deal with companies whose registrations have been cancelled for failures to update filings, or pay filing fees or taxes. As a result, when the company looks to enforce payment on a contract, it doesn’t actually exist. While the company might be revived to allow it to pursue the debt, it may lose the lien rights it would otherwise have had. It has clearly been established that a corporation cannot have lien rights unless it exists at the time its claim for lien was preserved. If there is not sufficient time to renew the registration prior to the applicable 45-day period expiring, the lien rights will be lost.
It is also not uncommon for a company to somehow lose track of its actual corporate name. Sometimes it is because a company has gone through a number of variations, and at other times someone simply starts using a short form for the name. For example, ABC Contracting and Planning Limited might become ABC Contracting Limited, and ABC Forming Incorporated might become ABC Forming Inc. If you sue in the wrong name, you might not be able to correct the mistake. If you register a claim for lien in the wrong name, correcting the problem can be much more difficult. Further, the other side can always argue that, because of the confusion over the names, the plaintiff is not the person who performed the work. Given the two-year limitation period now applicable to most claims, it might be too late to name the other possible plaintiffs once the issue arises.
You might also be surprised how often a client’s invoicing or communication differs from what is called for under the contract. The contract, for example, might be in the name of ABC Inc., while that party might invoice, or communicate, in the name of a different person or entity. This becomes potentially problematic. If the other side wants to make a claim, and is concerned that ABC Inc. lacks sufficient assets, it might sue those named in the invoices or other communications, on the basis that they actually did the work.
One way to avoid confusion over who is performing the work is to ensure that communications and payments are with, and made to, the persons named in the contract. If the other side issues communications or payments to some other person or entity, a request that the error be corrected should be made. If contract monies are to be paid directly to some other person or entity, it should be done upon a proper direction which confirms that the payment is, at first instance, due and owing to the company named in the contract.
Contracting parties should also ensure that the entity they are contracting with is made clear in the contract itself. Bob’s Contracting, for example, does not exist. If you enter into a contract with Bob’s Contracting, you might be contracting with Bob, as an individual, or with some other unnamed person or entity. If a dispute arises and you need to pursue Bob’s Contracting for payment, negligence or damages, you can find yourself in a very difficult position if you cannot easily prove it is that firm you were working with. It might also allow one person or entity that has assets to assert that you had actually contracted with an entity that has no assets.
Finally, if your contract requires the other side(s) to provide you with statutory declarations, WSIB certificates, or evidence of insurance, you should ensure that these documents properly relate to the person(s) identified in the contract. Not doing so, of course, can leave you without the comfort the documents are intended to provide.
In the end, managing the issues we have reviewed does not take very much effort. It is, in our view, a matter of focus. It involves knowing who the contracting parties are and ensuring that all contract documents and communications properly reflect the role of these participants. Not paying attention to these issues can potentially have very expensive consequences.
Robert Kennaley practices construction law in Toronto and Simcoe. He speaks and writes regularly across North America. He can be reached for comment at 416- 368-2522, or at kennaley@mclauchlin.ca. This material is for information purposes and is not intended to provide legal advice in relation to any particular fact situation. Readers who have concerns about any particular circumstance are encouraged to seek independent legal advice in that regard.
McLauchlin & Associates
Most of you have incorporated your businesses. Incorporation is, of course, an excellent way to manage tax obligations and better protect from personal liability. Yet, often it seems incorporation is very much taken for granted in the construction context, such that problems do arise. Sometimes, the problems can be very significant and expensive.It is not unusual for even large companies to drop the ball and fail to keep up with registrations. You might be surprised how often we deal with companies whose registrations have been cancelled for failures to update filings, or pay filing fees or taxes. As a result, when the company looks to enforce payment on a contract, it doesn’t actually exist. While the company might be revived to allow it to pursue the debt, it may lose the lien rights it would otherwise have had. It has clearly been established that a corporation cannot have lien rights unless it exists at the time its claim for lien was preserved. If there is not sufficient time to renew the registration prior to the applicable 45-day period expiring, the lien rights will be lost.
It is also not uncommon for a company to somehow lose track of its actual corporate name. Sometimes it is because a company has gone through a number of variations, and at other times someone simply starts using a short form for the name. For example, ABC Contracting and Planning Limited might become ABC Contracting Limited, and ABC Forming Incorporated might become ABC Forming Inc. If you sue in the wrong name, you might not be able to correct the mistake. If you register a claim for lien in the wrong name, correcting the problem can be much more difficult. Further, the other side can always argue that, because of the confusion over the names, the plaintiff is not the person who performed the work. Given the two-year limitation period now applicable to most claims, it might be too late to name the other possible plaintiffs once the issue arises.
Corporate searches
Based on the above, it is our practice to perform corporate searches of our corporate clients before we commence actions or register claims for lien on their behalf. In this way, we can confirm the proper corporate name of the client, and that the client corporation actually exists. If we discover that the client’s corporate registration has lapsed, however, we may not have enough time to correct that problem before lien rights expire.You might also be surprised how often a client’s invoicing or communication differs from what is called for under the contract. The contract, for example, might be in the name of ABC Inc., while that party might invoice, or communicate, in the name of a different person or entity. This becomes potentially problematic. If the other side wants to make a claim, and is concerned that ABC Inc. lacks sufficient assets, it might sue those named in the invoices or other communications, on the basis that they actually did the work.
One way to avoid confusion over who is performing the work is to ensure that communications and payments are with, and made to, the persons named in the contract. If the other side issues communications or payments to some other person or entity, a request that the error be corrected should be made. If contract monies are to be paid directly to some other person or entity, it should be done upon a proper direction which confirms that the payment is, at first instance, due and owing to the company named in the contract.
Never assume
Companies should be especially careful not to allow individuals to assume the place of the contracting company for the purposes of communications, invoicing or payments. Doing so will allow the other side to at least argue that the individual, as opposed to the company, should be responsible for any negligence, damages or debts. When this occurs, the individuals involved put their personal assets at risk, particularly where the corporation is not in a position to respond to a claim.Contracting parties should also ensure that the entity they are contracting with is made clear in the contract itself. Bob’s Contracting, for example, does not exist. If you enter into a contract with Bob’s Contracting, you might be contracting with Bob, as an individual, or with some other unnamed person or entity. If a dispute arises and you need to pursue Bob’s Contracting for payment, negligence or damages, you can find yourself in a very difficult position if you cannot easily prove it is that firm you were working with. It might also allow one person or entity that has assets to assert that you had actually contracted with an entity that has no assets.
Finally, if your contract requires the other side(s) to provide you with statutory declarations, WSIB certificates, or evidence of insurance, you should ensure that these documents properly relate to the person(s) identified in the contract. Not doing so, of course, can leave you without the comfort the documents are intended to provide.
In the end, managing the issues we have reviewed does not take very much effort. It is, in our view, a matter of focus. It involves knowing who the contracting parties are and ensuring that all contract documents and communications properly reflect the role of these participants. Not paying attention to these issues can potentially have very expensive consequences.
Robert Kennaley practices construction law in Toronto and Simcoe. He speaks and writes regularly across North America. He can be reached for comment at 416- 368-2522, or at kennaley@mclauchlin.ca. This material is for information purposes and is not intended to provide legal advice in relation to any particular fact situation. Readers who have concerns about any particular circumstance are encouraged to seek independent legal advice in that regard.