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JULY 20 07
TIME IS MONEY
The Condominium Developers Guide to Delay Claims
Time is money is an appropriate motto in the eld of high-rise condominium projects. Yet, delays are an expected, although unfortunate, reality of such projects.
Introduction
The developer is at the projects centre, orchestrating the progress of the project and dealing with all others involved in the process including: unit purchasers; contractors; lenders; consultants, which may include architects, engineers and cost consultants;. the municipality; and Tarion.
BY IRVING
A developer is vulnerable to damage from delays because the project revenue is xed early in the process by the sale price of the condominium units. Return on invested equity is always diminished by delays. Further, some project costs may be variable and sensitive to delays, such as nancing costs, especially where there is a variable interest rate, and possibly construction costs, depending on whether the contracts are stipulated price or cost plus. When
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project costs are sensitive to delays, the developers ultimate return on investment is also sensitive to delay. In recent years, there has been little litigation driven by condominium unit purchasers on the basis of delay because of a strong market and rising prices. Although delay may cause these purchasers inconvenience, the delay often does not generate nancial losses signicant to justify a lawsuit. Even if a purchaser ultimately backs out of the deal, the developer can often sell the unit to a new purchaser for more money. While there has been an unprecedented run of rising prices, market conditions could easily change. If prices fall, even marginally, a delay could cause the developer to suffer signicant losses. In the worst case scenario, all of the purchasers could terminate, leaving the developer to resell all of the units at lower prices. In those circumstances, the developer would want to hold the responsible parties accountable for the delay. This paper briey addresses the remedies available to the developer, and the risks the developer faces as the target of delay lawsuits. Delay claims are frequently complicated, requiring an analysis of complex factual and legal arguments. The number of parties and different legal relationships between them often leads to multi-party litigation with numerous crossclaims, counterclaims and third party claims. The topic of delay claims is so broad that entire textbooks have been written on the subject. Given the scope of this topic, the purpose of this paper is to introduce some key concepts and issues which arise in delay claims from the perspective of the developer, as well as to provide some practical tips to protect the developer, even before the project encounters a delay.
Assessing damages in delay claims: notice requirements when is a party entitled to damages on the basis of delay? the categories of delay: excusable non-excusable compensable non-compensable
damages arising from delay foreseeability additional construction costs loss of prots contract limitations
Review of some typical terms in construction contracts: exclusion clauses/disclaimers penalty claims vs. liquidated damages clauses time is of the essence clauses arbitration clauses implied terms
Defences to delay claims, including: force majeure clauses concurrent delay exclusion clauses
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excessive changes in requirements or design; defective or insufcient plans; the failure to obtain necessary work permits; and the failure to provide or approve drawings in a reasonable time.
Where some part of the construction must be carried out by or on behalf of the developer before the contractor can perform its work under the contract, any delay in the work amounts to a breach of contract for which the developer may be liable. However, if a contractor is delayed because other contractors have defaulted and the developer is not responsible for the delay, the developer will not be responsible for paying damages to the contractor arising from the delay unless the contract states that the developer must prevent such delays.3 When the developer causes delay, it commonly grants an extension of time to the contractor to complete its work. If the contractor accepts the extension from the developer without claiming damages for the delay, this may amount to a waiver (or an acceptance) of the developers breach and may prevent the contractor from later claiming damages from the developer for delay.4
b)
A contractor who is responsible for delay in the completion of work will be in breach of its contractual obligations and may be liable to the developer for damages. A sufcient delay may also enable the developer to terminate the contract altogether.5 In addition to the contractors duty to perform the work pursuant to the terms of the contract, the contractor may have additional obligations under the contract, such as compliance with statutory rules and regulations and by-laws. If the contractor fails to full these obligations, this constitutes a breach of contract.6 Other examples of delay caused by the contractor include: contractor management and performance problems; contractor management and performance problems; failure to properly staff the job;
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For instance, in Axelrod v. City of Toronto, the Court ordered a municipality to issue demolition permits to a developer after its refusal to do so without proper grounds.11 Legal proceedings against a municipality will likely cause further delays given that the judicial process is frequently slow.
A contractor who incurs additional costs because of its own delay is not entitled to recover such costs from the developer.7 If a contractor knows in advance that it will not be able to complete its work in a timely fashion, it may apply to the developer for an extension of time. If the developer grants the extension and the work is completed within the extended time period, the contractor will not be considered to have breached the contract. If the delay was solely the fault of the contractor, the developer is not required to grant an extension.8 Standard form construction contracts have timelines that specically address the issue of delay. For instance, General Condition 6.5 of the stipulated price contract in CCDC 2-1994 contains a specic delay section, attached as Appendix A.9
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to preserve the right to claim damages. Particulars must be given in a timely fashion so that the defaulting party is notied that a claim will be advanced against it for costs related to delays but has the opportunity to take protective measures.13
recover damages for breach of contract, and the breaching party is excused from any further performance under the contract. The developer may terminate the contract and retain other forces to complete the contractors work.15 However, if the innocent party does not accept the repudiation, the breaching party is not excused from further performance, and the innocent party can still claim damages for the breach of contract.16 Whether in any given circumstances the breach is sufciently fundamental so as to amount to a repudiation is in each case a question to be determined in light of the particular terms of that contract.17
i) Foreseeability
Even if a delay amounts to a breach of contract, not all damages are necessarily recoverable. Damages are only recoverable if they arise naturally from the breach or, in some circumstances, if they could reasonably have been within the contemplation of the parties when they entered into the contract. All other damages will be considered too remote. For instance, if a developer requires a building to be completed by a certain date, and its purpose is to generate income, a contractor who fails to complete its work in time
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will be liable to the developer for damages for loss of prots only if the contractor actually knew that the building was required for such purpose, or if that purpose was reasonably within the parties contemplation.18
ordered damages to be paid pursuant to the method selected by the parties and set out in the contract.23
d) Supporting Documents
Supporting documents are critical in proving that there was a delay, that it was caused by the Defendant, that the Plaintiff suffered compensable damages as a result of the delay, and that a particular measure of damages is proper in the circumstances. The following are suggestions of steps and documents that should be maintained throughout the course of the project: The developer should have a well-established project schedule and maintain accurate and timely records of all delays, as they occur, and how the delay impacted upon the project. This will assist the developer to corroborate any consequential losses resulting from the delay. Immediately put the responsible parties on notice of the need to comply with a specic deadline and that they will be held responsible for any delay. Keep clear and accurate records of all contracts related to the project. Maintain detailed accounting records since the losses will be nancial. All staff involved in the construction project should keep detailed records of daily events during the course of construction. Photos and video footage showing the status of a construction project on any given day are often helpful in proving delay claims, as well as logs and journals which recorded details of events that transpired on site. Keep all correspondence, as well as written notes of discussions. Any problems related to delays in the construction schedule should be addressed during
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e) Expert Evidence
In order to establish a claim for delay of any signicant size, expert evidence will be necessary. It is strongly recommended that the expert be retained in the early stages of litigation so that the expert can assist in the preparation of pleadings, assist with the discovery process, assist counsel to prepare the case for trial, and appear as a witness at trial. At trial, experts are permitted to give evidence of the proper method to be adopted in assessing a delay claim as a matter of industry practice, and testify as to any exceptions to that method which should be made in the case. The expert may also express an opinion about the type of effect that is generally caused by the delay of one branch of a construction project upon other branches of the project. The expert can also provide factual evidence about construction techniques and practice.25 Expert accounting evidence will also be required to establish a loss of prot claim.
Tips and Traps of Common Construction Contract Clauses: Strategies for Examining Contractual Terms
The terms of the contract have clear implications on delay claims. For instance, what does the contract say about delivery dates? Are the dates rm? Does the contract make time of the essence? Set out below is a brief analysis and practical tips regarding some common construction contract terms, including: exclusion clauses, penalty and liquidated damages clauses, time is of the essence provisions, arbitration clauses, as well as the effect of implied contractual terms.
a) Exclusion Clauses/Disclaimers
Construction contracts frequently contain clauses which attempt to limit or exclude a partys liability if certain events occur. Often, a developer includes such a provision stating that in no, or only limited, circumstances will it be liable to the contractor. If a developer seeks to exclude its liability for delay in respect of its own breaches of contract, it may do so but it is mandatory that the disclaimer expressly provides that it includes the developers own breach of contract. Language such as the developer shall in no circumstances be responsible to the contractor for damages resulting from the delay of the contractors work operations has been found to be insufcient because it fails to include in express language the situation where the developer has breached its contractual obligations.28 By contrast, in Perini Pacic Ltd. v. Greater Vancouver Sewerage & Drainage District (No. 2), the Supreme Court of Canada held that the addition of the more specic phrase: whether or not such delay may have resulted from anything done or not done by [the developer] under the contract was an effective exclusion clause as this was exactly the kind of loss which precluded the claim according to the language of the contract.29 Because exclusion clauses and disclaimers are strictly construed, it is necessary that clear and unambiguous language be used. If there is ambiguity, an exclusion clause will be read strictly against the party for whose benet it was inserted. Therefore, the best tool to attack an exclusion clause is to have it strictly construed against the
f) Mitigation of Damages
In the case of a breach of contract, the innocent party is required to mitigate (minimize) its damages by taking reasonable steps to protect itself from further loss. In other words, the innocent party must behave in a reasonable manner with a view to ensuring that its damages resulting from the breach are as minimal as possible, which includes seeking the most economical and efcient way of making up for a delay. It may also include the least expensive method of returning the innocent party to the same position. For instance, the developer must attempt to replace a contract as quickly as possible where a contractor has failed to complete. The onus is on the party asserting that the innocent party has not mitigated its damages to prove that it did not do so.26 The innocent partys failure to mitigate could signicantly reduce the damages ultimately awarded to it by the court.27
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interest of the party who put it forward, on the grounds of ambiguity.30 There is no rule that necessarily invalidates an exclusion clause in the event of a fundamental breach or other type of breach of contract.31 In deciding whether to enforce an exclusion clause in the face of a fundamental breach of contract, the court will decide whether doing so would be unconscionable or so unreasonable that the parties could not have intended this result. Unconscionability usually arises in situations where there is a vast disparity of contractual bargaining power between two parties to the contract so that the imposition of the disclaimer was essentially forced upon a party (usually the contractor) with no real commercial choice but to accept the term. Where there is equality of bargaining power, the courts will usually give effect to the bargain.32
clause. Further, the developer will likely have to prove that it suffered actual damages in the amount of the claimed liquidated damages.35 Liquidated damages provisions for delay in completion are inapplicable if the contractor never started the work under the contract, as they apply only once work has begun.36
d) Arbitration Clauses
Construction contracts often contain arbitration clauses, such as the one set out in General Condition 8.2 of the CCDC Stipulated Price Contract, attached as Appendix A. It is strongly recommended that all contracts in a given project be consistent with respect to arbitration provisions. Either all project contracts should contain an arbitration clause, or none should have this clause. This consistency may prevent procedural problems and a multiplicity of proceedings given that section 7(1) of the Arbitration Act, 1991 provides that a court proceeding must be stayed in favour of arbitration when there is an agreement to arbitrate. Further, any arbitration clause contained in the construction contracts should specically exclude arbitration where a developer has been sued and wishes to commence third party proceedings. Otherwise, the main action could proceed in court while the third party claim proceeds by arbitration, resulting in a multiplicity of proceedings and potentially inconsistent results. However, these concerns are not usually an issue when a developer has entered into a General Contract with a
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general contractor. In this situation, the developer has no direct relationship with the subcontractors so any delay claims would be governed solely by the contract between the developer and the general contractor (and the developer would not need to bring claims against the subcontractors for delay). The prevalence of arbitration in construction cases (and other commercial cases) has lead to a dearth of recent reported court cases on these issues. While this may benet the immediate parties (lower costs, speed and privacy), it deprives subsequent parties and their lawyers the benet of guidance from decided case law.
of such a clause. If the event occurred without the clause in the contract, the contract would be frustrated and the parties no longer bound to perform their future contractual obligations. In order to rely on a force majeure clause as a defence to a delay claim, the circumstance which occurred should not have been foreseen and could not have been prevented. Strict compliance with the notice provisions set out in the contract has been held to be a condition precedent to invoking a force majeure clause.40
b)
Concurrent Delay
e) Implied Terms
Since it is almost impossible to foresee all situations that may arise during the course of construction to provide for all of them in the contract, the court will sometimes have to imply a term to address a situation when the parties did not deal with it expressly. In the absence of an express provision in a contract, it is an implied term of a construction contract that the developer will do everything reasonable to allow the contractor to complete its work, such as making timely payments and refraining from interfering with the contractors work which may result in delay in its completion.39
Concurrent delay occurs when two or more causes of delay operate at the same time. If different parties are responsible for different concurrent delays, the court will generally assign a percentage of fault to each responsible party. A court will do the best it can to apportion responsibility on an estimated basis, on the basis of expert evidence. If the court cannot decide how to apportion the fault, an equal percentage of the blame will be assigned to each party.41 Concurrent delay is frequently used as a defence to a delay claim. If a party can successfully assert a concurrent delay so that the court apportions the concurrent delay, the party might be able to reduce such a claim by the percentage of concurrent delay for which the claimant is responsible. For instance, in Alberta Engineering Co. v. Blow, the contractor brought an action for the balance of the contract owing. The owner counterclaimed for delay on the basis that the project was delivered several months after the agreed completion date and the owner lost rental income as a result. The contractor asserted that the owner was responsible for some concurrent delay. The court attributed over a quarter of the concurrent delay to the owner, thereby reducing the owners claim for rent.42 Further, if a party can prove that an excusable but noncompensable delay ran concurrently with the compensable delay, the party can try to entirely defeat the delay claim on the grounds that the non-compensable delay overrides the compensable delay such that only an extension of time is permitted.43
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Proving a concurrent delay may reduce or defeat the delay claim even when the defending party is not asserting a delay claim itself.44
c) Exclusion Clauses
Exclusion clauses, also known as disclaimers, are a possible defence to a delay claim, as set out above.
6.5.2
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delays unless such delays result from actions by the Owner. 6.5.4 No extension shall be made for delay unless notice in writing of claim is given to the Consultant not later than 10 Working Days after the commencement of delay, providing however, that in the case of a continuing cause of delay only one notice of claim shall be necessary. If no schedule is made under paragraph 2.2.9 of GC 2.2 - ROLE OF THE CONSULTANT [ie: the Consultant will furnish Supplemental Instructions to the Contractor with reasonable promptness or in accordance with a schedule agreed to by the Consultant and the Contractor], no claim for delay shall be allowed because of failure of the Consultant to furnish instructions until 10 Working Days after demand for such instructions has been made and not then, unless the claim is reasonable.]
of the matter in dispute and the relevant provisions of the Contract Documents. The responding party shall send a notice in writing of reply to the dispute within 10 Working Days after receipt of the notice of dispute setting out particulars of this response and any relevant provisions of the Contract Documents. 8.2.3 The parties shall make all reasonable efforts to resolve their dispute by amicable negotiations and agree to provide, without prejudice, frank, candid and timely disclosure of relevant facts, information, and documents to facilitate these negotiations. After a period of 10 Working Days following receipt of a responding partys notice in writing of reply under paragraph 8.2.2, the parties shall request the Project Mediator to assist the parties to reach agreement on any unresolved dispute. The mediated negotiations shall be conducted in accordance with the latest edition of the Rules for Mediation of CCDC 2 Construction Disputes. If the dispute has not been resolved within 10 Working Days after the Project Mediator was requested under paragraph 8.2.4 or within such further period agreed by the parties, the Project Mediator shall terminate the mediated negotiations by giving notice in writing to both parties. By giving a notice in writing to the other party, not later than 10 Working Days after the date of termination of the mediated negotiations under paragraph 8.2.5, either party may refer the dispute to be nally resolved by arbitration under the latest edition of the Rules for Arbitration of CCDC 2 Construction Disputes. The arbitration shall be conducted in the jurisdiction of the Place of the Work. On expiration of the 10 Working Days, the arbitration agreement under paragraph 8.2.6 is not binding on the parties and, if a notice is not given under paragraph 8.2.6 within the required time, the parties may refer the unresolved dispute to the
6.5.5
8.2.4
8.2.7
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courts or to any other form of dispute resolution, including arbitration, which they have agreed to use. 8.2.8 If neither party requires by notice in writing given within 10 Working Days of the date of notice requesting arbitration in paragraph 8.2.6 that a dispute be arbitrated immediately, all disputes referred to arbitration as provided in paragraph 8.2.6 shall be .1 held in abeyance until (1) Substantial Performance of the Work, (2) the Contract has been terminated, or (3) the Contractor has abandoned the Work, whichever is earlier, and .2 consolidated into a single arbitration under the rules governing the arbitration under paragraph 8.2.6.
Endnotes
1. Ontario New Home Warranty Program Act, R.S.O. 1990, c. O.31 2. Immanuel Goldsmith and Thomas G. Heintzman, Goldsmith on Canadian Building Contracts, 4th (Toronto: Thomson Carswell, 1988) at 5-9 3. Ibid. 4. Esposito, Anna M. and Maria Tassou, Overview of Construction Delay Claims and Delay Damages in Construction Delay Claim: Following the Critical Path, Ontario Bar Association, Continuing Legal Education [CLE Program] (2006: Toronto, Ontario) at 3. 5. Anderson Industrial Doors Ltd. v. Genstar Construction Ltd. [1985] CarswellBC 768 (B.C.S.C.) Supra, note 2 at 5-16 6. Supra, note 2 at 5-18 7. Josyln & Olsen Contractors Ltd. v. Bouey [1976] CarswellAlta 21 (A.C.A.) 8. Supra, note 4 at 4 9. CCDC stands for Canadian Construction Documents Committee, which is a joint committee comprised of owners and representatives of various institutes. The italicized terms are dened terms in the contract. 10. Supra, note 2 at 5-17 11. [1984] CarswellOnt 519 (Div. Ct.); (1984) 13 D.L.R. (4th) 634 (H.C.J.); varied at [1985] O.J. No. 2664 (H.C.J.) 12. [1998] CarswellOnt 2554 (O.C.A.) 13. Supra, note 4 at 9 W.J. Kenny, Cook Duke Cox (Edmonton-Calgary), Delay Claims at 37(source unknown) For further reading on the issue of the importance of timely notice on such claims, please see: Esposito, Anna M. and Maria Tassou, Overview of Construction Delay Claims and Delay Damages in Construction Delay Claim: Following the Critical Path, Ontario Bar Association, Continuing Legal Education [CLE Program] (2006: Toronto, Ontario) at 9 to 12.
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14. Supra, note 4 at 2 and 3 15. Torbray (Town Council) v. Metro Enrg. & Const. Ltd. (1980) 30 Nd. & P.E.I.E. 298 (Nd. T.D.) 16. Supra, note 2 at 6-3 and 6-4 17. Ibid, at 6-5 18. Smith v. Tennant (1890), 20 O.R. 180 Can. Foundry Co. v. Edmonton Portland Cement Co. (1918) CarswellAlta 157 (P.C.). 19. Supra, note 2 at 6-9 and 6-10 20. Pendivic Contracting Co. v. International Nickel Co. [1975] CarswellOnt 299 (S.C.C.) 21. Lowe v. Robb Engineering Co. [1905] CarswellNS 11 (N.S.S.C.) 22. Shore & Horowitz Construction Co. & Franki of Canada Ltd. [1964] CarswellOnt 70 (S.C.C.) 23. [2003] CarswellNB 587 (N.B.Q.B.); affd at [2005] CarswellNB 411 (N.B.C.A.) 24. Supra, note 4 at 12 and 13 25. Cogar Estate v. Central Mountain Air Services Ltd. [1992] CarswellBC 305 (B.C.C.A.) 26. W.J. Kenny, Cook Duke Cox (Edmonton-Calgary), Delay Claims at 41 (source unknown) 27. Some cases which address the duty to mitigate and the effect of mitigation on a claim for damages are: Rice v. Sockett [1913] CarswellOnt 425 (O.C.A.); Sault Ste. Marie (City) v. Proctor & Redfern Ltd. [1986] CarswellOnt 785 (H.C.J.); and Westland Investment Corp. v. Carswell Collins Ltd. [1996] CarswellAlta 29 (Alta Q.B.). 28. Westcounty Construction Ltd. v. Nova Scotia [1985] CarswellNS 124 (N.S.T.D.) D.J. Lowe (1980) Ltd. v. Nova Scotia (Attorney General) [1993] CarswellNS 152 Mueller, Warren H.O. Contractual Exclusion and Limitation of Delay Claims 47 C.L.R. (3d) 5 (2005) at 4 and 22 (note: page references are to ecarswell).
For a lengthier discussion on this topic, please see this article at pages 3 and 4 (ecarswell). 29. [1967] CarswellBC 187 (S.C.C.) 30. W.J. Kenny, Cook Duke Cox (Edmonton-Calgary), Delay Claims at 32 (source unknown) 31. A fundamental breach can be dened as a breach going to the root of the contract, or one based on performance that is totally different from that which the contract contemplated. 32. Syncrude Canada Ltd. v. Hunter Engineering Co. [1989] CarswellBC 37 (S.C.C.) W.J. Kenny, Cook Duke Cox (Edmonton-Calgary), Delay Claims at 32 (source unknown). Some other cases that have considered the effect of exclusion clauses in the context of construction delay claims are: Alden Contracting Ltd. v. Newman Bros. Ltd. [1997] CarswellOnt 3734 (Gen. Div.) and Summitville Consolidated Mining Co. v. Klohn Leonoff [1989] CarswellBC 697 (B.C.S.C.). For further reading on the topic of exclusion clauses, please see: Mueller, Warren H.O. Contractual Exclusion and Limitation of Delay Claims 47 C.L.R. (3d) 5 (2005). 33. Covert v. Janzen (No. 2) [1908] CarswellSask 128 (S.C.A.) Macdonald v. Northwest Biscuit Co. [1924] CarswellAlta 84 (A.C.A.) 34. H.A.R. Construction Ltd. v. DeMerchant Construction [1989] CarswellNB 68 (N.B.Q.B.) 35. Calgary v. Janse-Mitchell Const. Co. [1919] CarswellAlta 156 (S.C.C.) 36. Lembke v. Chin Wing [1912] CarswellBC 208 (B.C.S.C.) 37. 1473587 Ontario Inc. v. Jackson [2005] CarswellOnt 712 (S.C.J.); affd at [2005] CarswellOnt 3282 (C.A.) 38. Union Eagle Ltd. v. Golden Achievement Ltd., [1997] A.C. 514 (Hong Kong P.C.), referred to with approval in 1473587 Ontario Inc. v. Jackson [2005] CarswellOnt 712 (S.C.J.) and in Harris v. McNeeley (1998) 21
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R.P.R. (3d) 291; affd at (2000) 47, O.R. (3d) 161 (O.C.A.) 39. W.J. Crowe Ltd. v. Pigott Construction Ltd. [1963] CarswellOnt 64 (S.C.C.) Smith v. Johnson Brothers Co. [1953] CarswellOnt 100 (H.C.J.) W.A. Stephenson Construction (Western) Ltd. v. Metro Canada Ltd. [1987] CarswellBC 675 (B.C.S.C.) Supra, note 4 at 4 and 5. 40. Some cases which have considered the effect of a force majeure clause are: Perini Pacic Ltd. v. Greater Vancouver Sewerage & Drainage District [1966] CarswellBC 182 (B.C.C.A.), affd at [1967] S.C.R. 189 (S.C.C.) and World Land Ltd. v. Daon Development Corp. [1982] CarswellAlta 131. Supra, note 2 at 1-66. Supra, note 4 at 5 - 7. 41. Korban Inc. v. Pigott Construction Ltd. [1993] CarswellOnt 825 (Gen. Div.) Supra, note 4 at 15 For further reading on the subject of concurrent delay, please see: Grenier, Glenn. Evaluating Concurrent Delay - Unscrambling the Egg. 53 C.L.R. (3d) 46 (2006). 42. [1914] CarswellAlta 165 (Alta T.D.) Grenier, Glenn. Evaluating Concurrent Delay Unscrambling the Egg. 53 C.L.R. (3d) 46 (2006) at 8. 43. Grenier, Glenn. Evaluating Concurrent Delay Unscrambling the Egg. 53 C.L.R. (3d) 46 (2006) at 8. 44. Ibid, at 11 Barbara Green is a senior associate in the litigation group, focusing on commercial litigation with an emphasis on real property disputes, commercial leasing, condominium litigation, banking litigation and corporate disputes. Irving Marks is the senior partner of thelitigation group. Irving has extensive experience in all aspects of business litigation in the superior and appellate courts.
provides expertise in all areas of business law including commercial real estate, municipal and property tax assessment, banking and insolvency law, tax law and estate planning, commercial litigation and corporate law.
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