Stop or Go: The Role of Mandatory and Prohibitive Injunctions in Construction Projects
By Andrew ParleyLaw
Managing relationships with critical suppliers is crucial for any construction project; one important subcontractor stopping work or walking off a project can grind operations to a halt. In these situations, when one party has inordinate leverage, and time is of the essence, lawyers might need to get involved to get the project back on track.
The first place to look for a remedy will always be the terms of the contract. If the contract has a provision requiring work to continue even during a dispute, this can help a lot. Further protection is provided when performance bonds are available to call against. Things become more difficult when the contract doesn’t state explicitly what happens during a dispute and when it does not provide any specific remedy if the subcontractor stops work or threatens to stop work.
When faced with a subcontractor who is refusing to continue work, the party seeking to have the work completed has the option to start a lawsuit, and then bring a motion within that legal proceeding for an interlocutory injunction to be heard urgently. A motion for an interlocutory injunction is a request for a temporary court order, compelling one party to do or not do something. Such orders are normally intended to ensure that the parties can preserve their rights, as best as possible, while the dispute to be determined in the lawsuit runs its course. This is often described as “maintaining the status quo,” pending the final determination of the lawsuit.
In order to obtain an injunction, a party will always have to show three things. The first is that they would suffer “irreparable harm” if the order is not granted. “Irreparable” in this context generally means harm that: (a) cannot be quantified in monetary terms, such as a loss of reputation in the marketplace; or that (b) is too great to be recoverable from the other party in damages. When facing the possibility of a significant construction project being ground to a halt, this first requirement will often be met, though it will require the party seeking the injunction to show that the harm caused by the work stoppage is more than just a quantifiable financial cost.
Second, the party seeking the injunction must show that the balance of convenience favours granting the injunction. This boils down to whether greater immediate harm will be caused by granting or denying the injunction while the litigation continues. This second factor is very fact specific. The party seeking the injunction will want to demonstrate the significant impact that the stoppage of work would have on the larger project and schedule. By contrast, the party facing the injunction will want to advance arguments as to why they should not be compelled to continue work on a project against their will.
Finally, the judge hearing the motion must assess the strength of the claim being advanced by the party seeking the injunction. The threshold to be established on this third factor will depend on whether the injunction is properly characterized as prohibitive, which require a party to refrain from doing something, or mandatory, which require a party to take positive steps to do something.
Although similar in many respects, the characterization of the injunction being sought can be very important. A positive course of action (mandatory injunction) will tend to cost time and money and is also harder for a court to enforce compliance with. Accordingly, courts impose higher thresholds to grant mandatory injunctions as compared to prohibitive ones. To obtain a mandatory injunction, the party must show that its case is “very likely to succeed at trial.” For a prohibitive injunction, however, the party only has to show that its case is “neither vexatious nor frivolous.”
Given the lower threshold for a prohibitive injunction, as opposed to a mandatory one, the framing of a proposed injunction can be crucial. For example, if a dewatering contractor threatens to remove its trucks from a construction site, the party seeking to keep the project moving may frame the order sought as preventing the removal of the trucks (a prohibitive injunction), while the owner of the trucks will want the court to see it as an order to continue providing work to the project (a mandatory injunction).
While mandatory injunctions are harder to obtain and therefore much less common than prohibitive ones, they are not impossible. In one Quebec case, a subcontractor stopped work on the foundation of a $15 million project over an outstanding payment of $42,544.78, removed its machinery from the site, and did not resume work even when the main contractor made cheques for the full amount available. The Quebec Superior Court considered that the subcontractor’s argument it had a right to terminate the contract was “at least doubtful” (“au moins douteux”). This, combined with the facts that significant and irreparable harm would ensue if the work was not performed, and that a performance bond was available to ensure the subcontractor would not be working for free, led the court to order the subcontractor to continue work on the foundation.
Although Quebec’s civil code often makes it more likely that mandatory injunctions will be granted in this province than anywhere else in Canada, mandatory injunctions are not unheard of in other provinces. The British Columbia Supreme Court has, for example, ordered contractors to take measures to stabilize a precarious slope that, if it failed, threatened a condo development. In another case, that court allowed a contractor to take control of a subcontractor’s equipment to finish a road construction project when the subcontractor looked unlikely to finish the project in time.
A mandatory injunction is not without risk. In addition to the high initial threshold that needs to be met in order to be entitled to the injunction, the party seeking the injunction must give an undertaking as to damages—effectively a promise that, if it is unsuccessful at trial, it will compensate the other party for complying with the injunction. This could include paying for the profit that the subcontractor would have earned on another project had they not been compelled to perform work pursuant to the injunction. That said, very few cases proceed all the way to trial. Often, the injunction will serve as a catalyst for the parties to reach a negotiated settlement, which will almost always be more cost-effective than lengthy and protracted litigation.
When time is of the essence, however, and negotiations break down, an injunction—whether mandatory or prohibitive—may be available.
Andrew Parley is Partner and Head of the Construction & Infrastructure practice group at Lenczner Slaght, Canada’s leading litigation firm. Focusing on commercial litigation, he represents individuals and businesses of all sizes before all levels of courts in Ontario, including the Supreme Court of Canada. His clients include Crosslinx Transit Solutions, Aecon, British Energy, 407 ETR, the Gupta Group, McDonalds Restaurants of Canada, BMO Nesbitt Burns, SNC Lavalin Inc., and the Government of Canada.