Law Times

LAW TIMES • OCTOBER 31, 2011 COMMENT Contracts cancelled at taxpayers' expense So why would it risk incurring billions of dollars in potential liabilities for politi- cal ends by cancelling contracts? As it stands, there T he provincial government is clearly broke. Inside Queen's Park By Ian Harvey are billions of dollars in construction- related lawsuits piling up across Ontario, says Clive Th urston, president of the On- tario General Contractors Association. "I've got a stack of them on my desk now, all public owners," he says. "Th ere are two more at $45 million and a $60-million job pending. Th ese could be the last straw. We need to take con- trol of this industry. I've never seen it so bad in the 10 years I've been in this job." Top of mind this week is the loom- ing cancellation, based on a promise two weeks before the election, of the construction of a natural gas plant in Mississauga, Ont., by Greenfi eld South Power Corp. Th e decision came on the heels of another cancellation of a gas plant in nearby Oakville. Both plants were contentious and threatened Liberal incumbents in their respective ridings. Th e government hasn't offi cially can- celled the Mississauga plant, although it has telegraphed its intent. In the mean- time, construction continues unabated with machines and equipment fl ying in and out of the site. Estimates from some sources of the cost of cancelling the con- tract run to the billion-dollar mark be- cause of anticipated revenues from the energy portion. Greenfi eld South, how- ever, isn't talking. Instead, it prefers to focus on the job and wait for an offi cial notice. My reference on this issue is William Pigott of Miller Th omson LLP, a go-to lawyer in construction law. He acts for owners in the private sector and notes construction contracts generally revolve around what's known as CCDC2, the Canadian Construction Documents Committee suite of documents. "In CCDC2, an owner can cancel a contract for cause, such as insolvency or a failure to complete work to a substan- tial degree," he says, noting the owner can then recover the costs of completion from the contractor or guarantors. Further, some contracts have claus- es that allow "termination for conve- nience," but Pigott says the industry watches out for such provisions and gen- erally accounts for those with that word- ing through the price. (In other words, being a weasel drives up the price. How we all wish we could invoke that in day- to-day commerce.) In general, according to Pigott, there's also a winding-down provision in most contracts in the event of a cancel- lation that allows the contractors to be paid for work to date and a portion of the anticipated profi ts. "And when there's fi nancing in- volved, it gets even more complex," says Pigott, noting the lenders can also claim compensation. "Of course, the govern- ment could just pass a law that says, 'We're cancelling and you get nothing,' but that would be shocking and send the entire industry spinning." Talking of spinning, meet John Kourt- off , the angry president and CEO of Tril- lium Power Wind Corp., who fi led a state- ment of claim against the Crown on May 19 seeking $2.25 billion in damages for "confi scation of prop- erty and intellectual property, confi scation of assets, reimburse- ments of its thrown away, and compensatory costs dam- ages." Th e Trillium case stretches back to 1996, when a forerunner of Kourtoff 's fi rm began researching wind energy locations around Ontario. It pursued them for several years until, Trillium claims, "without prior discussion" the government imposed a moratorium on off shore wind in order to conclude envi- ronmental and social studies. Kourtoff was told the moratorium was due to political pressure as sur- rounding homeowners objected to the esthetics. In August 2007, the company was advised "to stay quiet during the up- coming election," a recommendation it followed. After the Liberals swept to power with a majority in 2007, the govern- ment magically lifted the moratorium. Trillium then continued making plans for off shore wind sites across the Great Lakes with supporting studies to show it could generate 20,700 megawatts of power. Indeed, the Ministry of the En- vironment accepted its fi rst project in August 2010. At that point, Trillium set about getting fi nancing. It all came to a grinding halt at 2 p.m. on Feb. 11 when Kourtoff learned of a press release announcing a moratorium for "further scientifi c investigation." "We still have no documents, order in council, anything other than a press release as the authority for this," says Kourtoff . Trillium has no contract per se but it has a trail of paper showing applica- tions for permits and leases and other arrangements it entered into with the province and its agencies. Th e irony, as Kourtoff notes, is that his wind turbines were to be 26 ki- lometres off shore, a place where they wouldn't have been visible. He says he's being hit unfairly because the objections were aimed at projects planned at just fi ve kilometres off shore. Acting in good faith, Trillium has spent $5.3 million on the groundwork for off shore wind projects and millions more in other costs. "And it's not just the cancellation," says Kourtoff . "It's the jobs this would have created and the sustainable power." Th e potential cancellation of the $400-million Greenfi eld South gas plant is a similar debacle. It was to have delivered 280 megawatts of power by the fall of 2014. Th is is politics at its worst as the gov- ernment panders to a minority with bil- lions of dollars in taxpayers' money that at the end of the day creates no new jobs and no new energy. Th e question now becomes this: at what cost to taxpayers did Premier Dal- ton McGuinty win a minority govern- ment? Clearly, there are at least two or three seats, one could argue, that the government bought with taxpayers' money. Ian Harvey has been a journalist for 34 years writing about a diverse range of is- sues including legal and political aff airs. His e-mail address is ianharvey@rogers. com. n the bad old days before On- tario introduced no-fault car in- surance, those injured in vehicle accidents had to navigate a potential- ly lengthy and expensive adversarial tort system to recover basic medical and rehabilitation expenses and in- come losses. But with no-fault accident bene- I fi ts, victims need only fi le claims with their own insurer, which eliminates resort to the tort system except in cases where the injuries meet a threshold test and the injured party elects to sue. In theory, accident victims can therefore avoid lengthy delays and having to resort to an ex- pensive adversarial system. So why is it that in 2011, a denial of accident benefi ts or a failure to ap- prove a treatment plan can result in a lengthy two-year adversarial process between the injured person and the insurer? If an insurer denies a request for accident benefi ts or declines to ap- prove a treatment plan, the accident victim has to turn to the Financial Services Commission of Ontario, an agency of the Ministry of Finance that regulates insurance companies, for mediation. Th e problem for in- jured claimants is the approximately one-year waiting list for a hearing. According to FSCO statistics earlier this year, there were 23,336 open and pending mediation fi les. From March 2010 to February 2011, FSCO received 28,043 applications for mediation and closed 18,515 fi les. Th at means the backlog is grow- ing and it will continue to increase until insurance companies and their adjusters change their policies on benefi ts denial or FSCO hires more mediators. In mid-September, FSCO intro- duced a new expedited mediation process to deal with the growing backlog. Regrettably, this expedited process doesn't actually speed up any mediations. Instead, a failed me- diation report may be issued if both sides agree, thereby eliminating the need for the process. If the mediation fails — so far, the failure rate is about 30 per cent — the injured person must fi le for arbitration and wait another year or so for a hearing. Th at means many injured people can easily wait a minimum of two years before ob- taining a decision on their benefi ts. Th e lucky ones, those whose claims are resolved at mediation or are for- tunate enough to have their insurer agree to a failed mediation report, only wait about a year. Imagine the hardship caused by denial of income replacement and therapy for one or two years. By that time, small injuries can turn into larger ones or become chronic and rehabilitation may be less eff ective. Accident victims who are unable to work and have no income replace- ment may forego treatment, particu- larly since OHIP doesn't cover many of the rehabilitation options. With no or reduced income and a lack of www.lawtimesnews.com Victims face adversarial system Social Justice By Alan Shanoff therapy, it's no wonder that many ac- cident victims become depressed af- ter being injured. According to an executive director with FSCO, there has been an "un- precedented increase in the number of mediation applications received." I suspect the chief reason for the growing backlog for mediation is the increasing tendency by the insurance industry to refuse treatment plans and deny ben- efi ts. According to Nick Gurev- ich, president of the Alliance of Community & Medical Rehabil- itation Providers, the refusal rate for treatment plans has more than doubled to about 30 per cent in the past year. Of course, not every treatment plan ought to be approved. But when an adjuster rejects a treatment plan without any expert medical evidence to support the denial or when a deci- sion is based on a fl awed assessment prepared by an assessment mill, there may be reason for concern. As strange as it may seem, neither insur- ers nor adjusters are required to ob- tain an expert medical opinion prior to denying either benefi ts or a treat- ment plan. Th at some insurers rely on as- sessment mills for expert reports is beyond dispute, as evidenced by a FSCO arbitration decision on Oct. 15, 2010, involving Everliston Cow- ans and Motors Insurance Corp. In describing a "patently fl awed as- sessment process," arbitrator John Wilson summarized the evidence of the psychiatrist who was part of the assessment team. Th is psychia- trist's prime occupation consisted of conducting psychiatric assessments mainly for car insurers. He testifi ed that his assessment of Cowans was one of up to 45 or 50 he might con- duct in a month. His projected in- come from assessments was "in the range of some $600,000 per year." Th e arbitrator referred to the psy- chiatrist's "obvious dependence on the insurer's goodwill for his lucrative assessment business" and concluded that whether the doctor was "biased or prejudiced or not, I fi nd it tests credulity to believe that an assess- ment mill such as described . . . could ever generate meaningful results." Given the number of assessments per week, the time permitted to review voluminous documentation, assess the insured, and write a report would have been "at most four hours from start to fi nish." So in 20 years, we've come full circle. Instead of lengthy and expen- sive adversarial tort claims, accident victims may engage in lengthy and expensive adversarial disputes with their insurers to recover medical and rehabilitation expenses and income losses. Alan Shanoff was counsel to Sun Me- dia Corp. for 16 years. He currently is a freelance writer for Sun Media and teaches media law at Humber Col- lege. His e-mail address is ashanoff @gmail.com. PAGE 7

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