Executive Summary: Key Legal and Evidentiary Issues

• Dispute over the entitlement to payment for flooring materials supplied for a university construction project and the extent of their incorporation into the project.

• Determination of whether a legal hypothec (construction lien) can be enforced for all materials supplied or only those proven to be incorporated.

• Assessment of the procedural conduct of the parties, including claims of abusive proceedings and important procedural breaches.

• Evaluation of the effect of the substitution and cession of security interests on party status and obligations.

• Allocation of the burden of proof regarding the delivery and use of materials in the construction process.

• Calculation and award of damages, interest, and legal costs based on the parties’ procedural behavior and substantive claims.

Facts and outcome of the case

Background and parties

This case arose from a construction project involving the redevelopment of the west wing of the Stewart Biological Sciences Building at McGill University. Gerflor Canada, a supplier of flooring materials, provided various soft floor coverings to Tapis Dimension, a subcontractor engaged for the project. Sajo Inc. acted as the general contractor, while McGill University was the project owner.

After Tapis Dimension went bankrupt in the fall of 2022, Gerflor was left with an unpaid invoice for materials supplied. Gerflor published a legal hypothec (construction lien) on the building to secure its claim for payment. Subsequently, a substitution agreement was reached, replacing the hypothec with a security deposit held in trust by Gerflor’s lawyers. Later, McGill ceded its rights in the security to Sajo Inc., which then became the relevant party for the release of funds.

Legal claims and defenses

Gerflor sought a court order to recover the unpaid balance for the flooring materials, asserting that all materials supplied were intended for and incorporated into the McGill project, thereby justifying the enforcement of the legal hypothec. Gerflor also sought damages for procedural abuse and legal costs. McGill and Sajo contested the extent to which the materials were actually used in the project and challenged Gerflor’s entitlement to the full amount claimed. Both McGill and Sajo raised issues regarding Gerflor’s procedural conduct, including the maintenance of claims against McGill after the cession of security and the refusal to accept partial payment.

Key evidentiary findings

The court found that while Gerflor had supplied materials for the project, it failed to prove that all materials invoiced were delivered and incorporated into the building. Evidence showed that the quantity ordered exceeded project requirements and that additional materials had to be ordered by another installer after Tapis Dimension’s bankruptcy. The court accepted that only a portion of the supplied materials was actually used in the project and that Gerflor was entitled to recover for that portion only.

Procedural conduct and abuse

The court determined that Gerflor’s continued pursuit of claims against McGill after the cession of security, as well as its refusal to accept partial payment from Sajo, constituted procedural abuse and important procedural breaches. As a result, the court awarded damages to both McGill and Sajo for the unnecessary prolongation and complication of the proceedings.

Outcome and awards

The court partially granted Gerflor’s claim, declaring that Gerflor was entitled to recover an additional $20,080.75, with legal interest and the additional indemnity under article 1619 of the Civil Code of Québec, from August 23, 2022, from the security constituted under the substitution agreement. Gerflor was also entitled to interest and costs under article 2762 of the Civil Code of Québec, payable from the security. The court found Gerflor’s claim against McGill to be abusive from July 16, 2024, and awarded McGill $20,000 with legal interest and additional indemnity. Sajo was awarded $2,500 with legal interest and additional indemnity for important procedural breaches by Gerflor. Costs were awarded in favor of Gerflor for the main claim (payable by Sajo), in favor of McGill for the main claim and the abusive proceedings claim, and in favor of Sajo for the abusive proceedings and procedural misconduct claims.

Conclusion

The case highlights the importance of clear evidence regarding the delivery and use of construction materials in enforcing legal hypothecs, as well as the consequences of procedural misconduct in litigation. The outcome reflects a balanced approach, granting partial recovery to the supplier while sanctioning procedural abuses and ensuring proper allocation of costs and damages among the parties.