Executive Summary: Key Legal and Evidentiary Issues

• Proper calculation of Ledcor’s back-charges and correction of a tabulation error that significantly changed the net amount owing under the subcontract.
• Determination that Ledcor validly terminated DMS under article 10.4(a) of the subcontract based on failures to properly and diligently perform the work.
• Assessment of how much of Ledcor’s extensive completion and back-charge claims were actually proven (about 41% of the quantum claimed) versus sums rejected for lack of sufficient, credible evidence.
• Interpretation of subcontract articles 10.4(b) and 11.7, including whether “attorney’s fees” and a 25% markup for overhead and profit applied to litigation costs or only to completion-of-work costs.
• Allocation of substantial success for costs purposes in a case with divided results, leading to Ledcor being treated as “substantially successful” despite DMS obtaining a modest damages and lien judgment.
• Application of statutory interest rules (pre- and post-judgment interest) including the proper start date for prejudgment interest and the effect of a future confirmation date for the reference report.

Background and contractual framework

Dependable Mechanical Systems Inc. (DMS) was the mechanical subcontractor to Ledcor Construction Limited (Ledcor) on a construction project governed by a subcontract made subject to Ontario’s Construction Act. The subcontract contained detailed provisions dealing with default, termination, completion of the work, back-charges, and dispute resolution, including costs and legal fees.
Article 10.4 addressed Ledcor’s rights if DMS defaulted, including the right under article 10.4(a) to terminate DMS’s right to continue work, and under article 10.4(b) to complete the work and back-charge its “expenses” against the unpaid balance of the subcontract price, with a 15% markup for overhead and 10% for profit. Attorney’s fees were listed as an “expense” in that provision.
Article 11 dealt with dispute resolution and litigation. Article 11.7, headed “Legal Fees,” expressly stated that if either party commenced an action and prevailed, the successful party would be entitled to recover its attorney’s fees, expert witness fees and “costs of suit in reasonable amount,” with that amount to be determined by the court and included in the judgment.

Termination of subcontract and competing claims

In January 2020, Ledcor terminated DMS’s work under the subcontract, relying on article 10.4(a). DMS asserted that it had been wrongfully terminated, claiming breach of contract damages and a lien for substantial amounts said to be outstanding for work, extras, demobilization and related items.
Ledcor, in turn, claimed that DMS had been in serious default, causing delay and deficiencies. It advanced extensive back-charges for completion and corrective work, including replacement costs, deficiency correction, coring and patching, drywall repair, electrical and sprinkler repairs, communications repairs, roofing repairs, payments to DMS suppliers, a sprinkler completion contract, dewatering delay, and professional services. Ledcor also asserted a very large counterclaim (over $5.5 million) alleging that completion and related costs exceeded the unpaid subcontract balance.
The trial therefore centred on two questions: (1) who bore legal responsibility for the termination; and (2) what amounts, if any, were properly owing after all completion and corrective costs were accounted for against the unpaid subcontract balance.

Trial findings on liability and damages

On liability, the court found that Ledcor had proven that DMS failed to properly and diligently perform its work, which gave Ledcor a contractual right under article 10.4(a) to terminate DMS’s work. The evidence of Ledcor’s expert, Mr. Pearson, was particularly influential on this point. As a result, DMS was found to be in breach of the subcontract, and Ledcor’s termination was upheld as contractually justified.
However, Ledcor’s damages and back-charge case was only partially successful. Although Ledcor advanced substantial figures for delay, extra staff, Phasecorp-related delay, and legal costs said to arise from DMS’s default, it failed entirely to prove several of these categories. The court rejected Ledcor’s claims for its own delay costs, its additional staff costs, alleged Phasecorp delay, and its legal costs said to be caused by DMS’s default.
Even within the accepted categories of back-charges (such as replacement work, certain repairs and dewatering delay), Ledcor was only able to prove about 41% of the overall quantum it claimed. DMS’s cross-examination significantly reduced the accepted replacement costs, and the court trimmed other categories where documentation or credibility was lacking. On eight of sixteen back-charge categories Ledcor was fully successful; on others it was only partly successful.
For its part, DMS did obtain a limited success. After crediting the proven back-charges against the unpaid subcontract balance, there remained an unpaid amount owing to DMS under the subcontract. The court also accepted some “outstanding changes” claimed by DMS, although its overall monetary recovery was a small fraction of its original lien and damages claim.

Addendum correcting the damages calculation

In the initial reasons for judgment released in September 2025, the court made a tabulation error by inadvertently including Ledcor’s disallowed “management costs” claim of $113,882.50 in the list of accepted back-charges. DMS’s counsel later pointed this out in written costs submissions, and Ledcor did not dispute the mistake.
In the addendum decision, the court corrected the tabulation. When the disallowed management costs were removed, the accepted back-charges were restated as twelve categories (replacement costs, self-performed deficiency work, coring and patching, drywall repair, electrical repairs, sprinkler insulation, roofing repairs due to missed stacks, communications repairs, amounts paid to DMS suppliers, a sprinkler completion contract, dewatering delay, and professional services). This produced a subtotal of $2,050,440.65, plus HST, for a total accepted back-charge figure of $2,316,997.93.
The unpaid balance of the subcontract price, as defined under article 10.4(b), was $2,496,679.52. Once the corrected total of accepted back-charges ($2,316,997.93) was deducted from the unpaid balance, the remaining amount owing to DMS was $179,681.59, inclusive of HST, rather than the lower figure originally stated in the reasons.
The court therefore amended its ruling to find that Ledcor owes DMS $179,681.59 in breach of contract damages, and that DMS holds a lien in that same amount. The court reaffirmed that DMS’s other contract and punitive damages claims were dismissed, and Ledcor’s counterclaim was dismissed for failure of proof on the quantum of its claimed completion and related costs.

Costs decision and interpretation of subcontract clauses

With liability and corrected damages determined, the court turned to costs. Both sides claimed very substantial costs: DMS sought partial indemnity costs of about $1,050,601 (plus an additional $6,000 for preparing costs submissions), citing higher figures on a substantial-indemnity and full-indemnity basis, while Ledcor sought full indemnity costs of $1,451,084.33 plus a 25% contractual markup (15% overhead and 10% profit), for a total of $1,813,855.41.
The court first determined who was “substantially successful.” While DMS stressed that it had obtained damages and a lien and defeated Ledcor’s large counterclaim, the court disagreed that DMS was the successful party. The court emphasized that substantial success is determined by which party prevailed on the issues that truly drove the litigation, not simply by the net numerical outcome.
Here, the core issue was whether Ledcor was entitled to terminate DMS in January 2020. Almost all of the factual and expert evidence was directed to that question. On that central liability issue, Ledcor was entirely successful: the court held that DMS was in default and that Ledcor properly terminated the subcontract. DMS only avoided owing money to Ledcor because Ledcor failed to prove the majority of its claimed completion and back-charge damages. In light of Ledcor’s complete success on liability and partial success (41%) on damages, the court held that Ledcor was “substantially successful” and presumptively entitled to costs.
The court then addressed Ledcor’s argument that article 10.4(b) entitled it to recover all of its legal costs of the action, plus the 25% markup, as “expenses incurred by Contractor in finishing the Subcontract.” Ledcor said this contractual provision governing “attorney’s fees” and a profit/overhead markup should be applied to litigation costs.
The court rejected this interpretation. It noted that while courts generally respect contractual costs clauses, they are not bound by them and will decline to apply them where the clause, properly interpreted, does not in fact govern litigation costs or where special circumstances apply. Reading the subcontract as a whole, the court held that article 11.7 specifically addresses litigation costs and provides that the prevailing party is entitled only to “reasonable” attorney’s fees, expert fees and costs of suit in an amount to be determined by the court. That article reinforced, rather than ousted, the court’s usual discretion over costs.
When article 10.4(b) and article 11.7 were read together, the reference to “attorney’s fees” in article 10.4(b) was interpreted as covering legal expenses associated with completion of the work itself (for example, legal work involved in obtaining completion contracts or resolving disputes about completion activities), not the costs of the litigation between the parties. Those completion-related legal costs, along with other completion expenses, could attract the 25% markup under article 10.4(b), but litigation costs remained subject to the court’s discretionary assessment under article 11.7 and Ontario’s usual costs regime.

Other costs factors and final costs award

The court considered other typical costs factors: offers to settle, the reasonable expectations of the unsuccessful party, complexity and importance of the case, proportionality, the quantum and reasonableness of the bills of costs, and litigation conduct.
Both parties had made offers to settle (Ledcor offering to accept $2.5 million; DMS offering to accept $1.35 million), but neither party’s offer proved more favourable than the result ultimately obtained, so the offers did not affect the costs analysis. The case was recognized as complex and important, involving numerous interrelated delay and scope-of-work issues, several witnesses, and two expert reports. Given the scale of the claims, both sides were seen as justified in devoting substantial resources to the litigation, and the generally similar magnitudes of their bills of costs supported the reasonableness of the amounts claimed.
Each side raised complaints about the other’s conduct, including disclosure timing, the scope of the counterclaim, choice and credibility of witnesses, and tactical steps (such as preliminary motions and issues around the joint document book and transcripts). While the court noted a number of “irritating” events, it ultimately concluded that neither side’s conduct warranted an elevated (substantial indemnity) costs order or a significant reduction on conduct grounds.
Because Ledcor only proved 41% of the monetary quantum of its back-charges, the court treated that percentage as a fair proxy for the degree of Ledcor’s success on damages. Seeking to balance Ledcor’s complete success on liability against its partial success on quantum, the court fixed costs on a partial indemnity basis at 41% of Ledcor’s partial indemnity bill of costs ($1,014,453.69), which yielded a final costs award of $415,000 payable by DMS to Ledcor.

Interest awards and overall outcome

The court also addressed prejudgment and post-judgment interest. Under section 128(1) of the Courts of Justice Act, DMS was presumptively entitled to prejudgment interest on its $179,681.59 damages judgment, at the applicable rate, from the date its cause of action arose to the date of the order. Ledcor asked the court to disallow prejudgment interest under section 130(2) because DMS had been found in default, but the court declined, holding there was nothing unjust in applying the statutory rule alongside article 10.4(b).
The court fixed the applicable prejudgment interest rate at 2% per annum, tied to the quarter in which the proceeding commenced. The key dispute was the correct start date. DMS argued for the date of its claim for lien (January 8, 2020). The court instead found that, under article 10.4(b), DMS was not entitled to further payment until Ledcor had completed its scope of work; therefore, the loss crystallized once Ledcor finished that completion work. Evidence showed that the project reached substantial performance effective January 31, 2021, as reflected in the Certificate of Substantial Performance and related payment documentation, and the court treated that as the date DMS should have been paid. Accordingly, prejudgment interest on the $179,681.59 runs at 2% per annum from January 31, 2021 until the date the court’s reference report is confirmed.
Post-judgment interest, under section 129, will also apply to the amounts owed once an order is formally made, but the “date of the order” for a reference is defined as the date the report is confirmed. Because that date lies in the future and was not yet known at the time of the decision, the court left the precise calculation of post-judgment interest to be determined later, noting that the parties could return for further trial management if needed.

Overall outcome and successful party

Taken together, the decisions establish that Ledcor properly terminated DMS’s subcontract for default, that Ledcor proved 41% of the quantum of its substantial back-charge claims, and that after netting those proven completion and correction costs against the unpaid subcontract balance, DMS is entitled to $179,681.59 in breach of contract damages and a lien in the same amount, together with prejudgment interest at 2% per annum from January 31, 2021 until confirmation of the reference report. At the same time, Ledcor is treated as the substantially successful party overall and is awarded partial indemnity costs of $415,000 against DMS. Because the exact future date of report confirmation and the resulting interest calculations are not yet fixed, the net monetary position between the parties (after all interest and costs are accounted for) cannot be precisely quantified from the decisions, but the court clearly characterizes Ledcor as the successful party and orders in its favour a costs award of $415,000, while DMS’s judgment is limited to $179,681.59 plus prejudgment interest.