Anatomy of a Disaster Part II © Duncan W. Glaholt February, 2004

1. A Web of Relationships in Contract

ACE (A & B) Jack of Diamonds Tender no geotechnical responsibilities Snake Eyes Lending Feb. 1, 2000 Commit- ment letter King Contractors Ltd. $10m modified CCDC Lucky Streak Guarantee Company $5m P&P Bonds March 30, 2000: “First Spade” Nov. 2000: “Fully enclosed” Feb. 2001: “Fully poured” Sub WorkersSuppliers Property & GCL Deuce Insurance CGL Auto Builder’s Risk Tenants $ leakage to other jobs 30 liens 6 geotechnical reports Sub- Cons. Sub- Cons.

2. A Web of Relationships in Debt

s. 44 – Lien Bonds s. 5 – contract to conform Contracts Bonds Liens HB Q: Does a lien help King? A: No. 1. CCRA (federal taxation super-priority) 2. CCAA (federal reorganization statute) P&P Bonds 3.BIA (federal insolvency statute – for general creditors only)

Contracts Bonds Liens Q: Does a lien help King’s subs? A: Yes, if they have paid their own trades

Contracts Bonds Liens Q: Does a lien help workers & suppliers? A: Yes, big time! s. 78 – Priorities s. 81 – Worker’s priority

3. A Web of Relationships in Tort 1. Tort = Judicial shifting of losses for injury or wrong done to person or property 2. Tort = Negligence 3. Independent of Contract 4. Need to prove duty, breach of duty & damages 5. “Anns” test

Anns v. Merton London Borough Council, [1977] 2 All E.R. 492 (H.L.) (1) Is there a sufficiently close relationship between the parties […] so that, in the reasonable contemplation of the authority, carelessness on its part might cause damage to that person? If so, (2)are there any considerations which ought to negative or limit (a) the scope of the duty and (b) the class of persons to whom it is owed or (c) the damages to which a breach of it may give rise?

4. Process Issues Problem: 1. Liens get their own court (CLA procedure) 2. Insolvency proceedings get their own court (Commercial List) 3. Tort claims get their own court (Superior Court) 4. ADR can be chosen in any or all of the above. Parties create their own court. Solution: “Connecting Orders”

Owner’s Eye View (Pro’s and Con’s) ACE Lender’s Monitor (Do they owe Ace a duty?) Consultants & Designers (Causation issue No “economic” settlements) Contractor (action in debt stayed under BIA) Insurer (faulty design and Workmanship exclusion)

Subcontractor’s Eye View Sub Claim on Payment Bond Claim in King Bankruptcy Lien (outside King Bankruptcy) Trust (outside King Bankruptcy)

Insurer’s Eye View

Priorities  Remember first principles  No free rides!  No unjust enrichment!

Section 78  Question 1: is it a building mortgage?  yes: mortgagee loses priority for deficiency in holdback, period.  no: go to Question 2

Section 78  Question 2: When did the first lien arise? Answer: Before mortgage registered or fully advanced? mortgagee has priority until lien registered or written notice of lien received Answer: After mortgage registered and either fully or partially advanced? mortgagee gets lesser of - actual value when first lien arose - all advances made without notice

Section 78 Question 3: Is it a homebuyer’s mortgage? Answer: If it is, the above scheme is irrelevant and the mortgagee has priority