T-1036-87
Thomas Fuller Construction Co., (1958) Limited
(Plaintiff)
v.
Her Majesty the Queen in right of Canada
(Defendant)
T-1416-87
Thomas Fuller Construction Co., (1958) Limited
(Plaintiff/Respondent)
v.
Her Majesty the Queen in right of Canada
(Defendant/Applicant)
INDEXED AS: THOMAS FULLER CONSTRUCTION CO, (1958)
LTD. Y. CANADA (T.D.)
Trial Division, Dubé J.—Ottawa, June 17 and 18,
1991.
Contracts — Contractor suing Crown for delay — Contrac
tor having entered into litigation agreements with subcontrac
tors authorizing contractor to sue on their behalf — Subcon
tractors to provide witnesses, contribute to costs of action —
Agreements providing for division of successful judgment —
Crown moving to dismiss portion of claim relating to subcon
tractors — Whether agreements invalid as assignments of bare
right to litigate or for maintenance and champerty — Subcon-
trators having no cause of action against owner — Subcon
tractor's claims against contractor would arise in negligence
— Agreements not creating jurisdiction in Federal Court over
subcontractors' claims — Agreements tantamount to maintain
ing or promoting anther's litigation and dividing proceeds
thereof — Assignment of cause of action valid where assignee
having pre-existing commercial interest in outcome of litiga
tion — Contract with Crown prohibiting assignment without
Minister's consent.
This was a motion by the defendant for orders that the litiga
tion agreements between the plaintiff chief contractor and its
sub-contractors be declared void and that the plaintiff's claims
on behalf of the sub-contractors be dismissed.
The principal actions relate to contracts between the plaintiff
and the defendant for construction at the National Aviation
Museum and Ottawa International Airport. The plaintiff and
the sub-contractors entered into "litigation agreements" pur
porting to authorize the plaintiff to sue on behalf of the sub
contractors. By these agreements, the plaintiff acknowledges
the validity of the sub-contractors' claims, and they undertake
to provide evidence and witnesses, and to contribute to the
costs of the action. The head contract under which the plaintiff
carried out the work provided that it could not be assigned
without the written consent of the Minister, that every subcon
tract adopt the general terms of the head contract, and that no
subcontract impose liability upon the Crown.
Held, the motion should be allowed.
In the absence of privity between the defendant and the sub
contractors, the plaintiff cannot assert their claims as its own.
A subcontractor has no right to claim payment from the owner;
its recourse is in its claim against the prime contractor. Here,
the claims of the subcontractors against the contractor would
be in negligence, but the cause of action alleged by the con
tractor against the owner is delay.
The agreements are an attempt to assign a bare right to sue,
which is not assignable unless it is coupled with a property
right. The forum for the subcontractors is the court of the prov
ince. They cannot create, by contract with the plaintiff, a juris
diction in the Federal Court. Jurisdiction cannot be brought
about by agreement between private parties. Since the liability
of the contractor to the subcontractors in negligence is inde
pendent of the contractors' cause of action against the owner,
that the subcontractors may succeed against the contractor
does not entail the liability of the owner to the contractor.
It is maintenance when a person maintains, supports or pro
motes the litigation of another. Champerty is the taking of
action on the part of another in order to take a share in the
damages. The assignment of a bare right to sue is champertous
unless the assignment conveys a property right to which the
right of action is incidental. The litigation agreements are thus
tainted by both maintenance and champerty.
STATUTES AND REGULATIONS JUDICIALLY
CONSIDERED
An Act respecting Champerty, R.S.O. 1897, c. 327.
CASES JUDICIALLY CONSIDERED
APPLIED:
Fredrickson v. Insurance Corporation of British Colum-
bia (1986), 28 D.L.R. (4th) 414; [1986] 4 W.W.R. 504; 3
B.C.L.R. (2d) 145; 17 C.C.L.I. 194; [1986] I.L.R. 1-2100
(C.A.); affd [1988] 1 S.C.R. 1089; (1988), 49 D.L.R. (4th)
160; 86 N.R. 48.
CONSIDERED:
Trendtex Trading Corpn. v. Credit Suisse, [1982] A.C.
679 (H.L.).
REFERRED TO:
Standing v. The London Gas Co. (1861), 21 U.C.Q.B. 209
(C.A.); Craig v. Matheson (1899), 32 N.S.R. 452 (C.A.);
Tucker v. Puget Sound Bridge Dredging Co. (1910), 15
B.C.R. 393; 14 W.L.R. 468 (C.A.); Derco Industries Ltd.
v. A.R. Grimwood Ltd (1986), 20 C.L.R. 174 (B.C.S.C.);
A.N. Bail Co. v. Gingras et al., [1982] 2 S.C.R. 475;
(1982), 54 N.R. 280; Prosser v. Edmonds (1835), 1 Y. &
C. Ex. 481; 160 E.R. 196 (Ex. Div.); Board v. Board,
[1919] A.C. 956 (P.C.); Biro (George) Real Estate Ltd. v.
Sheldon, [1965] 1 O.R. 49; (1965), 46 D.L.R. (2d) 610
(H.C.); Ellis-Don Ltd. v. Norton; Dickie Const. Ltd. v.
Bank of N.S. (1982), 5 C.L.R. 281 (Ont. H.C.); 453416
Ont. Inc. c.o.b. Cranes and Services v. White (1984), 42
C.P.C. 209 (Ont. H.C.); Sherman v. Drabinsky (1990), 74
O.R. (2d) 596 (H.C.).
AUTHORS CITED
Goldsmith, Immanuel and Heintzman, Thomas G., Gold
smith on Canadian Building Contracts, 4th ed.,
Toronto: Carswell, 1988.
Waddams, S.M., The Law of Contracts, 2nd ed., Toronto:
Canada Law Book Ltd., 1984.
Black's Law Dictionary, 4th ed., St. Paul, Minn: West
Publishing Co., 1968. "champerty".
COUNSEL:
P. Donald Rasmussen and Ernest S. J. Schmidt
for plaintiff.
Fred Tayar and R. P. Hynes for defendant.
SOLICITORS:
Rasmussen, Starr & Ruddy, Ottawa, for plain
tiff.
Fred Tayar & Associates, Toronto, for defen
dant.
Deputy Attorney General of Canada for defen
dant.
The following are the reasons for order rendered in
English by
Dust J.: These two motions to determine a ques
tion of law were heard together pursuant to instruc
tions of the Associate Chief Justice of May 17, 1991.
The plaintiff launched these two actions against the
Crown with reference to two different contracts in
which the plaintiff was the main contractor. The first
(T-1036-87) is related to the construction of the
National Aviation Museum and the second
(T-1416-87) to the Ottawa International Airport.
In both actions, the plaintiff included in its claims
against the defendant all potential claims the subcon
tractors may have had against it. The so-called "liti-
gation agreements" between the main contractor and
the several subcontractors authorize the plaintiff to
sue on behalf of the subcontractors. By these agree
ments the plaintiff acknowledges the validity of the
claims of the respective subcontractors in the sums
set out in the respective agreements. The plaintiff
also agrees to pursue an action against the Crown for
a sum in excess of their claims but which will include
their claims. The subcontractors agree to provide
such evidence, assistance and witnesses as required,
and also agree to contribute to the costs of the action.
The agreements also provide for division of a suc
cessful judgment, if it cannot be ascertained from the
judgment what amounts were awarded in relation to a
particular subcontractor's claim. And the agreements
provide for an arrangement dealing with the contin
gency of an offer of settlement which would be
acceptable to some claimants and rejected by others.
The motion under action number T-1036-87
(related to the National Aviation Museum) is for an
order that the litigation agreements be declared void,
or struck down, as offending the laws of maintenance
or champerty. The motion in the other action
T-1416-87 (related to the Ottawa International Air
port) is for an order for judgment dismissing that part
of the plaintiff's claim against the defendant relating
to the subcontractors.
It was agreed at the outset of the hearing that the
motion would be for a determination of a question of
law, namely, whether the so-called litigation agree
ments between the plaintiff and the subcontractors
are invalid because they are assignments of a bare
right to litigate or are offensive to the laws of mainte
nance or champerty.
Because of a trial date set for early September,
both parties have asked that I expedite this decision.
If necessary, amendments will be made to the plead-
ings in accordance with my decision.
In my view, the plaintiff cannot assert as its own
the claims of its subcontractors in the absence of any
privity or liability between the subcontractors and the
defendant. The litigation agreements are invalid
because they are assignments of a bare right to liti
gate and they also offend the laws of champerty and
maintenance. For the following reasons.
In both contracts between the plaintiff and the
defendant, clause GC 3 entitled "Assignment of Con
tract" under Part C, "General Conditions", expressly
forbids any assignments by the contractor without the
Minister's consent. The clause reads:
3.1 The contract may not be assigned by the Contractor, either
in whole or in part, without the written consent of the Minister.
The subsequent clause GC 4 entitled "Subcontract-
ing by Contractor" provides as follows under clauses
4.7 and 4.8:
4.7 Every subcontract entered into by the Contractor shall
adopt all of the terms and conditions of this contract that are of
general application.
4.8 Neither a subcontracting nor the Engineer's consent to a
subcontracting by the Contractor shall be construed to relieve
the Contractor from any obligation under the contract or to
impose any liability upon Her Majesty.
Moreover, even without these expressed provisions
forbidding assignment or imposition of any further
liability upon Her Majesty through subcontracting,
there would still be no liability in law upon the
owner for claims by the subcontractors. Goldsmith on
Canadian Building Contracts (4th) 1 writes:
... the subcontractor has no right to claim payment or com
pensation from the owner, and his rights are confined to mak
ing a claim against the prime contractor.
Clearly, in the absence of any privity between the
subcontractors and Her Majesty, they have no right of
action against her, particularly in these instances
where claims the subcontractors may have against the
main contractor would have to arise from the negli
gence of the main contractor, but the cause of action,
as alleged by the contractor, is delay on the part of
the owner. Having no cause of action against the
owner, the subcontractors may not improve their
position by asserting their claims through the main
contractor as a nominee. This is clearly an attempt by
the contractor to have this Court adjudicate upon a
matter for which it has no jurisdiction.
Having said this, it would not be strictly necessary
to deal with the arguments based on maintenance and
champerty, but having heard arguments at length on
the subject, I feel it would be useful to deal with
them.
The litigation agreements between the contractor
and the subcontractors are clearly an attempt to
assign a bare right to sue in contract for damages and
constitute as such an assignment which is not recog
nized by law and are therefore void. By their very
nature certain rights are not assignable, including
bare rights of litigation, unless the right to sue is cou
pled with a right of property. 2
1 Goldsmith and Heintzman, Goldsmith on Canadian Buil
ding Contracts, 4th ed., 1988, at p. 7-6; see also Standing v.
The London Gas Co. (1861), 21 U.C.Q.B. 209 (C.A.); Craig v.
Matheson (1899), 32 N.S.R. 452 (C.A.); Tucker v. Puget Sound
Bridge & Dredging Co. (1910), 15 B.C.R. 393 (C.A.); Derco
Industries Ltd. v. A.R. Grimwood Ltd. (1986), 20 C.L.R. 174
(B.C.S.C.); and A.N. Bail Co. v. Gingras et al., [ 1982] 2 S.C.R.
475.
2 See Prosser v. Edmonds (1835), 1 Y. & C. Ex. 481; 160
E.R. 196 (Ex. Div.). See also Waddams, S.M., The Law of
Contracts, (2nd ed.), at pp. 197-198.
The contract between the owner and the main con
tractor under clause GC 4.7 does require that every
subcontract entered into by the contractor shall adopt
all of the terms and conditions of the main contract,
but this clause does not create any contractual rights
or privity which would allow the subcontractors to
exercise a right of property vis-Ã -vis the owner. 3 In
the normal course of events the subcontractors would
be expected to sue the main contractor in the provin
cial courts and not the owner in the Federal Court.
The litigation agreements cannot have the effect of
creating by contract a jurisdiciton in the Federal
Court which would not otherwise exist. It is a well
recognized principle of law that jurisdiction cannot
be brought about by way of agreements . 4
However, even if the subcontractors were to be
successful in the provincial courts against the main
contractor, it does not necessarily follow that the
main contractor would as a matter of course, be suc
cessful against the owner in another action, because
the negligence or other fault which caused the sub
contractors to be successful in their action may be the
negligence or other fault of the main contractor, and
not of the owner.
"Maintenance" has been defined as "maintaining,
supporting or promoting the litigation of another".
"Champerty" is a bargain to divide the proceeds of
litigation between the owner of the liquidated claim
and a party supporting or enforcing the litigation. 5 In
Ontario, champerty has been defined through legisla
tion: An Act respecting Champerty. 6 The Act is con
cise and pithy. It contains only these two sections:
I. Champertors be they that move pleas and suits, or cause
to be moved, either by their own procurement, or by others,
and sue them at their proper costs, for to have part of the land
in variance, or part of the gains.
2. All champertous agreements are forbidden, and invalid.
3 See Goldsmith on Canadian Building Contracts (4th ed.),
at pp. 7-1-7-7.
a See Board v. Board, [1919] A.C. 956 (P.C.).
5 Blacks' Law Dictionary (4th ed.), at p. 292.
6 R.S.O. 1897, c. 327.
There are no allegations of bad faith directed at the
contractor or the subcontractors, but the two state
ments of claim, as presently framed include elements
(which were only found at discovery) that fall under
the definitions of both the doctrines of maintenance
and champerty. The litigation agreements between
the contractor and the several subcontractors are tan
tamount to the maintaining, supporting or promoting
of the litigation of another, and also of dividing the
proceeds of litigation, in the sense that the subcon
tractors stand to recover their claims and the main
contractor stands to be exonerated from liability for
those claims. The agreements provide that the main
contractor will be entitled to his mark-up over those
claims. The main contractor avoids law suits from his
subcontractors. The main contractor admits the valid
ity of the claims of the subcontractors, without any
consequential liability to him, but full liability for
such claims being passed on to the owner, without
her having any say in such admissions of liability.
The Ontario jurisprudence in the matter has devel
oped from the English jurisprudence and is based on
the premise that the assignment by agreement of the
bare right to sue for damages can be deemed a cham-
pertous transaction. Courts have held such an agree
ment to be invalid.?
The main English case on the subject is Trendtex
Trading Corpn. v. Credit Suisse. 8 That House of
Lords' decision dealt with the purchase of a right to
sue a bank, at considerable potential profit. In that
case, the Lords confirmed the principle that the
assignment of a bare right to sue for damages is inva
lid, nevertheless it recognized that where the assignee
has by the assignment acquired a property right and
the cause of action was incidental to that right, the
assignment would constitute lawful maintenance.
7 See Biro (George) Real Estate Ltd. v. Sheldon, [1965] 1
O.R. 49 (H.C.); Ellis-Don Ltd. v. Norton; Dickie Const. Ltd. v.
Bank of N.S. (1982), 5 C.L.R. 281 (Ont. H.C.); 453416 Ont.
Inc. c.o.b. Cranes and Services v. White (1984), 42 C.P.C. 209
(Ont. H.C.); and Sherman v. Drabinsky (1990), 74 O.R. (2d)
596 (H.C.).
8 [1982] A.C. 679 (H.L.).
Following upon that English decision, the Supreme
Court of Canada affirmed in 1988 the decision of the
British Columbia Court of Appeal in Fredrickson v.
Insurance Corporation of British Columbia . 9 In that
case, McLachlin J.A. (as she then was) agreed with
the trial judge that an assignment of a cause of action
may be valid where the assignee has a pre-existing
genuine commercial interest in the outcome of the lit
igation. She also pointed out the six categories of
contract which are considered to be unassignable (at
page 426). They are:
1. Contracts which expressly by their terms exclude assign
ment;
2. Mere rights of action (assignments savouring of mainte
nance and champerty);
3. Contracts which by their assignment throw uncontem-
plated burdens on the debtor;
4. Personal contracts;
S. Assignments void by public policy (public officers' wages
or salary and alimony or maintenance agreements); and
6. Assignments prohibited by statutory provisions.
The contract between the plaintiff and the defen
dant clearly falls under the first heading. As men
tioned earlier, clause GC 3 of the General Conditions
provides that the contract may not be assigned by the
contractor without the consent of the Minister. There
is no evidence or allegation to the effect that the min
ister would have consented in the two instant cases.
The second category includes precisely the type - of
assignments presently under attack. The assignments
to the subcontractors would also fall under the third
category as they placed upon Her Majesty the uncon-
templated burden of subcontractors' claims which
ought to be directed to the main contractor.
The plaintiff claims that it has a genuine commer
cial interest in taking the assignments from the sub
contractors and enforcing them, for its own benefit
9 (1986), 28 D.L.R. (4th) 414 (B.C.C.A.); affd by [1988] 1
S.C.R. 1089.
and the benefit of the subcontractors, as against the
defendant. In that sense, it is conceded that the finan
cial interest of the plaintiff might be better served by
only one action launched in the Federal Court against
Her Majesty. It would be to its advantage to clean up
all the problems in one stroke, but for reasons men
tioned earlier; it cannot legally be done.
Consequently, I find that, for the purposes of these
two actions, the litigation agreements are invalid. In
view of the urgency expressed by both parties, the
plaintiff will have twenty days to amend its statement
of claim in accordance with these reasons and the
defendant will have a further twenty days to amend
her defence, if necessary. Hopefully, this decision
will be in the interest of justice and reduce the length
of the trial. Under the circumstances, costs will be in
the cause.
You are being directed to the most recent version of the statute which may not be the version considered at the time of the judgment.