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Let Me Be Direct: Pleading Admissions as Evidence of a Direct Contract

The trial decision in Sjostrom Sheet Metal Ltd. v. Geo A. Kelson Company Limited[1] contains several insights for parties navigating disputes arising from distressed construction projects.

In Sjostrom, the Ontario Superior Court granted relief to an unpaid subcontractor, denied relief to a contractor for failure to provide timely notice of default, and dismissed a sub-subcontractor’s lien claim due to the failure to prove labour costs.

In arriving at its decision, the court overcame a number of evidentiary hurdles to find a valid and unwritten direct contract between a subcontractor and a sub-sub-subcontractor. The court relied on admissions in the subcontractor’s own pleadings to support its finding. The court also reviewed other evidentiary and notice issues applicable to a broad range of projects.

Key Takeaways

  • Verbal contracts can be enforceable: Courts remain willing to enforce verbal contracts that satisfy the five required elements: offer, acceptance, consideration, certainty of essential terms, and an intention to create legal relations. For a contract to be binding, there must be consensus on the essential terms. Construction contracts’ essential terms typically include price, scope of work and schedule or completion date.
  • Notices of default must be timely: When contractual remedies are contingent on delivering or responding to notices of default, a court may deny relief due to a party’s failure to abide by those notice provisions.
  • Time spent on open-ended contracts must be strictly proven: Litigants must prove the value of their services and materials under a cost-plus or open-ended contract. In this case, the sub-subcontractor was denied its $161,585.76 lien claim because the only evidence in support of the claim was time summaries. Contractors must be prepared to prove the actual hours spent on a project, how the hours were incurred, and, if applicable, why those hours exceeded expectations.
  • Admissions made in pleadings matter: Although the sub-sub-subcontractor was ultimately unsuccessful in its claim against the subcontractor for unpaid wages, the case demonstrates the role that pleadings admissions can play in determining contested issues at trial. Parties should draft pleadings carefully, amend pleadings before trial as their position develops, and make admissions only when appropriate to do so.


Geo A. Kelson Company Limited (“Kelson”) was hired as a subcontractor on a project (the “Project”). In January 2018, Kelson sub-subcontracted A. Amar and Associates Ltd. (“Amar” or the “sub-subcontractor”) to perform all sheet metal work for the Project at a fixed price. For various reasons, Amar eventually supplemented its workforce with labourers from Sjostrom Sheet Metal Ltd. (“Sjostrom” or the “sub-sub-contractor”).

In July 2018, Sjostrom labourers walked off the job due to non-payment by Amar. Kelson, now aware of Sjostrom’s involvement on the project, contacted Sjostrom directly. An unwritten agreement was reached between Sjostrom and Kelson for Sjostrom labourers to return to work and for payment to now come directly from Kelson, not Amar. Kelson subsequently issued a subcontract Change Order reducing Amar’s sub-subcontract price by $61,924.50 to account for the work that would now be completed by Sjostrom instead of Amar.

In late September 2018, Sjostrom labourers once again left the site. Kelson then asked Amar to return to perform the remaining sheet metal labour. However, Amar claimed that, because of the Change Order, sheet metal labour had been removed from its scope of work under their initial sub-subcontract agreement. Amar alleged Kelson would now need to increase the contract price for this additional work.

The Claim

In this decision, the court determined two actions: Sjostrom’s lien claim against Kelson to collect unpaid invoices and Amar’s non-lien action against Kelson for materials and services provided under its subcontract. In response, Kelson denied any direct contractual relationship with Amar and asserted that Amar’s claim was properly against Sjostrom.

The court proceeded to determine a number of issues, including but not limited to whether:

  1. Kelson entered into a direct contract with Sjostrom for the remaining sheet metal labour;
  2. If the Change Order executed between Kelson and Amar removed all remaining sheet metal labour from Amar’s scope of work; and
  3. Who was actually in breach of the sub-subcontract between Kelson and Amar.


1. The Direct Contract

There was no written agreement between Sjostrom and Kelson. Instead, the court considered whether an enforceable oral agreement existed between the parties. The court relied on Kelson’s statement of defence to find that it had admitted to being in a direct relationship with Sjostrom. The Rules of Civil Procedure expressly require a party who intends to prove a version of facts different from that pleaded by the opposite party to plead their own version of the facts in their defence. In Sjostrom’s statement of claim, it pleaded that a direct agreement existed. However, Kelson failed to contradict this in its statement of defence. As a result, Kelson was unable to raise and rely on this unpleaded defence at trial.

Independent of these admissions, the court also found that the objective evidence supported the finding of a direct contract and that the five elements necessary for formation (offer, acceptance, consideration, certainty of essential terms and an intention to create a legal relationship) were present. The court also affirmed the essential terms of a construction contract.

2. Sjostrom Damages

Unfortunately for Sjostrom, although the court found that there was an enforceable contract between it and Kelson, it also found that Sjostrom had failed to prove its damages.  The court held that “time spent by labourers on a project must be strictly proved given the difficulty in verifying it after the fact.”[2] The only documents Sjostrom submitted were weekly time summaries. These were unsigned by the labourers and had no descriptions of the work performed during the hours claimed. The court also noted that the alleged hours worked were significantly higher than the most recent estimate Sjostrom had sent to Kelson to finish the job. The court held that if the actual hours worked were “greatly exceeding” the estimate, Sjostrom should have notified Kelson of this difference before rendering its invoices.[3]

In light of these circumstances, and since there was no corroborating evidence to support the hours logged in the time summaries, the court dismissed Sjostrom’s claim for $161,585.76 against Kelson for unpaid work and discharged its lien.

3. The Scope of the Change Order

With the dispute between Kelson and Sjostrom disposed of, the court examined the impact of the Change Order on Kelson and Amar’s contractual relationship. The court made a number of findings that, taken together, demonstrated that Amar was not involved or kept apprised of Sjostrom’s work on the Project until late September 2018 when Amar was called back to the site.[4] As a result, the court concluded that the Change Order removed the remaining sheet metal labour from Amar’s scope of work in its sub-subcontract with Kelson.

4. Breach of the sub-subcontract between Kelson and Amar

Here, the issue was whether Kelson had breached the sub-subcontract by non-payment, or whether Amar’s “lack of sheet metal manpower” was the instigating breach since it forced Kelson to have to deal with Sjostrom directly. Although Kelson was not required to issue a notice of default, the court found that “Kelson’s rights on default flow[ed] from a default notice being given.”[5] Since no notice was issued prior to the Change Order, the court held that Amar was not in breach of the sub-subcontract at any material time. Kelson was thus limited to charging back to Amar the value of the Change Order ($61,924.50). The court remarked that had Kelson followed the terms of the sub-subcontract and issued a notice of default to Amar, Kelson’s right to back charge may have been preserved.

Since sheet metal work had been removed from Amar’s scope of work under the agreement between it and Kelson, and it was not found to be in breach, Amar was entitled to the value of the additional work it performed on the Project starting in September 2018. After accounting for set-backs (which there were none), Amar received a judgment against Kelson for $209,737.88, including HST, plus pre-judgment interest.

Concluding Thoughts

This case emphasizes the importance of contract drafting before projects begin, record keeping throughout the project and pleadings after disputes emerge.

  • Direct agreements with sub-sub-subcontractors can be formed even if there is no formal written agreement between the parties. For clarity and mutual understanding, agreements and change orders in writing are preferable to verbal agreements.
  • To prevent disputes when circumstances change, all parties should have a shared understanding of Change Orders and how they will impact the scope of work going forward.
  • This case reminds parties to draft, read and follow their contracts carefully to avoid losing rights to recover.
  • Parties bringing claims cannot take for granted that the court will accept time summaries or invoices to prove damages – accurate and complete time records may be required to support a damages claim at trial. Contemporaneous and complete record keeping should be prioritized, especially on distressed projects that may be at greater risk of future litigation.


[1] Sjostrom Sheet Metal Ltd. v. Geo A. Kelson Company Limited, 2023 ONSC 4959 (CanLII). [Sjostrom Sheet Metal Ltd.].

[2] Sjostrom Sheet Metal Ltd at para 74. See Infinity Construction Inc. v. Skyline Executive Acquisitions Inc. et al., 2020 ONSC 77 (CanLII) at para 114.

[3] Sjostrom Sheet Metal Ltd at para 74.

[4] Sjostrom Sheet Metal Ltd at para 105.

[5] Sjostrom Sheet Metal Ltd at para 120.



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