Sunview Doors Limited v. Academy Doors & Windows Ltd. et al.
[Indexed as: Sunview Doors Ltd. v. Academy Doors & Windows Ltd.]
101 O.R. (3d) 285
2010 ONCA 198
Court of Appeal for Ontario,
Weiler, Laskin, MacPherson, MacFarland and Epstein JJ.A.
March 16, 2010
Construction law -- Trust fund -- Section 8(1) of Construction Lien Act not requiring that supplier intend that material be incorporated into known and specific improvement at time of sale or supply -- Supplier entitled to benefit of statutory trust under s. 8 of Act if supplier is able to link material to improvement for which subcontractor was owed money or has been paid -- Supplier entitled to benefit of trust where subcontractor deliberately frustrated its efforts to obtain disclosure that would enable it to link its products to improvements into which they had been incorporated -- Construction Lien Act, R.S.O. 1990, c. C.30, s. 8(1).
The plaintiff manufactured custom sliding patio doors for contractors. It supplied custom-made doors to the defendant A Ltd., which carried on business as a manufacturer, supplier and installer of windows and doors in retrofitted and renovated buildings. It did not know the location of the improvements where the doors were being installed, as A Ltd. picked up the doors from the plaintiff's manufacturing facility. A Ltd. did not pay for the doors, and the plaintiff brought an action against it for breach of contract and against the three individual defendants for breach of trust pursuant to the combined operation of ss. 8 and 13 of the Construction Lien Act. A Ltd. did not defend the action and was deemed to admit that it had been paid for the plaintiff's products. The trial judge allowed the claim for breach of contract but found that the plaintiff was not entitled to the benefit of the statutory trust in s. 8(1) of the Act as it never intended that the material sold be used for the purposes of a known and identified improvement. The Divisional Court allowed the plaintiff's appeal. The defendants appealed.
Held, the appeal should be dismissed.
The reference in s. 8(1) of the Act to the creation of a trust fund for the benefit of "persons who have supplied services or materials to the improvement" generally requires that a link be made between the materials supplied and the improvement. However, nothing in the wording of the section requires that the supplier intend that the material be incorporated into a known and specific improvement at the time of the sale or supply, and no such requirement should be read into s. 8(1). Provided that the supplier is able to link the material to the improvement for which the subcontractor was owed money or has been paid, the supplier will be entitled to the benefit of the s. 8 statutory trust. In this case, the link was established because of A Ltd.'s conduct in deliberately frustrating the plaintiff's attempts to obtain the disclosure that would enable it to link its products to the improvements into which they had been incorporated.
APPEAL from the judgment of the Divisional Court (Jennings, Kiteley and Low JJ.), 2008 49336 (ON SCDC), [2008] O.J. No. 3821, 241 O.A.C. 212 (Div. Ct.) allowing an appeal from a judgment dismissing a trust claim under the Construction Lien Act.
Cases referred to Central Supply Co. 1972 Ltd. v. Modern Tile Supply Co. (2001), 2001 5037 (ON CA), 55 O.R. (3d) 783, [2001] O.J. No. 3575, 149 O.A.C. 180, 11 C.L.R. (3d) 1, 107 A.C.W.S. (3d) 946 (Div. Ct.); Maple Leaf Homes and Cottages Inc. v. Zoellner Windows (1982) Ltd., [1989] O.J. No. 22, 34 C.L.R. 6, 13 A.C.W.S. (3d) 290 (H.C.J.); Richmond Bros. Insulation Inc. (Re) (1989), 1989 4103 (ON SC), 69 O.R. (2d) 22, [1989] O.J. No. 599, 73 C.B.R. (N.S.) 284, 34 C.L.R. 29, 15 A.C.W.S. (3d) 114 (H.C.J.); [page286] Schulz Concrete Pipe Ltd. (Re), [1979] O.J. No. 3331, 32 C.B.R. (N.S.) 157 (H.C.J.); St. Mary's Cement Corp. v. Construc Ltd. (1997), 1997 12114 (ON SC), 32 O.R. (3d) 595, [1997] O.J. No. 1318, 29 O.T.C. 376, 33 C.L.R. (2d) 234, [1997] G.S.T.C. 24, 5 G.T.C. 7115, 70 A.C.W.S. (3d) 15 (Gen. Div.), consd Other cases referred to Bell ExpressVu Limited Partnership v. Rex, [2002] 2 S.C.R. 559, [2002] S.C.J. No. 43, 2002 SCC 42, 212 D.L.R. (4th) 1, 287 N.R. 248, [2002] 5 W.W.R. 1, J.E. 2002-775, 166 B.C.A.C. 1, 100 B.C.L.R. (3d) 1, 18 C.P.R. (4th) 289, 93 C.R.R. (2d) 189, REJB 2002-30904, 113 A.C.W.S. (3d) 52; Bre-Aar Excavating Ltd. v. D'Angela Construction (Ont.) Ltd. (1975), 1975 431 (ON SC), 8 O.R. (2d) 598, [1975] O.J. No. 2328, 58 D.L.R. (3d) 654, 21 C.B.R. (N.S.) 260 (H.C.J.); Canada Trustco Mortgage Co. v. Canada, [2005] 2 S.C.R. 601, [2005] S.C.J. No. 56, 2005 SCC 54, 259 D.L.R. (4th) 193, 340 N.R. 1, J.E. 2005-1901, [2005] 5 C.T.C. 215, 2005 D.T.C. 5523, 142 A.C.W.S. (3d) 1075, EYB 2005-96529; Canadian Bank of Commerce v. T. McAvity & Sons Ltd., 1959 9 (SCC), [1959] S.C.R. 478, [1959] S.C.J. No. 28, 17 D.L.R. (2d) 529, 38 C.B.R. 10; Minneapolis-Honeywell Regulator Co. v. Empire Brass Manufacturing Co., 1955 40 (SCC), [1955] S.C.R. 694, [1955] S.C.J. No. 48, [1955] 3 D.L.R. 561; Plourde v. Wal-Mart Canada Corp., [2009] 3 S.C.R. 465, [2009] S.C.J. No. 54, 2009 SCC 54, 396 N.R. 1, EYB 2009-166628, J.E. 2009-2180, 313 D.L.R. (4th) 539,[2010] CLLC Â220-002, 80 C.C.E.L. (3d) 58; Rizzo & Rizzo Shoes Ltd. (Re) (1998), 1998 837 (SCC), 36 O.R. (3d) 418, [1998] 1 S.C.R. 27, [1998] S.C.J. No. 2, 154 D.L.R. (4th) 193, 221 N.R. 241, J.E. 98-201, 106 O.A.C. 1, 50 C.B.R. (3d) 163, 33 C.C.E.L. (2d) 173, 98 CLLC Â210-006; Sunview Doors Ltd. v. Academy Doors & Windows Ltd., [2007] O.J. No. 1916, 63 C.L.R. (3d) 219, 157 A.C.W.S. (3d) 548 (S.C.J.) Statutes referred to Construction Lien Act, R.S.O. 1990, c. C.30, ss. 1(1), (2), 2(1), 7, (4), 8, (1), (a), (2), 10, 13, (1)(b), (2), (3), 14, 15, 20, (1), 21, 22(1), 36(3), 38, 39, (1), (6), 50(2), 85 Construction Lien Act, 1983, S.O. 1983, c. 6, ss. 1(1), para. 12(i), 8(1), 39, (6) Courts of Justice Act, R.S.O. 1990, c. C.43, s. 134 [as am.], (1) Interpretation Act, R.S.O. 1990, c. I.11 [rep. S.O. 2006, c. 21, Sch. F, ss. 134, 143(1)] Legislation Act, 2006, S.O. 2006, c. 21, Sch. F, s. 67 Mechanics' Lien Act, R.S.O. 1970, c. 267 [rep. S.O. 1989, c. 17, s. 37], ss. 2, (1), 19, 32 Rule and regulations referred to Rules of Civil Procedure, R.R.O. 1990, Reg. 194, rules 51.03(2), 76.03, (1) Authorities referred to Bristow, David I., Duncan W. Glaholt, R. Bruce Reynolds and Howard M. Wise, Construction Builders' and Mechanics' Liens in Canada, 7th ed., looseleaf (Toronto: Carswell, 2008) Driedger, Elmer A., The Construction of Statutes, 2nd ed. (Toronto: Butterworths, 1983) Glaholt, Duncan W., and David Keeshan, The 2010 Annotated Ontario Construction Lien Act (Toronto: Carswell, 2009) Kuchar, J.S. "Breach of Trust Actions Under the Construction Lien Act" (1995), 20 C.L.R. (2d) 18 McGuinness, "Trust Obligations Under the Construction Lien Act" (1994), 15 C.L.R. (2d) 208 Ontario Ministry of the Attorney General, Report of the Attorney General's Advisory Committee on the Draft Construction Lien Act (Toronto: Ontario Ministry of the Attorney General, April 1982) [page287] Sullivan, Ruth, Driedger on the Construction of Statutes, 3rd ed. (Toronto, Butterworths, 1994)
Mauro Marchioni, Esq., and Brent Pearce, for appellants. Michael A. Handler and Giovanna M. Paolucci, for respondent.
The judgment of the court was delivered by
WEILER J.A.: --
Introduction
1The primary question on this appeal is whether Sunview Doors Limited ("Sunview"), a supplier of custom-made doors to a subcontractor, Academy Doors and Windows Ltd. ("Academy"), is entitled to the benefit of a statutory trust pursuant to s. 8(1) of the Construction Lien Act, R.S.O. 1990, c. C.30 (the "Act").
2Section 8 of the Act is as follows:
8(1) All amounts, (a) owing to a contractor or subcontractor, whether or not due or payable; or (b) received by a contractor or subcontractor,
on account of the contract or subcontract price of an improvement constitute a trust fund for the benefit of the subcontractors and other persons who have supplied services or materials to the improvement who are owed amounts by the contractor or subcontractor.
(2) The contractor or subcontractor is the trustee of the trust fund created by subsection (1) and the contractor or subcontractor shall not appropriate or convert any part of the fund to the contractor's or subcontractor's own use or to any use inconsistent with the trust until all subcontractors and other persons who supply services and materials to the improvement are paid all amounts related to the improvement owed to them by the contractor or subcontractor.
"Improvement" is defined in s. 1(1) of the Act:
"improvement" means (a) any alteration, addition or repair to, or (b) any construction, erection or installation on,
any land, and includes the demolition or removal of any building, structure or works or part thereof, and "improved" has a corresponding meaning. [page288]
Facts and Judicial History
3Sunview manufactures custom sliding patio doors for contractors. Academy carried on business as a manufacturer, supplier and installer of windows, doors and curtain walls in retrofitted and renovated low- and high-rise buildings until it went out of business in October 2006. Academy's customers were primarily property managers and general contractors.
4Sunview supplied custom-made patio doors to Academy. Between September 2005 and October 2006, Academy gave Sunview nine purchase orders. Sunview knew that the doors Academy ordered were for specific improvements because of the information provided respecting dimensions, colour and door opening direction.
5Sunview did not, however, know the location of the improvements where the doors were being installed. Neither the orders placed by Academy, nor the corresponding invoices issued by Sunview, identified where the doors would be installed. The parties arranged for Academy to pick up the doors from Sunview's manufacturing facility.
6Sunview afforded Academy $100,000 in unsecured credit. Mr. Di'Iorio, Sunview's general manager, testified that he did not know where the custom doors were installed and did not care. However, after a number of the orders had been picked up and payment had not been received, Mr. Di'Iorio began to press for payment.
7Two of the individual defendants, Vlasis and Vlasios Pappas, were directors and officers of Academy. The third co- defendant, Olympia O'Brien, worked for Academy and is the sister of Vlasis and the cousin of Vlasios. Ms. O'Brien worked for Academy, handling the company's accounts payable, accounts receivable and payroll. She reconciled the company's accounts and prepared cheques that reflected what the company owed. It appears, however, that she did not have signing authority. At trial, Vlasis and Vlasios Pappas testified that Ms. O'Brien was in charge of the office. Mr. Di'Iorio gave evidence that Ms. O'Brien was Sunview's contact at Academy for accounts payable.
8Mr. Di'Iorio further testified about a telephone conversation with Ms. O'Brien, in June or July 2006, wherein she told him that Sunview would receive payment when Academy was paid on its projects. He then asked Ms. O'Brien to identify the projects to which the doors had gone. She refused to disclose that information to him.
9During that same conversation, Mr. Di'Iorio requested that Ms. O'Brien fax him a copy of the cheque that she had informed [page289] him she had received on account of one of the projects. She agreed to send it to him. When the fax did not arrive, he called Ms. O'Brien back that same day. She told him she was directed not to fax it to him so that he would not get the customer's contact information. (She feared that Mr. Di'Iorio may contact the customer and make it aware that Sunview had not yet been paid.)
10Also, in July 2006, Ms. O'Brien incorporated Magnum Windows & Doors Ltd. to carry on a business very similar to that of Academy. She ceased working for Academy in August 2006, just two months before the company went out of business. In January 2007, she leased space for her new company. Ms. O'Brien had no operational experience in the window and door business and did not know how to work the manufacturing equipment.
11Once it became clear that Academy was not going to pay its outstanding debt, Sunview attempted, unsuccessfully, to resell the doors from the ninth order to other customers. The amount of this ninth order was $28,785.36 and no breach of trust is claimed in relation to it.
12Sunview brought an action against Academy for breach of contract on the basis of the unpaid accounts and against the three individual defendants for breach of trust pursuant to the combined operation of s. 8 and s. 13 of the Act.
13Section 13 of the Act enables the court to pierce the corporate veil by making any person, "including an employee or agent of the corporation, who has effective control of a corporation or its relevant activities", personally liable for a corporation's breach of trust. This determination is a question of fact: s. 13(2). Where more than one person is found liable under s. 13, liability is joint and several: s. 13(3).
14Academy did not defend the action. Pursuant to a request to admit, to which Academy did not respond, Academy was deemed to admit that it had been paid for Sunview's products. Provided that Sunview could establish that it was entitled to the benefit of the s. 8(1) statutory trust, the individual appellants conceded that they could not satisfy their onus under s. 8(2) to show that they had not appropriated any part of the trust fund to their own use until suppliers had been paid. The trial judge [[2007] O.J. No. 1916, 63 C.L.R. (3d) 219 (S.C.J.)] noted, at para. 17 of his reasons, that Academy's concession ". . . was an appropriate concession to make in light of the evidence tendered at trial".
15The trial judge allowed the claim in breach of contract against Academy in the full amount of $87,029.98, representing the value of all nine orders. He found that Sunview had fulfilled [page290] its duty to mitigate by attempting, albeit unsuccessfully, to resell the doors from the last order that Academy never picked up. However, he held that Sunview could not establish that it was entitled to the benefit of the statutory trust in s. 8(1) of the Act. The trial judge's conclusion was based on Central Supply Co. 1972 Ltd. v. Modern Tile Supply Co. (2001), 2001 5037 (ON CA), 55 O.R. (3d) 783, [2001] O.J. No. 3575 (Div. Ct.). In that case, a panel of the Court of Appeal sitting as the Divisional Court, held, at para. 19, that, in order for a s. 8(1) statutory trust to arise, the claimant or supplier must "intend that the material sold be used for the purposes of a known and identified improvement". Although Academy was a subcontractor and Sunview was a supplier, Sunview could not establish that, at the time it s old or supplied its doors to Academy, it intended that they be used for known and identified improvements.
16Further, due to Academy's conduct, the trial judge held that a nexus between the products Sunview had supplied and specific construction sites could not be made for two reasons. First, the individual defendants claimed that they did not know where Sunview's doors were installed. Second, the trial judge found the defendants failed to make proper documentary disclosure. 1 The defendants alleged that their landlord destroyed Academy's records when he locked them out of the building after they went out of business. The trial judge firmly rejected this explanation on thorough reasons. Despite the trial judge's strong condemnation of the defendants' conduct, he concluded that it was not enough to satisfy the requirement, imposed by Central Supply, that a supplier must intend the material sold be used for the purpose of a known and identified improvement before a trust arises.
17As a result of the trial judge's conclusion that a s. 8(1) statutory trust had not arisen, he did not have to decide the claim against Ms. O'Brien. The trial judge did, however, comment on [page291] the evidence relating to that claim. Academy's general ledger showed that, between September 1, 2005 and August 31, 2006, the company paid her approximately $150,000 in excess of her regular annual salary. In her testimony at trial, Ms. O'Brien conceded that she received closer to $195,000 in payments from Academy during that time frame, but she claimed that the money was disbursed to repay her for shareholder loans she had made to Academy during her tenure there.
18The general ledger for that period only recorded a $7,500 advance from Ms. O'Brien to the company. Ms. O'Brien failed to produce any other documentation that supported her explanation. The trial judge observed that Ms. O'Brien's denial that she was a trustee belied the evidence from Academy's general ledger, which showed that she had been paid moneys that should have been used to pay suppliers such as Sunview. The trial judge went on [at para. 17] to state that even if "Ms. O'Brien in fact did lend a large sum of money to Academy, at a minimum Academy's general ledger disclosed that in the year before its demise the company preferred one creditor -- Ms. O'Brien -- to the detriment of others". Although the trial judge did not make definitive findings on the issue, he noted that the evidence raised strong suspicions that the individual defendants had run Academy into the ground with the intention of opening a new business under Ms. O'Brien's name, which they did in July 2006.
19The Divisional Court allowed Sunview's appeal and, after deducting the sum of $28,785.36 on account of the ninth purchase order, gave judgment against the individual defendants for breach of trust in the amount of $58,244.62. Having regard to the evidence at trial, the Divisional Court held that Ms. O'Brien had "effective control" of Academy or its relevant activities, and that she, in addition to Vlasis and Vlasios Pappas, was personally liable for its breach of trust.
20In distinguishing the facts of this case from those in Central Supply, the Divisional Court noted that, whereas in Central Supply the putative trustee was a retailer who sold to the general public, in this case, Academy was a contractor focused on the retrofit and renovation of low-and high-rise rental and condominium units. Central Supply involved a retail situation dealing with generic products; Sunview dealt with custom-ordered doors. The doors were not stock items and were ordered according to precise measurement specifications. Moreover, while Sunview did not know the exact location of the improvements, this information was known by Academy at the time the materials were supplied. Had Academy made documentary disclosure when Mr. Di'Iorio had first requested the information, Sunview [page292] would have learned this information as early as June or July 2006. In giving judgment in favour of Sunview, the Divisional Court held that the trial judge was not bound by Central Supply.
21Although it had distinguished Central Supply on the facts, the court exercised its coordinate jurisdiction to the panel in Central Supply, and disagreed, at para. 54 of its reasons, "that the supplier must have intended that its materials be incorporated into a specific and identifiable improvement in order to attract a trust remedy".
22The discussion of issues that follows my conclusion below is intended to resolve the conflicting jurisprudence concerning the interpretation of s. 8(1) of the Act and the subsidiary issue of whether the Divisional Court correctly held Ms. O'Brien personally liable. Because we were asked to consider whether Central Supply was correctly decided, in accordance with the court's usual practice, we sat as a panel of five.
Conclusion
23I would resolve the primary issue of the interpretation of s. 8(1), a question of law, in favour of Sunview. The reference in s. 8(1) to the creation of a trust fund for the benefit of "persons who have supplied services or materials to the improvement" generally requires that a link be made between the materials supplied and the improvement (emphasis added). However, nothing in the wording of the section requires that the supplier intend that the material be incorporated into a known and specific improvement at the time of sale or supply and I would not read this requirement into s. 8(1). Provided that the supplier is able to link the material to the improvement for which the subcontractor was owed money or has been paid, the supplier will be entitled to the benefit of the s. 8 statutory trust in the Act. Here, the link is established because of Academy's conduct in deliberately frustrating Sunview's attempts to obtain the disclosure that would enable it to link its products to the improve ments into which they had been incorporated. This interpretation best promotes the purpose of the section and the object of the Act. The purpose of s. 8 is to impress money owing to or received by contractors or subcontractors with a statutory trust, a form of security, to ensure payment of suppliers. The object of the Act is to prevent unjust enrichment of those higher up in the construction pyramid by ensuring that money paid for an improvement flows down to those at the bottom. Having regard to the purpose of s. 8 and the object of the Act, I would hold that Sunview is entitled to the benefit of a s. 8(1) statutory trust. [page293]
24Inasmuch as I would hold that Sunview is the beneficiary of a s. 8(1) statutory trust, there is no issue that Academy is liable for breach of trust pursuant to s. 8(2). In addition, Vlasis and Vlasios Pappas do not contest their liability under s. 13 in the event that Sunview is entitled to the benefit of a s. 8(1) trust. Ms. O'Brien contests the finding of fact by the Divisional Court that she is also personally liable. In my opinion, the Divisional Court did not commit any palpable and overriding error in so holding. In the result, I would dismiss the appeal.
Discussion of Issues
I. In order for a trust to arise under s. 8 of the Act, must the supplier intend that the material sold be used for the purposes of a known and identified improvement?
The jurisprudence prior to Central Supply
25Prior to Central Supply, the relevant court decisions in Ontario interpreted the trust provisions in the Act quite broadly, and trial judges explicitly rejected reading in any intention or knowledge requirement at the time a supplier entered into a contract. The relevant statute at the time was the Mechanics' Lien Act, R.S.O. 1970, c. 267 (the "MLA").
26In Schulz Concrete Pipe Ltd. (Re), [1979] O.J. No. 3331, 32 C.B.R. (N.S.) 157 (H.C.J.), St. Mary's Cement Ltd., a supplier of concrete to Schulz Concrete Pipe Ltd., supplied all the concrete that Schulz used to manufacture its pipes. Schulz went bankrupt. It was agreed by the parties that Schulz "supplied its pipe to owners, contractors and subcontractors and that the money received by the trustee was derived from construction projects to which the bankrupt, [Schulz], had supplied concrete pipe": Schultz (Re), as per Registrar Ferron, at para. 3. Thus, all the money received was from construction projects. If St. Mary's was successful, it would be protected from the bankruptcy of Schulz on the basis that the money in the bankrupt's estate was impressed with a trust under s. 2 of the MLA, the predecessor to the current s. 8.
27Registrar Ferron considered the wording of s. 2(1) of the MLA, which used the following language:
All sums received by a . . . contractor or subcontractor on account of the contract price constitute a trust fund in the hands of the contractor or subcontractor for the benefit of . . . persons who have supplied materials on account of the contract"
28Registrar Ferron further observed, at para. 9, that:
Those entitled to the benefit of the fund in the context of these proceedings are those persons who have supplied material on "account of the contract [page294] price". The contract referred to must be a reference to the contract for the supply of pipe to either an owner, contractor or subcontractor, as the case may be, and it is only those persons who have supplied material in the fulfilment of such contracts who are beneficiaries under the trust section. He went on to conclude, at para. 11, that no question of knowledge or intention arose when considering the trust provisions of the MLA. The supplier need not have intended his material be used in any specific project in order to qualify as a beneficiary of a trust for unpaid amounts owing to it.
29Richmond Bros. Insulation Inc. (Re) (1989), 1989 4103 (ON SC), 69 O.R. (2d) 22, [1989] O.J. No. 599 (H.C.J.), involved a supplier delivering chemicals in bulk to a contractor who then processed them into foam insulation. The arrangement between the supplier and the contractor never specifically mentioned jobs where the final product would be used.
30At issue was the wording of s. 8(1) of the Construction Lien Act, 1983, S.O. 1983, c. 6 (the "1983 Act"), which is the same as the current wording of the present Act.
31In interpreting s. 8(1) of the 1983 Act, Granger J. had considered the definition of "materials". Section 1(1), para. 12 of the 1983 Act states:
1(1)12. "Materials" means every kind of movable property, (i) that becomes, or is intended to become, part of the improvement . . .
32Having regard to the language defining materials in s. 1(1), para. 12(i), "that becomes or is intended to become" (emphasis added), Granger J. held that it was not necessary that a supplier know or intend that its materials end up in a specific improvement at the time of supply. He reasoned, at para. 14, that "[t]he trust provisions . . . were intended to protect persons who supply raw materials that are subsequently incorporated into an improvement, whether they supply the materials directly to the improvement site or in bulk to the contractor working on the improvement". According to Granger J., the original intention of the Act was unchanged. He went on to conclude, in para. 14 of his reasons, that while "the language of the present legislation is considerably different [from the MLA provision examined in Schulz (Re)], its reasoning is applicable in this case".
33Equally relevant is the decision in Maple Leaf Homes and Cottages Inc. v. Zoellner Windows (1982) Ltd., [1989] O.J. No. 22, 34 C.L.R. 6 (H.C.J.). Maple Leaf supplied a subcontractor, Zoellner Ltd., with windows and other building materials, which Zoellner used in the manufacture of its products and supplied under contract directly to owners or contractors who were building homes. When Zoellner went into receivership, it owed Maple [page295] Leaf $24,728.15, plus interest at 2.5 per cent a month. Maple Leaf asserted that it was entitled to the benefit of a statutory trust under s. 8 of the 1983 Act respecting money Zoellner had received from the contractors.
34Maple Leaf brought a motion, pursuant to s. 39(6) of the 1983 Act, for an order that Zoellner comply with an earlier written request for disclosure of the identity of the persons to whom the products were sold, the location of the construction projects and the contract price of the various projects. Zoellner disputed Maple Leaf's claim on the basis that Zoellner had sold the material as a retailer, without regard for the purpose for which it was going to be used. It submitted that, in order for a trust to arise, the material had to be used on some particular lands that were known at the time of sale, just as a supplier of materials is required to establish for a lien claim.
35Vannini J., a local judge of the District Court, rejected this argument on two bases. First, in Schulz (Re), a supplier of bulk cement for use by a manufacturer of concrete pipe was held to be entitled to the benefit of a trust under the MLA, despite the fact that that supplier had no knowledge of the location of the projects in which the material would be used at the time the cement was supplied. Second, the trust remedy under the Act is separate, distinct and independent of the right to a lien claim.
Central Supply
36Central Supply Company (1972) Limited ("Central Supply"), supplied floor and wall coverings to a retailer, Modern Tile Supply Company Limited ("Modern Tile"), and was not paid. The only issue at trial was whether Central Supply was entitled to payment from the two principals of Modern Tile pursuant to the trust provisions of s. 8(1) and s. 13 of the Act, which allows the corporate veil to be pierced.
37The evidence indicated that Central Supply made deliveries to Modern Tile's store, not to any of Modern Tile's customers. Central Supply did not know the location in which its products were ultimately to be incorporated and the invoices did not refer to a specific work site or premises. From time to time, Modern Tile asked Central Supply to put the name of a customer for whom goods were intended on the invoice, but this was only so that Modern Tile could keep track of the material that was supplied, and match it up with its customer.
38At trial, the claims against the personal defendants were dismissed on the basis that the trust provisions in Part II of the Act had to meet the same requirements as those for a lien in [page296] Part III. Under Part III of the Act, no lien entitlement is created if materials or services are supplied without knowledge of, or contact with, the improvement to which the supply is made. Richmond (Re), Schulz (Re) and Maple Leaf Homes, which held that the supplier need not know the location of the improvement at the time of sale or pickup of its product, were not followed.
39Central Supply appealed. It appears that the appeal could have been dismissed simply on the basis that Modern Tile was not a contractor, in that it was not, as defined in s. 1(1) of the Act, "employed directly by the owner or an agent of the owner to supply services or materials". Furthermore, it was not a subcontractor, as per s. 1(1), because it was not a person "who supplies services or materials to the improvement under an agreement with the contractor or under the contractor with another subcontractor". However, the appeal was not argued on that basis. The issue on appeal, as articulated by Abella J.A., at para. 6 of her reasons, was "whether monies received by Modern Tile, from the retail sale of its product to members of the public, constitute[d] trust funds pursuant to the provisions of the Act". If so, the issue was whether the individual defendants should be personally liable for breach of trust. The court dismissed Central Supply's appeal.
40Writing on behalf of Justices Laskin, Rosenberg and herself, Abella J.A. distinguished earlier authorities on the basis that the MLA had been repealed and re-enacted as the Construction Lien Act, which contained significant differences in the definition of various words. She considered the definition of "material", noting that in the MLA the definition contained no reference to an improvement. She had regard to the explanatory note concerning the word "improvement" contained in the Report of the Attorney General's Advisory Committee on the Draft Construction Lien Act (Toronto: Ontario Ministry of the Attorney General, April 1982) (the "Committee") and stated [at para. 20] that "[t]he Act was not intended to apply to retailers who sell to members of the public in general and who have no direct connection to any improvement to any premises". She also cited the definitions of "contract", "contractor", "owner", "premises", "subcontract" and "subcontractor" -- in s. 1(1) of the Act -- when materials are supplied -- at s. 1(2) of the Act -- s. 7 respecting an owner's trust, the trust provision in s. 8, the tracing provision of s. 13 and the lien rights outlined in ss. 14 and 15.
41At para. 18 of her reasons, she noted that ss. 14 and 15 in Part III (liens) use much the same language as the s. 8 trust provision: [page297]
14(1) A person who supplies services or materials to an improvement for an owner, contractor or subcontractor, has a lien upon the interest of the owner in the premises improved for the price of those services or materials.
- A person's lien arises and takes effect when the person first supplies services or materials to the improvement.
42Citing the principle of statutory interpretation espoused in Elmer A. Driedger's classic text, The Construction of Statutes, 2nd ed. (Toronto: Butterworths, 1983), as amplified by Professor Ruth Sullivan, Abella J.A. held, at para. 16 of her reasons, that the various parts of an Act are "meant to work together both logically and teleologically, as parts of a functioning whole": Ruth Sullivan, Driedger on the Construction of Statutes, 3rd ed. (Toronto: Butterworths, 1994), at p. 176.
43There can be no disagreement with this principle of statutory interpretation. It is the court's application of this principle that is the issue. The court concluded [at para. 19] that the supplier must "intend that the material sold be used for the purposes of a known and identified improvement" because the requirements to access the benefit of a statutory trust under s. 8(1) ought to be synchronized with the requirements for a lien. The court's conclusion was likely inspired by Kuchar's article on "Breach of Trust Actions Under The Construction Lien Act" (1995), 20 C.L.R. (2d) 18, at p. 31, in which he criticized the existing jurisprudence under the subheading A Trust Beneficiary Need Not Have Supplied with the Intention of Asserting Lien Rights and advocated that the requirements to obtain the benefit of a s. 8 statutory trust should be the same as the requirements to obtain a lien. The court also referred to an article by Mr. McGuinness, in which he advocated a similar conclusion in "Trust Obligations Under the Construction Lien Act" (1994), 15 C.L.R. (2d) 208, at p. 229.
44The essence of the court's reasoning, found at paras. 18-20, is as follows:
Although liens and trusts represent discrete remedies under the Act, the scheme and purpose of the Act argue for a consistent approach between Parts II and III of the Act. The similarity in wording between s. 8(1), which delineates when a trust arises under Part II, and in ss. 14 and 15, which outline when a lien is created under Part III also supports a consistent requirement in both that there be an identifiable improvement before either a lien or trust is established. Under s. 8(1) a trust arises for the benefit of those who have supplied services or materials to an improvement. Similarly, ss. 14(1) and 15 require that before a lien arises, there must be services or materials supplied 'to an improvement'. . .
In my view, therefore, the Act requires that a supplier must intend that the material sold be used for the purposes of a known and identified improvement before a lien or trust arises. Where the supplier is selling material or [page298] services without any regard to the purpose or site for which the material is destined, it is deemed to be selling on the credit of the buyer alone, without access to the lien or trust remedies under the Act. The trust provisions of the Act, therefore, create a trust only for the benefit of persons who have supplied services or materials to the improvement, not for the benefit generally of persons who supply contractors. . . .
The Act was not intended to apply to retailers who sell to members of the public in general and who have no direct connection to any improvement to any premises. Any other interpretation renders vulnerable to a trust obligation any retail store which supplies materials or services to members of the public, regardless of the ultimate use or destination of the product. (Emphasis added)
45Applying that principle to the facts, the court held that Modern Tile was not a trustee of contract moneys for the benefit of Central Supply. Central Supply had failed to demonstrate that Modern Tile had received money on account of a contract for a particular improvement, and that Central Supply actually supplied materials to that improvement. There being no nexus between the material supplied and a specific improvement, the court held that the relationship between Central Supply and Modern Tile was too remote to justify the imposition of a trust. In light of that conclusion, it was unnecessary for the court to deal with whether or not the individual defendants were personally liable for breach of trust.
General principles of statutory interpretation
46Statutory interpretation requires that "the words of an Act are to be read in their entire context and in their grammatical and ordinary sense harmoniously with the scheme of the Act, the object of the Act, and the intention of Parliament": Driedger, at p. 87.
47This formulation has long been accepted by the Supreme Court in numerous cases: see, e.g., Bell ExpressVu Limited Partnership v. Rex, 2002 SCC 42, [2002] 2 S.C.R. 559, [2002] S.C.J. No. 43, at para. 26; Rizzo & Rizzo Shoes Ltd. (Re) (1998), 1998 837 (SCC), 36 O.R. (3d) 418, [1998] 1 S.C.R. 27, [1998] S.C.J. No. 2, at p. 41 S.C.R.
48At the same time, when the words of a provision are precise and unequivocal, the ordinary meaning of the words play a dominant role in the interpretive process: Canada Trustco Mortgage Co. v. Canada, 2005 SCC 54, [2005] 2 S.C.R. 601, [2005] S.C.J. No. 56, at para. 10.
The object of the Act and the intention of the legislature
49Land benefitting from the supply of services or materials is improved and therefore generally increases in value. To prevent an owner receiving a benefit without paying for it, s. 14 of [page299] the Act gives contractors and subcontractors, as well as "a person who supplies services or materials to an improvement", a lien interest in the premises. Section 21 of the Act further secures the lien by providing that it is "a charge upon holdbacks required to be retained by Part IV [Holdbacks]" of the Act. The concept of a holdback was created to provide some financial protection to persons, such as suppliers, who would not otherwise be able to assert a direct claim against the owner in circumstances where the supplier had no privity of contract with the owner.
50The amount secured by the lien is not necessarily equal to the debt owed to the supplier by a contractor or subcontractor. The owner of the property is required to do two things. First, the owner must hold back a percentage of the value of the construction project, usually "equal to 10 percent of the price of the services or materials as they are actually supplied under the contract or subcontract", until the time period for filing lien claims has expired: s. 22(1) of the Act. Second, the owner must pay the holdback out in accordance with the provisions of the statute. Provided the owner complies with its statutory obligations, the liability of the owner to a supplier will be limited to the amount of the holdback at the time the owner receives notice of the lien claim. Thus, a subcontractor, who has not been paid by a contractor or subcontractor higher up in the construction pyramid, cannot demand more than the amount of the holdback from the owner, even if it is owed more.
51Part II of the Act creates a series of statutory trusts. The intention of the legislature in creating the s. 8 trust in favour of a supplier, vis-à-vis a contractor or subcontractor, was to give a supplier a separate statutory form of security for full payment out of the moneys received by the contractor or subcontractor. As explained by Rand J. in Minneapolis- Honeywell Regulator Co. v. Empire Brass Manufacturing Co., 1955 40 (SCC), [1955] S.C.R. 694, [1955] S.C.J. No. 48, in relation to the then MLA, at p. 696 S.C.R.:
The Act is designed to give security to persons doing work or furnishing materials in making an improvement on land. Speaking generally, the earlier sections give to such persons a lien on the land, but that is limited to the amount of money owing by the owner to the contractor under the contract when notice of the lien is given to him . . .
For obvious reasons this is but a partial security; too often the contract price has been paid in full and the security of the land is gone. It is to meet that situation that s. 19 has been added. The contractor and sub-contractor are made trustees of the contract moneys and the trust continues while employees, material men or others remain unpaid. [page300]
52Rand J.'s comments concerning the object of the trust provisions of the MLA were concurred in by Kellock, Estey and Fauteux JJ. In separate concurring reasons, Locke J. held that s. 19 of the MLA should be given its plain meaning. Locke J. firmly noted his refusal, at p. 700 S.C.R., "to read into the section a provision that the rights given may be exercised only by those who then have a right to a lien upon the work".
53Four years later, in Canadian Bank of Commerce v. T. McAvity & Sons Ltd., 1959 9 (SCC), [1959] S.C.R. 478, [1959] S.C.J. No. 28, the Supreme Court held that a supplier is entitled to bring an action against a subcontractor for full payment, regardless of whether or not the supplier can lodge a lien against the owner of the land.
54The 1982 report of the Attorney General's Advisory Committee, considered by the Divisional Court in Central Supply, advised the then Attorney General, the Honourable Roy McMurtry, on the proposed Construction Lien Act, which was enacted in 1983. The Committee considered the existing MLA and a Draft Act before making recommendations for modifying the Draft Act on a section by section basis. Section 8(1) of the current Act uses the exact wording recommended by the Committee. The Committee's explanation of its proposal, at p. 37, is as follows:
Subsection 8(1) replaces 3(1) of the Mechanics' Lien Act. It is designed primarily to protect those working on an improvement from the insolvency or bankruptcy of a contractor or subcontractor. Where money is paid under a contract or subcontract after the contractor or subcontractor has gone bankrupt, the money received by the trustee administering the bankrupt's estate is impressed with a trust. The trust fund must first be used to satisfy the claims of the beneficiaries. The trustee in bankruptcy becomes entitled to the money paid to the bankrupt contractor or subcontractor for the benefit of general creditors of the bankrupt only if there is a surplus.
55The Committee's commentary in relation to s. 8 does not suggest that it intended to change the existing jurisprudence in relation to the former MLA. By contrast, the Committee's commentary with respect to s. 7(4) of the Act does. 2
56The Committee was very specific when it wished to recommend a change to the pre-existing law. It did not recommend [page301] that previous jurisprudence respecting the object of the statutory trust provision in favour of suppliers to the construction industry be changed. 3 By implication, the Committee can be taken to have rejected a synchronized approach to the trust and lien provisions of the Act. Had it not agreed with the holding of Locke J., namely, that the rights enshrined in the trust provision are capable of being exercised independently of whether or not a right to a lien exists, it would have said so. Moreover, the Committee expressed no disagreement with Canadian Bank of Commerce, in which the Supreme Court concluded that a supplier has a right to bring an action against a subcontractor for full payment, regardless of whether the supplier can lien the owner of the land.
57The legislature followed the Committee's recommended wording and the object of the Act did not change.
The wording of the provision in total context, read harmoniously within the scheme of the Act
58Amendments to the wording of a legislative provision are presumed to have a purpose. That purpose need not necessarily be substantive, but may be to clarify the meaning: Sullivan, at p. 579. Indeed, "[i]n Canada, where making formal improvements to the statute book is a minor industry, the presumption of substantive change is weak and easy to rebut": ibid. The presumption of substantive change may also be influenced by the interpretation provision set out in Part VI of the Legislation Act, 2006, S.O. 2006, c. 21, Sch. F. (formerly in the Interpretation Act, R.S.O. 1990, c. I.11), which states:
The amendment of an Act shall be deemed not to be or to involve a declaration that the law under the Act was or was considered by the Legislature to have been different from the law as it has become under the Act as so amended. [page302]
59In the context of a formal statute revision, amendments which make express and explicit that which was previously implicit, and "harmonize the style of the legislation", are formal changes not intended to bring about a substantial change in the law: Sullivan, at p. 583.
60As indicated, the MLA impressed "sums" that the contractor or subcontractor received "on account of the contract price" with a trust "for the benefit of . . . persons who have supplied materials on account of the contract". Section 8 of the current Act states "all amounts" owing to or received by a contractor or subcontractor "on account of the contract or subcontract price of an improvement constitute a trust fund for the benefit of subcontractors and other persons who have supplied services or materials to the improvement who are owed amounts by the contractor or subcontractor".
61In my view, the "contract price" referred to in s. 2(1) and the reference to the "contract price of an improvement" in s. 8 simply make explicit what had previously been implicit. However, the Act now uses the phrase "persons who have supplied services or materials to the improvement", rather than "persons who have supplied materials on account of the contract" (emphasis added) in describing the beneficiaries of a s. 8 trust.
62The Committee's comments concerning the definition of an "improvement", at p. 7 of its report, are particularly illuminating:
The definition of the term "improvement" has been redrafted [from the Discussion Draft] to make it clear which types of work on land give rise to a lien.
The purpose of the Act is to protect those who contribute their services or materials towards the making of an improvement to a premises. The types of work which constitute an improvement are set out in clauses a [any alteration, addition or repair] and b [any construction, erection or installation]. While the definition of "improvement" is broad, the Committee has attempted to draft it in such a way that it will be clear that the lien created by the Act applies only in the case of the construction and building repair industries.
63The comments of the Committee led the Divisional Court in Central Supply to conclude, at para. 20 of its reasons, that "[t]he Act was not intended to apply to retailers who sell to members of the public in general and who have no direct connection to any improvement to any premises." I would agree. Having regard to the Committee's remarks respecting the definition of an "improvement", it appears that, in using the word "improvement" throughout the Act, the Committee wished to make it clear that the purpose of the Act was that it benefit [page303] persons working in the construction and building repair industries and also to clarify the types of work covered.
64The phrase used to describe the beneficiary of a s. 8 trust, "persons who have supplied services or materials to the improvement who are owed amounts by the contractor or subcontractor", is almost identical to the phrase used in s. 14 of the Act to describe a person who can lien, namely, "a person who supplies services or materials to an improvement for an owner, contractor or subcontractor". I agree that the statutory presumption of consistent expression requires that the same words or phrases in an Act be given the same meaning throughout: see Sullivan, at pp. 214-23.
65That said, I would agree with the observation of the Divisional Court in the case before us, at para. 51 of its reasons, "[t]here is no language in s. 8, s. 14 or s. 15 that suggests that intent is a requirement". Nor is there any need to stretch the wording of ss. 14 and 15 to import a knowledge or intention requirement in those sections. Knowledge of the location of the improvement is explicitly addressed in Part V of the Act, which deals with the expiry, preservation and perfection of liens.
66Simply because the beneficiaries are the same does not mean that the requirements to access the different benefits must be the same. While the beneficiary of the s. 8 trust provisions and the description of a person having a lien in ss. 14 and 15 are described in similar terms, the focus of each section is quite different. Under s. 14 "[a] person who supplies services or materials to an improvement for an owner, contractor or subcontractor has a lien upon the interest of the owner in the premises improved" (emphasis added). Under s. 8(1), "amounts . . . on account of the contract or subcontract price of an improvement constitute a trust fund".
67Section 14 links the statutory remedy of a lien to "the interest of the owner in the premises" (emphasis added). Section 1(1) states:
"premises" includes, (a) the improvement (b) all materials supplied to the improvement, and (c) the land occupied by the improvement, or enjoyed therewith, or the land upon or in respect of which the improvement was done or made.
68Section 8 links the statutory remedy of a trust to the contract price of an improvement, and the rights under the section follow the rules for privity of contract. It makes each payor a trustee for its payee, and, conversely, each payee is a beneficiary: [page304] David I. Bristow, et al., Construction Builders' and Mechanics' Liens in Canada, 7th ed., looseleaf (Toronto: Carswell, 2008), at p. 9-1. The definition of "payer" under s. 1(1) of the Act does not suggest that payment for materials supplied must be made on account of the specific improvement, but rather links payment to "an improvement under a contract or subcontract" (emphasis added).
69Pursuant to s. 15, a lien arises "when the person first supplies services or materials to the improvement". By contrast, as noted by Bristow, et al., at p. 9-8:
The trust itself and the rights of a statutory trust beneficiary in that trust come into existence only with the creation of the trust fund to which those rights attach. Unless and until a trust fund comes into existence in the hands of a trustee with whom the alleged beneficiary has privity of contract, the trust does not arise.
70Unlike the provisions respecting a lien, the Act contains no limitation provision for making a claim that a statutory trust has been breached. Therefore, it appears that the general limitation periods for breach of trust apply. In this regard, the Committee states, at p. 47 of its report:
In the opinion of the Committee, no claim arising from a breach of trust should be barred by a special limitation period. The ordinary limitation periods, as well as the equitable doctrine of laches, should apply to such claims. In these circumstances, there should be no special exemption for banks and other financial institutions.
71In addition, s. 38 of the Act expressly provides that the expiration of a lien, "shall not affect any other legal or equitable right" available. Also relevant, s. 50(2) stipulates that a trust claim shall not be joined with a lien claim.
72To summarize, the phrase "persons who have supplied services or materials to the improvement" in s. 8 and the phrase "person who supplies services or material to an improvement" in s. 14 describe the beneficiary. Although ss. 8 and 14 use similar language in describing the beneficiary of a trust and a person benefitting from a lien, that description does not mean that the requirements to access the different benefits or rights must be the same. They were not the same under the MLA. The object of the statutory trust provision did not change when the Act was enacted and the MLA was repealed. Indeed, the focus of each section remains quite different. Section 8 is linked to amounts owing or received on account of the contract price of an improvement; ss. 14 and 15 are linked to the interest of an owner in the premises and to the improvement itself. The time when a lien and a trust arise is not the same, nor is their expiry date. When the wording of these provisions is considered in tota l [page305] context bearing in mind the scheme of the Act, and the object and intent of the legislature, the s. 8 trust remedy is a discrete form of redress, not dependent upon a supplier having a valid subsisting lien right.
73Thus, while I agree that the phrases "to an improvement" and "to the improvement" must be given a consistent interpretation throughout the Act, an intention that the material be used for a known and specific improvement at the time of sale or supply is not required; nor is there a requirement that a right to lien exist.
Intention of the supplier is not a requirement; a link to the improvement is sufficient
74The Act is unequivocal with respect to the creation of a trust. The common law requirement that, for a trust to arise, the parties intend that a trust be created, is effectively negated by the legislation. The legislation imposes a trust obligation on the contractor and subcontractor vis-à-vis a supplier whether the parties intend that a trust arise or not. Reading in a requirement that the supplier intend that the materials supplied be incorporated into a specific improvement in order for a trust to arise is not consistent with the imposition of a statutory trust.
75The Act says the trust fund is for the "benefit of the subcontractors and other persons who have supplied services or materials to the improvement who are owed amounts by the contractor or subcontractor".
76To qualify as a beneficiary of the trust, the supplier must ordinarily show that it has supplied materials to "the improvement". In St. Mary's Cement Corp. v. Construc Ltd. (1997), 1997 12114 (ON SC), 32 O.R. (3d) 595, [1997] O.J. No. 1318 (Gen. Div.), St. Mary's Cement supplied concrete blocks to Construc, a contractor, who used them in connection with a construction project on two adjacent lots. Some of the invoices did not specify to which of the two lots the materials were delivered. The contractor claimed he had no record of the amount of concrete blocks used on each lot because he had lost all his records. He submitted that the trust claim should, therefore, be dismissed in relation to those invoices. Also relevant, the contractor's wife owned one of the lots and had settled with St. Mary's prior to trial.
77One of the issues at trial was the allocation of the material. Molloy J. held [at p. 600 O.R.]:
It is common ground that there is an initial onus on the plaintiff to prove the existence of a trust under s. 8 of the Act. In order to discharge that onus in this case, the plaintiff would need to show that Construc received monies on account of its contract price for a particular project, that the plaintiff [page306] supplied materials on that project and that Construc owes money to the plaintiff for those materials. If all of these elements are clearly proven on the evidence, the trust provisions of s. 8 come into play.
78Molloy J. held that, although St. Mary's could not show precisely how much concrete it had supplied to each of the two lots, it had supplied material to the project and St. Mary's had met its initial onus under the Act. The money received by Construc from the owners of the adjacent property was impressed with a trust. The trial judge therefore allocated the amount of concrete on the invoices equally.
79Section 67 of the Legislation Act, 2006 provides that "[w]ords in the singular include the plural and words in the plural include the singular". Section 8 of the Act, therefore, can be read as meaning amounts received on account of the subcontract prices of "improvements" constitute a trust fund for the benefit of persons who have supplied materials "to the improvements". Section 67 supports the conclusion of Molloy J. in St. Mary's Cement.
80In Central Supply, the Divisional Court relied on St. Mary's Cement in holding, at para. 21, that "the onus was on Central Supply [the supplier] to demonstrate the following three elements: (a) that Modern Tile [the alleged subcontractor] received money on account of a contract for a particular improvement; (b) that Central Supply supplied materials on that improvement; and (c) that Modern Tile owes money to Central Supply for those materials". The court further held, at para. 22 of Central Supply:
The first two elements are, on the evidence, absent in this case. Neither Modern Tile nor Central Supply knew what Modern Tile's customers did with the products after those products were picked up at the store. Notwithstanding that its invoices sometimes named the customer to whom Modern Tile would be selling the product, Central Supply had never shown any interest in tracing the product supplied to Modern Tile to a specific work site, land, or improvement such that a claim for a lien could have been registered under the Act. (Emphasis added)
81The comment of Abella J.A. with respect to "tracing" in this portion of her reasons in Central Supply implies that a path or link to the improvement is sufficient. As such, the comment can also be understood to support my conclusion that a link to the improvement is sufficient.
82In light of this comment, the decision in St. Mary's Cement and the applicable principles of statutory construction, I would hold that the supplier need not intend that the material be incorporated into a known and specific improvement at the [page307] time of supply. Moreover, where the contractor or subcontractor does not allocate the supplier's material to a particular piece of land or improvement within a project, but it is clear that the contractor or subcontractor has received money on account of the contract price for the project and that the contractor or subcontractor owes money to the supplier, a link to the contractor's or subcontractor's contract for the project will be sufficient to establish a s. 8 statutory trust.
This case
83In order for Sunview to establish that it was the beneficiary of a trust under s. 8(1) of the Act, it must prove that (i) Academy was a contractor or subcontractor; (ii) Sunview supplied materials to the projects on which Academy was a contractor; (iii) Academy received or was owed moneys on account of its contract price for those projects; and (iv) Academy owed Sunview money for those materials.
84Once all four elements of the trust are proven, the onus then shifts to the contractor, in this case Academy, to demonstrate that payments made from trust funds were to proper beneficiaries of the trust: see St. Mary's Cement, at pp. 600-601 O.R., Central Supply, at para. 21, supra.
85The first element of the test, that Academy was a "contractor", is easily satisfied. Academy admitted in its pleadings that its business was to make windows and to install windows and doors. Mr. Di'Iorio's understanding was that Academy's business focused on retrofitted or renovated buildings. Its customers were property managers and general contractors. The trial judge had no hesitation in finding that Academy acted as a contractor.
86Academy did not respond to Sunview's request to admit. Thus, pursuant to rule 51.03(2) it was deemed to admit the truth of the facts therein. Academy was thereby deemed to have admitted that "Academy was paid for the custom patio doors that it ordered and picked up from Sunview for various construction projects". This admission satisfied the third element of the test. The fourth element of the test was also satisfied. There was no issue that Academy owed Sunview money for those materials. [page308]
87With respect to the second element, none of the purchase orders or corresponding invoices in relation to the materials that had been supplied identified the project or location where Sunview's material would be installed.
88The evidence on the record shows that while Sunview initially sold to Academy on credit based on its prior dealings with it, Sunview later attempted to discover the location where its materials had gone or the identity of the party with whom Academy had subcontracted. Unlike in Central Supply, Sunview did, in fact, show an interest in linking its custom-made products to the location of Academy's improvements and the persons with who Academy had subcontracted.
89Besides Sunview's general commercial practice of not delivering its products to the construction sites of its customers, the trial judge noted two additional reasons why Sunview was unable to establish a nexus between its products and specific construction sites. As I have indicated, the first was that the individual defendants claimed that they did not know where Sunview's products were installed. The trial judge found their denial entirely unpersuasive, expressing his doubt in the following terms, at para. 29 of his reasons: "I fully expect that at least one of the individual defendants knew where Sunview's product was used, but I cannot say who." The second was Academy's failure to make proper documentary disclosure. The individual defendants testified that Academy's landlord destroyed the company's records when he locked the company out of its premises in early October 2006.
90In rejecting this explanation, the trial judge had regard to the evidence as a whole. He held, firstly, that the landlord gave evidence that when he attended at the premises after Academy's rent cheque bounced, anything of value had been removed. Secondly, the defendants put together an affidavit of documents in support of their counterclaim, which they would not have been able to do if, as they claimed, the landlord had thrown out all their commercial records. Finally, on cross- examination, Ms. O'Brien admitted that Academy maintained ledgers for each construction project showing invoices and payments, ledgers for each supplier and ledgers recording what Academy did with the funds received from each customer. Ms. O'Brien's explanation as to why none of those ledgers was produced was simply that she did not ask the bookkeeper for them. The trial judge found that this answer showed a complete and utter disregard by Ms. O'Brien of her obligation to produce relevant documents pursuant to rule 76.03. He he ld that those other ledgers should have been produced. The trial [page309] judge's credibility findings disclose no palpable or overriding error and are entitled to deference.
91The Divisional Court was of the opinion that, in the circumstances, Sunview ought not to be foreclosed from asserting a trust claim and that the trial judge erred in dismissing the trust claim on the basis that the second criterion had not been satisfied. I would agree. Precedent, principle and policy support this conclusion.
92St. Mary's Cement is a precedent that is indicative of a common sense approach to implementing what the statute seeks to accomplish. Having regard to the custom nature of the doors supplied by Sunview and the type of work done by Academy, there is no question Sunview supplied "materials" "to the improvements" on which Academy did work. Sunview is an intended beneficiary of the legislation. As the trial judge found, the reason Sunview could not trace its custom-made doors to "the improvements" in which they were installed is due to Academy's conduct.
93On principle, Academy's conduct ought not to be condoned. Considerations of unjust enrichment infuse the trust created by s. 8 of the Act. Academy's and the individual defendants' enrichment is to be avoided, as they are seeking to keep for themselves money that justly belongs to Sunview. Section 39 of the Act was amended in 1983 to give beneficiaries of a trust, under Part II of the Act, the right to obtain information from a contractor or subcontractor for the first time. This provision, derived from s. 32 of the MLA and s. 39 of the Draft Construction Lien Act, was intended to make significant changes in the law: Committee's report, at p. 104. The section spells out one aspect of the fiduciary duty on a statutory trustee, the duty of disclosure.
94Section 39(1) specifically provides that:
39(1) Any person having a lien 4 or who is the beneficiary of a trust under Part II or who is a mortgagee may, at any time, by written request, require information to be provided within a reasonable time, not to exceed twenty-one days, as follows: . . . . . [page310] 2. By the contractor or a subcontractor, with, (i) the names of the parties to a subcontract, (ii) the state of accounts between the contractor and a subcontractor or between a subcontractor and another subcontractor, . . . (Emphasis added)
95Under s. 39(6) of the Act, a person entitled to information under s. 39 can bring a motion to compel disclosure at any time, "whether or not an action has been commenced". The information obtained by using s. 39 can assist, and even enable, the enforcement of remedies under the Act: see Duncan W. Glaholt and David Keeshan, The 2010 Annotated Ontario Construction Lien Act (Toronto: Carswell, 2009), at p. 260. Academy and its principals were the only practical source of information Sunview had to trace the materials it had supplied. The stance taken by Academy's principals in their evidence at trial can hardly be said to comport with the spirit of disclosure required under the Act or rule 76.03(1) respecting disclosure of relevant documents.
96An indication that the legislature did not always intend that materials be linked to a specific improvement in order to access a benefit can be found in s. 20 of the Act, which creates the right to a general lien. It states:
20(1) Where an owner enters into a single contract for improvements on more than one premises of the owner, any person supplying services or materials under that contract, or under a subcontract under that contract, may choose to have the person's lien follow the form of the contract and be a general lien against each of the premises for the price of the services and materials he supplied to all the premises.
97In relation to s. 20, the Committee states, at p. 58, that under the MLA, a general lien could only be claimed by a contractor, not subcontractors, and only in relation to supplies, not services. The Committee went on to state that the purpose of a general lien "is to assist all suppliers of services or materials to subdivisions". As such, this statutory protection "avoids the problem of allocating the total supply of services or materials generally to each of the individual buildings in a subdivision". While the right to a general lien only applies "where the work on several premises is done under a single contract", s. 20 is an indication that the legislature did not always intend that materials be linked to a specific improvement, as opposed to a group of improvements, in order to benefit from the protection of the Act.
98In enacting legislation, it is impossible for the legislature to envisage every problem that will arise in relation to a matter. The exercise of statutory interpretation is not founded on the [page311] wording of legislation alone: Rizzo, supra, at para. 21. As Binnie J. recently held on behalf of the majority in Plourde v. Wal-Mart Canada Corp., 2009 SCC 54, [2009] 3 S.C.R. 465, [2009] S.C.J. No. 54, 2009 S.C.C. 54, at para. 137:
The interpretive analysis should be driven by the broad objectives of the legislation, not by a narrow and literal interpretation of the remedy. The better approach, it seems to me, is to interpret the legislative scheme in a way that connects recognized rights to meaningful remedies.
99The object of the Act is to prevent unjust enrichment of those higher up in the construction pyramid by ensuring that money paid for an improvement flows down to those at the bottom. In seeking to protect persons on the lower rungs from financial hardship and unfair treatment by those above, the Act is clearly remedial in nature. The remedial nature of the Act also supports a liberal construction so as to enable it to serve its purpose. The purpose of s. 8 is to impress money owing to or received by contractors or subcontractors with a statutory trust, a form of security, to ensure payment of suppliers to the construction industry. In this case, Academy's conduct makes it impossible to link the supply of Sunview's materials to a particular improvement or Academy's subcontracts for different projects. Yet, to deny Sunview payment would frustrate the object of the Act and deny it a meaningful remedy. I see no reason why, as a matter of policy, this should be so.
100Where, as here, there is no issue that the material being supplied was used in improvements for which the subcontractor was paid and the subcontractor has deliberately frustrated the supplier's attempts to link its materials to the improvements in which they were incorporated, I would hold that recognizing the existence of a s. 8 statutory trust in favour of the supplier is the result that is the most compatible with the object of the Act.
101In this case, I am only concerned with whether or not a statutory trust existed in favour of Sunview. No issue concerning payment out of the trust among various beneficiaries or priorities arises. 5 In the event of insolvency, the Act [page312] regulates priorities amongst its beneficiaries. There may be cases where a contractor has worked on a number of improvements and different suppliers are claiming in respect of the different improvements. That is not this case. Sunview is the only person claiming the benefit of the trust fund created by payments to Academy. No other beneficiary under the Act is prejudiced by recognition of a statutory trust in favour of Sunview.
102Accordingly, I would hold that Sunview is entitled to the benefit of a statutory trust under s. 8(1).
II. Did the Divisional Court err in concluding, pursuant to its authority under s. 134 of the Courts of Justice Act, 6 that Ms. O'Brien is liable for breach of trust under s. 13 of the Act?
103As the trial judge held that Sunview failed to establish a trust at trial, it was unnecessary for him to decide the issue of whether Ms. O'Brien was a person who exercised effective control over Academy. However, he did make findings and comment on the evidence in this regard. Although the trial judge stated, at para. 38 of his reasons, that Ms. O'Brien "did not have signing authority", he made the following observations about Ms. O'Brien's role at Academy:
[T]he evidence clearly showed that Ms. O'Brien was actively involved in the accounting side of Academy's operations. She handled the company's accounts payable, accounts receivable and payroll but she did not have signing authority. Although she attempted to portray herself as playing second fiddle to the bookkeeper who came in weekly, Vlasios Pappas testified that [page313] he relied on Ms. O'Brien to reconcile the company's accounts and to prepare cheques that reflected what was properly owing by the company. Vlasis Pappas testified that he assumed that if his sister made up a cheque, there must have been enough money in the company's account.
104The Divisional Court undertook a determination of Ms. O'Brien's liability pursuant to its power to make "any order or decision that ought to or could have been made by the trial judge" in s. 134(1) of the Courts of Justice Act. It held that she came within s. 13(1)(b) of the Act. That is, she was "an employee or agent of the corporation, who has effective control of a corporation or its relevant activities". The court held her personally liable for Academy's breach of trust.
105The appellants submit that Ms. O'Brien was not "an employee or agent of the corporation" who had "effective control" over Academy or its related activities. In support of their position, the appellants rely on the trial judge's finding of fact that Ms. O'Brien did not have signing authority for the company.
106In addition to the trial judge's comments about Ms. O'Brien's role in the company, other evidence of Ms. O'Brien's active role in the management of the corporation's affairs is that she told Mr. Di'Iorio, during their telephone conversation in June or July 2006, that he would be paid as soon as Academy received some cheques from the projects in that they had installed the doors. The evidence of her active role in the company together with the evidence that she was able to have Academy pay her between $150,000 and $195,000 in excess of her salary over a short period of time, when the general ledger recorded that she was only owed $7,500, indicates that she had effective control over the company or its related activities. Given her position, she had to know that the payments to her constituted a breach of trust.
107The Divisional Court properly exercised its discretion under s. 134 of the Courts of Justice Act in ordering judgment against Ms. O'Brien.
Disposition
108For the reasons given, I would dismiss the appeal and uphold the decision of the Divisional Court granting judgment against the three individual defendants jointly and severally in the amount of $58,244.62.
Costs
109The respondent is entitled to its costs of the motion for leave to appeal and of the appeal against the appellants on a joint and several basis. The costs submissions of counsel were [page314] similar. I would fix costs in the amount of $25,000 on a partial indemnity basis.
Appeal dismissed.
76.03(1) A party to an action under this Rule shall, within 10 days after the close of pleadings and at the party's own expense, serve on every other party,
(a) an affidavit of documents (Form 30A or 30B) disclosing to the full extent of the party's knowledge, information and belief all documents relating to any matter in issue in the action that are or have been in the party's possession, control or power; and
(b) copies of the documents referred to in Schedule A of the affidavit of documents.
Clause A clarifies the time at which the trust arises. It adopts the rule laid down by the Supreme Court of Canada in Minneapolis Hone[y]well Regulator Co. v. Empire Brass Co., and rejects the approach taken in some earlier cases.
The rule, articulated by Rand J., is that an assignment of book debts by a subcontractor to a supplier, given prior to the subcontractor's receipt of money from the contractor, cannot defeat the statutory trust created under the [Act](https://www.canlii.org/en/on/laws/stat/rso-1990-c-c30/latest/rso-1990-c-c30.html).
85(1) Where a payer becomes insolvent, the trust fund of which that payer is trustee shall be distributed so that priority over all others is given to a beneficiary of that trust who has proved a lien and a beneficiary of a trust created by section 8 that is derived from that trust, who has proved a lien.
(2) Priority in the distribution of trust funds among those who have proved liens shall be in accordance with the respective priorities of their liens as set out in this Part.
(3) The remaining trust funds shall be distributed among the beneficiaries of that trust and the beneficiaries of trusts created by section 8 that are derived from that trust, whose liens have not been proved, in accordance with the respective priorities to which those liens would have been entitled as set out in this Part, had those liens been proved.
The section confirms, that although the right to a lien has not been proved, a supplier may still be a beneficiary of a s. 8 trust.
Footnotes
- At the time, rule 76.03(1) of the Rules of Civil Procedure, R.R.O. 1990, Reg. 194 provided that:
- Section 7(4) deals with the obligations of the owner as the trustee of the trust fund, usually comprised of money used for financing the improvement. The Committee states that the provision reverses existing case law and specifically cites the former Supreme Court of Ontario's decision in Bre-Aar Excavating Ltd. v. D'Angela Construction (Ont.) Ltd. (1975), 1975 431 (ON SC), 8 O.R. (2d) 598, [1975] O.J. No. 2328 (H.C.J.).
- In addition to amounts received by the contractor or subcontractor, the Committee introduced s. 8(1)(a). It makes "[a]ll amounts, owing to a contractor or subcontractor, whether or not due or payable", "on account of the contract or subcontract price of an improvement", subject to a trust. The Committee's explanation, at p. 37, is as follows:
- Section 1(1) states "person having a lien" includes both a lien claimant and a person with an unpreserved lien. A lien claimant means "a person having a preserved or perfected lien". A preserved lien is a claim for a lien that has been registered. Section 36(3) describes how a lien is perfected. Generally, it is by starting an action to enforce the lien.
- Payment under s. 8 is governed by ss. 10 and 85 of the Act. Section 10 states that, subject to holdbacks, the payment to a supplier discharges the trustee's obligations to all the beneficiaries of the trust, to the extent of the payment. Ordinarily, a trustee is required to distribute trust moneys rateably among all the beneficiaries. Section 10 alters this. During the course of construction, the trustee is permitted to discriminate between various suppliers who are beneficiaries. Upon insolvency, however, s. 85 of the Act governs priorities for the payment of the trust fund. It states:
- R.S.O. 1990, c. C.43 (the "CJA").
