SUPERIOR COURT OF JUSTICE - ONTARIO
DIVISIONAL COURT
RE: D.J. Venasse Construction Limited
Plaintiff/Respondent in Appeal
- and -
MVD Properties Inc. and Firstontario Credit Union Limited
Defendants/Appellant
BEFORE: J. WILSON, LEDERMAN and KARAKATSANIS JJ.
COUNSEL: William Friedman & Wayne Novak Ronald G. Slaght, Q.C.
for the Defendants/Appellant, for the Plaintiff/Respondent
MVD Properties in Appeal, D.J. Venasse
Construction Limited
HEARD AT TORONTO: April 27, 2009
ENDORSEMENT
1This is an appeal by the defendant, MVD Properties Inc. (“MVD”) from the decision of Justice Riopelle dated October 29, 2008. He granted summary judgment in favour of the plaintiff, D.J. Venasse Construction Limited (“Venasse”) in this construction lien action in the amount of $1,199,122.50. However, he stayed payment of $200,000 for a period of three years, and found that there was a genuine issue for trial with respect to the deficiencies in construction alleged by MVD in the counterclaim, which could proceed to trial.
Jurisdiction and Standard of Review
2An appeal from a decision in a construction lien matter is to the Divisional Court as stipulated in section 71(1) of the Construction Lien Act, R.S.O. 1990, c. C.30.
3The general principles of standard of review of trial and motion court judges decisions is outlined in the Supreme Court of Canada decision in Housen v. Nikolaisen, 2002 SCC 33, [2002] 2 S.C.R. 235. On a pure question of law, the appellate court is free to replace the opinion of the trial judge with its own; the standard of review is correctness. Factual findings should not be reversed unless it can be established that the trial judge made a palpable and overriding error. Questions of mixed fact and law are reviewed on a standard of correctness when the error of law is extricable from the facts; otherwise, a palpable and overriding error is required to interfere (paras. 36-37).
4Where a motion for summary judgment falls on the spectrum enunciated in Housen has not been specifically decided by the Ontario Court of Appeal. However, the test for summary judgment was recently considered by the Court of Appeal in Esses v. Bank of Montreal, [2008] O.J. No. 3675, 2008 ONCA 646 (leave to appeal refused [2008] S.C.C.A. No. 471) [Esses]. The court states at para. 39: “The principal issue that divides the parties concerns the correctness of the motions judge’s decision to grant summary judgment in favour of Esses.” [Emphasis added.]
5The Superior Court has previously held that the appropriate standard of review of orders made in response to a summary judgment motion is one of correctness, not deference. In F.B. v. S.G. (2001), 199 D.L.R. (4th) 554 (Ont. S.C.J.), Justice Himel confirmed at para. 10:
The traditional rationale for according deference to a trial judge is that the judge's findings of fact are connected to and based upon the opportunity to hear viva voce testimony and observe the parties and witnesses. In a motion for summary judgment, the judge hearing the motion is not finding facts but, rather, is determining whether or not there is a genuine issue for trial: Aguonie v. Galion Solid Waste Material Inc. (1998), 38 O.R. (3d) 161, 156 D.L.R. (4th) 222 (C.A.). On an appeal of an order of summary judgment, the appellate court must determine whether the judge applied the appropriate test and whether there was any error in its application...
6We conclude that the test for reviewing the decision of the motions judge on a summary judgment motion determining whether there is a genuine issue for trial is the standard of correctness.
Background Facts
7The construction contract between the parties related to work performed by Venasse as contractor on the expansion and renovations to the North Bay Mall commercial plaza (“the property”) owned by MVD in North Bay.
8The total contract price for the work to be performed was $3,099,112.50.
9Venasse completed the work, but there were problems with respect to payment. MVD has now paid $1,900,000 out of the total contract price, leaving an unpaid balance claimed by Venasse of $1,199,112.50.
10Venasse brought an action for the unpaid balance and registered a certificate of action against title to the property.
11Negotiations ensued. A payment schedule was agreed to by the parties, and is set out in correspondence between counsel for the parties which ensued after Venesse and the sub-trades had registered liens, and after Venasse had initiated this proceeding.
12An agreement was reached that the debt would be paid in three instalments over time and the liens would be vacated (the Agreement). The Agreement provided: “…the time for filing a Statement of Defence by MVD Properties Inc. will be extended for a period of fourteen (14) days following the date of any default.”
13In accordance with the Agreement, an initial payment of $500,000 was made by MVD on December 19, 2007. As contemplated by the Agreement, Venasse used that amount, together with its own funds, to pay the subcontractors who then discharged all their liens. Because MVD was not able to make the next payment that was called for by the Agreement, further negotiations took place and it resulted in a second agreement in February 2008, by the terms of which MVD agreed pay the full amount outstanding in equal monthly payments of $200,000 until the debt was paid (the Second Agreement).
14Two payments were made under the Second Agreement. However, MVD again defaulted and despite further negotiations, nothing more was paid. The balance outstanding at that time was $1,199,112.50.
15After default, and consistent with the terms of the Agreement, MVD filed a statement of defence and counterclaim in the action.
16The statement of defence alleged defects and deficiencies in Venasse’s work and that of its subcontractors, and asserted a defence of set-off in respect thereof. The statement of defence also raised arbitration for the first time, but no motion to stay the action was brought then or at any time.
17Venasse then brought a motion pursuant to s. 67(2) of the Construction Lien Act for leave to bring a motion for summary judgment on the debt, on the basis that the parties had settled the outstanding amount, and that the defence of alleged defects and deficiencies was a sham and, hence, there was no genuine issue for trial.
18MVD sought an adjournment of the summary judgment motion on the basis that the matter should be referred to arbitration in accordance with the provisions of the construction contract between the parties.
Findings of the Motions Judge
19The motions judge denied MVD’s request for an adjournment, granted leave to hear the summary judgment motion and after hearing it, granted judgment on the debt.
20The motions judge granted judgment in the amount outstanding of $1,199,122.50, but found that there was a genuine issue for trial with respect to the counterclaim. The motions judge stayed the judgment in favour of Venasse to the extent of $200,000 plus accrued interest which was to be released and paid to Venasse at the very latest 36 months from the date of judgment. This partial stay of the judgment would allow MVD to proceed with its counterclaim within that period of time.
21In his brief oral reasons for judgment the motions judge pointed out:
a) the Certificate of Substantial Completion had been signed by both parties;
b) that this was a construction lien matter which would usually be dealt with summarily;
c) that negotiations (or a settlement) had taken place between the parties with respect to the debt;
d) that Venasse had changed its position, in that liens were discharged and sub-trades paid as part of the debt settlement;
e) that no deficiencies had been raised by MVD before that occurred;
f) most importantly, that MVD had made an admission of liability for the whole amount being claimed by Venasse. (In three separate places in his reasons, the motions judge emphasized that there had been an admission of liability).
g) that because of this admission of liability, the defence of set-off was inappropriate in this case;
h) that Venasse had forborne as a result of the Agreement and MVD could not now tie its own claims to the debt. Because the debt had been settled, the late claims were independent and could not be the subject of a set-off defence;
i) as to MVD’s claim for deficiencies, there were issues of fact, credibility and conflict in the evidence and the motions judge held that they were genuine issues for trial and that MVD should be permitted to proceed with its counterclaim.
Request for Arbitration
22In the course of arguing for an adjournment of the Summary Judgment motion, MVD submitted that a stay of the action should be granted and the matter referred to arbitration.
23In its pleading, MVD raised for the first time a request for arbitration. The motions judge concluded that there should be no stay of the proceeding in light of the request for arbitration. MVD failed to seek arbitration within a reasonable time, and failed to abide by the notice provisions in the parties’ contract. Most importantly, to invoke arbitration, the entire balance owing must be paid. This prerequisite for arbitration obviously had not been met.
24There is no merit to MVD’s suggestion that the motions judge erred by failing to stay the proceedings.
Analysis of the summary judgment
25The crucial basis upon which the motions judge granted summary judgment was his finding that there was an unequivocal admission of liability by MVD with respect to the debt in the Agreement reached between counsel for the parties, and that equitable set-off did not apply with respect to the allegations of deficiencies raised in the defence.
26The terms in the Agreement provided for a payment schedule to pay the full amount of the debt outstanding over time; that subcontractors would be paid and that their liens would be vacated with the first payment of $500,000; and that the lien action dismissed after the all payments were made.
27An important term which was not considered by the motions judge was that the Agreement was without prejudice to MVD to file its defence within 14 days of any missed payment.
28The Agreement was beneficial to both sides. For MVD, liens of the subcontractors against its property would be vacated. For Venasse, it would receive a payment immediately of $500,000, and its subcontractors would be paid.
29The Agreement was clearly entered into by MVD without prejudice to its position regarding possible defences. It placed no limitations on the defence that MVD could assert.
30It cannot be said that there was any admission of liability on the part of MVD in the exchange of letters that formed the basis of the agreement. In this appeal MVD does not dispute the amount owing in the amount of $1,199,112.50 on the contract, subject to equitable set-off based upon the allegations of deficiencies raised in the defence. It was open to MVD to file its defence in the action if there was any default on its part.
31The motions judge was of the view that by the terms of the Agreement, Venasse had changed its position by paying subcontractors and allowing their liens to be vacated, and that accordingly, it would be unfair to permit MVD to raise its claim for deficiencies by way of defence of equitable set-off.
32However, the terms of the payment schedule in the Agreement expressly contemplated that these events would occur upon the initial payment of $500,000. In other words, Venasse agreed to these events taking place in return for the benefit of receiving immediately a payment of $500,000 and the balance owing to be paid in accordance with an agreed upon schedule.
33Accordingly, we conclude that the motions judge was in error in finding that MVD made an unequivocal admission of liability of the debt owing in the Agreement as MVD retained its right to file a defence that would include the right to assert the defence of equitable set-off in case of default.
34Having found that there were genuine issues for trial of the counterclaim in respect of the deficiencies, it must follow that if equitable set-off can be raised as a defence, there are similarly genuine issues for trial of this defence.
35Moreover, the elements of equitable set-off are present in the circumstances of this case. The set-off being asserted by MVD goes to the very root of Venasse’s claim of the amounts owing and it is clearly connected with Venasse’s demand and as a result, it would be manifestly inequitable to allow Venasse to enforce payment without taking into consideration MVD’s claims: see Holt v. Telford, [1987] 2 S.C.R. 193, 41 D.L.R. (4th) 385 at 398-399.
36Although other equity factors are raised by Venasse including MVD’s late raising of the deficiency allegations and its default on other payment schedules, the Agreement unequivocally permits MVD to proceed with its defence in an unlimited way, even in the face of further default. Thus, MVD had a contractual right to put in an unrestricted defence.
37Because of the motions judge’s error in finding that there had been an admission of liability and in denying MVD its right to assert equitable set-off by way of defence, the appeal must be allowed.
38In addition, Venasse has not disputed the calculation of the amount owing for fees before set-off for the amount of deficiencies. Even if the defence of equitable set-off is available, the motions judge did not consider whether to grant partial summary judgment. While the motions judge found that there was a genuine issue for trial with respect to the deficiencies, he did not engage in any analysis of whether there was a genuine issue for trial for the full amount of the fees based upon equitable set-off arising from the evidence of deficiencies filed before him. While he suggested that the sum of $200,000 was a generous amount to address the counterclaim of deficiencies, as part of the stay of the enforcement of his order for judgment, he did not provide any basis for the calculation of this amount. The trial judge did not review the extent of the genuine issue for trial based upon the various allegations of deficiencies advanced.
39Therefore, the order of the motions judge is set aside, and Venasse’s motion for summary judgment dismissed, without prejudice to Venasse to bring a further motion for summary judgement to clarify the scope of the genuine issue for trial related to the deficiencies.
40As agreed between the parties, costs of the appeal are fixed at $20,000.00. MVD shall have its costs of $20,000.
JANET WILSON J.
LEDERMAN J.
KARAKATSANIS J.
RELEASED: