COURT FILE NO.: DC-08-00000005-0000

DATE: 20090707

ONTARIO

SUPERIOR COURT OF JUSTICE

DIVISIONAL COURT

CARNWATH, MATLOW & JENNINGS JJ.

B E T W E E N:

SALTER FARROW PILON ARCHITECTS INC.

Plaintiff/Respondent

• and -

THUNDER BAY REGIONAL HOSPITAL, also known as THUNDER BAY REGIONAL HEALTH SCIENCES CENTRE

Defendant/Appellant

Scott R. Fairley & Eric Gionet, for the Plaintiff/Respondent

Brian Casey & Kristopher Knutson, for the Defendant/Appellant

HEARD AT THUNDER BAY: June 2, 2009

CARNWATH J.:

1Thunder Bay Regional Hospital (“the Hospital”) appeals from a summary judgment of Smith J., dated August 6, 2008. Smith J. granted Salter Farrow Pilon Architects Inc. (“SFP”) partial summary judgment in two lien actions brought pursuant to the Construction Lien Act, R.S.O. 1990, c. C. 30 (“the Act”). The summary judgment awarded $1,067,941.46 to SFP for architectural services rendered to the Hospital.

2The Hospital seeks an order setting aside the summary judgment or, in the alternative, an order staying the enforcement of the summary judgment until resolution of the Hospital’s separate action against SFP for damages based on negligence, breach of contract and breach of trust.

COURT’S JURISDICTION

3The Divisional Court has jurisdiction to hear this appeal, pursuant to sub-sections 71(1) and 71(3) of the Act:

71.(1) Subject to subsection (3), an appeal lies to the Divisional Court from a judgment or an order on a motion to oppose confirmation of a report under this Act.

BACKGROUND

4The Hospital retained SFP, in 1999, as an architectural consultant with respect to the construction of a new hospital structure. Initially, the parties agreed that SFP would be paid a fixed fee of $10,113,713.

5The relationship between the parties deteriorated, largely due to a dispute over SFP’s fees. SFP subsequently caused two liens to be registered against the Hospital lands for alleged unpaid fees and moved for partial summary judgment in those actions.

Mediation

6In June 2003, SFP and the Hospital reached a mediated agreement to resolve their differences concerning SFP’s entitlement to an increased fee. The increase arose as a result of the increasing size of the hospital project and the scope of SFP’s work. The agreement provided that SFP would be entitled to $14,878,000, plus GST and disbursements for its fees with respect to the project. According to SFP, the scope of the work for the project continued to change and expand after mediation and the parties agreed to compensation for extra services in addition to the mediated fee.

Pre-trial

7Due to the Hospital’s apparent failure to pay SFP, SFP registered two separate liens on the subject lands. SFP alleged that it was still owed $1,403,066.05 by the Hospital. At a pre-trial before Platana J. on March 2, 2006 on the lien actions, the parties agreed to a consent order whereby the Hospital would advise SFP as to the amount in dispute in the lien actions. The pre-trial order prompted a series of letters between the parties, one of which seems to form the basis for SFP’s summary judgment motion.

“Admission” Letter

8On April 4, 2006, apparently in compliance with Platana J.’s order, counsel for the Hospital wrote to counsel for SFP, advising that it would “agree to an adjustment to the Total Final Fee negotiated at the mediation of the same to reflect the amount of $308,404.50 invoiced for additional site services”, but that the Hospital accepted “no responsibility for other outstanding charges including post-substantial renovation costs”.

Motion to Amend Statement of Defence

9On June 23, 2006, the Hospital brought a motion in the lien proceedings to amend its statement of defence to add a $10,000,000 counterclaim against SFP, based upon claims contained in a separate negligence action brought against SFP. In response to this motion, SFP filed a copy of the “admission” letter as an exhibit to an affidavit. The Hospital apparently did not object to the letter being filed. On October 20, 2006, Platana J. dismissed the Hospital’s motion, in part, because the amount in dispute in the lien action had been substantially reduced to a single invoice of $313,000. Justice Platana specifically accepted that the above-mentioned “admission” letter constituted an admission by the Hospital that only the sum of $313,000 remained in dispute in the lien action.

10On November 13, 2006, SFP wrote the Hospital to inquire whether the Hospital would pay the sum of $1,227,685.51 since it was no longer in dispute, failing which SFP would serve a motion for summary judgment. SFP did not receive a satisfactory answer to this letter. On December 18, 2006, the Hospital responded by letter, but made no reference to the “undisputed portion” of SFP’s claim.

Motion to Strike

11Prior to the return of SFP’s motion for summary judgment, the Hospital moved to strike the “admission” letter and related evidence from SFP’s materials on the summary judgment motion. Justice Smith denied this motion. He reserved the motion to strike the “admission” letter to the judge hearing the motion for partial summary judgment. As it happened, it was Smith J. who heard that motion.

Judgment of Smith J.

12In his judgment of August 6, 2008, Smith J. granted the partial summary judgment against the Hospital, which is the subject of this appeal. He found no genuine issue for trial under Rule 20 of the Rules of Civil Procedure.

13Smith J. held that the April 4, 2006 “admission” letter was not privileged, conditional or protected, and there was nothing to suggest that it was written on a “without prejudice” basis. He noted that the Hospital did not take issue with the responding material filed by SFP on the motion to amend before Platana J. Not only was the letter not privileged, but Smith J. accepted that the letter did indeed constitute an admission that only the sum of $313,000 remained in dispute in the lien actions. In his reasons on the motion to amend, Platana J. had accepted that the “admission” letter did indeed constitute an admission, and that decision was never appealed. Smith J. found it would be “inconsistent” with the rationale of Platana J.’s decision if he did not rely on the letter.

14Smith J. rejected the submission that the “admission” letter should be interpreted contextually to provide the foundation for a possible set-off arising from civil damages. The history of the proceedings revealed that, from the outset until its recent motion to amend, the Hospital had intended to keep the allegations raised in the civil action separate from the lien actions. There was nothing in the “admission” letter to indicate that the Hospital’s agreement to pay the undisputed amounts was contingent on the adjudication of its civil action.

15Finally, on the issue of whether or not to grant a stay of the enforcement of the summary judgment pending the outcome of the civil action, Smith J. held that to grant such a stay would be to permit a collateral attack on Platana J.’s decision denying the Hospital’s motion to amend, in which the lien pleadings were separated both legally and procedurally. Furthermore, despite the Hospital’s submission that it had a strong case and would ultimately be successful in obtaining judgment, Smith J. held that there was insufficient evidence regarding its merits, especially given that the action had not proceeded beyond the exchange of pleadings and had been dormant for approximately four years.

STANDARD OF REVIEW

16On the motion for summary judgment, Smith J. was required to consider whether a genuine issue for trial existed with respect to the sum of $1,067,941.46. This Court has said that the existence of a genuine issue for trial is a question of mixed fact and law and, accordingly, attracts deference from a reviewing court on the issue of the judge’s appreciation of the evidence, but not on the issues of law (see: Monteiro v. Toronto Dominion Bank, [2006] O.J. No. 48 (Div. Ct.), at para. [26]).

17Laskin J.A., writing for our Court of Appeal, settled the issue of the appropriate standard of review where the entire record is in writing:

Therefore, although the entire record before a trial judge or a motion judge consists of documentary or written evidence, as it does in this case, the judge’s factual findings are entitled to deference on appeal. What standard of deference applies in such a case? It is not easy to articulate a standard less deferential than ‘manifest error’ but falling short of ‘correctness’. I suggest that it may simply be a matter of weight or emphasis, or that, plausibly, a uniform standard of appellate review should be applied to a trial judge’s findings of fact, whether the evidence is oral, entirely documentary, or, more typically, a combination of the two.

Equity Waste Management of Canada v. Halton Hills (Town) (1997), 35 O.R. (3d) 321 at 336 (C.A.)

18Laskin J.A.’s statement in Equity Waste Management was cited with approval in Morton v. Cowan (2003), 66 O.R. (3d) 321 (C.A.), at para. [19].

19Our Court of Appeal held, in Garland v. Consumers’ Gas Co. (2001), 57 O.R. (3d) 127 (C.A.), at para. [96]:

[t]he standard of review to be applied by this court in considering an appeal from a summary judgment is stated in Mastercraft Group Inc. Investment Collections Actions (Re) (1995), 123 D.L.R. (4th) 161 at p. 168 (Ont. C.A.):

The judge is not to find facts but, rather, to examine the evidence to see if it is reasonably capable of raising a genuine issue for trial. The reasons, however, should be examined in their context. In these circumstances, we think the proper course is to examine the evidence relied upon by the appellants to see if it is capable of giving rise to a genuine issue respecting the conclusions of the motion judge.

Did Smith J. err in law in having regard to the “admission” letter of March 2, 2006?

20The “admission” letter was sent by the Hospital to comply with the order of Platana J.

21The body of the order reads:

i) On or before March 31, 2006 Defendant TBRH shall advise Plaintiff as to the amount that is in dispute in the lien action.

ii) Any motion to consolidate these actions with the civil action instituted by TBRH as Plaintiff shall be brought prior to April 30, 2006.

22The Hospital’s response was dated April 4, 2006:

We confirm our client will agree to an adjustment to the Total Final Fee negotiated at the mediation of the same to reflect the amount of $308,404.50 invoiced for additional site services over the period July 2003 to February 2004.

Our client accepts no responsibility for other outstanding charges including post-substantial renovation costs.

23The import of the “admission” letter required the parties to consider three invoices submitted by SFP to the Hospital. They are No. 15110 for $213,568.50, No. 15215 for $94,836 and No. 15216 for $313,200.55. When one adds:

No. 15110 $213,568.50

No. 15215 $ 94,836.

The result is $308,404.50

The sum obtained by adding No. 15110 and No. 15215 is exactly the same as the sum in the “admission” letter which the Hospital agreed could be added to the Total Final Fee arrived at in the mediation. Thus, invoice No. 15216 of $313,200.55 ostensibly remained in dispute.

24Smith J. took the letter into account when he granted summary judgment.

25It is undisputed that the pre-trial that continued before Platana J. on March 2, 2006 falls within rule 50.01.

26Rule 50.02 provides:

50.02 (1) At the conclusion of the conference,

(a) the lawyers may sign a memorandum setting out the results of the conference; and

(b) where the conference is conducted by a judge, the judge may make such order as he or she considers necessary or advisable with respect to the conduct of the proceeding,

and the memorandum or order binds the parties unless the judge or officer presiding at the hearing of the proceeding orders otherwise to prevent injustice.

(2) A copy of a memorandum or order under subrule (1) shall be placed with the trial or application record.

27I note that any judge’s order issued pursuant to rule 50.02 is “with respect to the conduct of the proceeding”.

28Rule 50.03 provides:

50.03 No communication shall be made to the judge or officer presiding at the hearing of the proceeding or a motion or reference in the proceeding with respect to any statement made at a pre-trial conference, except as disclosed in the memorandum or order under rule 50.02.

29Counsel for the Hospital submits that the contents of the “admission” letter should not have been relied on by Smith J. on the motion for summary judgment. All he was entitled to know was that the Hospital was ordered to tell SFP “the amount in dispute in the lien actions”.

30In support of this submission, counsel cites Bell Canada v. Olympia & York Developments Ltd., [1994] O.J. No. 343.

31In Bell Canada, Rosenberg J. had conducted a settlement pre-trial with the parties and suggested a settlement of $12,000,000 in a letter addressed to the parties. The letter was to be kept secret by the parties. The letter came before the trial judge at the time of the argument on costs. On appeal, counsel sought Rosenberg J.’s consent to put the letter to the Court of Appeal. He consented, subject to the overriding right of the Court of Appeal to come to its own conclusion.

32After citing rule 50.03, Carthy J.A. concluded:

There was no necessity for the condition of secrecy in Justice Rosenberg’s letter of June 2, 1988; it was secured by the rules. If consent of the parties can override the rules to condone presentation of evidence from a pre-trial conference, it cannot justify a court acting upon such information. Pre-trials were designed to provide the court with an opportunity to intervene with the experience and influence of its judges to persuade litigants to reach reasonable settlements or refine the issues. None of that would be possible without assurance to the litigants that they can speak freely, negotiate openly, and consider recommendations from a judge, all without concern that their positions in the litigation will be affected.

Even if the parties consent to the admission of evidence of what occurred at a pre-trial conference, that evidence and what flowed from it remain irrelevant to trial considerations. The events were without prejudice when they occurred and should not be used as a basis for a subsequent assessment of the parties’ comparative reasonableness. The pre-trial judge was seeking to persuade the parties to a settlement on a basis that appeared reasonable to him at the time. His opinions should not be taken as depriving the parties of the right to make their own assessments as to their best interests and to form their own opinions as to the likely outcome, all as discussed earlier in these reasons.

33Smith J. was entitled to take into account only that the Hospital had complied with Platana J.’s consent order. He was not entitled to act upon the information contained in the “admission” letter. That Platana J. had made use of the contents of the letter does not change the situation. I agree with the submissions of the Hospital that this was not an issue of “privilege being waived”. This is an issue of a judge on a motion for summary judgment ignoring the prohibition in rule 50.03 against the use of pre-trial material as a basis for summary judgment. That judgment cannot stand.

Was the “admission” letter an admission of liability to pay $1,067,941.46?

34Even allowing the contents of the “admission” letter to be taken into account does not assist SFP.

35In both lien actions, the Hospital defended by alleging the plaintiff had not earned the Total Final Fee since it had not completed all services required by the contract.

36Before Smith J., there was affidavit evidence from a third party architect, Mr. Dagsvik, hired to do a peer review of the project. He deposed the contract was not completed to the extent claimed by SFP. He found the percentage of completion in the invoices submitted by SFP unreliable.

37This evidence raised a genuine issue for trial as to the extent to which the contract was completed and as to the validity of the invoices which formed the basis of the summary judgment. Smith J. did not refer to the affidavit evidence of Mr. Dagsvik.

38On February 7, 2006, the Hospital moved before Smith J. to strike those paragraphs in the summary judgment material referring to the contents of the “admission” letter. Smith J. found the letter “was implicitly written with the intent to admit which invoices of the plaintiff were in dispute”. He then went on to say the letter must be interpreted textually and reserved the question to the motion for summary judgment.

39Nevertheless, when hearing the motion for summary judgment, he concentrated on whether the letter was privileged, conditional or protected and found it was not. There does not appear to have been any consideration of the statements of defence to the actions, nor the affidavit evidence of Mr. Dagsvik. If they were not considered, this would disentitle the motions judge to conclude there was no genuine issue for trial. If considered and rejected, this would amount to findings of credibility on a motion for summary judgment, contrary to the jurisprudence (see: 1061590 Ontario Ltd. v. Ontario Jockey Club (1995), 21 O.R. (3d) 547 (C.A.); Irving Ungerman Ltd. v. Galanis (1991), 4 O.R. (3d) 545 (C.A.)).

DISPOSITION

40The appeal is allowed and the summary judgment, dated August 6, 2008, is set aside.

41The Hospital shall have fifteen days from the date of these reasons to make written submissions as to costs and provide a copy to the respondent. From the date of such service, the respondent shall have ten days to make submissions as to costs and provide a copy to the appellant.

CARNWATH J.

MATLOW J.

JENNINGS J.

42I agree with my colleagues that this appeal should be allowed, but only for the reasons given by Carnwath J. in paragraphs [34] to [39] of this judgment. I agree that there is a genuine issue for trial which cannot be resolved on a motion for summary judgment.

43Regrettably, I cannot agree with my colleagues with respect to their treatment of the production made in compliance with the pre-trial order of Platana J. Because of the significance and importance of the pre-trial process to the just and cost-efficient resolution of civil disputes, I wish to briefly record my reasons for disagreeing with my colleagues.

44The pre-trial of March 2, 2006 was held, we were told, for the purpose of attempting to identify the issues remaining for trial. The parties consented to the order of Platana J. that by the end of the month the defendant Hospital was to advise the plaintiff of the amount remaining in dispute in the lien action.

45Presumably, the number was not then known to the defendant so that counsel could not sign a memorandum as contemplated by Rule 50.02 (1) (a). The defendant was given a month to decide what amount of the claim it was disputing.

46The Hospital complied with the order in a matter arguably less then clear, and not in compliance with the time limitation imposed. As noted by Carnwath J. in paragraph [23] of his reasons, compliance with the order enabled the amount remaining in dispute to be calculated.

47In my opinion, the prohibition in Rule 50.03 is not engaged, and on that ground Bell Canada v. Olypmia & York Developments Ltd., [1994] O.J. No. 343 does not apply.

48Firstly, the Rule prohibited communication to the motions judge "… with respect to any statement made at a pre-trail conference…" (emphasis added) There was no evidence that there was any communication made to the judge of anything that was said at the pre-trail conference. Certainly, the contents of the letter were not spoken of, the figures not being then known.

49Secondly, the letter was delivered pursuant to a consent order the purpose of which was to establish what was at issue in the forthcoming trial. If the amount had been known to the defendant at the pre-trail it could have been set out in a written memorandum as provided for in Rule 50.02 (1) (a), or in the consent order that was made at the end of the pre-trail. In either case the amount would have been properly disclosed to the motions judge because of the exception provided in Rule 50.03. To prohibit that information from being revealed because it is contained in a letter sent in compliance with the consent order strikes me as being illogical.

50Clearly, in order for the pre-trial system to perform its role of expediting the resolution of disputes parties must be confident that discussions held and positions taken at the pre-trial are wholly without prejudice and may not be referred to if the case continues.

51However, that is not what happened here. The defendant consented to an order requiring it to state the amount of the claim it disputed. It did so. This had nothing to do with any effort to settle the claim but was simply an effort to quantify it. The amount disputed was entirely within the defendant's control. In my opinion there is no reason why that consensual quantification should not be part of the record.