HMI Construction Inc. v. Index Energy Mills Road Corp., 2017 ONSC 4075

CITATION: HMI Construction Inc. v. Index Energy Mills Road Corp., 2017 ONSC 4075

COURT FILE NO.: DC-17-131

DATE: 20170705

ONTARIO

SUPERIOR COURT OF JUSTICE

DIVISIONAL COURT

IN THE MATTER OF THE CONSTRUCTION LIEN ACT, RSO 1990, c. C.30

D.L. CORBETT, SPIES and KURKE JJ.

B E T W E E N:

HMI CONSTRUCTION INC.

Dan J. Leduc and Meghan Fougere For the Plaintiff/Appellant

Plaintiff/Appellant

• and -

INDEX ENERGY MILLS ROAD CORPORATION, INDEX INTERNATIONAL AM (PUBL) and NATIONAL BANK OF CANADA

R.S.M. Woods and Iris Antonios, for the Index Defendants/Respondents No one appearing for National Bank

Defendant/Respondent

Heard at Toronto: June 22, 2017

DECISION

D.L. Corbett J.:

1There are two issues in this construction lien appeal. First, is there jurisdiction in this court to hear the appeal at all, a question that turns on whether the underlying order is final or interlocutory? Second, did the motions judge, Salmers J., err by reducing the security required to bond liens off title from the amount of the appellant’s claims for lien (more than $32 million) to $16 million?

2I agree with the appellant (“HMI”) that the impugned order is final and subject to appeal to this court. However I agree with the respondent (“Index”) that the motions judge correctly stated and applied the law and made no palpable and overriding error of fact. Therefore, for the reasons that follow, I would dismiss the appeal.

Jurisdiction

3There are no interlocutory appeals in construction lien cases.¹

4Index’s motion was brought for an order discharging HMI’s liens pursuant to s.47 of the Act, or alternatively, for an order for reduced security pursuant to s.44(2) of the Act.² The defendant’s motion to discharge the lien was dismissed. Had it been granted, that order would be final and an appeal would lie to this court.³

5Index argues that the order that was made does no more than reduce the security available for HMI’s claim, and thus the order is interlocutory.

6Despite the fact that the CLA was enacted in 1983, and despite the fact that motions under s.44 and appeals from decisions on those motions have been common for 35 years, there does not seem to be binding authority directly on point. Glaholt and Keeshan, in the 2017 Annotated CLA state as follows (but cite no authority):

If the full amount of the lien is posted [under s.44], the result on a motion to vacate is interlocutory and unappealable. If the lien is vacated for less than its face value plus costs, the order is final and appealable (s.71(2)).⁴

7In the commercial law context, fixing or varying security is generally an interlocutory order, whether the amount in issue is counted in the thousands or the tens of millions of dollars.

8It is different under the CLA, not because the words “final” and “interlocutory” have a different meaning under the Act than in other commercial contexts, but because the lien is not just security.

9The CLA creates four inter-related remedies. One is the construction lien. Another is the construction trust. The third is the holdback. And the fourth is the right to have a trustee appointed under the Act.⁵ The CLA creates “a scheme of rights” and not just security for contract or quasi-contract claims.⁶ The construction lien provides security, as one of its elements, but it is a cause of action as well.

10In this case, the lien claims are asserted by the general contractor, HMI, against the owner with which it has a contract, Index. HMI is thus a “contractor” within the meaning of the Act.⁷ HMI has a direct right of action against Index as “owner” both under the “contract” between HMI and Index and on a quantum meruit basis for supra-contractual common law claims. Those claims will be at least co-extensive with its contractor’s lien claims against Index. That is, recovery on the lien claim will also be recovery on the contract and/or quantum meruit claims. Thus it is possible to mistakenly believe that the construction liens do no more than provide security for the contract and quantum meruit claims.

11The nature of the lien, as a substantive claim and not just security, is clearer when considering the position of a “subcontractor” under the Act. Where a “subcontractor” pursues a lien claim against an “owner”, it pursues a claim that is not co-extensive with the subcontractor’s claim against that owner for breach of “subcontract” or quantum meruit. The subcontractor usually has no legal claim against the owner other than the statutory claim to the construction lien.

12Motions under s.44(2) apply equally to lien claims of contractors and those of subcontractors. The meaning of the Act does not shift, depending on whether the claim is that of a contractor or a subcontractor. The construction lien is, itself, a substantive claim and not just security for a claim. An order under s.44(2) reducing the amount of security to be posted for a lien is a final order in that it determines, on a final basis, the maximum amount of the lien claim.

13I conclude that an order reducing the security required to discharge a lien from title pursuant to s.44(2) of the Act is final and may be appealed to this court.

The Merits of the Appeal

(a) Quantum of security in place of the construction lien

14On the substantive merits, I agree with the motions judge’s legal analysis, substantially for the reasons he gave. There is no palpable and overriding error of fact, and no error in the application of the law to the facts.

15The motions judge found:

The contract… was a fixed price contract. It is clear… that when HMI calculated the amount to claim as construction liens, HMI used a “costs plus” approach. HMI totaled its actual costs, including materials, equipment, and labour, and then added 10% as profit to that total amount. In this “costs plus” approach, HMI also included amounts claimed by HMI’s subcontractors. After deducting amounts received from Index, the balance owing pursuant to this “costs plus” approach was the amount claimed by HMI in its liens. (para. 5)

This finding reasonably characterizes the way in which HMI calculated its lien claims.

16The motions judge then found, correctly:

With a fixed price contract, in the absence of approved change orders, a contractor cannot include in a claim for lien extra charges for the work included in the fixed price contract simply because costs were more than usual or anticipated…. When a party signs a fixed price contract, the party assumes risks of cost changes. (para. 8)

17There is a “stipulated price contract” between Index and HMI. The price of contract work is measured by the stipulated price contract, not by HMI’s costs.⁸ The proper calculation of claims for extras may be made in different ways, depending on the nature of those claims and the terms of the contract. HMI also claims that it is entitled to payment for claims such as delay costs. Entitlement and calculation of claims such as delay costs may also subject to the terms of the written contract, depending on the terms of that contract.

18When HMI was asked to account for its lien claim, it did not do so properly. HMI did not provide an itemized claim showing (i) contract accounting plus (ii) extras (with amounts claimed for each extra, including the basis on which those claims were calculated), less (iii) credits for contract work not done, and less (iv) acknowledged deficiencies (if any), plus (v) any other claims (such as delay costs). Instead, HMI provided an accounting of its total costs for the project. In the words of the motions judge, “HMI totally ignored the fact that they were bound by a fixed price contract” (para. 17). The motions judge found, correctly, that this is simply the wrong way to approach the issue where there is a written contract with a stipulated price that governs the lien claimant’s claim.

19In oral argument HMI’s counsel advised that the parties were directed by the motions judge to prepare Scott Schedules.⁹ This was apparently done and the Schedules were apparently provided to the motions judge at the next return of the motion.

20Scott Schedules were not part of the record on the motion. They were not included in the appeal record before us. No motion was brought to introduce them as fresh evidence or as part of the record before the motions judge. Nor were they included in the materials before us as an aid to argument.

21I would have expected properly completed Scott Schedules to account for HMI’s lien claim in the manner I have described above. But in the absence of seeing the Scott Schedules, I draw the reverse inference: if the Schedules had accounted for the lien claims properly, the motions judge would not have made the findings that he did, or, alternatively, HMI would have appealed on the basis of the accounting set out in the Scott Schedules. Neither is the case, and the obvious inference is that the Scott Schedules continued, perhaps in more detail, HMI’s erroneous position that its claim should be calculated on the basis of its “costs plus” for the entire project.

22The appellant argued before us that this court’s decision in Biotechnik Inc. v. O’Shanter Development Co.¹⁰ stands for the proposition that a quantum meruit claim is available for contract work even where there is an agreed contract price. With respect, that is what Biotechnik says. In that case the contract called for fixed payments for milestones under the contract. The parties did not dispute that the contract would govern work done to the milestones. The issue was whether the lien claimant was entitled to be paid for work done after the last milestone that did not bring contract progress to the next milestone. The owner argued, in effect, that the contractor was not entitled to any further payment because the next milestone had not been reached. The court found that the contractor was entitled to be paid for the work done additional to the last milestone, and that this work would be paid on a quantum meruit basis. In addition, the lien claimant argued that the contract was “front-end loaded and that it should be entitled to recover additional start-up costs that were built into subsequent milestone payments. On this latter argument, the court held: “[i]t will be for the trial judge to determine the true construction of the contract.”¹¹ In respect to the former argument, the court held:

It was submitted by the defendant that this case was distinguishable because the Construction Lien Act gives the contractor a lien for the “price” wherever there is an agreed price and for the value of the work only where there is no agreed price. There was a price here; therefore there could be no quantum meruit. We do not agree that this minor change in language has had the drastic effect of eliminating quantum meruit claims. If the plaintiff is correct in its interpretation of the contract, resort to quantum meruit is necessary to recover the actual value of the work done.¹²

The phrase “actual value of the work done” as used here does not mean “actual cost of the work done”. It means value, as measured by the contract. And this is clear from the passages cited in Biotechnik from Alkok v. Grymek¹³ and the textbook by Messrs. Macklem and Bristow.¹⁴ The quantum meruit calculation in issue in all of these authorities was the incremental progress between progress billings or milestones. These cases do not stand for the proposition that where there is a construction lien, the lien claim shall be calculated on a “costs plus” basis, without regard to the contract.

23The motions judge identified the governing legal principles. He accepted HMI’s claim for extras in its last progress billing. Beyond that he concluded that HMI had not provided evidence to establish any further claim. And so the motions judge fixed an amount that was reasonable in all the circumstances.¹⁵

24HMI argued that in reasoning in this fashion, the motions judge shifted the burden of the motion on to HMI. It argued that it is Index who must establish, on a balance of probabilities, that security for the lien should be reduced.

25This argument fails to take account of the overall scheme of the Act. A defendant is entitled to cross-examine a lien claimant¹⁶ and a motions judge is entitled to reduce lien security if the evidence supporting the calculation of the claim for lien fails to establish a reasonable basis for the amount claimed. Index bore the onus on the motion before the motions judge, but was entitled to rely upon evidence it obtained from HMI as to how the lien was calculated in order to discharge its onus.

(b) Alleged error of fact concerning double-counting

26HMI argued that the motions judge erred in finding that roughly $8 million of its claim consisted of “double counting” of subcontractor claims. After this matter was probed a bit in oral argument, counsel agreed that the potential double-counting was about $3.5 million.

27The impugned factual finding was in the first section of the reasons of the motions judge in which he considered the issue of whether the lien ought to be discharged under s.47 because of its being overstated by HMI (para. 15 of the Reasons of the motions judge). The motions judge decided this issue in favour of HMI. Therefore, even if the motions judge made a palpable and overriding error of fact on this point, that finding did not adversely affect HMI in the result: it won the issue in respect to which this finding was relevant.

28I hasten to add that I would not make any finding of palpable and overriding error on this point. The impugned reasons do not indicate the precise amount of “double-counting” and the motions judge may have made the adjustment urged by HMI. But even if there is an error, it is $3.5 million. In a calculation of damages this would be overriding, in the context of the decision of the motions judge it is not: it would not have affected the result of the motion. The double-counted subcontractor claims were not used by the motions judge to calculate the reasonable amount of security to discharge the lien. Rather, the motions judge used HMI’s last progress billing for his calculations, an approach grounded in the evidence that was certainly reasonable.

(c) Order and costs

29In his conclusion, the motions judge found as follows:

I have considered all of the evidence before me in determining the amount required to be posted as security for HMI’s liens. That evidence included the fixed price contract, HMI’s position in its last progress billing as to the total contract price including change orders, the lack of evidence of any lienable delay claim, and the amount received to date by HMI. After doing so, I found that, at trial, HMI has no reasonable prospect of proving any lienable claim greater than $13,872,154.86 plus HST. HMI’s liens total $32,807,468.11. HMI has exaggerated its lien by approximately $19,000,000, far more than twice the maximum lienable amount.¹⁷ The exaggeration is solely due to HMI totally ignoring the fixed price contract when HMI calculated the amount of its liens. However, due to the very significant amount of $13,872,154.86, that is genuinely in issue as a lienable amount, and the compensation options available to Index, I decline to exercise my discretion to discharge HMI’s liens. (para. 33)

30These conclusions are supported by the record and reflect no error in principle. HMI is fortunate indeed that the motions judge exercised his discretion not to discharge the liens entirely, given all of the circumstances.

31The appeal is dismissed.

32This is a substantial matter and both sides said that their costs were in the range of $35,000 or more on a partial indemnity basis. Costs to the Index Defendants in the amount of $35,000, inclusive, payable within 30 days.

D.L. Corbett J.

I agree _______________________________

Spies J.

I agree _______________________________

Kurke J.

Footnotes

1. 1Construction Lien Act, RSO 1990, c. C.30 (the “CLA” or the Act”), s.71(3)(b); Dircam Electric v. Am-Stat Corp., 2017 ONSC 3421 (Div. Ct.).
2. 2CLA, ss. 44(2) and 47.
3. 3Glaholt, Conduct of a Lien Action 2017, p.301 suggests that both a successful motion s.47 can be appealed. An order refusing to discharge a lien under s.47 is, on the other hand, interlocutory and no appeal will lie: 570 South Service Rd. Inc. v. Lawrence-Paine & Assoc. Ltd. (2011), 3 CLR (4th) 1 (Div. Ct.). It has been held repeatedly that a motion under s.47 is analogous to a motion for summary judgment: for example, Northridge Homes Ltd. v. Travellers Motel, 2015 ONSC 3743, 2015 ONSC 4811 and the cases cited therein.
4. 4Glaholt and Keeshan, The 2017 Annotated Ontario Construction Lien Act, p.330.
5. 5See Kevin Patrick McGuinness, Construction Lien remedies in Ontario (2nd ed., 1997), para. 1.5.
6. 6McGuinness, ibid., para. 1.8.
7. 7Terms are defined in CLA, s. 1(1). As with any comprehensive statutory scheme, the definitions are important.
8. 8See, for example, Marino v. Bay-Walsh Ltd., [2002] OJ No. 2211 (SCJ), paras. 110-112; Selectra Inc. v. Penetanguishene (Town), 2016 ONSC 2293, para. 28.
9. 9See Urbacon v. Guelph (City), 2009 72065, paras. 14-19; Delgant v. Bradscot (MCL) Ltd., 2007 46151
10. 10Biotechnik Inc. v. O’Shanter Development Co. Ltd. (2002), 30 CLR (3d) 45 (Div. Ct.).
11. 11Biotechnik, para. 5.
12. 12Biotechnik, para. 9.
13. 13Alkok v. Grymek, 1968 10 (SCC), [1968] S.C.R. 452 (SCC), quoted at Biotechnik, para. 8.
14. 14Macklem and Bristow, Mechanic’s Liens in Canada, p.47, quoted in Alkok, quoted in Biotechnik, para. 8.
15. 15See for example 1109140 Ontario Ltd. v. Sunningdale Golf Club Ltd. (2004), 34 CLR (3d) 248.
16. 16CLA, s.40.
17. 17This sentence is intended to mean that HMI’s total lien claims are “far more” than twice HMI’s provable lien claim, and not that $19 million is “far more” than twice $13.8 million. Reasons must be read fairly, and the motions judge’s intended meaning is clear.```