CITATION: H.I.R.A. Limited v. Middlesex Standard Condominium Corporation No. 823, 2018 ONSC 5931

DIVISIONAL COURT FILE NO.: 256/18

DATE: 20181005

ONTARIO

SUPERIOR COURT OF JUSTICE

DIVISIONAL COURT

MARROCCO A.C.J.S.C., CONWAY and LEMAY JJ.

IN THE MATTER OF THE CONSTRUCTION LIEN ACT, R.S.O. 1990, c. C.30

B E T W E E N :

H.I.R.A. LIMITED

Appellant

– and –

MIDDLESEX STANDARD CONDOMINIUM CORPORATION NO. 823 also known as MIDDLESEX CONDOMINIUM CORPORATION NO. 823

Respondent

Denise L. Bambrough

for the Appellant

Kevin Sherkin and Jeremy Sacks

for the Respondent

HEARD at Toronto: October 3, 2018

CONWAY J.:

[1] The Appellant, H.I.R.A. Limited (“HIRA”) appeals the order of Grace J. dated March 6, 2018 made pursuant to s. 44(2) of the Construction Lien Act, R.S.O 1990, c. C.30 (the “Act”). The order vacated a construction lien registered by HIRA and fixed the amount of security required to vacate the lien at $1,458,905.59.

Background

[2] This construction lien dispute relates to a four building, 332 unit residential complex in London, Ontario. The respondent Middlesex Standard Condominium Corporation No. 823 (“MSCC”) solicited bids for a significant renovation of the buildings, which were over 25 years old. HIRA was the successful bidder. The parties entered into a stipulated price contract for the project on June 10, 2015. The price for the work contemplated in the contract was $4,498,212 plus taxes.

[3] Over time, the scope of work expanded significantly. HIRA claims that the revised contract price eventually reached $11,630,040 inclusive of taxes. MSCC has paid more than $8.35 million to HIRA directly and has discharged some of its responsibilities to third parties.

[4] The relationship between HIRA and MSCC deteriorated, and on May 26, 2017 MSCC terminated the contract as a result of HIRA’s alleged defaults. HIRA disputes the contract termination.

[5] On June 30, 2017, HIRA registered a lien against the 332 units of the condominium complex, alleging that MSCC owed HIRA $3,297,925. By the time of the motion, HIRA had reduced its lien claim to $2,744,377. MSCC submitted that the lien claim was inflated and that the balance was only $394,954.

[6] MSCC brought a motion for an order pursuant to s. 44(2) of the Act to vacate HIRA’s lien by posting security for $394,954 plus costs, an amount less than HIRA’s lien claim. Section 44(2) provides:

Upon the motion of any person, the court may make an order vacating the registration of a claim for lien, and any certificate of action in respect of that lien, upon the payment into court or the posting of security of an amount that the court determines to be reasonable in the circumstances to satisfy the lien.

Motions Judge’s Decision

[7] The motion lasted one and a half days. The record before the motion judge was extensive, consisting of volumes of affidavit and documentary evidence, and cross-examination transcripts. Each party provided a detailed analysis supporting its calculation of the proper amount of HIRA’s lien claim.

[8] The motions judge set out the legal principles that apply on a s. 44(2) motion. As he noted, the motion is similar to a summary judgment motion; the owner has the onus of establishing that the amount set forth in a claim for lien is excessive; and the motion is not the venue for determining complex issues of contested facts going to the merits of the claim: Structform International Ltd. v. Ashcroft Homes Construction Inc., 2013 ONSC 4544, at paras. 11, 12; Ledcor Construction Limited v. Canalfa Liberty Village Homes Inc. et al., 2008 87009 (Ont. S.C.).

[9] However, the court must do its best to ensure that the lien claimant does not falsify, mischaracterize, misstate or exaggerate its claim: Boehmers v. B.E. Project Managers Inc. (1993), 8 C.L.R. (2d) 51 (Ont. C.J.); Kamali Design Home Inc. v. Bondarenko, 2013 ONSC 5506.

[10] As stated by the Divisional Court in HMI Construction Inc. v. Index Energy Mills Road Corp., 2017 ONSC 4075, at para. 25:

[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.

[11] The motions judge engaged in a detailed analysis of HIRA’s lien claim to ascertain what amount of security would be reasonable in the circumstances to satisfy HIRA’s lien. In particular, he focussed on two main areas of dispute:

(a) 16 unapproved change order requests (“Disputed CRXs”) made by HIRA to MSCC from August 10, 2015 and ending June 29, 2017, in the aggregate amount of $512,456, plus HST; and

(b) a claim by HIRA with respect to the value of services, equipment and materials provided to the project during the extended contract period (namely, the period from the fall of 2016 when the work was originally supposed to have been completed until the date of termination) in the amount of $1,175,601, plus HST (the “Extended Duration Claim”). HIRA’s Extended Duration Claim consists primarily of additional overhead costs (equipment, site supervision costs, insurance, etc.) associated with completing the work during the extended contract period. MSCC argues that these costs were covered by and included in the fixed price contract.

[12] With respect to the Disputed CRXs, the motions judge found that the parties had deviated from the change process required by the contract and that HIRA had established a basis for its claim on account of the Disputed CRXs. On quantum, he found that HIRA had not provided credit to MSCC for its payment of $88,820.98 on account of Disputed CRXs 138, 144, 164 and 166. He found that HIRA’s claim for $151,915.06 on account of Disputed CRX 63 for gas line work was problematic as HIRA had originally said that the change order had been satisfied and then changed its position following termination of the contract. He therefore reduced HIRA’s lien claim by those two amounts, leaving a balance of $271,719.57. He held that the factual disputes with respect to the other Disputed CRXs could not be fairly resolved on the record and made no further deduction to HIRA’s lien claim on account of those Disputed CRXs.

[13] With respect to the Extended Duration Claim, the motions judge held that the issue of HIRA’s entitlement to payment for the claimed costs outside the fixed price contract was one that could not be determined on the basis of the documentary record, as it raised issues of credibility and reliability. He concluded that “[w]hile HIRA’s right to an extended duration claim in any amount is less than clear, I cannot say that it is without merit.” He therefore left the issue of HIRA’s entitlement to the Extended Duration Claim for trial.

[14] He turned to the issue of the quantum of HIRA’s Extended Duration Claim that could be protected by lien. He found that with the exception of supervision costs in the amount of $240,240, HIRA’s Extended Duration Claim was “more than doubtful.” In particular, he found that there was nothing to suggest HIRA or the project cost consultant had tracked the costs claimed for the Extended Duration Claim prior to the termination date. He stated that it was “inconceivable” that the entirety of this claim would not have been carefully tracked by all of the parties given, among other things, the expansion of the project, the retention of a costs consultant, and the terms of MSCC’s bank financing. He stated that the failure to track costs itself “warrants a healthy dose of suspicion.”

[15] The motions judge found that the elements of HIRA’s Extended Duration Claim had been “asserted unilaterally following termination.” He also found that a number of these costs were estimates only (equipment, insurance, labour). The motions judge therefore deducted $935,360.75 of the Extended Duration Claim from HIRA’s lien claim.

[16] After addressing all of the issues raised by the parties, the motions judge determined that the amount required to discharge HIRA’s lien claim should be reduced by $1,181,833.79. He ordered that the lien would be vacated upon MSCC posting security for $1,408,905.59 plus $50,000 for costs.

[17] HIRA raises two main issues on appeal. First, it submits that the motions judge failed to apply the proper legal test on a s. 44(2) motion. Second, it submits that the motions judge made palpable and overriding errors in his determination of the amount of the security required to vacate HIRA’s lien.

Jurisdiction and Standard of Review

[18] The motions judge’s order is a final order and may be appealed to the Divisional Court pursuant to s. 71 of the Act: HMI, at para. 13. The standard of review for a judicial decision is correctness on questions of law. On questions of fact, the standard is palpable and overriding error. On questions of mixed fact and law, the standard is palpable and overriding error, unless there is an extricable legal error in principle: Housen v. Nikolaisen, 2002 SCC 33, [2002] 2 S.C.R. 235.

Application of the proper test on a motion under s. 44(2) of the Act

[19] HIRA submits that the motions judge erred in his application of the proper test under s. 44(2) of the Act. It submits that he should not have determined complex factual issues going to the merits of the lien claim on a motion and should have left these issues for trial. HIRA further submits that the motions judge erred in conflating the issues of entitlement and quantum on the Extended Duration Claim.

[20] I disagree. As noted above, a motions judge is entitled to reduce the amount of security required to satisfy the lien if the evidence supporting the calculation fails to establish a “reasonable basis” for the amount claimed: HMI, at para. 25. In this case, the motions judge articulated the correct legal principles that apply to a s. 44(2) motion. It is evident that he applied them properly. He analyzed both HIRA’s entitlement to the elements of the lien claim and the quantum that could be supported by the evidence. He held that certain matters could not be resolved on the documentary record and could only be resolved at a trial.

[21] Specifically, he held that the amount of HIRA’s lien claim with respect to most of the Disputed CRXs and the issue of HIRA’s entitlement to the Extended Duration Claim could not be resolved on the motion. He reduced the amount of the lien claim only where he was able to make determinations with respect to (a) amounts that could not be properly claimed by HIRA under five of the Disputed CRXs; and (b) the failure of the evidence to support a reasonable basis for most of the costs comprising HIRA’s Extended Duration Claim.

[22] The motions judge was alive to the requirement that he not resolve complex issues of contested fact on a s. 44(2) motion, as can be seen from paragraphs 14 and 16 of his reasons, and he applied this principle correctly. I see no error in his application of the test under s. 44(2) of the Act.

Determination of Amount of Security required to Vacate the Lien

[23] HIRA submits that the motions judge erred in his calculation of the amount of security required to vacate HIRA’s lien with respect to the Disputed CRXs and the Extended Duration Claim.

[24] I note that these are strictly factual matters and, further, that the amount of security required to discharge the lien, “an amount that the court determines to be reasonable in the circumstances to satisfy the lien”, was an exercise of the motions judge’s discretion.

[25] MSCC concedes that the motions judge made a mathematical error in providing credit to MSCC and reducing the security with respect to payments made on four Disputed CRXs in the amount of $88,820 plus HST ($100,367.70), as HIRA had already provided MSCC credit for this payment. The motions judge’s order is to be varied accordingly.

[26] With respect to the remaining Disputed CRXs, the motions judge’s determinations were made after a complete and thorough review of the evidence. He examined the evidence with respect to the $151,915.06 charge for gas line work in CRX 63. He noted that HIRA had billed MSCC $150,000 for this work and had indicated that the balance to complete the work was “0.00”. He found that HIRA had changed its position after termination, without explanation, when it claimed over $300,000 for the gas line work. I am not persuaded that he made any palpable and overriding error in deducting the $151,915.06 from the amount of security required to discharge HIRA’s lien.

[27] The motions judge carefully reviewed the elements of the Extended Duration Claim. He noted that supervision costs had been initially included in and later excised from CRXs issued by HIRA. He was satisfied that this evidence established a reasonable basis for HIRA’s claim of $240,240 in supervision costs.

[28] However, he determined that the other elements of the Extended Duration Claim were “more than doubtful.” This determination was grounded in his review of the evidentiary record, including the history of the communications between the parties; HIRA’s assertion of the Extended Duration Claim following MSCC’s termination of the contract; the lack of tracking or accruing of these costs by HIRA or the project cost consultant prior to termination; and HIRA’s admission that many of these costs (equipment; insurance costs; labour) were estimates only. He therefore deducted $935,360.75 from the security required to discharge the lien.

[29] It is clear from the motions judge’s reasons read as a whole that based on his review of the entire record, the evidence with respect to the other elements of the Extended Duration Claim failed to establish a reasonable basis to support the amount claimed. He therefore excluded this amount from his determination of what would be “an amount that the court determines to be reasonable in the circumstances to satisfy the lien.”

[30] These determinations of whether there was a reasonable basis to support the Extended Duration Claim and what would be a reasonable amount to satisfy this part of HIRA’s lien claim were open to the motions judge on the extensive record before him and are therefore entitled to deference. I am not persuaded that he made any palpable and overriding error in determining that it was reasonable to deduct the $935,360.75 from the amount of security required to discharge HIRA’s lien.

Decision

[31] The motions judge’s order is varied in paragraph 1 by increasing the amount of security required to vacate the lien by $100,367.70.

[32] In all other respects, the appeal is dismissed.

[33] If the parties are unable to agree on costs, they may deliver cost submissions of no more than two pages by 5 p.m. on October 12, 2018. No reply submissions are permitted.

CONWAY J.

I agree _______________________________

MARROCCO A.C.J.S.C.

I agree _______________________________

LEMAY J.

RELEASED:

CITATION: H.I.R.A. Limited v. Middlesex Standard Condominium Corporation No. 823, 2018 ONSC 5931

DIVISIONAL COURT FILE NO.: 256/18

DATE: 20181005

ONTARIO

SUPERIOR COURT OF JUSTICE

DIVISIONAL COURT

MARROCCO A.C.J.S.C., CONWAY and

LEMAY JJ.

IN THE MATTER OF THE CONSTRUCTION LIEN ACT, R.S.O. 1990, c. C.30

B E T W E E N :

H.I.R.A. LIMITED

Appellant

– and –

MIDDLESEX STANDARD CONDOMINIUM CORPORATION NO. 823 also known as MIDDLESEX CONDOMINIUM CORPORATION NO. 823

Respondent

REASONS FOR JUDGMENT

CONWAY J.

RELEASED: