CITATION: Heinrichs v. 374427 Ontario Ltd., 2018 ONSC 78
COURT FILE NO.: 310/17
DATE: 20180105
ONTARIO
SUPERIOR COURT OF JUSTICE
DIVISIONAL COURT
BETWEEN:
VICTOR J. HEINRICHS and VICTOR J. HEINRICHS INC.
Plaintiffs/Appellants
– and –
374427 ONTARIO LTD. and JOHN FEDYNA
Defendants/Respondents
Allan Morrison and Vibhu Sharma, for the Plaintiffs/Appellants
Trung Nguyen, for the Defendants/Respondents
HEARD: November 17, 2017
LEDERMAN J.
nature of appeal
[1] The appellants (“plaintiffs”) appeal that part of the Order of Master Albert dated May 31, 2017, that ordered the release of $452,388.61 plus any accrued interest held in trust by Brattys LLP to the respondents (“defendants”).
BACKGROUND
[2] The underlying action herein is for fees for architectural services and materials allegedly provided by the plaintiffs to the defendants in connection with certain property in Richmond Hill, Ontario.
[3] On December 1, 2014, the plaintiffs registered a lien and subsequently registered a certificate of action against title to the property under the Construction Lien Act, R.S.O. 1990, C. 30 (“CLA”).
[4] On December 11, 2014, the second mortgagee on the property transferred the property pursuant to a power of sale to Elgin House Properties Ltd. (‘Elgin”).
[5] This action was commenced by statement of claim on January 11, 2015 under the CLA.
[6] Subsequently, Elgin requested that the plaintiffs’ lien be removed so that it could obtain financing to be secured by the property. Negotiations took place between the parties. As consideration for the release of lien, Elgin offered to hold back on the sale proceeds, an amount for the security which comprised the full amount of the plaintiffs’ claim plus 25% for costs. The parties agreed to this and to an undertaking which was given on February 18, 2016 by Elgin’s lawyers, Brattys LLP. It read:
IN CONSIDERATION of the Instruments being discharged from the Lands on or before the 21st day of February, 2016, Brattys LLP undertakes to hold the sum of FOUR HUNDRED FIFTY-TWO THOUSAND THREE HUNDRED AND EIGHTY-EIGHT DOLLARS AND SIXTY-TWO CENTS ($452,388.62) in escrow pending receiving a joint direction from Sahar Zomorodi and Allan L. Morrison or in the alternative a Court order directing the payment of the same (emphasis added) [the “Undertaking”].
[7] The lien was discharged by way of an Application to Delete Construction Lien dated February 24, 2016.
[8] Following the release of the lien instruments, the plaintiffs did not take any steps to prosecute the action or set it down for trial.
[9] The defendants brought a motion before the Master to dismiss the action in its entirety for delay or, in the alternative, to direct that the action proceed as an action in contract under the ordinary Rules of Civil Procedure. In respect of both options, the defendants sought an order directing the release of funds held in trust by Brattys LLP.
[10] The plaintiffs opposed the release of the security held by Brattys LLP pursuant to the Undertaking pending final determination of the action. The plaintiffs, by way of cross-motion, sought directions as to the action continuing as a contract action, given that on the discharge of the lien, the proceeding had become a non-lien action.
DECISION OF THE MASTER
[11] The Master found that the plaintiffs had failed to prosecute the claim within a reasonable time. She stated that as they failed to take the steps that were required to ready the claim for trial and more than two years had passed and the action still had not been set down for trial, the lien action could have been dismissed for delay. However, rather than doing so, the Master allowed the plaintiffs to have another chance to ready the case for trial and proceed with the action pursuant to the Rules of Civil Procedure.
[12] The Master held, however, that this “second chance” did not entitle the plaintiffs to retain the security for the lien claim that was placed with the solicitors in trust pursuant to the Undertaking and she ordered that those funds be paid out to the defendants. It is that part of the Order that is the subject of this appeal.
[13] The Master’s reasoning was that the security provided by the Undertaking was akin to security for the lien having been posted in court.
[14] She stated at paras. 9 and 10 of her Reasons as follows:
On the issue of the release of security, I find that it would be inappropriate to allow the plaintiff the benefit of the security contemplated by the Construction Lien Act in circumstances where the plaintiff failed to set down the lien action for trial within the two year limitation period required by section 37 of the Act. Had the security for the lien claim been posted in court pursuant to section 44 of the Act, and had the action not been set down for trial within two years as required by section 37 of the Act, then the lien would have expired and the funds would have been ordered released from court.
Absent clear and unambiguous language in the undertaking by which the funds were retained by Brattys LLP, the plaintiff is not entitled to greater security than would be available had the funds been placed in court.
[15] The Master was of the view that if the parties intended the funds held in trust to be retained until final determination of the plaintiffs’ action, the Undertaking would have stated as such. Rather, she found at para. 16 that
“Brattys LLP was simply an alternate repository of the security otherwise payable into court to vacate a lien, pursuant to s. 44 of the Act. The undertaking does not bestow greater rights on the plaintiff than those prescribed under the Act.”
PRELIMINARY MATTERS
[16] The plaintiffs brought a motion to introduce fresh evidence on the appeal. The so called new evidence is in the form of an email from a former associate at the law firm of plaintiffs’ counsel, stating that during the discussions about the Undertaking among counsel,
“the intention of the parties was to discharge the lien and proceed with the litigation as a contractual dispute. Upon the deletion of the lien and the related certificate of action, as intended by the parties, the action was converted into a non-lien action and the CLA no longer applied, and this action was to be prosecuted in the regular course.”
[17] The associate’s recollection of the matter, which supports the plaintiffs’ position, apparently came to light recently. However, this evidence certainly existed at the time of the motion before the Master and could have been adduced through the exercise of due diligence. This issue was of prime importance and central to the proceedings before the Master. This matter could have been easily discussed with the associate at the time and was readily available. Accordingly, the first branch of the test in R. v. Palmer, 1979 8 (SCC), [1980] 1 SCR 759 has not been satisfied and the motion is denied for that reason alone.
[18] The defendants raised a further issue to the effect that under s. 71(1) of the CLA, an appeal lies from a “judgment”; that the order of the Master under appeal is not a judgment but an interlocutory order, and by reason of s. 71(3) (b) of the CLA, no appeal lies from an interlocutory order made by the court.
[19] The word “judgment” in s. 71(1) applies to any decision by which the rights of a party are finally disposed of (see Villa Verde L.M. Masonry v. Pier One Masonry Inc., 2001 7060 (ON CA), [2001] O.J. No. 1605 (C.A.) at para. 8). The defendants submit that the Master’s order did not finally dispose of the action on its merits. It simply released the security but allowed the balance of the contract claim to proceed under the Rules of Civil Procedure. As such, the defendants argue that the order has no bearing on the determination of the action on its merits which remain to be decided at trial and therefore it is an interlocutory order from which no right of appeal lies.
[20] The basis for the Master’s order releasing the trust funds was the fact that the plaintiffs had not set the action down within two years and that upon the expiry of the two year limitation period, the plaintiffs were no longer entitled to security for the lien. Accordingly, although the Master allowed the breach of contract action to continue, her interpretation of the Undertaking and the parties’ intention concerning the action was the basis of her Order to release the security. That disposition is final in nature in that it finally determines those issues and I am of the view that an appeal from the order to this court was not prohibited by s. 71(3) (b) of the CLA.
STANDARD OF REVIEW
[21] An appeal may be granted where it is shown that the Master erred in law or exercised discretion based on wrong principles or misapprehended the evidence such that there is a palpable and overriding error.
[22] The Master’s interpretation of the Undertaking, her application of the CLA and her decision to release the security is a question of mixed law and fact, subject to a standard of review of palpable and overriding error.
POSITION OF THE PARTIES
[23] The plaintiffs submit that the Master erroneously relied on the provisions of the CLA to order a release of the funds held in trust with Brattys LLP as if they were akin to monies paid into court to vacate a lien under s. 44 of the CLA.
[24] The plaintiffs submit that the Master misapprehended the evidence and failed to take into account the underlying agreement, context, discussions and intention of the parties in relation to the discharge/release of the lien. The plaintiffs argue that the parties had specifically agreed to a “discharge” of the lien with the placement of monies into the solicitors’ trust account and they submit that sections 37, 44 and 47 of the CLA do not apply to an action such as this where the underlying lien has been discharged.
[25] The defendants submit that the Master correctly identified and applied the relevant provisions of the CLA and made no palpable and overriding error in ordering the release of the security.
ANALYSIS
[26] On this appeal, counsel for all parties agree that there is a distinction between “vacating” and “discharging” a lien. “Vacating” refers to the removal of the “registration” of a claim for lien and any certificate of action in respect of that lien under s. 44 of the CLA. “Discharging”, on the other hand, has a special, statutory definition under s. 48 of the CLA. A discharge of a lien amounts to the extinction of the claim itself. Under s. 48, a discharge of a lien is irrevocable and cannot be revived (see Duncan W. Glaholt, Conduct of a Lien Action, (2017 Thomson Reuters) at pp. 136-138.
[27] In the instant case, the parties agreed that the lien was to be “discharged” upon depositing the security in trust with the solicitors.
[28] The Undertaking specifically states and contemplates that the lien “instruments being discharged from the Lands”. In accordance with the Undertaking, the lien in this action was discharged by way of a release with the Application to Delete the Construction Lien dated February 24, 2016.
[29] Upon the discharge, the lien, the certificate of action and all lien rights and remedies were extinguished.
[30] Liens can be “vacated” as of right under s. 44 of the CLA upon the payment into court or posting security in the requisite amount. In such a case, the lien itself continues as a charge on those monies rather than a charge on the property and can be enforced against that substitute security. If a perfected lien has expired because of a failure to set the action down for trial within two years, then, under s. 46(4) of the CLA, upon motion to dismiss the action to enforce that lien, any amount of monies paid into court can be returned to the payor, or any security posted pursuant to s. 44 can be cancelled.
[31] The parties in this case did not pay monies into court or post security in accordance with s. 44 of the CLA. They chose an alternate route of having the full security amount held in trust with the solicitors.
[32] Because the lien was discharged in February 2016, there was no “perfected lien” that could expire under s. 37 of the CLA and thus sections 37, 44 and 46 of the CLA do not strictly apply to this situation.
[33] Counsel for the defendants acknowledges that these sections do not, on their face, apply. He submits however, that the Master in effect, applied these statutory provisions by analogy. The Master stated that had the security for the lien claim been posted in court pursuant to s. 44 and had the action not been set down for trial within two years as required by s. 37, then the lien would have expired and the funds would have been ordered released from court (para. 9 of the Reasons).
[34] The Master held that “absent, clear and unambiguous language” in the Undertaking, the plaintiffs were not entitled to greater security than would be available had the funds been paid into court.
[35] I am of the view that the Master was in error in making such an analogy in circumstances where there was a prior “discharge” of the lien as expressly provided for in the Undertaking.
[36] Further, the Master made a palpable and overriding error in interpreting the Undertaking and the underlying agreement of the parties which was the basis of the Undertaking. The Master failed to take into account the emails exchanged between counsel in this regard that formed part of the record. It is apparent from these emails that the contemplation was that the disbursement of the monies held in trust would be dependent upon a resolution of the dispute between the parties or court order.
[37] Thus, the appropriate interpretation of the Undertaking and the underlying agreement was that the lien would be discharged and that the monies held in trust would not be released until there was a resolution among the parties or a court decided the merits of the claim. There was no intention that those monies would be subject to the operation of sections 37, 44 and 46 of the CLA.
CONCLUSION
[38] In view of the Master’s misapprehension of the evidence, in particular the agreement and intention of the parties, and misapplication of the CLA, the appeal is allowed and paragraph 2 of the Order that provided for payment of the security to the defendants is set aside.
[39] If the parties cannot agree as to costs, they may make written submissions; the plaintiffs’ submissions within 15 days; the defendants’ submissions within 10 days thereafter; and reply, if any, within 5 days thereafter.
Lederman J.
Released: January 5, 2018
CITATION: Heinrichs v. 374427 Ontario Ltd., 2018 ONSC 78
COURT FILE NO.: 310/17
DATE: 20180105
ONTARIO
SUPERIOR COURT OF JUSTICE
DIVISIONAL COURT
BETWEEN:
VICTOR J. HEINRICHS and VICTOR J. HEINRICHS INC.
Plaintiffs/Appellants
– and –
374427 ONTARIO LTD. and JOHN FEDYNA
Defendants/Respondents
REASONS FOR JUDGMENT
Lederman J.
Released: January 5, 2018