COURT FILE NO.: CV-15-0023 DATE: 2017-04-12

SUPERIOR COURT OF JUSTICE

ONTARIO

IN THE MATTER OF the Construction Lien Act, R.S.O. 1990, c. C.30

B E T W E E N:

STEELRITE CONSTRUCTION CANADA INC.

D. Zulianello and K. Commisso, for the Plaintiff (Respondent to this Application)

Plaintiff (Respondent)

• and -

MAN-SHIELD (NWO) CONSTRUCTION INC., 2353267 ONTARIO INC., AURORA CONDOMINIUMS LP., ROYAL BANK OF CANADA, VALIANT TRUST COMPANY and MANSHIELD (NWO) CONSTRUCTION, INC.

Defendants (Applicants)

R. Johansen and D. Matson, for the Defendants (Applicant) MAN-SHIELD (NWO) CONSTRUCTION INC. and MANSHIELD (NWO) CONSTRUCTION, INC. J. Kroft, for the Defendants 2353267 ONTARIO INC. and AURORA CONDOMINIUMS LP. (Respondents to this Application)

HEARD: April 5, 2017, at Thunder Bay, Ontario

Mr. Justice F. B. Fitzpatrick

Reasons For Judgment on Application

[1] This is an application to stay a number of construction lien actions. The moving parties, Man-Shield (NWO) Construction Inc. and Manshield (NWO) Construction, Inc. (hereinafter collectively referred to as “Manshield”) assert they have entered into agreements which permit them to arbitrate construction disputes with a number of subcontractors. A majority of those subcontractors have commenced actions under the Construction Lien Act, R.S.O. 1990, c. C.30, in respect of a construction project located at the Thunder Bay waterfront. An arbitration proceeding has been ongoing for over two years between Manshield and the owners of the construction project.

[2] The subcontractors, represented on this application by Mr. Zulianello, and the owners of the project, represented by Mr. Kroft, resist the application and oppose a stay of proceedings.

The Facts

[3] For the purpose of this application many of the background facts were not in dispute. Relying on the affidavits of the parties and the summaries of the evidence contained in the factums provided by the parties, I will set them out here.

[4] The various construction lien and regular actions involved in this application arise out of the construction of two condominiums and a hotel located at the Thunder Bay waterfront. The two condominiums are known as the Aurora Condominium and the Allure Condominium. The hotel is known as the Delta Hotel.

[5] Three limited partnerships were set up to develop the Thunder Bay waterfront project. Allure Condominiums LP was set up to develop the Allure Condominium, Aurora Condominiums LP was set up to develop the Aurora Condominium and T.B. Properties LP was set up to develop the Delta Hotel (hereinafter referred to as the “Owners”).

[6] During construction there were numerous disputes which arose between Manshield and the Owners. There was a dispute about construction deficiencies. There was a dispute about how the contract should be interpreted, namely was it a construction management arrangement or was it a stipulated price contract.

[7] The Owners and Manshield entered into an arbitration agreement on or about May 1, 2015. This came in response to Manshield commencing an application in the Superior Court to force the Owner to arbitrate. The parties chose Larry Banak, a well-respected arbitrator to adjudicate the dispute. One of the Manshield companies also started a parallel lien action under the Construction Lien Act to preserve and protect its lien rights.

[8] The arbitration in front of Arbitrator Banak has gone on now for almost two years. It began in earnest in the late summer and early fall of 2015. Arbitrator Banak has made four rulings already, the first coming on November 5, 2015. Arbitrator Banak noted the arbitration was running concurrently with these proceedings. There has been a great deal of documents exchanged. There have been 15 to 20 days of hearings. There have been five days of discoveries.

[9] The subcontractors were not part of the arbitration agreement and the Owners assert that agreement does not cover the subcontractors. Initially, Manshield took the position that the sub-contractors were not required to be involved in the arbitration.

[10] The arbitration between the Owners and Manshield was bifurcated. The first phase dealt with the terms and conditions of the contract between the Owners and Manshield. Manshield took the position that the form of contract was that of a CCA5 construction management contract while the Owners claimed that the form of contract was a stipulated price contract. On December 6, 2016, Arbitrator Banak held that with respect to the Aurora Condominium and the Allure Condominium, the formal contract was a stipulated price contract. Arbitrator Banak has not yet ruled on the formal contract with respect to the Delta Hotel.

[11] The Owners of both the Aurora Condominium and Allure Condominium have back charged Manshield for both delay and deficiencies. The alleged deficiencies are currently in the amount of $2,817,625.07. A 60 page “Scott Schedule” along with invoicing from the contractor retained to fix the deficiencies was provided to Manshield by the Owners in December 2015. The “Scott Schedule” lays out over 246 items that are being back charged to Manshield.

[12] The statement of claim in the within action was served January 19, 2015. Fourteen other actions followed. Twelve of these were commenced between January 30, 2015 and January 15, 2016. The amount of the claims collectively total $4,848,604.8.

[13] There is approximately $9,000,000.00 being held in lawyer trust accounts as security for these claims.

[14] This particular action is being used as a convenient vehicle to commence the application. Of the fifteen actions involved in this application, thirteen of them involved contracts which contained the following provision:

26 Disputes

26.1 In the case of any dispute arising between Man-Shield and the Subcontractor as to their respective rights and obligations under the Subcontract, either party hereto shall be entitled to give the other written notice of such dispute in which case the parties shall proceed to binding arbitration in compliance with the requirements of the Arbitration Act of Ontario.

[15] It is admitted by Manshield that two of the responding parties did not have such an arbitration clause in any written agreements those parties had with Manshield.

[16] The first settlement meeting was held before me on August 11, 2016. An endorsement (2016 ONSC 5204) was made deeming all actions to be set down for trial within the meaning of section 37 of the Construction Lien Act as of August 11, 2016. An order was made at that meeting for a schedule for the exchange of affidavits of documents and Schedule “A” productions. They were to be completed by January 20, 2017. Also the order provided that discoveries were to be complete by July 1, 2017. An additional settlement meeting was scheduled for January or February 2017.

The Law

[17] The legal principles applicable to this application were not disputed by the parties. The provisions of sections 7(1) and 7(2) of the Arbitration Act, 1991, S.O. 1991, c. 17 (the “Arbitration Act”) as amended are clearly engaged by this application. Manshield submitted that section 6 of the Act was also relevant. Those provisions of the Arbitration Act are as follows:

Court intervention limited

6 No court shall intervene in matters governed by this Act, except for the following purposes, in accordance with this Act:

1. To assist the conducting of arbitrations.
2. To ensure that arbitrations are conducted in accordance with arbitration agreements.
3. To prevent unequal or unfair treatment of parties to arbitration agreements.
4. To enforce awards. 1991, c. 17, s. 6.

Stay

7 (1) If a party to an arbitration agreement commences a proceeding in respect of a matter to be submitted to arbitration under the agreement, the court in which the proceeding is commenced shall, on the motion of another party to the arbitration agreement, stay the proceeding. 1991, c. 17, s. 7 (1).

Exceptions

(2) However, the court may refuse to stay the proceeding in any of the following cases:

1. A party entered into the arbitration agreement while under a legal incapacity.
2. The arbitration agreement is invalid.
3. The subject-matter of the dispute is not capable of being the subject of arbitration under Ontario law.
4. The motion was brought with undue delay.
5. The matter is a proper one for default or summary judgment. 1991, c. 17, s. 7 (2).

[18] The parties relied on some of the same authorities which have interpreted the above noted sections of the Arbitration Act. In my view, the applicable principles which emerge from the Arbitration Act and the relevant cases are as follows.

[19] The Arbitration Act provides that a Court shall stay proceedings in the face of parties’ express agreement to arbitrate a dispute subject to the exceptions in section 7(2) of the Act. The stay provisions in the Arbitration Act are not inconsistent with the policy objectives of summary and efficient resolution of construction disputes created by the Construction Lien Act. The provisions of the Construction Lien Act anticipate that some issues will be resolved by arbitration and expressly accommodate arbitration (Automatic Systems v. Bracknell Corp., 18 O.R. (3d) 257 ONCA).

[20] In Advanced Construction Techniques Ltd v. OHL, 2013 ONSC 7505, the court found as follows with regards to the Arbitration Act at para. 211:

The Act encourages parties to resort to arbitration and requires them to hold to that course. Once they have agreed to do so, it entrenches the primacy of arbitration over judicial proceedings by directing the court, generally, not to intervene. There are strong public policy reasons in favour of holding parties to their agreement to arbitrate. [Italics in original]

[21] Section 7(2) of the Arbitration Act contains the circumstances in which a court may refuse to grant a stay of proceedings in the face of an agreement to arbitrate.

[22] In determining a date from which time should be considered to begin to run for the purpose of deciding if delay is “undue,” the court in Brock University v. Stucor Ltd., accepted that time should run from the date of the service of a statement of claim.

[23] A defendant which asserts rights against a plaintiff by way of counterclaim can be considered to be estopped by their conduct from asserting a right to arbitrate (Sala (In Trust) v. Jack Aaron & Co., 2009 ONSC 3615).

[24] In determining if a proceeding should be stayed, the Court conducts a four part examination. First, the court interprets the contractual arbitration clause in the context of the agreement as a whole. Second, the court analyzes the claims to determine if they fall within the parameters of the kinds of disputes that can be arbitrated. Third, the court assesses if any of the enumerated exceptions set out in section 7(2) of the Arbitration Act apply. Fourth, it can consider the discretionary sections found in the section 6(3) and 7(5) of the Arbitration Act (Mantini v. Smith Lyons LLP, [2003] O.J. No. 1831 (ONCA), as set out by Master Albert in Carillion Construction Inc. v. Imara (Wynford Drive) Ltd., 2015 ONSC 3658 at para. 40).

Positions of the Parties

[25] Manshield frames the issue to be resolved quite simply. It submits the question is: “Should the within actions and ordinary actions be stayed in favour of binding arbitration between Manshield, the Owner and the subtrades before Arbitrator Banak or an alternative arbitrator?” Manshield argues that all it wants is to have all parties in the same forum. If a stay is not granted, Manshield submits it will be required to fight the same battle in two different locations. In Manshield’s submission, this would represent unfairness to Manshield and a waste of resources for all parties.

[26] Counsel for Manshield fairly recognized that its position faced a significant hurdle due to the delay in the bringing of this application. Despite the ruling contained in Brock University, supra, Manshield argues the dates of the issuing of the various statements of claim should not be the benchmark to measure delay. Rather, it should be measured from the date of Arbitrator Banak’s decision of December 2016 as this is the date that the true positions of all parties best “crystalized.”

[27] The Respondents have more particularly broken down the matter to be decided into four distinct issues.

• Is the motion a nullity as a result of the failure to request consent of the Court under section 67(2) of the Construction Lien Act?
• What is the correct interpretation of the purported arbitration clause in the subcontracts?
• Has there been undue delay by Man-Shield in seeking a stay of the court proceedings?
• Should the court otherwise exercise its discretion to refuse Man-Shield’s request for a stay of the court proceedings?

[28] The Respondents point to the fact that the majority of the statements of claim were issued between January 2015 and January 2016. Manshield’s notice to arbitrate was delivered in January 2017. The Respondents submit there has been undue delay by Manshield. The Respondents also argue there is no contractual basis to force the subcontractors to arbitrate with the Owners as they do not have an arbitration agreement. The Owners point to well established jurisprudence that an arbitrator has no jurisdiction to add a party to an arbitration absent an agreement at first instance or consent.

Decision

[29] At the outset of the argument, I advised counsel for the Respondent subcontractors I was not prepared to entertain the argument that this application was a nullity under the Construction Lien Act. I have made a previous order that all motions in this matter were to come before me.

[30] That seemed to me to answer the technical argument that leave is normally required for motions in matters being determined under the Construction Lien Act.

[31] In following the four step process set out by the Court of Appeal in Mantini, supra, and modified by Master Albert in Carillion, supra, the Respondent subcontractors did not seriously dispute that the common “section 26 provision” in the various agreements constituted an agreement to arbitrate disputes. Further, it was not seriously disputed that at least as between Manshield and the subcontractors, the nature of their disputes, set out in their respective pleadings, were matters that could have been arbitrated. However, there was no concession by the Respondent subcontractors that they could in any way be forced to arbitrate with the Owner. For reasons set out below, I believe I need not address that issue, which seems to me to be patently obvious that parties who have not expressly agreed to arbitrate with a party can be forced to do so by having their rights to access the courts stayed for a particular matter.

[32] Also, I agree with the submissions of the Respondent subcontractors that the fact that two of the responding parties have no arbitration agreement with Manshield, creates problems for Manshield’s “get everyone in one place” argument. In any event, in my view, the issue to be decided is as generally set out by Manshield, but it turns on the third issue articulated by the Respondent subcontractors: “Has there been undue delay by Man-Shield in seeking a stay?” It seems to me in this matter, the application of the discretion to refuse to stay on the basis of undue delay provided in section 7(2) 4 is of paramount consideration.

[33] I find Manshield has unduly delayed bringing the application to seek a stay. Accordingly, I have the jurisdiction under section 7(2) 4 of the Arbitration Act to decline to order a stay for all actions or claims covered by this application. I do so for the following reasons.

[34] The decision in Brock University, supra, makes it clear that in considering any issue of “undue delay” within the meaning of section 7(2) 4, the date at which a statement of claim is issued is considered the starting point. Counsel for Manshield candidly admitted he could not locate any authority to the contrary. Indeed, a benchmark to calculate any assessment of delay from the date a party confronts another with a statement of claim makes sense to me. It is easy to determine an actual date from the date stamp on the court document. Generally speaking, the pleadings clearly set out the nature of the dispute and put a dollar figure on the amount demanded. Commencing a claim also subjects a party to possible cost consequences if the claim fails. Commencing a statement of claim means you have a serious dispute you would like a judge to resolve if you cannot.

[35] I do not accept Manshield’s argument that the consideration of any period of delay starts with the date Arbitrator Banak decided that the construction contract at issue between the Owner and Manshield was a stipulated price contact. The arbitration process was going on well before Arbitrator Banak rendered this particular decision. The arbitration started in the late summer and early fall 2015. It seems to me at that point, Manshield was well aware of the Owner’s position. At best, counting from November 2015, this was over sixteen months ago.

[36] In Sala (In Trust), supra, a delay of eight months after service of the statement of claim was considered “undue.” A delay of twice that amount strikes me as “undue” as well.

[37] In my view, the use of the word “undue” to modify the word “delay” in section 7(2) 4 suggests that an objective standard is to be applied to an assessment of whether a party has taken too long to initiate a request for a stay. The word “undue” connotes a concern about “reasonableness” and invokes an occasion of discretion. This for me means it should be best determined objectively. The argument of Manshield to the effect that it is only after all the facts have “crystalized,” that one can begin to count time for the purposes of assessing delay, seems to me to incorporate a subjective test. If Arbitrator Banak had ruled in Manshield’s favour, this application would never have been brought, according to counsel. I am not convinced this is the case. Further, leaving it to the subjective consideration of one party seems to me to be contrary to a plain reading of the words of the statute. I agree with the submissions of counsel for the Respondent subcontractors that if this argument is accepted, there would never be any definitive time when either party would be considered to have unduly delayed invoking an arbitration clause in the face of court proceedings. In this case, the word “undue” in the statute would have no meaning if it was to be assessed in light of tactical decisions made by one party in an parallel arbitration proceeding.

[38] I also agree with the submission of the Respondent subcontractors that Manshield’s argument that a determination of the nature of the contract at issue necessarily changed its position regarding the claims of the subtrades is without merit based on accepted understanding of the operation of construction contracts. Throughout the argument before me, Manshield maintained that if its initial position regarding the form of the contract (that of construction management) had been maintained, it would have had no liability to the Owner for deficiencies as they would have “flowed through” to the subcontractors. This position was not expressly pleaded in the various defences filed by Manshield in these matters. Further, Manshield counterclaimed against the various subtrades for the deficiencies.

[39] It is also important to note that Arbitrator Banak in his decision of December 2016 noted at paras. 8, 9, 126 and 127 that he expressly rejected Manshield’s argument about the effect any claim deficiencies would have on the claims as between the subcontractors and Manshield, stating:

8. The Builders (Claimants), Man-Shield (NOW) Construction Inc. (“MSNWOINC”) and Man-Shield Construction Inc. (“MSINC”) are affiliated construction firms. The distinction between MSNWOINC and MSINC was briefly addressed in the Lien Claim Award. Where the distinction between entities under the “Builders” umbrella is not relevant, reference is made in this Award (and throughout these proceedings) to the “Man-Shield Group”, or simply “Man-Shield”.

9. The Owners (Respondents) are three limited partnerships – each of which is associated with one of the Project buildings – named in this arbitration by their respective general partner corporations...

10. Furthermore, the Builders’ apparent understanding of a CCA5 contract is inconsistent with the actual terms of a CCA5, and so it could not have been the intention of the parties to the JVA to confer these unwritten “benefits” on MSNWOINC. The Builders argue that based on a CCA5 contract, it is the Owners that would bear responsibility for all the costs of construction, except for perhaps any costs resulting from the gross negligence of MSNWOINC. 68 By contrast, the CCA5 contract provides that a construction manager is responsible for its own deficient work or the deficient work of trades who contract directly with the construction manager. In this case, that means that MSNWOINC’s responsibility for deficient work under a CCA5 contract would be largely the same as it would under the Executed CCDC2s.

11. More generally, even if the parties could be said to have acquired rights and obligations under the JVA, the draft CCA5 prepared by Mr. Belluz was not appended to the JVA, and in any event Mr. Belluz’s draft CCA5 did not reflect key provisions of the JVA. For example, the fee structure payable to MSNWOINC in the draft CCA5 is different from the fee structure set out in the JVA, and the draft CCA5 in no way reflects the “Guaranteed Maximum Price” that is repeatedly referenced in key sections of the JVA (as reproduced above).

68 Peter Belluz testimony, Q. 552, 575 (emphasis added).

[40] I note the “JVA” refered to in the quote of Arbitrator Banak is a joint venture agreement between developer parties who are not parties to this action. MSNWOINC was not a party to the JVA but it was mentioned in the document.

[41] In addition to the delay, I find that Manshield is now estopped by its own conduct from seeking to arbitrate. I also do not accept Manshield’s argument that an exercise of discretion against a stay will result in an unfairness to Manshield. In my view, when a Court is called upon to assess the “fairness” of one particular method of proceeding versus another, it has to consider the impact of any decision on all the parties, not just on one party. It seems to me, Manshield’s view of “fairness” takes into account only one party. Manshield. Nobody else. I agree with the submission of the Respondent subcontractors that Manshield made a tactical decision in forcing the Owners to arbitrate, which had a consequence in terms of time passing. In my view the time has now well passed where Manshield can reasonably attempt to enforce its arbitration rights with the Respondent subcontractors.

[42] I am also not convinced the arbitral process undertaken between Manshield and the Owner truly has the global scope urged upon me by counsel for Manshield. If in fact it did, it would have seemed more logical for Manshield to have brought this application in late 2015 rather than now. In this application, counsel for the Owner points out that his clients do not have arbitration agreements with the subcontractors. It does not consent to the subcontractors being added to any arbitration proceedings between it and Manshield.

[43] Manshield has fully participated in both the arbitration proceedings and the process directed at moving the various Construction Lien Act matters along to either resolution or trial. The various actions have been deemed set down for trial. A schedule for exchange of documents is in place. There is a deadline for the completion of discoveries. The Construction Lien Act process can hardly be said to be in the initial phases.

[44] I agree with the submissions of the Respondent subcontractors that the within application has all the hallmarks of a delaying tactic. While I appreciate counsel for Manshield has recently offered some methodologies for speeding up resolution of all claims, I wonder what took them so long.

[45] This application simply asks for a stay of matters currently before the Superior Court. It has no answer for those subcontractors who did not expressly enter into an arbitration agreement with Manshield. It also makes no proposal for how any matters would proceed if a stay was granted. It is not clear that Arbitrator Banak would, or even could, take on any arbitration that would result if the matters were stayed. This lack of a clear plan is perhaps understandable in the face of the provisions of section 6 of the Arbitration Act. Section 6 of the Arbitration Act discourages court intervention in the arbitral process. Matters such as the specifics of how arbitration will be conducted, for example, are issues which are rightly determined by the parties who, after all, agreed to an arbitration process in the first place. However, I do not see the prohibitions in section 6 as being so broad as to require the court to shut its eyes to the practical results of what might occur in the event the court is called upon to exercise a power to limit parties’ exercise of their statutory and constitutional rights to access the courts for redress. At a minimum, I see it as reasonable to assess the practical results of ordering a stay in the context of an assessment of the issue of undue delay.

[46] I am certainly mindful of the strong policy objectives in favour of the use of private arbitration procedures, particularly in the case of sophisticated commercial parties, as are before the court in this application. As set out in Automatic Systems, supra, the fact that matters are initially commenced relying on the provisions of the Construction Lien Act does not preclude the possibility that some matters can be resolved by arbitration. However, I cannot help but observe that the practical result of a stay would create more uncertainty, more delay, and would do little to assist all the parties in moving the matter forward to either resolution or adjudication.

[47] A timetable for the litigation was put in place over seven months ago. The parties are attempting to honour it. I agree with the Respondent subcontractors that to issue a stay would represent an unnecessary inconvenience to all the parties. This application appears to me to represent an attempt to delay the process rather than bring it to a reasonable conclusion or a trial.

[48] Counsel for Manshield urged that section 6 3 of the Arbitration Act mandates the Court to prevent unequal or unfair treatment of parties to arbitration agreements. In my view, this section is directed mainly at parties who have begun an arbitration process. I can see how it might be applicable to parties who are resisting the application of an arbitration agreement to which they have entered, but I do not think it can be stretched as urged by Manshield, particularly in this case. To grant a stay after a sixteen month delay would create a great degree of uncertainty, would not result in matters proceeding any quicker to adjudication or settlement, and would add unnecessary costs for the respondent subcontractors.

[49] For all of these reasons the application to stay is dismissed.

[50] At the commencement of the proceedings, I asked both counsel for a rough estimate of the costs they would be seeking if they were successful. Counsel for Manshield was initially reluctant to commit to a figure. Of course, the practice in some areas of the province requires counsel to have prepared a costs outline before argument begins in order for the court to consider a costs request at the end. Neither party offered up such costs outlines. However, after some consideration, they both offered a rough estimate of partial indemnity costs of between $5,000.00 and $7,500.00 if they were the successful party. In my view, this is a realistic estimate of a costs range for the type of application that was argued. Absent offers to settle, I would be inclined to award partial indemnity costs of $6,500.00 inclusive of HST and disbursements to the Respondents payable by Manshield forthwith. Of this amount, $5,000.00 would be payable to counsel for the Respondent subcontractors and $1,500.00 would be payable to counsel for the Owners as this, in my view, represents a fair split of the respective contributions to the successful side of the application before the court.

[51] If this costs disposition is not acceptable to any party, I would be prepared to entertain further submissions. If this is required, the requesting party shall make their intentions known within five business days of release of these reasons and brief teleconference appointment can be arranged with the trial coordinator at Thunder Bay. Failing which, costs will be ordered as noted above.

The Hon. Mr. Justice F.B. Fitzpatrick

Released: April 12, 2017