COURT FILE NO.: 15-4116-SR DATE: 2022/03/18
SUPERIOR COURT OF JUSTICE-ONTARIO
RE: NIELTECH SERVICES LTD., Plaintiff -and- WASERO CONSTRUCTION (1991) LTD., ASSUNTA CASCIARO, ROSA NUDO, ASSUNTA NUDO, TERESA NUDO and ROSA NUDO-PERRAS, Defendants
BEFORE: Gibson J.
COUNSEL: Michael A. Van Bodegom, Counsel for the Plaintiff Connor Marino, Counsel for the Defendants
HEARD: December 1, 2021
ENDORSEMENT
Overview
[1] The parties are involved in a Construction Act trust action by Nieltech Services Ltd. (“Nieltech”), a subcontractor, against Wasero Construction (1991) Ltd. (“Wasero”), a contractor, and certain defendants who were directors, officers or persons having effective control of Wasero, including Rosa Nudo-Perras (“Nudo”).
[2] Nieltech moves for summary judgment against Nudo. Wasero and the defendant Assunta Casciaro (“Suzie”), who was a director and officer of Wasero, have both made assignments into bankruptcy. The defendant Teresa Nudo has passed away.
[3] Nieltech seeks summary judgment as against Nudo in the amount of $45,757.26 plus pre-judgment interest. In the alternative, it seeks an Order extending the time to set this action down for trial under Rule 48 of the Rules of Civil Procedure and, if summary judgment is not granted, imposing deadlines for the completion of the remaining steps necessary for the action to be set down for trial.
[4] Nieltech submits that Wasero was acting as the contractor for the owners of certain construction projects and was paid (or is owed) amounts by the owners for work on the improvements. It says that the amounts paid (or owing) to Wasero are trust funds under the Act, and that Wasero has failed to pay Nieltech the amount due and outstanding, and has failed to account for the trust funds.
[5] Nieltech submits that at all material times Nudo was the President and director of Wasero and that she is liable to Nieltech for the full amount due and owing by operation of s.13 of the Act, on the basis that she assented to or acquiesced in conduct she knew, or reasonably ought to have known, amounted to a breach of trust by Wasero, including the ongoing failure to account for the trust funds received (or owing) to Wasero. Pursuant to the Act, Nudo has a duty to provide a trust accounting of the funds received and distributed. Failure to do so, or failure to be able to do so, is a breach of trust for which Nudo is personally liable.
[6] Nudo insists that there would be a genuine issue for trial in this matter concerning the funds received, and her personal liability. She asks the Court to dismiss Nieltech’s motion for summary judgment, declare that the set down deadline for this action should not be extended, and to dismiss the action for delay pursuant to Rule 48.14.
Background
[7] Nieltech is in the business of flushing and video-scoping underground sewers and similar installations. Wasero was in the business of installing sewers and similar installations.
[8] Nieltech entered into a series of contracts with Wasero for the flushing and video-scoping of sanitary storm sewers related to the following Projects:
(a) BMA development Phase I, Bradford, Ontario (“BMA”); (b) 45 Lowndes Avenue, Keswick, Ontario (“Lowndes”); (c) Westbrook at Grand Central Phase II, Bradford, Ontario, (“Westbrook”); and (d) Greengate Village, Keswick, Ontario (“Greengate”).
[9] Nieltech provided the services contemplated by the Contracts and issued invoices totaling $53,757.26 to Wasero. Wasero issued cheques to Nieltech totalling $49,514.11. When Nieltech presented these initial cheques to its bank for negotiation, it discovered that Wasero had countermanded the initial cheques by placing a “stop payment” order. Accordingly, Nieltech could not negotiate these initial cheques.
[10] On February 18, 2015, following repeated demands by Nieltech for replacement cheques, Wasero entered into a Resolution Agreement with Nieltech. On February 27, 2015, pursuant to the payment terms contained in the Resolution Agreement, Wasero provided Nieltech with replacement cheques in the amount of $53,757.26.
[11] Nieltech negotiated the first and second of the replacement cheques without incident, which reduced the balance owing. When Nieltech attempted to cash the next cheque on April 27, 2015, the cheque was not honoured as there were insufficient funds in Wasero’s bank account. The amount of Nieltech’s invoices ($53,757.26, inclusive of HST) less the $8,000 paid by the honoured cheques is the sum of $45,757.26, which remains outstanding and due.
[12] The Statement of Affairs delivered along with its Notice of Bankruptcy indicates that, as of the date of its bankruptcy, Wasero had no deposits in financial institutions, no bills of exchange or promissory notes, and no cash on hand.
[13] Nudo has admitted that certain accounting records of Wasero are effectively impossible to recover, have been lost, and, in some cases, have been misplaced, discarded, or provided to the Trustee in Bankruptcy, and cannot be located or retrieved. Nudo’s position is that a full reconciliation of Wasero’s accounts with respect to the subject projects is not possible.
Issues
[14] The Issues before the Court on this motion are thus:
(i) Is the evidentiary record before this Court sufficient to make a finding that Wasero breached its trust obligations under the Act?; (ii) Has Wasero breached its trust obligations under the Act?; (iii) If so, is Nudo personally liable for Wasero’s breaches of trust? (iv) Is there a genuine issue for trial with respect to the alleged breach of trust? (v) In the alternative, should the deadline to set this action down for trial be extended?
[15] The Act, as it read on June 30, 2018, applies to this matter.
Test for Summary Judgment
[16] In assessing whether summary judgment is appropriate, the Court must determine whether the summary judgment procedure provides the evidence to adjudicate the dispute in a way that is fair, just, timely, affordable, and proportionate. If the court finds that there is a genuine issue for trial, then it may apply its investigative powers under subrules 20.04(2.1) and (2.2), if doing so will avoid the need for a trial without hampering the interests of justice. Rule 76 matters and trust claims under the Act can be determined on a Rule 20 motion.
Law
[17] The trust provisions of the Construction Act are remedial. Section 8 of the Act, as it read on June 30, 2018, contemplates a single trust fund for the benefit of all subcontractors that supply services or materials. The language of s.8(2) of the Act, as it then read, which sets out the obligations of the trustee, is mandatory. It provides that the trustee shall not use the trust funds for any purpose inconsistent with the trust until all trades and suppliers are paid all amounts owed to them. Section 8(1) specifically provides that the trust fund is held for the benefit of persons who supplied goods and services to the improvements and who are owed money. Trust funds must only be used to pay the claims of beneficiaries until such time as all of them have been paid in full. If the trust funds held in respect of one project are used to pay suppliers on a different project or to pay other expenses, the contractor is in breach of trust. This statutory trust takes priority over the contractor paying him or herself.
[18] When a breach of trust is alleged, the initial onus is on the subcontractor to prove the existence of the trust by showing that the general contractor received money from the owner of the project; the subcontractor supplied services or materials; and, the subcontractor was not paid.
[19] The onus then shifts to the contractor to show that it applied the trust moneys as required by the Act. The contractor is accountable and must justify any expenditure of the funds. Failure to do so gives rise to liability for breach of trust: Firenze Exteriors Inc. v. Westwing Construction Group Inc. at paras. 8 and 9.
Assessment
[20] Nieltech has discharged its onus in this case. It has shown that Wasero received money from the owner of the project, that it supplied services or materials, and that it has not been paid.
[21] Nudo has not discharged her onus. She has not provided a full or reliable accounting of trust funds received, nor has she justified the expenditure of the funds.
[22] Once a trust is shown to have arisen, the general contractor and any directors, officers, and controlling individuals will only discharge their onus and avoid corporate and individual liability for breach of trust with evidence establishing that the spending of trust funds was in accordance with the Act. The onus does not lie with the plaintiff to construct such accounting.
[23] A failure to set up a proper system to receive, monitor and disburse trust funds can itself be sufficient to constitute a breach.
[24] Nudo relies upon the length of time that has passed between the beginning of this action and the date of this motion to justify why she cannot provide a trust accounting. This is not an acceptable excuse.
[25] Nudo has failed in her obligation to account. She asserts that the payments made by Wasero far exceed the amounts received on each of the subject projects (despite not providing any documentation or particulars as to the total amount of funds received.) She thus asserts that there is no breach of trust. This interpretation was explicitly rejected in St. Mary’s Cement Corp. v. Construc Ltd., [1997] O.J. No. 1318 (Gen. Div).
[26] The obligation to disburse the trust funds rateably applied to Wasero’s handling of the subject trust funds upon the earlier of Wasero’s insolvency, or when the trust funds in its hands became insufficient to pay its trades. Nudo has failed to provide any particulars or explanation why Wasero paid some trades in priority to others.
[27] Section 13 of the Act, as it read on June 30, 2018, provides for personal liability for breach of trust. A director, officer, or person effectively controlling a corporation who assents to or acquiesces in conduct he or she knows, or ought to know, amounts to breach of trust by the corporation, will also be personally liable for breach of trust: Toro Aluminium Ltd. v. Revah, at para. 8.
[28] Personal liability depends on an objective analysis as to what a reasonable person ought to know, and does not require dishonesty, personal benefit, or a subjective awareness of the Act’s trust provisions. All that is required is participation of such a degree as to at least put a reasonable person on inquiry as to whether there was a breach of trust.
[29] Nudo was directly involved in collecting trust funds from construction projects and disbursing those trust funds. As such, Nudo was aware of the receipt of trust funds and aware that those funds were not disbursed in accordance with Wasero’s trust obligations, including payment to Nieltech. In particular, Nudo directly negotiated the terms of the resolution agreement on behalf of Wasero. And she personally directed when cheques could be negotiated and who was involved in collecting funds. She permitted the comingling of funds and did not set up a proper accounting system. She assented to or acquiesced in conduct that she knew or reasonably ought to have known amounted to a breach of trust by Wasero. She is personally liable.
[30] Nudo submits that there remains a genuine issue for trial as to the distribution of trust monies, and knowledge or acquiescence. I do not concur. On a motion for summary judgment, each party is obligated to put its best foot forward. The evidence adduced by the defendant Nudo is insufficient to persuade that there remains any genuine issue, or that a trial judge would be any better situated.
[31] Nudo asserts that by the end of 2013, an accounting system formerly used by Wasero, Accountability, had become obsolete, and Wasero then transferred accounting systems from Accountability to QuickBooks. She submits that “certain accounting records of Wasero are effectively impossible to recover as Wasero can no longer access the records stored in Accountability.” This is difficult to accept. Even if the Accountability system is no longer considered current or preferable, the records do not magically disappear. Even old software can still work. Or the records can be brought to a technician who can make it work. This is a feeble excuse which I do not find credible. Neither do I accept the other excuses advanced by Nudo as to why she cannot produce a proper accounting.
[32] There is sufficient evidence available to the Court to adjudicate the dispute in a way that is fair, just, timely, affordable, and proportionate.
[33] There remain no genuine issues for trial. This is an appropriate case for summary judgment.
[34] I make the following findings of fact. $45,757.26 remains owing to Nieltech. The defendant Nudo has not provided a complete or reliable accounting of the trust funds. She failed in her obligation to put in place a reliable system of accounting. There was a breach of trust by Wasero pursuant to its obligations under the Act. Nudo is personally liable for the breaches. The delay in this case of which Nudo complains falls primarily at the feet of the defendants. Had there been a proper accounting system in place, the passage of time would not have been a problem.
[35] There should be judgment for the plaintiff in this matter.
Order
[36] The plaintiff’s motion for summary judgment will be granted. There will be judgment as against Nudo in the amount of $45,757.26 plus pre-judgment interest.
Costs
[37] The parties are encouraged to agree upon appropriate costs. If the parties are not able to agree on costs, they may make brief written submissions to me (maximum three pages double-spaced, plus a bill of costs) by email to my judicial assistant at mona.goodwin@ontario.ca and also to Kitchener.SCJJA@ontario.ca. The plaintiff may have 14 days from the release of this decision to provide its submissions, with a copy to the defendant Nudo; the defendant a further 14 days to respond; and the plaintiff a further 7 days for a reply, if any. If no submissions are received within this timeframe, the parties will be deemed to have settled the issue of costs as between themselves. If I have not received any response or reply submissions within the specified timeframes after the plaintiff’s initial submissions, I will consider that the parties do not wish to make any further submissions, and will decide on the basis of the material that I have received.
M. Gibson, J. Date: March 18, 2022