CITATION : Central Welding v. HPN et al . 2024 ONSC 1141

Court File and Parties

COURT FILE NO.: CV-22-50 DATE: 2024/02/23 ONTARIO SUPERIOR COURT OF JUSTICE

BETWEEN:

1510610 ONTARIO INC. o/a CENTRAL WELDING & IRON WORKS Plaintiff – and – 736902 ONTARIO LIMITED o/a HPN ENGINEERING, NORTHBRIDGE FINANCIAL CORPORATION, and PUBLIC WORKS AND GOVERNMENT SERVICES CANADA Defendants

Counsel: Joseph Kennedy, for the Plaintiff 1510610 Ontario Inc. o/a Central Welding & Iron Works B. Van Santen and S. Wladysiuk for the Defendant Public Works and Government Services Canada Andrew Puno for the Defendants 736902 Ontario Limited o/a HPN Engineering, Northbridge Financial Corporation

HEARD: January 5, 2023 and January 11, 2024

REASONS FOR DECISION

Wilcox, J.

INTRODUCTION

[1] This matter arises out of a construction project (the project) to replace a bridge in Washago, Ontario. The plaintiff brought a Statement of Claim for payment of $38,554.55. The defendant Public Works and Government Services Canada (PWGSC) brought a motion to amend the title of proceeding, to strike the Statement of Claim against it, and for other relief. It was opposed by the plaintiff. The other defendants did not participate in the motion. Counsel for the PWGSC indicated that they had been served and were awaiting the outcome.

THE ACTION

[2] The Statement of Claim alleges as follows. The plaintiff is a corporation incorporated pursuant to the laws of the province of Ontario, carries on business as a fabricator of structural steel and was a subcontractor as defined in s.1 of the Construction Act (the Act). The defendant 736902 Ontario Limited operating as HPN Engineering (HPN) is a corporation incorporated pursuant to the laws of Ontario and carries on business as a general contractor. The defendant Northbridge Financial Corporation (NFC) is a corporation incorporated pursuant to the laws of Canada and transacts the business of suretyship in Canada. The defendant PWGSC is a federal crown corporation. HPN was the general contractor for the replacement of Bridge 56 at Lock 42, Couchiching in Washago, Ontario. PWGSC was an owner and payor within the meaning of both terms as defined in the Act. NFC was the provider of a labour and material payment bond for HPN with respect to the project.

[3] The Statement of Claim continues that, on or about November 27, 2019, the plaintiff entered into a subcontract with HPN whereby the plaintiff agreed to provide materials and, in particular, structural steel for the project. The plaintiff’s services rendered for the project involved the fabrication, delivery and erection of structural steel. HPN provided partial payment to the plaintiff for its work completed on the project. PWGSC failed to certify substantial performance of the project or of the plaintiff’s subcontract with HPN. HPN has failed and or refused to provide the holdback amount of $38,554.55 to the plaintiff.

[4] The plaintiff claims payment of $38,554.55 on the basis of alleged breach of contract, breach of the trusts created by the Act, and unjust enrichment. The plaintiff also alleges that, because PWGSC failed or refused to certify the substantial performance of the project or that the plaintiff’s subcontract with HPN had been completed, the plaintiff had suffered damages.

[5] The defendant Public Works and Government Services Canada has not yet delivered a Statement of Defence, pending the outcome of this motion.

The Motion

[6] The motion brought by the Attorney General of Canada is for:

1. An Order that the title of proceedings be amended by removing “Public Works and Government Services Canada” and replacing it with “The Attorney General of Canada,” as Public Works and Government Services Canada has been incorrectly named as a defendant in the Statement of Claim;
2. An order striking out the Statement of Claim against the AGC in its entirety with no leave to amend on the ground that it discloses no reasonable cause of action pursuant to rule 21.01(1)(b) of the Rules of Civil Procedure and is frivolous, vexatious or an abuse of process pursuant to Rule 21.01(3)(d) of the Rules of Civil Procedure;
3. In the alternative, an order striking out the Statement of Claim in whole or in part as against the AGC, with leave to amend;
4. In the further alternative, in event the Statement of Claim is not struck, an extension of time of 30 days from the date of the Court’s Order for the AGC to serve and file its Statement of Defence;

Title of Proceedings

[7] The change in the title proceedings was consented to. The moving party defendant shall be referred to as The Attorney General of Canada (AGC).

F76B Simplified Procedure Motion Form

[8] The action was brought pursuant to the simplified procedure under rule 76. Rule 76.05 sets out the procedure for motions in rule 76 matters. The plaintiff initially sought to have the AGC’s motion dismissed because it had failed to serve a Form 76 B in accordance with rule 76.05 (1) of the Rules of Civil Procedure.

[9] Rule 76.05(1) requires the moving party to serve a Form 76B in accordance with rule 37.07 and submit it to the court before the motion is brought and heard. The motion record is dated July 21, 2022. It required that the motion be heard in writing. The responding motion record, dated August 2, 2022, indicated an intention to respond orally and a return date of August 12, 2022. The moving party then delivered the Form 76B dated Aug 9, 2022. When the motion was heard on January 5, 2023, the plaintiff abandoned this claim.

Test for Striking Pleadings

[10] Rule 21.01(1)(b) provides that a party may move before a judge to strike out a pleading on the ground that it discloses no reasonable cause of action or defence, and the judge may make an order or grant judgment accordingly.

[11] A cause of action is a set of facts that entitles a person to obtain a judgment in his or her favour from a court exercising its common-law, equitable or statutory jurisdiction. [1]

[12] The test that governs the application of this rule has long been the subject of judicial comment. This history was reviewed by Wilson J. of the Supreme Court of Canada in Hunt v. Carey, [2] a decision that forms the basis of those that follow, including a series of cases in both the Supreme Court of Canada and the Ontario Court of Appeal. A concise summary of the test by the latter is found in Eliopoulos v. Ontario (Minister of Health & Long-Term Care) [3] at paragraph 8:

8 It is common ground that the test for striking a Statement of Claim at the pleadings stage is a stringent one with a difficult burden for defendants to meet. The allegations of fact in the Statement of Claim, unless patently ridiculous or incapable of proof, must be accepted as proven. In order to succeed, rule 21.01(1)(b) requires the moving party to show “that it is plain, obvious, and beyond doubt that the plaintiff could not succeed”. Moreover, the claim “must be read generously with allowance for inadequacies due to drafting deficiencies” and should “not be dismissed simply because it is novel”: see Hunt v. Carey Canada Inc., [1990] 2 S.C.R. 959 at 980.

[13] This was relied on as recently as in the February 10, 2023 judgment of the Ontario Court of Appeal in Shaulov v. Law Society of Ontario. [4]

[14] Rule 21.01(3)(b) provides that a defendant may move before a judge to have an action stayed or dismissed on the ground that the action is frivolous or vexatious or is otherwise an abuse of the process of the court, and the judge may make an order or grant judgment accordingly.

[15] The test under this rule was set out by the Ontario Court of Appeal in Salasel v. Cuthbertson [5] as “(a)ny action for which there is clearly no merit may qualify for the classification as frivolous, vexatious, or an abuse of process … A court only invokes its authority under rule 21.01(3)(b) or pursuant to its inherent jurisdiction to dismiss or stay an action in the clearest of cases: Currie v. Halton (Region) Police Services Board, [2003] O.J. No. 4516, 233 D.L.R. (4th) 657 (C.A.), at paras. 17 and 18 ”.

[16] In Dosen v. Meloche Monnex Financial Services Inc. (c.o.b. Security National Insurance Co.), 2021 ONCA 141, [6] the Ontario Court of Appeal helpfully stated that the same “plain and obvious” test applies to r. 21.01(3)(b) as does to r. 21.01(1)(b). Paragraph 27 reads:

27 When a party moves under r. 21.01(3)(d) to strike pleadings on the basis of res judicata or abuse of process, it bears the onus of satisfying the “plain and obvious” test. This test is more commonly applied under r. 21.01(1)(b) to strike out claims that disclose no reasonable cause of action, following the Supreme Court’s decision in Hunt v. T&N plc, [1990] 2 S.C.R. 959. However, this court has affirmed that the same test also applies under r. 21.01(3)(d). In Simone Estate v. Cheifetz (2005), 201 O.A.C. 120 (C.A.), at paras. 24-25, this court noted that on a r. 21 motion to strike pleadings on the basis of issue estoppel and abuse of process, the moving party “bears a heavy onus and must establish that it is ‘plain, obvious and beyond doubt’ that the plea could not succeed”. In Waterloo (City) v. Wolfraim, 2007 ONCA 732, 287 D.L.R. (4th) 65, at para. 3, this court reiterated that “[a] court should invoke its authority to stay an action for abuse of process only in the clearest of cases”. Similarly, in Salasel v. Cuthbertson, 2015 ONCA 115, 124 O.R. (3d) 401, at para. 8, this court held that “[a] court only invokes its authority under rule 21.01(3)(d) … in the clearest of cases” (emphasis added.) 1

[17] It was common ground that the test for striking out a pleading on the ground that it disclosed no reasonable cause of action was whether, assuming the facts pleaded to be true, it was plain and obvious that the claim did not do so. Another way of putting the test is the claim has no reasonable prospect of success.

Breach of Contract

[18] The AGC submitted that there is no contract between the plaintiff and it. The plaintiff’s claim does not allege that any such contract exists. The only contract identified in the Statement of Claim to which the plaintiff is a party is the subcontract between the plaintiff and HPN. This contract cannot create any obligations for the AGC nor any rights for the plaintiff to claim against the AGC for breach. The pleadings identify no facts supporting privity, no breached terms and no damages flowing therefrom. Consequently, the AGC submitted, the plaintiff’s claim against the AGC for breach of contract has no reasonable prospect of success.

[19] Counsel for the plaintiff conceded this point.

Breach of Trust

[20] The AGC submitted that provisions of the Act indicating that it binds the Crown also indicate that it is the provincial Crown, Ontario, not the federal Crown, Canada, that is bound, and that this is supported by case law. [7] Consequently, the plaintiff cannot claim against the AGC under the trust provisions of the Act. Therefore, the plaintiff’s claim in trust, to the extent that it relies on s. 8 of the Act, discloses no reasonable cause of action or breach of trust as against the AGC.

[21] Counsel for the plaintiff conceded this point, as the Act is not applicable to the federal Crown.

Failure to Certify Substantial Performance

[22] The AGC submitted that the plaintiff’s claims against it for failing or refusing to certify substantial performance of either the project or of the plaintiff’s subcontract with HPN clearly lacked merit and are therefore frivolous, vexatious for an abuse of process for three reasons. First, the plaintiff relies on the Act which does not apply to the federal crown, as previously noted. Second, even if the Act did apply to the federal crown, a failure or refusal to certify completion does not provide a cause of action or liability under the Act. Third, AGC did in fact issue a certificate of substantial performance for the project.

[23] The plaintiff objected to the AGC submitting a certificate of substantial performance with its factum on the ground that rule 21.01(2)(b) does not allow evidence to be admitted on a motion under it to strike a pleading. The AGC responded that this part of its motion was brought explicitly under rule 21.01(3)(b) for which there was no provision disallowing evidence.

[24] The plaintiff then pointed out that the certificate was unsigned and undated. Furthermore, if a certificate existed, it could found a motion for summary judgment. The AGC responded that the unsigned copy was in court due to error, and there was one signed on January 19, 2022.

[25] Again, counsel for the plaintiff conceded that the Act is not applicable to the federal crown.

Unjust Enrichment

[26] As the other bases for the claim had been disposed of, counsel focused on the claim for unjust enrichment.

[27] The Statement of Claim claimed compensation for unjust enrichment and quantum meruit. It stated that the plaintiff also relied on all equitable remedies relating to the law of trust including tracing and constructive trust. It also claimed restitution. The amount in each case was the same $38,554.55.

[28] There is authority to the effect that a restitutionary claim is the same as a claim for unjust enrichment, [8] that remedies for unjust enrichment fall within a category of the law called “restitution”, [9] and that “the most generally accepted basis for restitutionary relief is “unjust enrichment”. [10] Remedies for such include restitutionary (as compared to contractual) quantum meruit and constructive trust. In light of this, the Statement of Claim is understood to allege unjust enrichment and to claim a remedy therefore.

[29] A claim for unjust enrichment requires three elements, an enrichment of one party, a corresponding deprivation of the other party, and the absence of a juristic reason for the enrichment. Where unjust enrichment is found, the remedy may be a monetary award calculated on a quantum meruit or other basis, or a proprietary one wherein a share of the property proportional to the plaintiff’s contribution could be impressed with a constructive trust in his favor. [11]

[30] The Statement of Claim alleges that the plaintiff subcontracted with HPN to provide services and materials to the project for which it received payment except for the holdback amount under the Act. There were no submissions on the motion about enrichment and corresponding deprivation. Rather, the focus was on “juristic reason”.

[31] Kerr v. Baranow “remains the leading authority on the elements of a claim for unjust enrichment”. [12] On the issue of juristic reason, Kerr drew upon the two-step juristic reason analysis described in the Supreme Court of Canada’s earlier decision in Garland v. Consumers Gas Co., 2004 SCC 25. That analysis is succinctly set out in Halsbury’s Laws of Canada. [13]

The current thinking of the Court is summarized in Kerr v. Baranow, where the Court outlined the two-part analysis (adopted from the Garland case) for the absence of juristic reason. First, the plaintiff is required to show that no juristic reason from an established category exists to deny recovery. The established categories that can constitute juristic reasons include a contract, a disposition of law, a donative intent, and other valid common law, equitable or statutory obligations. If there is no juristic reason from an established category, then the plaintiff has made out a prima facie case under the juristic reason component of the analysis. Second, the prima facie case is rebuttable where the defendant can show that there is another reason to deny recovery. As a result, there is a de facto burden of proof placed on the defendant to show the reason why the enrichment should be retained. This stage of the analysis thus provides for a category of residual defence in which courts can look to all of the circumstances of the transaction in order to determine whether there is another reason to deny recovery. As part of the defendant’s attempt to rebut, courts should have regard to two factors: the reasonable expectations of the parties, and public policy consideration.

[32] The AGC submitted that there are three juristic reasons for any enrichment of the AGC and corresponding deprivation of the plaintiff:

1. The contract between the AGC as owner and HPN as the contractor,
2. The subcontract between HPN as contractor and the plaintiff as subcontractor, and
3. The Construction Act’s comprehensive scheme of rights and obligations.

Juristic Reason 1

[33] The AGC submitted that caselaw had held that a contract between an owner and a general contractor for improvements to the owner’s land constitutes juristic reason for the owner’s enrichment in circumstances where a subcontractor seeks to claim for unjust enrichment against the owner for those improvements. [14] Therefore, the AGC submitted, AGC's contract with HPN constitutes a juristic reason for the AGC’s enrichment, if any occurred, and precludes the plaintiff’s claim for unjust enrichment against the AGC. Consequently, it is plain and obvious that the plaintiff’s claim against the AGC for unjust enrichment discloses no reasonable cause of action. I agree.

[34] The plaintiff relied on two cases, N.K.P. Painting Inc. v. Boyko, [15] and Burmet Northern Ltd. v. Kashechewan First Nation et al. [16]

[35] The decision in NKP restricted the situations in which the existence of a contract amounted to juristic reason to those in which the unjust enrichment claimant is a party to the contract, as is the party against whom the claim is advanced. The Divisional Court in Tremblar Building Supplies Ltd. v. 1839563 Ontario Limited [17] held that “NKP is wrongly decided and is not supported by the caselaw”. Being a Divisional Court ruling, I take it as binding.

[36] Burmet is a decision on costs. The plaintiff had sued on a contract they had with a first nation to supply labor, materials and equipment to its reserve on land owned by the Crown. The judge had previously ruled on the Crown’s motion to strike the Statement of Claim of the plaintiff, and on the plaintiff’s request for leave to amend its Statement of Claim to claim unjust enrichment. The Act was found not to apply to the Federal Crown. The claim for unjust enrichment was allowed to proceed.

[37] The plaintiff submitted that I should follow Burmet. However, I decline to do so. I agree with the AGC that:

“The sole relevance of Burmet to the present case is its confirmation that the provincial Construction Act does not apply to the Federal Crown. [18] Burmet is otherwise not analogous to the present case as it does not involve the key factual scenario common to all case law on point: an owner, contractor, and subcontractor, and the chain of mutually exclusive contracts between these entities that provides the juristic reasons for denying a subcontractor’s recovery against an owner for unjust enrichment. Notably, the Court in Burmet did not refer to any of the many cases dealing with unjust enrichment claims in owner-contractor-subcontractor scenarios, confirming that Burmet does not address the legal issues particular to those cases and to the present case.

Juristic Reason 2

[38] The AGC further submitted that the contract between the subcontractor and the contractor also serves as a juristic reason for denying recovery. It relied on the case of J. Lepera Contracting Inc. v. Royal Timbers Inc. [19] In that case, Royal Timbers Inc. owned some land. Sonoma had an agreement to buy part of that land. Sonoma contracted with Lepera for site servicing, which Lepera did and invoiced for. Sonoma failed to pay. Lepera got default judgment against Sonoma and registered a construction lien against the interest of Royal Timber and Sonoma in the land. Sonoma aborted its purchase of the land. The lien claim against Royal Timber was dismissed. Lepera’s claim against Royal Timber for unjust enrichment also failed, on the basis that Lepera’s contract with Sonoma was sufficient juristic reason and, furthermore, that the reasonable expectations of the parties were that Lepera would be paid by Sonoma for the work it did.

[39] The case therefore stands for the proposition that contracts which form juristic reason in construction situations are not limited to only those between the contractor and owner, as in the Barrie Trim and OnPoint cases, but may include also contracts between the unjust enrichment claimant and another party. In the present case, that would be the contract between the plaintiff subcontractor and the contractor, HPN.

Juristic Reason 3

[40] The AGC also submitted that the Construction Act’s scheme of liens and trusts is another ground to eliminate the plaintiff’s unjust enrichment claim. As stated in Tremblar, the Act creates rights and obligations, in addition to the contractual rights and obligations of the parties. The Divisional Court held that “augmenting the scope of claims available (i.e., via unjust enrichment) would undercut the balance established by the Act. The comprehensive scheme of rights and obligations under the Construction Lien Act is the juristic reason for precluding claims for unjust enrichment by subcontractors against owners”. [20] Although the Act does not apply to the federal Crown, the plaintiff’s trust rights under it would still apply as normal in the present case because they apply to the contractor, not to the owner. So, it was submitted, these rights are another juristic reason for any enrichment.

[41] Tremblar has been followed in subsequent cases. [21]

[42] The plaintiff submitted in response that Tremblar must be read in light of Electro-Works Ltd. v. Fogler, Rubinoff LLP. [22] It involved a construction matter in which various subcontractors’ lien claims had been settled by the contractor on the basis that the owner would pay the contractor a sum of money which was paid to the defendant law firm, the contractor’s lawyers, in trust, which was done. Electro-Works then got judgment in a related action for breach of trust under s. 8 of the Construction Act, which it sought to enforce against the law firm as a trustee, invoking the doctrine of “knowing receipt”. The law firm relied on Tremblar in arguing that the trust provisions of the Act should be interpreted according to the terms of the statute without reference to other doctrines.

[43] The court in Electro-Works found that Tremblar explicitly did not take away any common-law rights, but stated that the Construction Act provided additional obligations and rights to those provided by the common-law. On this basis, the plaintiff in the present case submitted that it had common-law rights and claims against the AGC.

[44] I find Electro-Works to be distinguishable. It dealt with the application and interpretation of the trust provisions of the Act, not the matter of remedies such as unjust enrichment outside of the Act. Indeed, the Court in Electro-Works noted this, saying at paragraph 29, “ Tremblar considered a very specific set of facts where the arguments advanced by the plaintiff would expand on the trust obligations of owners under the Act. This is simply not the case here”.

[45] The plaintiff also submitted that HPN’s crossclaim against AGC triggered the common-law claims and rights pleaded in the Statement of Claim against the AGC, in particular HPN’s allegation that the AGC “has held back or otherwise refused to release significant amounts …” In response, I would note that, apart from a claim under the Negligence Act, the allegations against the AGC arise out of contract within the construction project. Therefore, the answer to this submission is, as in Tremblar, that the matter is dealt with by the comprehensive scheme of construction law.

Conclusion on Juristic Reason

[46] I find that the claim for unjust enrichment fails for any or all of the three juristic reasons put forward by the AGC.

Constructive Trust

[47] The plaintiff’s claims included a constructive trust. As previously indicated, constructive trusts are potential remedies where unjust enrichment is found, which is not the situation here. However, the AGC submitted the case of Van Geel v. Penha [23] in response to that claim, so I will address it. In that case, the plaintiff contractor had performed renovations on the defendant's cottage property, out of which arose a dispute. That property had subsequently been sold and the proceeds of sale put into a second property. The contractor commenced an action asserting an entitlement to an interest in the second property based on constructive trust principles. The case held that the contractor’s entitlement was contractual. Any interest it might have upon the land is limited to that provided for in the Act. The contractor could not assert an interest based on trust principles. This supports the conclusion with respect to the third juristic reason.

[48] Furthermore, given that the property in the present case is a federally-owned bridge, it is difficult to envisage a constructive trust being an appropriate remedy even if unjust enrichment was found.

CONCLUSION

[49] In view of the above, I find that the test for striking pleadings has been met. The plaintiff has no cause of action against the AGC. This it not a situation that could be cured by leave to amend. Therefore, the Statement of Claim against the AGC is struck in its entirety.

COSTS

[50] If costs are sought and cannot be agreed upon, the AGC has 30 days to deliver its costs submissions and Bill of Costs and the plaintiff has a further 15 days to deliver its reply. Each side’s submissions are limited to 3 pages.

Wilcox, J. Released: February 23, 2024