Court of Appeal for Ontario

Provincial Store Fixtures Ltd., 2016 ONCA 320 Date: 2016-05-02 Docket: C60951

LaForme, Pardu and Roberts JJ.A.

Between

Architectural Millwork & Door Installations Inc. Plaintiff (Respondent)

and

Provincial Store Fixtures Ltd. Defendant (Appellant)

Counsel: Marco Drudi and Lisa Lutwak, for the appellant Wade Sarasin, for the respondent

Heard: March 11, 2016

On appeal from the judgment of Justice A.D. Grace of the Superior Court of Justice dated August 5, 2015, with reasons reported at 2015 ONSC 4913.

Endorsement

[1] The appellant appeals the partial summary judgment granted to the respondent.

[2] The respondent sued the appellant claiming damages for breach of contract, unjust enrichment and in quantum meruit because of the appellant’s failure to pay the respondent’s invoices. The respondent had subcontracted with the appellant to install millwork manufactured by the appellant at the OLG Casino construction project in Brantford.

[3] The appellant raised no deficiencies with the respondent’s work on the OLG Casino Project and admitted that the monies claimed were owed. However, the appellant claimed no payment was required because of the application of the credit memo issued by the respondent and the appellant’s assertion of the right to set-off monies related to alleged deficiencies in the respondent’s work on other unrelated construction projects.

[4] The motion judge partially allowed the respondent’s motion for summary judgment in the amount of $61,696.31 and rejected the appellant’s claim for set-off. The sole issue deferred for trial, from which no appeal has been taken, is whether the credit memo continues to be operative.

[5] The only issue on appeal is whether the motion judge erred in rejecting the appellant’s claim for set-off under s. 12 of the Construction Lien Act, R.S.O. 1990, c. C.30 (“CLA”), or by way of equitable set-off. The appellant did not pursue the issue of legal set-off raised in its notice of appeal.

[6] We see no basis to interfere with the motion judge’s decision.

[7] First, s. 12 of the CLA does not apply in the circumstances of this case. This section provides as follows:

Subject to Part IV, a trustee may, without being in breach of trust, retain from trust funds an amount that, as between the trustee and the person the trustee is liable to pay under a contract or subcontract related to the improvement, is equal to the balance in the trustee’s favour of all outstanding debts, claims or damages, whether or not related to the improvement.

[8] The motion judge disposed of the appellant’s claim for set-off under s. 12 of the CLA, as follows:

In C & A Steel, supra, it was appropriate to apply the statutory right of set-off the CLA created. Sharpe J. (as he then was) explained why:

…the plaintiff has claimed the benefit of the construction lien statute and has obtained security for its claim. Having availed itself of the benefits of the Act, I fail to see how the plaintiff can claim to deprive the defendant of the benefits of the statute, including the broad set-off provision of s. 17(3).

This case is a different one. AMDI has not claimed the benefit of the CLA.

AMDI does not assert a lien. It does not allege the existence, let alone breach, of that statue’s trust provisions. Section 12 of the CLA is not engaged.

[9] The appellant argues that the motion judge erred in determining that s. 12 of the CLA did not arise because the respondent framed its pleading in breach of contract, and did not claim a lien or invoke the trust or other provisions of the CLA, and that s. 12 of the CLA would only apply in cases where a plaintiff explicitly refers to or relies upon the CLA in its pleading.

[10] We agree that, as a general rule, a plaintiff’s framing of its claim does not dictate the defendant’s response. To hold otherwise would be contrary to rule 25.07(4) of the Rules of Civil Procedure, R.R.O. 1990, Reg. 194, which requires a defendant to plead “any matter on which the party intends to rely to defeat the claim of the opposite party and which, if not specifically pleaded, might take the opposite party by surprise or raise an issue that has not been raised in the opposite party’s pleading.” We do not take the motion judge to have held otherwise.

[11] Rather, we read the motion judge’s comment, quoted above, as effectively holding that an ordinary breach of contract claim cannot be met with a claim for set-off of trust funds under s. 12 of the CLA where the plaintiff has not asserted a claim to trust funds in the first place. In other words, in such circumstances the defendant’s purported defence is not responsive to, and cannot “defeat”, the plaintiff’s claim.

[12] We need not decide whether the motion judge was correct on this point, because we agree that, in any event, s. 12 has no application to this case.

[13] Provided the criteria of s.12 of the CLA are met, a trustee of the trust funds may, without breaching the trust, retain but not spend any of the monies set off against the trust funds on account of outstanding debts, claims or damages. This section does not give a trustee the right to put some or all of the trust funds retained to general use: Datasphere Sales Ltd. v. Universal Light & Power Corp., 1991 CarswellOnt 804, at para. 13; Arborform Countertops Inc. v. Stellato, 1996 CanLII 7999 (ON SC), 29 O.R. (3d) 129, [1996] O.J. No. 1275, at para. 43.

[14] The availability of the right of set-off under s. 12 of the CLA requires the party seeking to exercise it to prove the existence of specific circumstances and particular considerations, including the existence of trust funds against which set-off can be applied. If no trust funds are retained or all the monies are spent, the purpose of the trust provisions is defeated and any right of set-off is extinguished: Arborform Countertops Inc., at paras. 39 and 43.

[15] In the present case, neither party pleaded the existence or breach of a trust fund. The respondent did not assert any claim to trust funds. The appellant did not allege there was a trust fund under the CLA or at all. Rather, the appellant pleaded that it had not been paid by the owner for the work performed by the respondent and therefore had no obligation to pay the respondent’s invoices, negating the existence of a trust fund.

[16] While there was evidence from the appellant’s representative, Regina Dee, that the appellant had received monies from the owner, there was no evidence that those monies were held in trust or retained at all. In a subsequent answer to undertakings, the appellant admitted that it did not maintain a separate bank account for the OLG Brantford Casino Project.

[17] As a result, the appellant has no right under s. 12 of the CLA to set-off against the monies that it admits are owed to the respondent.

[18] Second, we also find no error in the motion judge’s determination that equitable set-off is not available to the appellant. The motion judge’s finding that the OLG Casino Project and Imara Project were unrelated and entirely separate because, among other things, payment on one project was not tied to the other, funds were segregated, and the projects were undertaken at different times, in different cities and for different owners, was amply supported by the evidence.

[19] Accordingly, the appeal is dismissed.

[20] Costs of the appeal are to the respondent in the agreed amount of $6,000.00.

“H.S. LaForme J.A.”

“G. Pardu J.A.”

“L.B. Roberts J.A.”