Court of Appeal for Ontario

Date: 2017-11-01

Docket: C61630 and C63353

Judges: Hourigan, Brown and Roberts JJ.A.

Parties

Between

Ravenda Homes Ltd. Plaintiff (Appellant)

and

1372708 Ontario Inc. and Vaughn Gibbons Defendants (Respondents)

And Between:

1372708 Ontario Inc. Plaintiff by Counterclaim (Appellant/Respondent by way of cross-appeal)

and

Ravenda Homes Ltd. and John Ravenda Defendants to the Counterclaim (Respondent/Appellant by way of cross-appeal)

Counsel

Peter H. Griffin, Constanza Pauchulo and Ryan Breedon, for the appellant

Robert C. Harason, for the respondents

Heard: September 25, 2017

On appeal from: the order of Justice James R.H. Turnbull of the Superior Court of Justice, dated June 17, 2016.

Reasons for Decision

Overview

[1] This appeal and cross-appeal arise out of a failed development project for a residential subdivision in Fort Erie, Ontario. The parties had successfully collaborated on another subdivision project which they brought to completion. Unfortunately, they did not achieve the same outcome on the Fort Erie project.

[2] At issue on the motion for summary judgment and on appeal are the questions of whether the parties had entered into an enforceable agreement, whether there was a breach or repudiation of any such agreement, and the validity of the construction lien filed on the title to the property by the appellant, Ravenda Homes Ltd.

Brief Factual Overview

[3] Only a brief summary of the relevant facts is required.

[4] Ravenda Homes and the respondent, 1372708, worked together to develop a residential subdivision in Fort Erie. Their working arrangement generated two written agreements. There is no dispute about the validity of the first written agreement, a November 28, 2005 Model Homes Agreement amongst Ravenda Homes, 1372708 and the Town of Fort Erie. This Model Homes Agreement permitted, but did not require, Ravenda Homes to build three model homes on property which was owned by 1372708.

[5] There is a dispute about the validity of the second written agreement, dated December 13, 2005 (the "Disputed Agreement"), the terms of which provided Ravenda Homes had the option to purchase from 1372708 developed lots without a deposit, and 1372708 anticipated obtaining municipal approvals and building permits by June 1, 2006.

[6] On December 13, 2005, Ravenda Homes's lawyer sent by facsimile transmission a copy of the Disputed Agreement, signed by Ravenda Homes, to the principal of 1372708, Vaughn Gibbons. The Disputed Agreement provided that it would be of no force and effect unless it was fully executed by the parties and returned, with the deposit set out in section 1(a) of the agreement, to Ravenda Homes, on or before 5:00 p.m. on that same day. The Disputed Agreement was signed and returned by 1372708 after the prescribed deadline.

[7] Ravenda Homes built the three model homes and renovated the house into a sales office, marketed lots, and entered into 32 agreements of purchase and sale with potential homebuyers. Meanwhile, 1372708 pursued municipal approvals for the proposed plan of subdivision, so that services could be installed to support the homes to be built and the requisite building permits could be obtained.

[8] Towards the end of the summer 2006, Ravenda Homes took the position that 1372708 had failed to act in good faith to take the necessary steps to obtain municipal approvals, which made it impossible for Ravenda Homes to meet its construction deadlines under the 32 agreements of purchase and sale. In September 2006, Ravenda Homes withdrew from the project on the basis that 1372708 had repudiated their agreement.

[9] Ravenda Homes commenced an action for breach of contract against the respondents (the "Contract Action"), registered a certificate of pending litigation, and commenced a construction lien action (the "Lien Action"). 1372708 counterclaimed for damages caused by Ravenda Homes's withdrawal from the project and the registration of the certificate and lien.

[10] Following the respondents' motion for summary judgment, the motion judge dismissed Ravenda Homes's action for breach of contract, vacated its certificate of pending litigation, allowed Ravenda Homes's lien action, allowed 1372708's counterclaim in part, and referred to trial the issue of the parties' respective damages.

Contract Action Appeal and Lien Action Cross-Appeal

[11] Ravenda Homes raises numerous grounds of appeal, and advances a cross-appeal with respect to the model homes lien. To dispose of these matters, it is necessary to deal with only the following submissions made by Ravenda Homes:

(i) The motion judge erred in failing to find that the parties had entered into an enforceable written agreement dated December 13, 2005, which governed their duties and obligations in relation to the Fort Erie project, and which the respondents repudiated; and

(ii) The motion judge erred in awarding damages to 1372708 under s. 35 of the Construction Lien Act, R.S.O. 1990, c. C.30 ("CLA").

(i) Contract Action Appeal: December 13, 2005 Agreement

[12] Ravenda Homes submits that the motion judge erred in failing to find that the Disputed Agreement was enforceable, and that it was repudiated by the failure of the respondents to confirm that they were bound by it. We do not accede to this ground of appeal.

[13] We need only deal with the alternative conclusion of the motion judge on this issue, which was based on his express assumption that the Disputed Agreement or any other agreement was valid and enforceable. Proceeding on that assumption, the motion judge considered whether the respondents had breached any such agreement with Ravenda Homes. The motion judge concluded that the respondents had not. Rather, he found that they had acted throughout in good faith to secure the requisite municipal approvals for the subdivision project, and that the respondents did not cause the delays and difficulties encountered in the course of this process. As the motion judge observed, while Ravenda Homes could withdraw from the project, there was no breach by the respondents. These findings were open to the motion judge on the voluminous motion record, are free of error, and do not justify appellate intervention.

[14] We also reject the characterization of the respondents' lack of reply to Ravenda Homes's demand as a repudiation of their agreement. As evidence of repudiation, Ravenda Homes relies on the lack of the respondents' response to its counsel's September 19, 2006 email demanding confirmation by September 22, 2006, of the respondents' commitment to abide by the Disputed Agreement. By the time that email was sent, litigation was a strong possibility and the parties had already engaged in dispute resolution discussions. This email was the last in a series of correspondence in which litigation was threatened, and which ensued a few days later on September 26, 2006 with the issuance of Ravenda Homes's statement of claim. In these circumstances, it was not necessary for the respondents to reply to this particular email. Their failure to do so does not amount to a repudiation of the agreement.

(ii) Lien Action Cross-Appeal: Section 35 of the CLA

[15] Ravenda Homes submits that the motion judge failed to apply the correct test under s. 35 of the CLA and therefore erred in awarding 1372708 damages for overpayment of annual fees and legal fees for the letter of credit that 1372708 posted to vacate Ravenda Homes's construction lien.

[16] We agree.

[17] 1372708 claimed damages under s. 35 of the CLA for the additional amounts it incurred to maintain a letter of credit to vacate Ravenda Homes's construction lien because the appropriate amount had not been calculated and claimed by Ravenda Homes in its lien action. After having obtained expert evidence, Ravenda Homes revised the value of its lien from $456,200 (as pleaded in the statement of claim) to $326,293.

[18] The motion judge awarded 1372708 its overpayment of the fees for the letter of credit for the following reasons, at para. 165:

A party claiming an interest in the lands of another by registering a lien or CPL knows or should know that if such an instrument must be vacated from title by posting security with the court, that party may be responsible for the costs incurred by the landowner if the claims are not substantiated or the damages claimed are proven to be excessive. [Emphasis added.]

[19] Section 35 of the CLA provides as follows:

In addition to any other ground on which the person may be liable, any person who preserves a claim for lien or who gives written notice of a lien,

(a) for an amount which the person knows or ought to know is grossly in excess of the amount which the person is owed; or

(b) where the person knows or ought to know that the person does not have a lien,

is liable to any person who suffers damages as a result. [Emphasis added.]

[20] We agree that the motion judge erred. The correct test under s. 35 of the CLA required the motion judge to consider whether Ravenda Homes's lien claim was "grossly in excess" of what was ultimately proven to be owed under the lien, not merely "excessive".

[21] Moreover, we accept Ravenda Homes's further submission that the motion judge erred in making any such determination under s. 35 of the CLA, given that the amount of Ravenda Homes's lien had not been determined but was one of the issues that the motion judge referred to trial.

[22] As a result, we set aside the provisions of para. 4 of the motion judge's order which relate to the granting of 1372708's costs incurred to post the letter of credit for the construction lien, in action having Court File No. 5326/06, and refer this issue to trial, along with the other issues that the motion judge referred to trial.

Contract Action Cross-Appeal and Lien Action Appeal

[23] 1372708 submits that the motion judge made the following reversible errors:

(i) The motion judge erred in dismissing 1372708's counterclaim for damages for the payment of the property taxes on the model homes in the amount of $59,167.71; and

(ii) The motion judge erred in finding that Ravenda Homes had a valid construction lien.

Counterclaim for Property Taxes

[24] 1372708 submits on its cross-appeal to the Contract Action that the motion judge erred in failing to award the property taxes that it paid on the model homes until they were sold, because he incorrectly determined that the parties agreed that Ravenda Homes would not be responsible for them.

[25] We disagree. The motion judge's determination was a factual one based on his assessment of the evidence of the parties' course of conduct, which was open to him to make on the record before him. We see no error or basis to interfere.

Validity of the Construction Lien

[26] 1372708 submits the motion judge erred in finding Ravenda Homes had a valid claim for lien. The main focus of its argument before us challenged the motion judge's findings of "owner". First, 1372708 argues that Ravenda Homes falls within the definition of "owner" under s. 1 of the CLA in that the construction of the model homes was found to be for its benefit, and therefore Ravenda Homes could not lien its own improvement: Cohen v. Brin, 2013 ONSC 1302, 12 B.L.R. (5th) 277 (Ont. Master). In any event, 1372708 argues that Ravenda Homes cannot satisfy the criterion in s. 1 that it built the model homes "at the request" of 1372708, as owner.

[27] As the basis for its claim for lien, Ravenda Homes asserts that its construction of the model homes and sales office constituted an improvement for the benefit of 1372708 as an owner of the premises on which the improvement was carried out. As a result, Ravenda Homes's claim for lien depends on the determination that 1372708 (and not Ravenda Homes) meets the following definition of "owner" under s. 1(1) of the CLA:

"owner" means any person, including the Crown, having an interest in a premises at whose request and,

(a) upon whose credit, or

(b) on whose behalf, or

(c) with whose privity or consent, or

(d) for whose direct benefit,

an improvement is made to the premises but does not include a home buyer. [Emphasis added.]

[28] Turning first to the question of whether Ravenda Homes is an "owner" under the CLA, 1372708 argues that the motion judge's finding the improvement was for the "benefit" of both parties results in Ravenda Homes being an "owner" as defined under the CLA, and precludes the lien.

[29] The difficulty with 1372708's argument is that the definition of owner under s. 1(1) of the CLA requires that an owner have "an interest in a premises" to which the improvement is made, not just an interest in the improvement. An interest in personalty or an interest in an improvement by itself, without an attached interest in land, cannot constitute a lienable interest: Graham Mining Ltd. v. Rapid-Eau Technologies Inc. (2001), 7 C.L.R. (3d) 291 (Ont. S.C.), at para. 27, aff'd [2001] O.J. 4183 (Div. Ct.), at paras. 1 to 3. While Ravenda Homes had an interest in the improvement, it had no interest in 1372708's land, which was owned solely by 1372708. As a result, the motion judge did not err in finding that Ravenda Homes was not an "owner" for the purposes of the CLA.

[30] As 1372708 clearly had "an interest in a premises" as the sole owner of the land, the question of whether it can be considered an "owner" turns on the meaning of "at the request of". The request that work be done or services be supplied may be express or implied from the circumstances of the case: Markborough Properties Inc. v. 841202 Ontario Inc. (1996), 28 C.L.R. (2d) 77 (Ont. Gen. Div.); Phoenix Assurance v. Bird Construction, [1984] 2 S.C.R. 199, at pp. 215-217, S.C.J. No. 39; Parkland Plumbing & Heating Ltd. v. Minaki Lodge Resort 2002 Inc., 2009 ONCA 256, at para. 67, 305 D.L.R. (4th) 577. The request could be implied from the nature of the arrangements or dealings between the parties; as a result, the court must look not only to the contract but also to the substance of the transaction between the parties: Titan Construction Services Ltd. v. Wasson (1987), 31 C.L.R. 145 (N.S.C.A.). Whether there has been a request in any given case is a question of fact: Royal Trust Corp. of Canada v. Bengert Construction Ltd., 1988 ABCA 58, [1988] 4 W.W.R. 308 (Alta. C.A.).

[31] The motion judge was alert to the criteria of "owner" under the CLA, and in particular, the meaning of "request". He referenced in para. 153 of his reasons the articulation of these criteria from JDM Developments Inc. v. J. Stollar Construction Ltd. (2005), 48 C.L.R. (3d) 296 (Ont. S.C.) that "[i]n order to have a valid and enforceable lien, a lien claimant must show that the person sought to be charged as 'owner' requested directly or impliedly, the work, service or material to be supplied, so as to enhance his estate or interest in the property."

[32] The motion judge's findings at para. 155 of his reasons satisfy the criteria for a valid lien. While the motion judge did not expressly state that 1372708 impliedly requested that Ravenda Homes build the model homes, this can be inferred from his finding that 1372708 was an active participant who impliedly encouraged the building of the model homes in furtherance of the parties' agreement to develop the subdivision. As the motion judge stated:

The houses were built to benefit both 137 and Ravenda Homes. The sooner the lots were sold to Ravenda Homes, the quicker 137 would get its profit out of the project. Both parties recognized that the presence of model homes would improve the ability of Ravenda Homes to sell the lots. In fact, prior to the ultimate falling out between them, both parties approached the Town to seek permission to build additional model homes. Simply put, the improvements made on the three lots were made with the acquiescence of and for the benefit of 137.

[33] Again, the motion judge's factual findings were available to him and contain no error. Appellate intervention is therefore unwarranted.

[34] For these reasons, we dismiss the cross-appeal.

Disposition

[35] Accordingly, we dispose of the appeals and cross-appeals as follows:

(i) We dismiss the Contract Action appeal and cross-appeal.

(ii) We dismiss the Lien Action appeal, but allow the cross-appeal insofar as we set aside the provisions of para. 4 of the motion judge's order which relate to the granting of 1372708's costs incurred to post the letter of credit in action having court File No. 5326/06. We refer this issue to trial, along with the other issues that the motion judge referred to trial.

[36] With respect to costs, the success of the parties was mixed. 1372708 largely prevailed on the appeal of the Contract Action, although Ravenda Homes achieved modest success on the discrete issue of property taxes in the cross-appeal. Ravenda Homes was entirely successful on the appeal and cross-appeal of the Lien Action. As a result, we make no order as to costs.

"C.W. Hourigan J.A."

"David Brown J.A."

"L.B. Roberts J.A."