COURT OF APPEAL FOR ONTARIO

CITATION: Kawartha Capital Corp. v. 1723766 Ontario Limited, 2020 ONCA 763

DATE: 20201202

DOCKET: C68063

MacPherson, Zarnett and Jamal JJ.A.

BETWEEN

Kawartha Capital Corp.

Plaintiff (Respondent)

and

1723766 Ontario Limited and Maryam Sadrieh

Defendants (Appellants)

Nancy J. Tourgis and Rajiv Joshi, for the appellants

J. Christopher Russell, for the respondent

Heard: November 23, 2020 by videoconference

On appeal from the judgment of Justice C.M. Smith of the Superior Court of Justice dated January 23, 2020.

REASONS FOR DECISION

[1] The appellants appeal from the summary judgment granted by the motion judge, ordering them to pay the sum of $185,999.32 and interest thereon to the respondent, and dismissing their counterclaim.

[2] The corporate appellant, 1723766 Ontario Limited (“172”), was found liable because the sum claimed from it was an amount it agreed to pay to the respondent, Kawartha Capital Corp. (“Kawartha”), under Minutes of Settlement (the “Minutes”) dated September 19, 2016. The personal appellant, Maryam Sadrieh (“Ms. Sadrieh”), was held liable as she guaranteed the payment that 172 was obligated to make by a written guarantee provided for by the Minutes. The counterclaim was dismissed because its subject matter was released in a mutual release provided for by the Minutes.

[3] The appellants argue that the motion judge erred in finding that there was no genuine issue requiring a trial as to whether the Minutes (including the release and guarantee they contemplated) were unenforceable on the grounds of economic duress.

[4] 172 retained Kawartha in 2015 to perform construction work on a property owned by the appellants in Port Hope. By August 2016, disputes had arisen. Outstanding invoices dated April 29 and May 31, 2016, issued by Kawartha, were unpaid. Kawartha had been provided with cheques, post-dated to August 15, 2016, to cover those invoices but was advised on that date by the appellants that the cheques could not be honoured. Kawartha registered a construction lien on August 18, 2016. 172 took the position that Kawartha’s delays in completing the work had caused it losses, a claim Kawartha disputed. 172 was attempting to refinance by placing a new mortgage on the property, but the construction lien prevented that from occurring.

[5] Negotiations took place to resolve those disputes. The parties were represented by counsel in the negotiations. The result was the Minutes, executed on September 19, 2016.

[6] Under the Minutes, and the guarantee and release it provided for, 172 agreed to pay Kawartha an initial payment of $400,000 by September 23, 2016, and a second payment of $162,832.33 by March 12, 2017. Ms. Sadrieh personally guaranteed payment of the second payment. Kawartha agreed to discharge the construction lien upon specified arrangements being in place for the $400,000 initial payment, and receipt by Kawartha’s counsel of the executed documents. The parties were to cooperate with respect to finishing the construction work. The parties released each other from any claim “by reason of any matter or thing existing as of the date hereof, whether known or unknown, with respect to the construction services and materials provided by Kawartha as of the date hereof”. The only exception to the release was for Kawartha’s “ordinary warranty obligations with respect to the quality of its workmanship and materials”.

[7] The parties subsequently agreed to amendments, extending the date for the initial payment to September 29, 2016, and increasing the amount of the second payment to $185,999.32.

[8] The initial payment due under the Minutes was made on September 29, and the construction lien was discharged the same day. The second payment was not made.

[9] On October 16, 2017, Kawartha commenced this action to recover the second payment. The appellants defended, alleging for the first time that economic duress made the Minutes, and the guarantee and release they provided for, unenforceable. The appellants also alleged that they had been damaged by Kawartha’s delays in performing the construction work, and claimed an equitable set-off for those damages. They also counterclaimed for those damages.

[10] We see no error in the motion judge’s finding that there was no genuine issue for trial raised by the appellants’ claim of economic duress.

[11] For a party to establish economic duress, it must show two things: first, that it was subjected to pressure applied to such an extent that there was no choice but to submit, and second, that the pressure applied was illegitimate. On the first prong of the test, the court considers four factors:

(a) Did the party protest at the time the contract was entered into?

(b) Was there an effective alternative course open to the party alleging coercion?

(c) Did the party receive independent legal advice?

(d) After entering into the contract, did the party take steps to avoid it?

If the party alleging duress satisfies those four factors, it must go on to satisfy the second prong, by showing that the pressure exerted was illegitimate: Techform Products Ltd. v. Wolda (2001), 2001 CanLII 8604 (ON CA), 56 O.R. (3d) 1 (C.A.), at paras. 31-34, leave to appeal refused, [2001] S.C.C.A. No. 603.

[12] The motion judge found that the appellants satisfied none of the four factors relevant to the first prong of the test. These findings have a substantial factual component and are entitled to deference on appeal.

[13] The motion judge’s finding that there was no protest of any kind by the appellants when they signed the Minutes cannot be challenged, as the appellants seek to do, by reference to the fact that the appellants had, in August, advised Kawartha of their position that Kawartha’s delays had caused them damages. That position was one of the issues referred to in, and resolved by, the Minutes, signed on September 19. There was no evidence that the appellants, or their counsel, protested that they were being compelled to enter into the Minutes. Indeed, the motion judge found that the Minutes were largely based on a proposal that was made on behalf of the appellants on August 29.

[14] The appellants submit that Ms. Sadrieh gave evidence that she felt she was in a vulnerable position and had no realistic alternative but to enter into the Minutes. They argue that given this evidence, and without other evidence, the motion judge was not entitled to find that the appellants “were not without alternatives” in the face of the construction lien. We disagree. The motion judge was entitled to consider the legal remedies potentially available to an owner when a construction lien is registered, including posting a bond to vacate a lien, or suing for damages for a lien’s wrongful registration. In assessing whether the appellants had satisfied their burden of showing an absence of an “effective alternative course”, the motion judge was entitled to take into account that the appellants “led no evidence to suggest that they considered or pursued any of these alternatives”.

[15] The motion judge’s findings about the factors of independent legal advice and prompt steps to avoid the agreement also disclose no error. The evidence was undisputed that the appellants were represented by counsel and thus had independent legal advice up to and through the execution of the Minutes. Nor did the evidence disclose any timely steps by the appellants to avoid the Minutes after they were signed. The appellants not only made the initial payment under the Minutes, and received the benefit of the discharge of the construction lien, but even after they defaulted on making the second payment when it came due in March 2017, they requested more time to pay. They took no steps to challenge the Minutes until, having been sued for the second payment, they delivered a defence asserting economic duress on January 15, 2018, well over a year after the Minutes were signed and significant performance under them had taken place.

[16] There was, accordingly, no error in the motion judge’s finding that the appellants had raised no genuine issue requiring a trial regarding the enforceability of the Minutes or the guarantee and release they provided for. The appellants failed to raise such an issue regarding the first prong of the test for economic duress. The appellants argue that the motion judge erred in not going on to specifically address the second prong of the test, namely whether the pressure was illegitimate, and in failing to make findings about whether the appellants had had a good claim for damages for delay, which would have shed light on whether the registration of the construction lien was imposing illegitimate pressure on them. We disagree. A person invoking economic duress must satisfy both prongs of the test. Having failed to show a genuine issue requiring a trial on the first prong, a specific ruling on the second prong could not change the outcome.

[17] The dismissal of the counterclaim was entailed by the release contemplated by the Minutes. The motion judge found the counterclaim raised matters covered by the release, and we see no error in his conclusion. The appellants argue that the motion judge should have allowed the same matters to proceed to trial to the extent they were raised to support a defence of equitable set-off. We disagree. The release prohibited the appellants from pursuing claims arising from a broad spectrum of matters: it released the underlying basis of those claims, no matter the form (equitable set-off or damages in a counterclaim) in which they were asserted.

[18] The appeal is therefore dismissed.

[19] In accordance with the agreement of counsel, the appellants shall pay the respondent costs of the appeal in the sum of $8,750, inclusive of disbursements and applicable taxes.

“J.C. MacPherson J.A.” “B. Zarnett J.A.” “M. Jamal J.A.”