Court File and Parties

COURT OF APPEAL FOR ONTARIO DATE: 20210601 DOCKET: C67541

Doherty, Nordheimer and Harvison Young JJ.A.

BETWEEN

Great Northern Insulation Services Ltd. Plaintiff/Appellant (Respondent)

and

King Road Paving and Landscaping Inc. also known as King Road Paving & Landscaping Inc., Louis Alaimo, Agostino Plati, Giuseppina Plati, and Scotia Mortgage Corporation Defendants/Respondents

Counsel: Jonathan Frustaglio, for the appellant Sutherland Law Michael Odumodu, for the respondent Great Northern Insulation Services Ltd.

Heard: April 30, 2021 by video conference

On appeal from the order of the Divisional Court (Justices David L. Corbett, Frederick L. Myers and Elizabeth C. Sheard), dated June 14, 2019, with reasons reported at 2019 ONSC 3671, 71 C.B.R. (6th) 187, varying the judgment of Justice Robert Charney of the Superior Court of Justice, dated December 14, 2017, with reasons reported at 2017 ONSC 7675, 86 C.L.R. (4th) 331.

Nordheimer J.A.:

[1] Sutherland Law appeals, with leave, from the order of the Divisional Court that allowed the appeal of Great Northern Insulation Services Ltd. from the trial judge’s decision regarding its claim for priority arising out of a charging order that the appellant law firm had obtained in this construction lien proceeding. As I am in substantial agreement with the analysis undertaken by the Divisional Court, I would dismiss the appeal.

Background

[2] King Road Paving and Landscaping Inc. (“King Road”) was hired in June 2012 by the defendant Agostino Plati and Giuseppe (Pino) Nesci, as a contractor to complete extensive work on the renovation of an old barn located in Schomberg, Ontario. A dispute arose over payment for the work.

[3] The dispute captured two suppliers (subcontractors) that supplied goods and services to the project and remained unpaid. They registered construction liens against the property. These lien claims were tried together with King Road’s claim against the owners. The first supplier is Great Northern Insulation Services Ltd. (“Great Northern”), which contracted with King Road to supply spray foam insulation to the barn for $51,415. The second supplier is Webdensco, a building supply centre. Subsequently, Webdensco assigned its interest in its lien to King Road, pursuant to s. 73 of the Construction Lien Act, R.S.O. 1990, c. C.30. [1] King Road then sought payment in the amount of $54,387.99 on behalf of Webdensco.

[4] A trial of the issues was eventually heard and determined. [2] The trial judge granted judgment in favour of King Road against the owners. He also granted judgment in favour of Great Northern against King Road in the amount of $105,803. Further, the trial judge declared that both Great Northern and Webdensco were entitled to liens under the Construction Lien Act.

[5] Some months after the trial decision was released, the appellant law firm, which had represented King Road in the proceedings, brought a motion on an urgent basis for a charging order under s. 34(1) of the Solicitors Act, R.S.O. 1990, c. S.15. The trial judge granted the charging order. [3] In doing so, the trial judge provided that the charging order would have priority over any amount owed to Great Northern by King Road pursuant to the trial judgment and costs order.

[6] Great Northern did not appeal the granting of the charging order, but it did appeal the priority provided by the charging order over the amounts owed to it. By reasons dated June 14, 2019, the Divisional Court allowed the appeal and varied the charging order to provide that Great Northern had priority over the solicitors' charging order in the amount of $54,737.61, plus any interest that accrued on this amount to the time it is paid to Great Northern. That amount represents the funds that remained from what had been paid by the owners to King Road. As will be seen, those funds are trust funds under the Construction Lien Act.

The Decision Below

[7] In making the order that it did, the Divisional Court found that interest owing to Great Northern was to be included in the amount that Great Northern could claim against the trust funds created by operation of the Construction Lien Act. In this case, interest amounted to $51,065.39 as found by the trial judge. The other amount of $3,744.37 was the amount that was left unpaid to Great Northern on the base contract price.

[8] In reaching this conclusion, the Divisional Court held that the proper interpretation of s. 8 of the Construction Lien Act, included interest due on the contract price. At the core of this appeal is the appellant’s contention that the Divisional Court’s interpretation is in error.

Analysis

[9] In my view, the issues raised by the appellant boil down to the following:

1. The Divisional Court erred in finding that it had jurisdiction to hear an appeal from the charging order.
2. The Divisional Court erred in finding that interest payable on the contract price was to be included within the trust funds.
3. The Divisional Court erred in finding that Great Northern’s priority over the trust funds was not affected by the assignment of Webdensco’s lien to King Road.

I will deal with each of the issues in turn.

(1) Jurisdiction

[10] I do not agree with the appellant that any appeal from the charging order lay directly to this court, and that the Divisional Court erred in concluding that it had jurisdiction to hear the appeal. The charging order was obtained pursuant to s. 34(1) of the Solicitors Act, which reads:

Where a solicitor has been employed to prosecute or defend a proceeding in the Superior Court of Justice, the court may, on motion, declare the solicitor to be entitled to a charge on the property recovered or preserved through the instrumentality of the solicitor for the solicitor’s fees, costs, charges and disbursements in the proceeding.

[11] It is implicit in the wording of s. 34(1) that a lawyer who wishes to obtain a charging order must do so by bringing a motion in the proceeding where the “property recovered or preserved through the instrumentality of the solicitor” originated. In this case, that proceeding was the construction lien proceeding. The necessary appeal route from any order obtained in a proceeding is dictated by the statute that governs the proceeding, in this case, the Construction Lien Act. The Construction Lien Act provides, in s. 71, that an appeal from a judgment lies to the Divisional Court. This court does not have original appellate jurisdiction when a statute provides a right of first appeal to the Divisional Court: Courts of Justice Act, R.S.O. 1990, c. C.43, s. 6(1)(b).

[12] The Divisional Court was correct in concluding that it had jurisdiction to hear the appeal from the charging order.

(2) Trust funds and Interest

[13] This is the issue that lies at the heart of this appeal. Indeed, the appellant essentially conceded, during the hearing, that if it did not prevail on this issue, the appeal would likely fail. This issue turns on the proper interpretation of s. 8 and, in particular, s. 8(2) of the Construction Lien Act, which reads:

The contractor or subcontractor is the trustee of the trust fund created by subsection (1) and the contractor or subcontractor shall not appropriate or convert any part of the fund to the contractor’s or subcontractor’s own use or to any use inconsistent with the trust until all subcontractors and other persons who supply services or materials to the improvement are paid all amounts related to the improvement owed to them by the contractor or subcontractor.

[14] The Construction Lien Act is remedial legislation. Consequently, it should be given a fair, large and liberal interpretation in order to achieve its objectives: Legislation Act, 2006, S.O. 2006, c. 21, Sched. F, s. 64(1). Principal among those objectives is the protection of those lower down on the “pyramid” of claimants. As Weiler J.A. said in Sunview Doors Ltd. v. Academy Doors & Windows Ltd., 2010 ONCA 198, 101 O.R. (3d) 285, at para. 99:

The object of the Act is to prevent unjust enrichment of those higher up in the construction pyramid by ensuring that money paid for an improvement flows down to those at the bottom. In seeking to protect persons on the lower rungs from financial hardship and unfair treatment by those above, the Act is clearly remedial in nature. The remedial nature of the Act also supports a liberal construction so as to enable it to serve its purpose.

[15] In my view, the words “all amounts related to the improvement owed to them by the contractor” found in s. 8(2) ought to be given that large and liberal interpretation. The words “all amounts related to” are, themselves, broad, much like the words “in respect of” have been found to be. In that regard, I refer to the language of Major J. in Markevich v. Canada, 2003 SCC 9, [2003] 1 S.C.R. 94, at para. 26, where he said: “The words ‘in respect of’ have been held by this Court to be words of the broadest scope that convey some link between two subject matters.”

[16] In the normal commercial context, interest that accrues on payments due under a contract would be considered amounts owing on the contract. Interest on overdue amounts may be expressly included in the terms of the contract or it may be implied such as, for example, where the interest provision is included in the invoices that are rendered under the contract. This interpretation is consistent with the definition of “price” contained in s. 1(1) of the Construction Lien Act which reads, in part:

“price” means the contract or subcontract price, (a) agreed upon between the parties

[17] The actual contractual agreements between the parties are not in the record before us. However, the trial judge referred in his reasons, at para. 183, to the fact that Great Northern and King Road had entered into a credit agreement that provided credit terms of 30 days for payment, with interest on outstanding amounts at the rate of 2% per month. Therefore, the interest amount in this case was expressly provided for by the contractual arrangements between the parties.

[18] Thus, interest reasonably falls within the scope of s. 8(2) as an amount owing to a subcontractor relating to the improvement. Interest owing is therefore part of the trust fund created by s. 8(1) and falls directly within the restrictions on the permissible use of those trust funds stipulated by s. 8(2).

[19] Given the priority established by s. 8(2) that subcontractors enjoy over the trust funds, there was no basis for the trial judge to give the charging order a greater priority over the trust funds. Such a conclusion would be fundamentally inconsistent with the purpose behind the creation of the trust and would violate the above restriction on the use of the trust funds.

[20] I would add, on this point, that we are not speaking here about lien rights. We are speaking about trust funds. The two are separate concepts under the Construction Lien Act. Liens give subcontractors and suppliers the right to assert a claim directly against the property, whereas trusts serve to protect the interests of subcontractors and suppliers by protecting funds that are owed to, or have been received by, the contractor. Actually, the Construction Lien Act provides expressly that interest is not part of the lien claim in s. 14(2), which reads:

No person is entitled to a lien for any interest on the amount owed to the person in respect of the services or materials that have been supplied by the person, but nothing in this subsection affects any right that the person may otherwise have to recover that interest. [Emphasis added.]

[21] No such exclusion is contained in s. 8. While Great Northern would not have been entitled to include the interest amount within its lien claim, there is no principled reason to exclude interest from the trust fund provisions, absent the legislation so providing. Excluding interest would also be inconsistent with the object of the legislation as expressed in Sunview Doors Ltd. above.

[22] This conclusion is also consistent with the purpose of the trust provisions as enunciated by Sharpe J.A. in The Guarantee Company of North America v. Royal Bank of Canada, 2019 ONCA 9, 144 O.R. (3d) 225, where he said, at para. 31:

[T]he legislature enacted the trust provisions because it recognized that the lien provisions only provided a partial form of security to suppliers. The lien provisions failed to protect suppliers at the bottom of the pyramid in situations where the owner of the land had already paid the contractor. The trust provisions complement the lien provisions by providing security to suppliers at the bottom of the pyramid in these situations.

[23] I would also note that this conclusion mirrors the conclusion reached by the New Brunswick Court of Appeal in Fundy Ventilation Limited v. Brunswick Construction Ltd., Fraser Companies Limited and Minister of National Revenue (1982), 40 N.B.R. (2d) 484 (C.A.), 136 D.L.R. (3d) 455, leave to appeal refused, 45 N.R. 528, where, in considering a similar issue, La Forest J.A. said, succinctly, at p. 502: “Interest would equally attach to Fundy's claim under the trust.”

[24] Finally, on this point, I agree with the Divisional Court that there is only one trust fund for the subcontractors. This is clear from the wording of s. 8(1) – “constitute a trust fund” (emphasis added). It is also clear from the observations made by Sharpe J.A. in Royal Bank of Canada, at paras. 27-32, as to the purpose of the trust fund provisions.

(3) The Webdensco assignment

[25] A final issue must be addressed. There is an issue raised as to whether the above analysis is altered by the fact that the other subcontractor, Webdensco, assigned its lien to King Road during the course of the proceeding. The Divisional Court held that if King Road used monies that it had received from the owners to pay Webdensco, which would be trust funds, then Webdensco’s trust claim was extinguished, leaving only Great Northern with rights to the trust funds. Put another way, if King Road used monies impressed with a trust in favour of the subcontractors, then Webdensco’s claim to the trust funds was gone, leaving only Great Northern with the right to claim against the trust funds. King Road did not acquire any right to claim against those trust funds.

[26] On this point, at the hearing before the Divisional Court, the panel raised with counsel whether s. 11 of the Construction Lien Act played a role in the proper analysis of the issues raised. Given that the question was raised by the panel, the parties were given leave to file written submissions on the point.

[27] As I have already said, the contractor had, at some point, settled the claim of Webdensco and taken an assignment of its lien. This then raised the issue whether that arrangement permitted the contractor to “stand in the shoes” of Webdensco when it came to the distribution of the trust funds. The appellant’s position was that the contractor was afforded all of its rights as a lien claimant – including the right to receive payment of Webdensco's pro-rata share from the trust funds. The appellant coupled this submission with its contention that there are separate trust funds – one for each subcontractor. Like the Divisional Court, I have rejected that latter argument above.

[28] The Divisional Court disagreed with the appellant. It found that the result submitted by the appellant would only be the case if the contractor had used non-trust funds to pay Webdensco and receive an assignment of its lien. That conclusion follows from the express language of s. 11(1), which reads:

Subject to Part IV, a trustee who pays in whole or in part for the supply of services or materials to an improvement out of money that is not subject to a trust under this Part may retain from trust funds an amount equal to that paid by the trustee without being in breach of the trust.

[29] In this court, the appellant changes tack. It now argues that the application of s. 11 was a new issue that ought not to have been permitted on appeal, citing Kaiman v. Graham, 2009 ONCA 77, 245 O.A.C. 130, at para. 18. The appellant also complains that it was not permitted to file evidence about the source of the funds used by King Road to pay Webdensco.

[30] I do not accept either of the challenges raised by the appellant. While the application of s. 11 may have arisen first on the appeal, that does not make it a “new [issue]” as contemplated by the decision in Kaiman. [4] The Divisional Court was being asked to answer a specific question that involved the interpretation of the Construction Lien Act. Any section of the statute that might be relevant to the question to be answered had to be considered. If the Divisional Court thought that s. 11 might play some role in their analysis of the question that was before them, then the Divisional Court was obliged to raise the issue with the parties and permit them to make submissions. That is what happened.

[31] In terms of the evidentiary issue, the appellant did not, at any point, ask for leave to file evidence as to the source of the funds. It did not do so at the time that the issue was raised by the panel at the hearing in the Divisional Court; and it did not do so in its written submissions responding to the s. 11 issue. Similarly, the appellant did not make any such request in this court, nor did it bring a motion to adduce fresh evidence. The appellant cannot complain about a denial of the right to file evidence that it never made any request for. Further, given that it was the appellant that was suggesting that the contractor might fall within the exception provided for in s. 11, it was the appellant who bore the evidentiary burden. Given that it did not seek to place evidence before the court on the issue, the Divisional Court was entitled to assume that King Road had used trust funds, i.e. funds received from the owners, to pay Webdensco.

Conclusion

[32] The appeal is dismissed. The respondent is entitled to its costs of the appeal in the amount of $14,000 inclusive of disbursements and HST.

Released: June 1, 2021 “D.D.” “I.V.B. Nordheimer J.A.” “I agree. Doherty J.A.” “I agree. Harvison Young J.A.”

Footnotes

[1] The contracts in this case were entered into around 2012 and all events in issue were completed prior to July 1, 2018, the date on which numerous provisions of the Construction Lien Amendment Act, 2017, S.O. 2017, c. 24 came into effect. That Act made a number of changes to the Construction Lien Act, including changing the name of the statute to the Construction Act.

[2] King Road Paving and Landscaping Inc. v. Plati, 2017 ONSC 557, 64 C.L.R. (4th) 102; King Road Paving and Landscaping Inc. v. Plati, 2017 ONSC 6319, 77 C.L.R. (4th) 165.

[3] King Road Paving and Landscaping Inc. v. Plati, 2017 ONSC 7675, 86 C.L.R. (4th) 331.

[4] See the recent discussion of this distinction in R. v. G.F., 2021 SCC 20, at para. 93.