Desco Plumbing and Heating Supply Inc. v. 690 King Street Corporation, 2022 ONSC 6439

CITATION: Desco Plumbing and Heating Supply Inc. v. 690 King Street Corporation, 2022 ONSC 6439

DIVISIONAL COURT FILE NO.: 601/20

DATE: 20221118

ONTARIO

SUPERIOR COURT OF JUSTICE

DIVISIONAL COURT

D.L. Corbett, Emery and Mew JJ.

BETWEEN:

DESCO PLUMBING AND HEATING SUPPLY INC./LES GROSSITES EN PLOMBIERE ET CHAUFFAGE DESCO INC., AVN PLUMBING INC. and ANGELO SALTARELLI

Plaintiffs/Respondents

– and –

690 KING STREET CORPORATION

Defendant/Appellant

COUNSEL:

Christopher M. Belsito, for the Respondents

Daniel Schwartz, Adrian Visheau and Adrienne Ho, for the Appellant

HEARD at Hamilton (by videoconference): October 25, 2021

REASONS FOR DECISION

D.L. Corbett J.

[1] At the conclusion of the appellant’s argument we advised that we were not calling upon the respondents on any issue other than the motion judge’s award of interest. These reasons explain why we are dismissing the appeal on all issues other than interest and are setting aside the decision below on interest and requesting brief written submissions from the parties in light of this court’s reasons on the interest issue.

Background

[2] This is an appeal in a construction lien proceeding. It concerns claims arising from construction of a 138-unit condominium project at 690 King Street West, Kitchener (the “improvement” within the meaning of the Construction Lien Act[^1]). The appellant, 690 King Street Corporation (“690 King” or the “Owner”) owns the improvement and is an “owner” within the meaning of the Act.

[3] AVN Plumbing Inc. (“AVN” or the “Contractor”) contracted with the Owner to supply and install plumbing and mechanical materials to the improvement for a price of $2,818,505.89 including taxes (the “AVN Contract”). AVN is a “contractor” and the AVN Contract is a “contract” within the meaning of the Act.

[4] Desco Plumbing and Heating Supply Inc./Les grossites en plombière et chauffage Desco Inc. (“Desco” or the “Subcontractor”) contracted with AVN to supply plumbing and heating supplies to AVN in connection with the improvement (the “Desco Subcontract”). Desco is a “subcontractor” and the Desco Subcontract is a “subcontract” within the meaning of the Act.

[5] Desco provided its services and materials to AVN pursuant to a credit agreement which provides for interest at 24% on overdue accounts. As part of that agreement, AVN’s principal, Angelo Saltarelli (“Saltarelli” or the “Guarantor”) personally guaranteed AVN’s obligations to Desco under the Desco Subcontract.

[6] AVN withdrew from the AVN Contract in the fall of 2017, and in early November 2017 it removed uninstalled materials from the construction site with a view to returning them to Desco (and other suppliers) for credit against its outstanding Subcontract balance owed to Desco and its obligations to other subcontractors.

[7] The Owner and the Contractor disagreed about the circumstances leading to the Contractor’s withdrawal from the Contract and in respect to the propriety of the Contractor’s removal of uninstalled materials from the construction site. Discussions ensued following which the Owner and the Contractor came to arrangements pursuant to which the Contractor would return the materials it had removed from the construction site, the Contract would be terminated prospectively, and the Owner would seek to contract directly with subcontractors, including Desco, for services and materials to complete the improvement. The parties disagree on the terms of the arrangements for termination and the post-termination contract between the Owner and Desco.

[8] The Contractor takes the position that, under the termination arrangements, the Owner agreed to pay the Subcontractor directly the amount owed on the Subcontract by the Contractor to the Subcontractor as of termination. The Subcontractor takes the position that it agreed to continue work on the improvement, post-separation, on the understanding that the Owner would pay what was outstanding to termination under the Subcontract, and that the Owner would contract directly with the Subcontractor for services and materials to be supplied post-termination of the Contract.

[9] The Owner takes the position that its only obligation to the Subcontractor was to pay from holdbacks required to be maintained under the Act. It denies that it agreed to pay more than the holdbacks in its termination arrangements with the Contractor.

[10] The Owner did not pay the Subcontractor the balance owed to the Subcontractor by the Contractor as of the termination of Contract.

[11] The Subcontractor registered a construction lien on December 12, 2017, claiming $619,259.30. The claim for lien was bonded off title by the Owner on December 1, 2017.[^2]

[12] The Subcontractor commenced this proceeding and named the Owner, the Contractor and the Guarantor as defendants. The Contractor and the Guarantor failed to defend, were noted in default, and default judgment was granted against them on May 1, 2018 in the amount of $694,852.62, plus $1,905.08 for costs.

[13] The Contractor and the Guarantor moved to set aside the default judgment, which motion was granted by Sloan J. on September 20, 2018 on the following terms:

(a) The Guarantor was permitted to raise an issue as to whether the Subcontractor released him from his guarantee as part of the terms under which the Owner would pay the Subcontractor; the Guarantor was not permitted to raise an issue as to whether his guarantee existed;

(b) On consent, it was ordered that the balance owed by the Contractor to the Subcontractor under the Subcontract was $575,572, plus interest, plus costs;

(c) The Guarantor was permitted to raise an issue as to whether the Owner is liable to pay the Subcontractor directly or to indemnify him for any amounts which may be found to be owed by the Guarantor to the Subcontractor directly in full pursuant to an agreement between the Contractor and/or the Guarantor and the Owner.

(d) The Contractor was not permitted to contest its debt to the Subcontractor (in the amount agreed as stated in (b), above), but was permitted to deliver a crossclaim against the Owner alleging that the Owner was liable to pay the Subcontractor directly, or alternatively was obliged to indemnify the Contractor for the Subcontractor’s claim.[^3]

The order of Sloan J. was not appealed.

[14] The Contractor and the Guarantor then moved for summary judgment pursuant to Rule 20 in respect to the following issues:

(a) whether the Subcontractor released the Guarantor from his personal guarantee;

(b) whether the Owner is liable to pay the Subcontractor directly or whether it is liable to indemnify the Guarantor for any amounts he is found to owe the Subcontractor;

(c) an order that the security posted by the Owner be paid to the Subcontractor in the amount of $575,572, plus interest, plus costs;

(d) judgment on the crossclaim in favour of the Contractor against the Owner in the sum of $1,710,807, plus interest, plus costs;

(e) an order setting aside the Writ of Execution and other enforcement steps taken by the Subcontractor against the Contractor and the Guarantor.

At the Contractor’s request, unopposed by the Owner, the aspect of the motion seeking judgment on the crossclaim (item (d), above) was adjourned sine die.

[15] The Subcontractor moved for summary judgment seeking the following relief:

(a) judgment against the Owner and the Guarantor, jointly and severally, for $575,572, plus interest at 24% per year, plus costs; and

(b) in default of payment by the Owner, an order that the Owner’s obligations be paid to the Subcontractor from the security posted by the Owner to remove the claim for lien from title to the project.

[16] The motions came on before the motions judge, D.A. Broad J., who summarized the issues as follows:

(a) Is the Owner liable to pay the Subcontractor directly or to indemnify the Contractor and the Guarantor, or either of them, for any amounts that may be found to be owing by either of them to the Subcontractor, by reason of the Owner having agreed to pay the Subcontractor directly in full?

(b) Did the Subcontractor release the Guarantor from his guarantee of the Contractor’s account with the subcontractor, and, if not, should summary judgment be granted against the Guarantor in favour of the Subcontractor?

(c) If the Owner is liable to pay the Subcontractor directly in respect of its accounts to the Contractor totalling $575,572, plus interest, should that amount be ordered to be paid to the Subcontractor from the security posted by the Owner in court in default of payment?

(d) should the writ of seizure and sale against the Contractor and/or the Guarantor be set aside?

[17] The motions judge granted judgment on the following terms:

(a) the Owner and the Guarantor were found jointly and severally liable to pay the Subcontractor the principal amount of the Subcontractor’s claim (undisputed in the amount of $575,572), plus interest at 24% per year calculated to be $264,822.66 to October 11, 2019, and to be calculated thereafter at 24% per year until the date of judgment (November 9, 2020);

(b) the Owner was found liable to indemnify the Guarantor for his liability to the Subcontractor pursuant to subpara. (a), above, and to indemnify the Contractor for its liability to the Subcontractor under the default judgment granted against it on May 1, 2018;

(c) in default of payment by the Owner to the Subcontractor within thirty days of the amount of $575,572, that amount is ordered paid to the Subcontractor from the security posted by the Owner;

(d) the balance of the security was ordered retained in court pending final disposition of outstanding costs issues or further court order; and

(e) the motion by the Contractor and the Guarantor for summary judgment on their crossclaim against the Owner be adjourned, returnable on seven days’ notice; and

(f) the judgment in subpara. (a), above, bears post-judgment interest at 24% per year.

[18] The Owner appeals all aspects of the judgment below other than the adjournment of the summary judgment motion respecting the crossclaim.

Issues on Appeal

[19] The Owner raises the following issues in its Notice of Appeal:

(i) The moving parties failed to comply with the Construction Lien Act requirement that leave be obtained before an interlocutory motion may be brought;

(ii) The motions judge “failed to explain how he could make the necessary findings of fact, including determinations of credibility, based on the limited evidentiary record before the court” and “ignored binding appellate authority… regarding the caution to be exercised in determining contested material facts and issues and issues of credibility on motions for summary judgment” and thus erred in granting summary judgment;

(iii) The motions judge erred in failing to use his discretion to use his expanded fact-finding powers under Rule 20 despite the clear factual disputes and credibility issues in play;”

(iv) The motions judge made palpable and overriding errors “in his assessment of the evidence” and in so doing erred in finding that a binding agreement existed between [the Owner] and [the Contractor] under which [the Owner] was to pay any and all amounts owing by [the Contractor] to [the Subcontractor] for the following reasons:

(a) failing to apply binding precedent regarding the interpretation of commercial contracts;

(b) erring in finding that the communications between the Contractor and the Owner had “sufficient certainty to constitute a binding agreement.”

(c) the parties never discussed or agreed upon essential terms of an agreement “including the amounts that were to be paid for…, interest… the timing of such payments or any other essential terms;”

(d) the appellant’s post-agreement conduct was inconsistent with the terms of the agreement found by the motions judge;

(e) the motions judge failed to address the content of statutory declarations of [the Contractor] in light of [the Owner’s] position that it believed that the only amounts owed to [the Subcontractor] were statutory holdback;

(f) the motions judge erred in finding that statements made by [the Owner’s] construction manager were binding on [the Owner];

(g) the motions judge erred in finding that a principled exception to the doctrine of privity arises in this case such that [the Subcontractor] may enforce the agreement between [the Contractor] and [the Owner];

(v) in any event, the motions judge erred in finding [the Owner] liable for interest because:

(a) [the Owner and [the Contractor] never discussed payment of interest and the rate of interest between [the Contractor] and [the Subcontractor] was never disclosed to [the Owner];

(b) the motions judge erred in finding that post-agreement statements made by [the Owner’s] construction manager “were sufficient to bind the Owner to the contractual rate of interest” and, in this regard, the motions judge “failed to properly consider the admissibility and proper weight of post-contractual conduct of the parties” in contravention of binding precedent.

(vi) the motions judge erred in the mathematical calculation of interest;

(vii) the motions judge failed to exercise his equitable discretion pursuant to s.130 of the Courts of Justice Act respecting the award of interest; and

(viii) the motions judge erred in applying the contractual rate of interest between [the Contractor] and [the Subcontractor] to a payment obligation of [the Owner], a non-party to the credit arrangements.

Summary and Disposition

[20] The situation that arose in this case is common in construction cases. Disputes arise between a contractor and an owner and the owner stops paying. The contractor then stops paying subcontractors because it is not being paid by the owner. If a resolution is not found promptly, subcontractors and/or the contractor stop work and leave the site and remove materials and equipment necessary to complete the project.

[21] If the owner must engage a new contactor and bring in new subcontractors, with fresh equipment and supplies, the project will likely be delayed in completion, often significantly. The owner cannot expect competent contractors and subtrades to be standing idly by, at the ready, to pick up where the previous businesses have left off. Even where replacement workers and supplies can be found quickly, it is usually more expensive to get new people involved, especially on an urgent basis. Delay in completion can cause cascading losses – as capital sits inert on a partially completed project, lenders become concerned with the financial viability of the project, other stakeholders (for example, persons who have agreed to buy units in the building) may suffer loss, inconvenience, or have claims arising from the delay. All of this is common knowledge in the construction industry.

[22] In this case, the Owner wanted to retain subcontractors directly. This would maintain continuity on the project and reduce delays. This, too, is a common scenario. The Owner wanted the supplies removed from the site returned promptly, again to avoid delay, and to facilitate its ability to contract directly with subcontractors. The Subcontractor wanted to be paid for what it had done and to be assured that it would be paid for its future work. The Contractor wanted the Subcontractor paid before it would return supplies to the job site – supplies it could have returned for credit to the Subcontractor.

[23] It is in this context that the parties negotiated their arrangements. The Contractor’s position, and the Subcontractor’s position, is that the Owner agreed to pay the Subcontractor directly for what it was owed by the Contractor, the Contractor agreed to return the supplies to the job site, and the Subcontractor agreed to continue with its work under direct contract with the Owner from the termination date. This was, by no means, the only commercially reasonable solution that could have been found to the situation, but it is one such solution. In the overall context, the payment to the Subcontractor directly (which would also stand as a credit against any balance owed by the Owner to the Contractor) is a term usually inserted for the benefit of the Owner and the Subcontractor – to ensure that what is owed to the Subcontractor is not paid to the Contractor and thence not paid to the Subcontractor.

[24] The Owner says that it did no more than agree that it would pay the basic CLA holdback to the Subcontractor as its side of the bargain. With respect, in the overall context, this makes little commercial sense for the other parties to the arrangements.

[25] The Owner already had a legal obligation to pay basic holdback to subcontractors. It is a requirement of the CLA. If that was all that the Owner was agreeing to do, then there was nothing in this arrangement for the Contractor, and there is no commercial reason that it would have agreed to return supplies to the job site. The dealings between the parties were inconsistent with the argument urged by the Owner, and the motions judge was entitled to construe the arrangements among the parties in a commercially reasonable manner.

[26] The motions judge was faced with a theory of the case from the Contractor and the Subcontractor that made commercial sense, and a version of events from the Owner that did not. Further, the evidence on the motion lined up well with the Contractor’s and the Subcontractor’s version of the case. It did not fit well with the Owner’s version of the case.

[27] This court is required to defer to the motions judge’s factual findings, and to his determination of the terms of the contract. I see no basis on which to interfere with the motion judge’s conclusions, which make sense of the evidence in the overall circumstances of the case.

[28] On the question of interest, I have no difficulty with the principles that apparently animated the motion judge’s decision, but it appears that the parties did not address the issue with the motion judge and critical factual issues may have been overlooked as a result. I would give directions for further brief written submissions on this issue, reserving the option to this court to return that issue to the motion judge.

Jurisdiction and Standard of Review

[29] This court has jurisdiction over this appeal pursuant to s.71(1) of the CLA.

[30] An appellate standard of review applies in this court. Questions of law are reviewed on a standard of correctness. Questions of fact are reviewed on a standard of palpable and overriding error. On mixed questions of fact and law, the standard is palpable and overriding error except for extricable questions of law, which are subject to a correctness standard (Canada (Minister of Citizenship and Immigration) v. Vavilov, 2019 SCC 65, [2019] 4 SCR 653, para. 37; Housen v. Nikolaisen, 2002 SCC 33, [2002] 2 SCR 235, paras. 8, 10, 19 and 26-37).

1. Failure to Seek Leave to Bring An Interlocutory Motion

[31] The appellant raised this issue in its Notice of Appeal but did not pursue it in its factum or in oral argument. This was well advised. This issue was not raised before the motion judge, and the consent to proceed by way of motion for summary judgment (discussed below), combined with the potential practical effect of the motion for summary judgment, justified an order granting leave to bring the motion. Further, the motion was case managed, including a prior appearance before Sloan J. This issue should have been raised early in the motion proceedings and should not be raised for the first time on appeal.

[32] If the issue had been raised in a timely manner, the moving parties would have added a request for leave to their motion, and the motion judge surely would have granted it. If it was thought necessary in the circumstances of this case, I would reverse the motions judge’s failure to grant leave to bring the motions (as a result of the parties’ failure to raise the issue, and agreement of the parties to proceed by way of motions for summary judgment) and find that the motion judge ought to have granted leave to bring the motions under the Act. I would vary the judgment below to add a paragraph adding leave to bring the motions for summary judgment that were adjudicated by the motions judge.

2. Summary Judgment Issues

[33] I see no error in the manner in which the motion judge approached the summary judgment issues in this case. The parties agreed to proceed by way of a motion for summary judgment. This agreement was referenced in the motion judge’s reasons at para. 38. Counsel confirmed in oral argument that the motion was argued on this basis, and no party argued before the motion judge either (a) that any issue raised on the motion for summary judgment ought to be sent to trial; or (b) that the motion judge should use any of his enhanced fact-finding powers provided in Rule 20 before deciding the motion.

[34] The motion judge put his mind to the test for summary judgment and concluded that the issues on the motion could appropriately be decided on a motion for summary judgment. At paras. 39 and 40, the motion judge found:

39. I am satisfied that I am able to make the necessary findings of fact and apply the relevant law to the facts based upon the motion materials filed and that the summary judgment process is a proportionate, more expeditious and less expensive means to achieve a just result in respect of the foregoing issues. There are therefore no genuine issues requiring a trial and it is appropriate to decide the issues on the motions for summary judgment (see Hryniak v. Mauldin, 2014 SCC 7).

40. I am also satisfied that AVN’s crossclaim for damages… is discrete from the issues relating to whether 690 King agreed to pay Desco’s account directly and whether Desco effectively released Saltarelli from his personal guarantee to justify resolving those issues by summary judgment, as agreed to by the parties, while adjourning AVN’s motion for summary judgment on its crossclaim.

[35] The motion judge’s conclusory reasons respecting the suitability of the summary judgment process are sufficient and appropriate where all parties have agreed that the issues ought to be decided by way of a motion for summary judgment.

[36] The Court of Appeal has been clear that consent of the parties is not a sufficient basis to proceed by way of a motion for summary judgment where summary judgment is not an appropriate process to follow in the circumstances.[^4] That does not mean that, where there is consent and where the motions judge is satisfied that it is appropriate to proceed by way of summary judgment, that the motions judge must provide a detailed analysis supporting his conclusion. Trial and motion courts are very busy. Judges do not have time and are not expected to provide analytical reasons for issues that are not in dispute. This court, on appeal, reviews the motion judge’s reasons to determine whether his findings are justified on the record – including his finding that the case is suitable for the summary judgment process.

[37] There is no presumption about proceeding to trial rather than by way of motion for summary judgment. The test on a motion for summary judgment is whether the motion judge may obtain a “full appreciation of a case necessary to grant judgment.”

The Supreme Court is clear in rejecting the traditional trial as the measure of when a judge may obtain a “full appreciation” of a case necessary to grant judgment. Obviously greater procedural rigour should bring with it a greater immersion in a case, and consequently a more profound understanding of it. But the test is now whether the court’s appreciation of the case is sufficient to rule on the merits fairly and justly without a trial, rather than the formal trial being the yardstick by which the requirements of fairness and justice are measured.[^5]

[38] Where no analysis is provided by the motions judge, in light of the parties’ consent, the decision on this point will still be reviewed on appeal with deference in light of the nature of the issues decided, the record before the motions court, the process followed, the relationship between the relief granted and any issues that remain for trial, and any other issues bearing on the propriety of recourse to the summary judgment process.

[39] There was little contested evidence in this case. The findings respecting the terms of the agreement between the Owner and the Contractor arise from letters and emails – evidence that is in writing. The general context in which these communications took place is not in dispute. What is in dispute are inferences that the motions judge should draw from evidence that is largely undisputed.

[40] The parties had agreed to a process that would have seen evidence in chief provided in writing, in affidavits, and time-limited cross-examinations take place in-person before the motion judge. When this arrangement was agreed between the parties, the motion was expected to proceed before Sloan J. For scheduling reasons and the intervening retirement of Sloan J., this did not take place, and the parties agreed to hold their cross-examinations out-of-court and to provide the new motion judge, Broad J., with transcripts of the cross-examinations. All parties agreed to proceed in this way. No party took the position, either prior to argument of the motion, or before the motion judge, that the cross-examinations ought to proceed in person, or that any additional steps ought to be taken to complete the record before the motions were argued. No party raised during argument before the motion judge a concern about proceeding on the basis of transcripts of the cross-examinations rather than in-person cross-examinations. No party took the position before the motion judge that necessary findings of credibility could not be made on the basis of the record before the court, and that oral testimony should be required.

[41] Notwithstanding all of this, on this appeal the Owner argues that the motion judge erred in failing to direct a trial or failing to direct oral examinations because there were disputed issues of fact and a need to make findings of credibility. The Owner also argues that the motion judge ought to have taken into consideration that the parties had originally agreed to in-person cross-examinations, despite their subsequent agreement to proceed on the basis of out-of-court cross examinations and transcripts.

[42] I would make three observations. First, we have an adversarial system. It is for the parties to assemble and present their cases. The court then decides the issues on the basis of the case presented. Second, the law of summary judgment is clear that on a motion for summary judgment, the court is entitled to expect that the parties have presented all of the evidence on which they rely, in some form.[^6] Where a party resists summary judgment on the basis that not all the evidence is before the court on motion for summary judgment, a burden of persuasion rests on the party resisting summary judgment to establish that it has taken reasonable steps to obtain the evidence it needs for the motion, and that the missing evidence would be material to the disposition of this motion.[^7] Third, findings of credibility can be made on a written record. The essential evidence grounding the arrangements between the parties in this case was set out in writing, and the motions judge could, and did, weigh the witness testimony in the context of this written evidence to come to his conclusions.

[43] Where, as in the case at bar, all parties agree to proceed by way of summary judgment, and no party argues that there is further evidence, or that the evidence presented cannot be appreciated and evaluated in the form in which it has been presented, the motions judge is entitled to proceed on the basis that all the evidence that will be available at trial is before him and no party takes the position that further evidence, or evidence presented in some other form, is necessary for the court to gain a “full appreciation of [the] case necessary to grant judgment.” As I explain when I review the merits of the motions judge’s findings, there were two competing theories of the contractual arrangements, and a further argument from the appellant that there was no agreement – just an agreement to agree. The appellant’s version of the contract makes little commercial sense and is inconsistent with its own conduct in the discussions leading to the agreement. Its argument that there was no agreement is belied by performance of the agreement by the Contractor.

[44] The appellant argues that the motion judge gave “short shrift” to his analysis as to whether it was appropriate to adjourn the crossclaim by the Contractor against the Owner and proceed with the balance of the issues by motion for summary judgment. The appellant asserts that proceeding in this fashion gives rise to a risk of inconsistent verdicts. With respect, both of these arguments lack merit.

[45] In respect to the “short shrift” argument (an argument that the motion judge’s reasons on this point were insufficient), again, the reasons given were on the basis that all parties agreed to proceed in this way. Obviously, the parties, themselves, did not fear risk of inconsistent verdicts at the time they agreed to proceed in this manner.

[46] Further and in any event, I do not see a risk of inconsistent verdicts. All parties agreed that the Contractor owed the Subcontractor $575,572, plus interest, plus costs. The motions judge granted judgment accordingly, and that finding is binding on the parties for the purposes of the claims between the Contractor and the Owner. Any payment by the Owner towards the principal amount of $575,572 will be counted as a payment to the benefit of the Contractor under the Contract. If this results in an overpayment to the Contractor under the Contract, once all issues between the Owner and the Contractor have been decided, then the Owner will be entitled to seek judgment against the Contractor for that overpayment. This possibility was inherent in the contract agreed by the Owner, as found by the motions judge. This possibility is also inherent in the scheme of the Act, which contemplates liability on the part of an owner to pay subcontractors basic holdbacks: where it arises, this basic holdback obligation is not limited by an owner’s obligations to a contractor.

The Merits

[47] With respect, this was not a close call on the liability issue. After having summarized pertinent evidence at paragraphs 5 – 29 of the Decision (including quoting at length from the key documents), the motion judge considered and assessed the parties’ position on all issues, in detail, at paras. 46 – 84. In this appeal, the appellant essentially re-argues its central contentions argued before the motion judge. It is not the task of this court to re-weigh the evidence, but rather to review the decision of the motion judge. Through this lens, the appellant’s arguments may be disposed of as follows:

(a) The appellant argues that the Owner’s agreement was to pay statutory holdback and not to pay anything more. This argument flies in the face of the documents exchanged among the parties, it makes no commercial sense, and it is inconsistent with the attempts at due diligence undertaken by the Owner in respect to the balance owed to the Subcontractor.

(b) The appellant argues that it believed that nothing was owed to the Subcontractor other than holdback since it had received and relied upon statutory declarations from the Contractor about the state of its accounts with its subcontractors. The dealings between the parties plainly disclose that the Owner knew full well it was being asked to pay more than its statutory holdback obligations. Further, as found by the motion judge, the Owner was not entitled to pay out holdback when there were some subcontractors that remained unpaid. On this logic, the motion judge found that the phrase “outstanding obligations” in the Termination Agreement could not have referred to the Owner’s obligations in respect to holdback, but rather the Contractor’s obligations to Subcontractor (Decision, para. 64).

(c) The appellant argues that the motion judge erred in relying on statements made by the Owner’s Construction Manager, and wrongly found those statements to be binding commitments by the Owner. The motion judge did not go so far. He considered and placed weight upon these statements as part of the overall factual matrix. In this context, the motion judge noted that the Construction Manager created the first draft of the Termination Agreement. In doing so it was acting as an agent of the Owner. This does not mean, of course, that the Construction Manager had the authority to settle the Termination Agreement on behalf of the Owner, but rather, that in drafting the Termination Agreement, the Contractor and the Subcontractor would fairly understand that the Construction Manager was acting on behalf of the Owner and was authorized to do what it did. Similarly, the Construction Manager provided an assurance to the Subcontractor that the Owner “will be assuming this contract”. The Owner’s own Construction Manager understood that the “deal” was payment of the balance owed to the Subcontractor, and it conveyed that understanding to the other parties.

(d) The appellant argues that the contract, as found by the motion judge, makes no commercial sense because it has the Owner giving a “blank cheque” for Subcontractor claims. The motion judge addressed this issue in three respects. First, the Owner restricted its payment obligations to specific subcontractors. Second, the Owner did due diligence on the outstanding amounts owed to subcontractors. Third, the balance owed to the Subcontractor was of particular concern to the Guarantor, the Contractor’s principal, because of his personal guarantee. In all the circumstances the motion judge was satisfied that Owner had agreed to pay out Subcontractor, and he concluded that the court would not relieve the Owner of its bargain because it had repented of it (Decision, paras. 82-84).

[48] The motion judge reviewed the evidence before him thoroughly. He stated and applied correct principles of contract law.[^8] The motion judge’s application of the law to the facts, as he found them, discloses no reversible error. I see no basis upon which this court should interfere with the findings that the Owner agreed to pay the balance owed by the Contractor to the Subcontractor, this agreement was a legally enforceable contract, and the Owner breached that agreement.

Interest

[49] The motion judge’s reasons in respect to interest are brief:

The question of whether 690 King’s liability to Desco should extend to the amount claimed by Desco for interest pursuant to the terms of the contract between it and AVN was not addressed in submissions. I see no reason in principle why it should not be. As set forth in [the Construction Manager’s] email communication to Desco of November 16, 2017, 690 King advised that it intended to “assume” Desco’s account with AVN and it did so by virtue of the Termination Agreement. 690 King subsequently renounced any responsibility to pay any part of Desco’s account.

I find that 690 King is liable to Desco in the sum of $575,572, plus interest as claimed by Desco…. (Decision, paras. 93-94)

[50] Given that the claimed interest is high (24% per year), the motion judge could have requested further submissions on interest. That said, this was an issue of importance, and it was for the parties to address it at the time the motion was argued before the motion judge, or to seek directions for submissions on interest at some later time. They did neither. With respect, the motion judge was entitled to more assistance from the parties on this point.

[51] The Termination Agreement was between the Owner and the Contractor. Under that Agreement, the Owner agreed to pay the Contractor’s obligations to the Subcontractor. This was not an “assumption” of the Subcontract by the Owner, but rather a termination of that Subcontract, payment of the outstanding balance owed by the Contractor to the Subcontractor, and a new contract between the Owner and the Subcontractor directly for completion of the work.

[52] The Termination Agreement did not specify the date by which the Owner would pay the Subcontractor the balance owed by the Contractor. Where there is a binding agreement to pay, but no payment date specified, the agreement requires that the payment be made within a reasonable period of time.

[53] From the Contractor’s perspective, performance by the Owner of the Termination Agreement would have satisfied the Contractor’s obligations to the Subcontractor. The Owner breached that agreement when it did not pay within a reasonable period of time.

[54] What are the consequences of the Owner’s breach of the Termination Agreement? The Contractor is liable for interest owed by the Contractor to the Subcontractor as a result of the Owner’s breach of contract. This is consistent with a long line of cases honouring contractual rates of interest.[^9]

[55] The Subcontractor obtained default judgment against the Contractor. This appears to have been a final adjudication of all issues between the Contractor and the Subcontractor. That default judgment appears to include prejudgment interest at 24% (although this is not certain – the judgment is for a lump sum apparently including principal and prejudgment interest, and the calculation of this prejudgment interest does not appear to be in the record). And it includes post-judgment interest at 3%.

[56] Thus, the question, as regards interest, is not whether the court should exercise its discretion to award some rate other than the contractual rate agreed between the Contractor and the Subcontractor. That issue was apparently decided by the default judgment. Rather, the issue is whether the court should relieve the Owner from paying the interest for which the Contractor has been found liable to the Subcontractor.

[57] In all of the circumstances of the case, the Contractor and the Guarantor should be made whole – that is, their interest obligations to the Subcontractor ought to be met by the Owner. This seems to be the motion judge’s reasoning on this point and it is consistent with a restitutionary approach to the interest issue, which is legally sound in the context of this case.[^10] I see nothing in the motion judge’s reasons that would lead to a conclusion that the Owner ought to pay Contractor a windfall between the post-judgment interest it owes the Subcontractor under the default judgment (3%) and the claimed contract rate of 24%.

[58] The appellant argued the interest point before this court on the basis that the motion judge failed to put his mind to the proper exercise of discretion in accordance with the factors set out in s. 130(2) of the Courts of Justice Act. I do not agree. The central findings necessary on the interest issue concerned the contractual rate of interest the Contractor is required to pay to the Subcontractor, the Contractor’s actual liability for that interest (as apparently set out in the default judgment) and the Owner’s liability for the accrued interest obligation that arises because of the Owner’s failure to pay the Subcontractor as it had agreed to do.

[59] All of this said, the motion judge did not make necessary factual findings to enable this court to determine the appropriate amount of interest that should be paid by the Owner. He does not explain why he did not limit the interest to that awarded in the default judgment – no doubt because this point was not raised with him. Before us, the appellant argued the interest point on an entirely different basis (the Owner did not agree to the interest rate and the motion judge did not exercise his discretion properly or at all under s.130 of the Courts of Justice Act). The respondent did not raise the issue of the effect of the default judgment.

[60] If, in light of this court’s reasons, if the parties are unable to agree on the quantum of interest, they shall make brief written submissions to this court, the respondents by December 2, 2022, the appellant by December 16, 2022, and any reply submissions from the respondents by December 23, 2022. This court reserves the option of sending this question back to the motion judge for decision after it has reviewed the parties’ submissions.

Other Appeal Arguments

(a) Third Party Enforcement of Termination Agreement

[61] The Owner argues that the motion judge erred in finding that the Subcontractor should be permitted to enforce the Termination Agreement, an agreement to which it was not a party. The motion judge correctly stated the test for third party enforcement of a contract. His factual findings on this issue were available to him on the record and are reasonable. I would not interfere with his conclusion on this point.

[62] Further, I note that this issue is academic in a practical sense. There is no error in the motion judge’s finding that the Owner is liable to indemnify the Contractor and the Guarantor for any payments they are required to make to the Subcontractor, and thus a further order that the Owner be liable directly to the Subcontractor has no greater effect than enforcing the bargain between the Contractor and the Owner. The remedy – an order of direct payment – is available without a finding that the Subcontractor itself is entitled to enforce the Termination Agreement. Further, as explained below, Subcontractor is entitled to recourse to the lien security for the principal amount of its claim.

(b) Recourse to Lien Security

[63] The Owner argues that the motion judge erred in ordering that payment be made from lien security posted by the Owner. I would not give effect to this argument. The motion judge limited recourse to the lien security to the principal amount of the lien claim, plus costs, thus respecting the Construction Lien Act provisions that there are no liens for interest.[^11] The Owner has not established that any other claimant is entitled to recourse to the lien security, and no other claimant has come forward to claim a right to share in that security. Payment in accordance with the motion judge’s decision will have the effect of extinguishing the claim for which the lien security was posted. Subcontractor is entitled to recourse to the lien security in respect to any amount owed by Owner to Contractor on account of the Contract (subject only to the claims of other lien claimants to that fund).

(c) Failure to Make Credibility Findings

[64] The appellant argues the motion judge erred in failing to make express findings of credibility and to provide reasons for those findings. It argues that Mr Willick provided clear evidence of his understanding of the Termination Agreement (limited to an obligation to pay holdbacks) and the basis of his understanding (the statutory declarations provided by Contractor). The appellant argues that this was credible evidence running contrary to the motion judge’s decision, and no explanation was provided in the reasons for “disregarding” Mr Willick’s evidence.

[65] In my view the motion judge went no further than he needed to go in respect to findings of credibility. On the record before the court, it would have been open to the motion judge to conclude that Mr Willick’s evidence on this point was disingenuous. However, it was not necessary for the motion judge to do this, and it was appropriate for the motion judge not to go so far in his reasons if he was not required to do so to explain his decision.

[66] The objective facts (what happened) were the basis of the motion judge’s findings – the documents and the things done by the parties. The subjective view of these events were stated by the motion judge (both those of Mr Willick and those of the other participants) and the motion judge gave detailed reasons as to why the version urged by the Contractor and the Subcontractor was reasonable and the version urged by the Owner was not reasonable. There was no need for the motion judge to rule on whether Mr Willick’s account of his own subjective understanding was sincere – whether it was sincere or insincere, it was not reasonable.

(d) Finding an Enforceable Termination Agreement

[67] The appellant argued that the motion judge erred in finding that there was an enforceable termination agreement. I see little merit to this argument. The Termination Agreement was in writing and was entitled “Termination Agreement”. Contractor performed its side of that Termination Agreement. The motion judge found that the agreement was sufficiently certain to be enforceable on the basis of the agreement itself. That was a finding open to the motion judge on the evidence. The motion judge went on to find that, if the agreement was not sufficiently certain on the face of the agreement, given the overall context, the terms of the agreement were consistent with his view of the clear meaning. Again, this finding was available to the motion judge on the evidence, and his reasoning on this issue discloses no error in principle.

Disposition and Order

[68] For all of these reasons I would dismiss the appeal except in respect to the motion judge’s award of interest at 24%. I would set aside the interest award and direct the parties to provide further brief written submissions on the proper calculation of interest in accordance with these reasons. The respondents have been largely successful and shall have their costs of this appeal fixed at $10,000, inclusive, payable within thirty days.

D.L. Corbett J.

I agree:_______________________________

Emery J.

I agree:_______________________________

Mew J.

Released: November 18, 2022

[^1]: Construction Lien Act, RSO 1990, c. C.30 (the “CLA” or the “Act”). This proceeding was commenced under the CLA, prior to its amendment renaming it the Construction Act, and there is no issue but that the CLA in its pre-amendment state applies to this appeal.

[^2]: Owner posted a lien bond of the full amount of the claim for lien, plus $50,000 for costs, for a total of $669,259.30.

[^3]: Sloan J. also included terms respecting a Writ of Seizure and Sale which are not material to the appeal.

[^4]: Royal Bank of Canada v. 1643937 Ontario Inc., 2021 ONCA 98, paras. 26, 29 and 44.

[^5]: Sweda Farms v. Egg Farmers of Ontario, 2014 ONSC 1200, para. 34, aff’d 2014 ONCA 878, leave to appeal to SCC denied 2015 39803.

[^6]: Sweda Farms v. Egg Farmers of Ontario, 2014 ONSC 1200, para. 33(1), aff’d 2014 ONCA 878, leave to appeal to SCC denied 2015 39803; Transamerica Life Insurance Co. of Canada v. Canada Life Assurance Co., 1996 CalLII 7979 (ONSC) (Gen. Div.), para. 24; Dawson v. Rexcraft Storage and Warehouse Inc., 1998 4831, 1998 CarswellOnt 3202 (CA).

[^7]: Sweda Farms v. Egg Farmers of Ontario, 2014 ONSC 1200, para. 28, aff’d 2014 ONCA 878, leave to appeal to SCC denied 2015 39803.

[^8]: Canada Square Corp. v. Versafood Services Ltd. (1981), 1981 1893 (ON CA), 34 OR (2d) 250 (CA) (Decision, paras. 79-80); Buchau v. Rogers Communications Inc., 2004 BCCA 142 (Decision, para. 49); Sattva Capital Corp.v. Creston Moly Corp., 2014 SCC 53 (Decision, para. 50); Ring Contracting Ltd. v. PCL Contractors Canada Inc., 2003 BCCA 684.

[^9]: See for example Citi Cards Canada Inc. v. Ross, 2014 ONSC 114, para 26: “absent exceptional circumstances, a creditor is entitled to recover both pre-judgment and post-judgment interest at the contract rate”. See aso Pizzey Estate v. Crestwood Lake Ltd. (2004), 2004 36108 (ON CA), 69 OR (3d) 306 (CA0, leave to appeal to the SCC refused [2004] SCCA No. 459; Stellarbridge Management Inc. v. Magna International (Canada) Inc. (2004), 2004 9852 (ON CA), 71 OR (3d) 263 (CA).

[^10]: Paragon Development Corp. v. Sonka Properties Inc. (2009), 2009 13627 (ON SC), 96 OR (3d) 574 (CA), leave to appeal refused (2011) 424 NR 396 (note) (SCC).

[^11]: CLA, s.14(1).