Infinite Construction Development Ltd. v. Chen, 2023 ONSC 2627

CITATION: Infinite Construction Development Ltd. v. Chen, 2023 ONSC 2627 DIVISIONAL COURT FILE NO.: 399/22 DATE: 20230601

ONTARIO SUPERIOR COURT OF JUSTICE DIVISIONAL COURT

Before: D.L. Corbett J.

BETWEEN:

Infinite Construction Development Ltd. Plaintiff / Appellant

– and –

Yadong Chen Defendant / Respondent

Counsel: Christopher Tan and Ran He, for the Appellant Paul H. Starkman and Calvin Zhang, for the Respondent

HEARD at Toronto (by videoconference): November 30, 2022

REASONS FOR DECISION

D.L. Corbett J.

[1] This is an appeal from the final order of Associate Justice Robinson dated June 30, 2022, vacating the claims for lien of the plaintiff/appellant Infinite Construction Development Inc. (“Infinite”) and dismissing Infinite’s lien claims and breach of contract claims. The appellant raises issues respecting the jurisdiction and process to be followed on motions under s. 47 of the Construction Act and the relationship between these motions and motions for summary judgment.

Overview

[2] Infinite argues that the Associate Justice went too far and effectively treated the motion as a motion for summary judgment when he should have confined himself to the narrower exercise contemplated by the Construction Act provisions for early elimination of unmeritorious claims for lien. I do not see the case that way. Infinite’s claims in this action are predicated on a theory that Infinite – which did construction work on the defendant’s property – was a “contractor” within the meaning of the Construction Act by virtue of an undisclosed assignment agreement between the original contractor and Chen. The gist of the decision of the Associate Justice is that there was no assignment of the contract, and therefore Infinite does not have the rights of a “contractor” as against Chen.

[3] It was open to the Associate Justice to make this finding, on the pleadings and on the record below, and in making this finding the Associate Justice was properly exercising his jurisdiction on a motion under s. 47 of the Construction Act. This would leave Infinite with a potential action for breach of contract and/or breach of trust against the contractor, and an action for a construction lien against Chen for holdbacks that should have been retained for the benefit of subcontractors pursuant to the Construction Act. The Associate Justice found that Infinite did not assert its subcontractor’s lien in a timely manner, and so its lien claims were rightly dismissed. Infinite did not have a contract with Chen, and so its claims for breach of contract against Chen were rightly dismissed. The Associate Justice did not dismiss Infinite’s claims for unjust enrichment on the basis that the propriety of those claims was not raised properly before him, and so he permitted those claims to proceed in an action not under the Construction Act (there being no surviving Construction Act claims with which those claims might be joined). The correctness of that aspect of the decision – leaving the unjust enrichment claims subsisting in an SCJ proceeding – was not challenged by cross-appeal before this court.

Background

[4] Chen owns a property at 329 Clinton Street, Toronto. Chen entered into a contract with 10305391 Canada Inc. (the “Contractor”) for construction work to be done on the property. Based on these arrangements, Chen was an “owner”, the numbered company was a “contractor”, and the agreement between them was a “contract”, all within the meaning of the Construction Act.

[5] Chen appointed his real estate agents (Will (Xuan) Zhang and Clark Cai) to oversee the contract on his behalf.

[6] It is not contested that Infinite performed substantially all the Contractor’s contract work. The issue is whether it did so as a “contractor” or as a “subcontractor”.

[7] Infinite takes the position that the Contractor “transferred all of its rights and obligations under the contract” to Infinite by assignment agreement in July 2019. This assignment agreement is alleged to have been oral, and then reduced to writing “subsequently… nunc pro tunc, effective July 2019” (Appellant’s Factum, para. 12). It is not contested that Chen did not consent or agree to this assignment and was not given notice of it until September 2021 after the dispute arose between the parties and the liens had been registered against title to the property.

[8] Chen says that the construction contract was not assigned to Infinite, and that Infinite acted as the Contractor’s agent, representative or subcontractor. Chen paid the first five contract payments to the Contractor, and Chen was not privy to the billing and payment arrangements between the Contractor and Infinite. Chen acknowledges that the contract work was done by Infinite, and that day-to-day dealings on the job site took place between Chen’s agents (Messrs Zhang and Cai) and representatives of Infinite.

Issues on Appeal

[9] The Appellant raises the following issues on appeal:

a. The Associate Justice was hearing a motion under s. 47 of the Construction Act. However, he applied the tests for summary judgment under R. 20 of the Rules of Civil Procedure. In so doing, the Associate Justice erred and exceeded his jurisdiction.

b. On application of the proper test for a motion under s. 47 of the Construction Act, Infinite established a “triable issue” that it was a “contractor” within the meaning of the Construction Act, and thus the motion ought to have been dismissed and the case sent to trial.

c. In the alternative, the Associate Justice erred in finding that Infinite’s claim for lien was out of time if Infinite is a “subcontractor” rather than a “contractor” within the meaning of the Construction Act.

[10] Chen argues that there is no “triable issue” that the plaintiff is a “contractor” within the meaning of the Construction Act. This was an unremarkable set of arrangements among the parties that clearly establishes that Infinite was a subcontractor. The Associate Justice did not convert the motion to a motion for summary judgment, but rather was satisfied that Chen established the true nature of the contractual arrangements, and that Infinite’s evidence was not sufficient to raise a triable issue to the contrary.

Motions Pursuant to s. 47 of the Construction Act

[11] The Associate Justice began his analysis (Decision, para. 10) by summarizing, correctly, s. 47 of the Construction Act, which provides:

General powers of the court

Power to discharge

(1) The court may, on motion, order the discharge of a lien,

(a) on the basis that the claim for the lien is frivolous, vexatious or an abuse of process; or

(b) on any other proper ground.

Power to vacate, etc.

(1.1) The court may, on motion, make any of the following orders, on any proper ground:

1. An order that the registration of a claim for lien, a certificate of action or both be vacated.

2. If written notice of a lien has been given, a declaration that the lien has expired or that the written notice of the lien shall no longer bind the person to whom it was given.

3. An order dismissing an action.

Conditions

(1.2) An order under subsection (1) or (1.1) may include any terms or conditions that the court considers appropriate in the circumstances.

[12] The Associate Justice then correctly set out the test for a motion under s. 47, following this court’s decisions in Maplequest (Vaughan) Developments. Inc. v. 2603774 Ontario Inc., 2020 ONSC 4308 and R&V Construction Management Inc. v. Baradaran, 2020 ONSC 3111 (Decision, paras. 11, 15 and 16). The Associate Justice concluded that R & V Construction and Maplequest govern and are to be preferred to dicta in GTA General Contractors Ltd. v. 2566213 Ontario Inc., 2019 ONSC 7370 (SCJ) (Decision, paras. 13 – 18).

[13] The Associate Justice correctly evaluated the authorities binding upon him on this issue. R & V Construction and Maplequest are panel decisions of the Divisional Court. To the extent that any dicta in GTA General Contractors is inconsistent with these cases, R & V Construction and Maplequest govern. That said, the motion judge in GTA General Contractors correctly found that a motion pursuant to s. 47 “is similar to the test on an R. 20 summary judgment motion” (para. 17). The motion judge did not have the benefit of R & V Construction and Maplequest and his decision does not call into question the principles stated in R & V Construction and Maplequest.

[14] Having reviewed these authorities, the Associate Justice stated as follows (Decision, para. 18):

In my view, the principles set out in GTA General Contractors remain applicable, but as guidance on appropriate considerations for s. 47 motions where discharge or dismissal is sought on the merits. There is no language in s. 47 limiting the court’s discretion to assess and decide what is “a proper ground” to discharge a lien or dismiss an action in the particular circumstances of a particular case. Nevertheless, in deciding a s. 47 motion, there are times when a genuine issue could be resolved on a motion, but it is nevertheless more fair, just, and appropriate in the circumstances for that issue to be decided at trial.

I substantially agree with this statement. Section 50(3) of the Construction Act provides that “[t]he procedure in an action shall be as far as possible of a summary character, having regard to the amount and nature of the liens in question.” This provision guides the interpretation and application of motions under s. 47: proportionality is a core principle in proceedings under the Construction Act, and the Associate Justice correctly found that “a proper ground” to discharge a lien or dismiss an action turns on “the particular circumstances of a particular case.” The exercise of discretion in applying the principle stated in s. 50 (3) in the context of a motion pursuant to s. 47, will be reviewed in this court on a deferential standard.

The Plaintiff’s Claim to be a “Contractor”

[15] The “contractor” in this case was 10305391 Canada Inc. The plaintiff alleges that it is a “contractor” because it took an assignment of the contract from 10305391 Canada Inc. The issue before the Associate Justice was whether this claim should go to trial. In concluding that it should not, the associate Justice found as follows:

(a) the plaintiff did not plead assignment of the contract;

(b) the plaintiff variously characterized its relationship with 10305391 Canada Inc. as one of “agency” or “representation”;

(c) from October 2019 to February 2021, the Contractor invoiced Chen, and Chen paid the Contractor, for contract work;

(d) the alleged assignment agreement was not reduced to writing until September 2021, after the liens were registered and after Chen requested a copy of the agreement between Infinite and the Contractor;

(e) notice of the alleged assignment was not provided to Chen until September 2021.

(f) no evidence was led from the Contractor as to its role in the project, and whether or when its role changed.

[16] Findings (a) to (d) were sufficient to ground the Associate Justice’s decision. I agree with the appellant that the Associate Justice’s scrutiny of the record in respect to ground (e) – upon which the Associate Justice placed some weight in his analysis – should have led to a conclusion that there was a triable issue in respect to whether the Contractor had really agreed to an assignment at any point, and how the Contractor viewed the arrangements at various points during the contract performance. However, this does not mean that there was a triable issue as to whether there was an effective assignment of the contract.

[17] Two issues were raised that were not decided by the Associate Justice – alternative arguments advanced by Chen: (a) that the alleged assignment was void as contrary to the Statute of Frauds; and (b) that the alleged assignment was ineffective in any event, by reason of the failure to give notice of the assignment to Chen and the effect of s. 53(1) of the Conveyancing and Law of Property Act, RSO 1990, c. C.34. Both arguments are tenable, but I do not find it necessary to decide them in light of my conclusion that the basis for decision grounding the judgment of the Associate Justice discloses no reversible error.

[18] The Associate Justice applied the correct test and made no palpable and overriding error of fact. It follows from this that the Associate Justice did not exceed his jurisdiction.

The Claim for Lien Was Untimely

[19] The Associate Justice found that, if Infinite was a “contractor” within the meaning of the Construction Act, there was a triable issue as to whether its claim for lien was timely. If Infinite was a “subcontractor”, however, its claim for lien was registered out of time (Decision, para. 55). These conclusions flow from the different tests that apply for a “contractor” and for a “subcontractor” for registering a claim for lien (see ss. 31(2)(b) and 31(3)(b) of the Act). The Associate Justice’s statement of the law on this point is correct, and his findings of fact bearing on this point disclose no palpable and overriding error.

[20] The Associate Justice then noted, correctly, that “contractor” is defined in the Act as “a person contracting with or employed directly by the owner…” (Act, s. 1(1)). The Associate Justice then held as follows:

Nothing in the Construction Act prevents a general contractor, who has been contracted by the owner, from subcontracting with a second general contractor to perform the full scope of the first general contractor’s work. Practically, the first general contractor would cease to have any “boots on the ground” role on the project, since the second general contractor would be doing all of the work. That functional role of the second general contractor would demonstrate all the indicia of a typical general contractor, and it could even be the “constructor” with the Ministry of Labour for the purposes of the Occupational Health and Safety Act, RSO 1990, c.O.1. Legally, though, absent a contract with the owner (or an agent of the owner), the second general contractor would still fall within the definition of a “subcontractor” under the Construction Act. Its services and materials would be supplied under an agreement with the first general contractor.

I agree with this statement.

[21] Apart from the alleged assignment, Infinite did not allege a direct contract with Chen. There was no evidence that it had such a contract. The Associate Justice correctly distinguished Centrum Renovations & Repair Inc. v. Ditta (Ont SCJ) and found that a “functional analysis” of the role performed by Infinite could not displace the statutory requirement for a contract between Infinite and Chen.

[22] The Associate Justice then reviewed the record and concluded that Infinite did not establish a triable issue that the lien was timely. The only work done during the requisite period was pest control (removal of a raccoon from the property) and work that the Associate Justice found to be deficiency remediation (which does not extend the date of last supply: Demasi Contracting Inc. and AMT Group Inc., 2013 ONSC 5555, para 23).

[23] The Associate Justice’s conclusion that Infinite’s claim for lien was out of time discloses no error of law and no palpable and overriding error of fact.

Ancillary Orders

[24] The Associate Justice’s dismissal of Infinite’s contract claims follows from his finding that there is no triable issue that the contract was assigned to Infinite.

[25] The Associate Justice then found that the claim based on unjust enrichment could not continue in the current action, since there is no subsisting claim under the Construction Act to which that claim may be joined. He directed that Infinite could pursue that claim in the Superior Court of Justice, if it was minded to do that. This disposition of the unjust enrichment claim was not appealed to this court.

Disposition

[26] The appeal is dismissed, with costs payable by the appellant to the respondent fixed at $15,000, inclusive, payable within thirty days.

D.L. Corbett J.

Date of Release: June 1, 2023