BARRIE COURT FILE AND PARTIES

BARRIE COURT FILE NO.: CV-12-0196 SR

DATE: 20130222

ONTARIO

SUPERIOR COURT OF JUSTICE

BETWEEN:

VARCO PRUDEN BUILDINGS, A DIVISION OF BLUESCOPE BUILDINGS NORTH AMERICA, INC.

Plaintiff

– and –

THOM WIN CONSTRUCTION LIMITED, WILLIAM NORMAN THOMPSON (also known as BILL THOMPSON), and WENDY ANNE THOMPSON

Defendants

Mr. Eric Gionet, for the Plaintiff

Self Represented

HEARD: February 12, 2013

REASONS FOR DECISION

McCarthy J.

[1] The Plaintiff moves for summary judgment on the basis that the monies received by Thom Win Construction Limited (“the contractor”) for the construction project in question were subject to a trust in favour of the Plaintiff and that the contractor as trustee is unable to properly account for the money received. The Plaintiff also seeks summary judgment against the Defendants William Thompson and Wendy Thompson personally for breaches of trust committed by the contractor.

[2] The contractor and certain third parties (the project owners) entered into a fixed price construction agreement (“the Agreement”) on March 28, 2011. The Agreement called for the construction of an aircraft hangar at the Parry Sound Municipal Airport (“the project”). Pursuant to the Agreement, the project owners paid to the contractor the amount of $51,715.47 as a deposit (“the deposit”) for the commencement of the fabrication of the pre-engineered metal building components for the hangar.

[3] The contractor retained the Plaintiff to fabricate and furnish the pre-engineered metal building components for use on the project. The Plaintiff issued a purchase order which set out the amount for materials and services at $158,442.00 in United States Dollars (USD), which was later modified to $162,603.00 (USD).

[4] After providing the materials and services, the Plaintiff issued the contractor an invoice dated July 18, 2011. The contractor failed to make any payments pursuant to the invoice. The Plaintiff registered a claim for lien on the improved property.

[5] The project owners made a direct partial payment to the Plaintiff, reducing the amount owing to the Plaintiff to $52,079.12 (USD). That amount remains outstanding to the present day.

[6] The contractor submitted a series of five invoices to the project owners on November 26, 2012. The contractor’s principal gave evidence on February 5, 2013, that the project owners owe a total of $122,205.12 to the contractor. This amount remains due and payable.

The Pleadings

[7] The Defendants have admitted the allegations set out in the following paragraphs of the Statement of Claim: page 4, paragraphs 1, 2 and 3 through 8; paragraphs 9 through 14, 19 and 22 through 25. The Defendants further admit that there remains an amount outstanding to the Plaintiff of $52,079.12 (USD).

Summary Judgment – The Full Appreciation Test

[8] The court shall grant summary judgment if it is satisfied that there is no genuine issue for trial with respect to a claim or defence. (Rule 20.04(2) of The Rules of Civil Procedure, R.R.O. 1990, Reg. 194).

[9] A judge on a motion for summary judgment is entitled to weigh the evidence, evaluate the credibility of a deponent and draw any reasonable inference from the evidence. A motions judge is also permitted to conduct a meaningful review of the paper record. (See Sanguiliano v. Greer, 2011 ONSC 2247 at para. 15)

[10] A case is appropriate for summary judgment where the motions judge is able to dispose of a case on the merits after applying the full appreciation test as enunciated in Combined Air Mechanical Services Inc. v. Flesch, 2011 ONCA 764.

The Trust Claim

[11] The Plaintiff seeks a finding that the deposit amount was subject to the trust provisions in s. 8 of the Construction Lien Act, R.S.O. 1990, c. C.30 as amended (the Act). The Plaintiff seeks a further finding that the Defendants have breached their obligations as trustees under subsection 8(2) of the Act. The court was referred to the “Summary of Costs Parry Sound Hangar” document provided by the Defendant in its responding materials (Exhibit “B” to the affidavit of William Thompson and referred to hereinafter as the “summary”).

[12] The Plaintiff seeks a further finding that William Norman Thompson and Wendy Anne Thompson, as directors and officers of the corporation, are personally liable to the Plaintiff, jointly and severally, for the contractor corporation’s breach of trust pursuant to s. 13(1) of the Act.

[13] Finally, the Plaintiff seeks a finding that the remaining monies owing by the project owners to the contractor are subject to the trust provisions under s. 8 of the Act.

The Existence of a Trust

[14] The purpose of the trust provisions in the Act was considered by the Ontario Court of Appeal in the seminal case of Rudco Insulation Ltd. v. Toronto Sanitary Inc. (1998), 1998 5529 (ON CA), 42 O.R. (3d) 292. O’Connor J summarized that purpose as follows:

The most obvious purpose of Parts II and III of the Act is to provide a financial preference and a security interest to those down the contractual chain on construction projects. The trust and lien protections reduce the risk of non-payment in the event of insolvency by those above and undoubtedly assist those below, often small businesses, in more readily obtaining financing. The statute brings greater stability and security to the construction industry than would exist at common law.

[15] In order to prove the existence of a trust under s. 8 of the Act, a claimant must demonstrate (1) that the contractor received monies on account of its contract price for a particular project, (2) that the claimant supplied services or materials on the project and, (3) that the contractor owes money to the claimant for those services or materials. (See St. Mary’s Cement Corp. v. Construc Ltd., 1997 12114 (Ont. Ct. Gen. Div.) at para. 10).

The Evidence of the Trust

[16] The evidence establishes that the deposit monies received by the contractor of $51,715.47 were on account of the contract with the project owner. The evidence also establishes that the Plaintiff supplied services and materials to the project and that the Plaintiff is still owed $52,079.12 (USD) for those materials and services. The Plaintiff has therefore satisfied me that the deposit monies were subject to a s. 8 trust. Furthermore, the evidence satisfies me that the remaining monies owing by the Project owner are “amounts owing to a contractor on account of the contract” and are therefore subject to the trust provisions. The obligations of the trustee as set out in subsection 8(2) of the Act therefore apply to both the deposit and the monies due and owing.

The Trustee’s Obligations

[17] Subsection 8(2) of the Act imposes specific obligations on contractors in the position of the contractor:

Obligations of the Trustee – 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.

[18] In St. Mary’s Cement, the court held that once the existence of a trust is established, the onus shifts to the contractor to show that it has complied with the obligation of a trustee to ensure that any payments made out of trust fund monies were for the beneficiaries of the trust or within the exceptions provided for in the Act. In the absence of evidence establishing that the spending of trust funds was in accordance with one of the exceptions in the Act or that the recipient of the funds was a beneficiary of the trust, the onus has not been met and the contractor will be found to have breached the trust. (See John Ritchie Ltd. (Trustee of) v. Canadian Bank of Commerce, 1966 9 (SCC), [1966] S.C.R. 513 at p. 521)

The Trustee’s Actions

[19] In his affidavit of December 20, 2012, William Thompson, president of Thom Win, deposed that, as per the terms of the Agreement, the contractor received net total for deposit of $45,765.90 plus HST. That is consistent with his evidence at his cross-examination of February 5, 2013, wherein he confirmed that the total the contractor received inclusive of HST was $51,715.47. As per the summary, the contractor then expended the amount of $36,936.72 on material, labour, vehicles, equipment and management. The labour component of the expenses consisted of employee wages and remittances. Vehicle expenses included insurance and depreciation costs on company vehicles. Management expenses included legal costs and builders risk insurance. All of the payments listed on the summary were made while amounts owing to the Plaintiff remained outstanding.

The Defendants’ position

[20] The Defendants admit that the amount owing by them to the Plaintiff remains outstanding. The Defendants also concede that an amount of $122,205.12 with respect to the project remains due and owing from the project owners to the contractor.

[21] In submissions, Mr. Thompson put forth the argument that some of the payments made by the project owners would have predated the subcontract with the Plaintiff. This was not set out in the Defendants’ pleading or in their responding materials.

[22] The Statement of Defence asserts that the deposits were intended as start-up funds for the project and not for the benefit of the Plaintiff. There was accordingly no breach of trust. The pleading further alleged that a garnishment had been placed on the contractor’s bank account by Canada Revenue Agency. The Defendants allege that the Plaintiff did not exercise due diligence by obtaining the truth about the nature of the deposit. They allege that none of the Defendants benefited in any way from this “transaction”. Nowhere do the Defendants define what is meant by transaction. The pleading alleges that the assets of the contractor have either been sold or are encumbered by the CRA.

[23] In submissions, the Defendants pointed out that some of the deposit would have been made up of Harmonized Sales Tax (HST).

[24] In his final submission, Mr. Thompson suggested to the court that the project owner might now be a necessary third party to the action.

Analysis

[25] I am unable to find that the Defendants have raised any kind of meaningful defence to the claims against them in either their pleading or responding materials. They have failed to identify or put forth any facts upon which the court could find that there is a tenable defence to the claim of trust or breach of trust.

[26] To the extent that it is even possible for a project owner and a contractor to bargain out of the trust provisions of the CLA, I am unable to find anything in the Agreement to this effect.

[27] It is irrelevant to the determination of the issues before me that the corporation is now subject to CRA garnishment proceedings.

[28] Similarly, the Defendants’ assertion that the contractor may have the right to bring third party proceedings against the project owners can have no bearing on the issues between the parties on the motion now before the court.

[29] I am satisfied that the evidence establishes that the payments listed and described in the summary were in respect of overhead and operational costs. The Court of Appeal concluded in Rudco that no overhead expenses may be paid until all trust beneficiaries have been paid for the work and material they supplied to the project. To do so constitutes a breach of the trust provisions of s. 8 of the CLA.

[30] One could argue that the HST contained within the deposit amounts was not “received on account of the contact price” but was additional to it and would be impressed with an altogether different trust in favour of CRA. On the other hand, the Defendants’ summary of costs does not contain a remittance of HST; nor is the HST amount of $5,949.57 shown as standing in a separate account or ledger. The reference to taxes under the “Management” heading of the summary does not identify the nature of the taxes or the total assigned to that expense. I find that most, if not all, of the payments made by the Defendants from those deposits were in the nature of overhead and operational costs.

[31] At a minimum, I find that the corporation has appropriated or converted $45,765.90 of trust funds to the contractor’s use without justification and in contravention of s. 8 of the Act. This amount is net of the HST.

[32] Accordingly, the Defendant contractor appropriated or converted the funds for its own use. That use was inconsistent with the trust. These payments were made before the Plaintiff had been paid all amounts related to the project owed to it. I find that the contractor therefore breached its obligation as trustee.

Can the Trustees rely on ss. 10 or 11 of the Act?

[33] Neither party directed the court’s attention to ss. 10 or 11 of the Act. Section 10 might serve to alleviate or reduce the obligation to hold trust funds for beneficiaries to the extent that any portion of the trust funds was used to pay a person who supplied labour or material to the project. Section 11 permits the use of trust funds to offset payments made from other sources for materials and services for the project. I am of the view that the court should give consideration to these sections in the circumstances of a summary judgment motion in order to comply with the full appreciation exercise.

[34] There was no evidence before the court that the contractor made payments to persons contemplated under s. 10 or was looking to offset payments made for services and materials on the project for the purposes of s. 11. The persons named in the summary were employees and would therefore form part of overhead and operational costs according to the analysis in Rudco. There was no evidence before the court that the entities listed under “Material” actually supplied materials or services to the project. There was no evidence before the court by which it could link the “Vehicle”, “Equipment” and “Management” items listed to the project for the purposes of s. 10 of the Act.

Personal Liability of Directors and Officers

[35] I find that there is no genuine issue for trial on the personal, joint and several liabilities of the Defendants William Norman Thompson and Wendy Anne Thompson. The materials filed by the Defendants did not address the subject. There was no affidavit filed by Wendy Anne Thompson. The evidence from the cross-examination of William Thompson acknowledges that both parties were directors or officers and operated the company in unison. The summary clearly establishes that payments were made in contravention of the trust provisions in the CLA. I find that both of these Defendants knew or ought to have known that the payments made out of the trust funds were in contravention of s. 8 of the Act. Subsection 13(3) of the Act requires that they be found jointly and severally liable for the breach of trust.

Amounts Owing by Project Owners

[36] On the materials before me, I am able to conclude that the amount of $122,205.12 due and owing from the project owners to the Defendant contractor is trust funds within the meaning of s. 8 of the CLA. This amount is due and payable to the contractor Defendant; it is payable on account of the Agreement between the project owner and the contractor. The Defendants’ own responding materials confirm that these amounts were invoiced by the contractor on November 26, 2012.

Disposition

[37] I am satisfied that there is no genuine issue requiring a trial in this matter. The Defendants admit that the entire amount claimed by the Plaintiff remains unpaid. There has been no defence put forward on either the quantum of the sum claimed or the Plaintiff’s entitlement to it.

[38] There is no genuine issue for trial on the issue of the trust claim. I have been referred to no evidence or authority that could lead to a finding that the deposit paid by the project owner was anything but trust funds within the contemplation of s. 8 of the Act.

[39] I have considered that the Plaintiff’s pleading is not limited to the claims for payment of a liquidated sum or restitution but includes a claim for, “such further and other relief as to this Honourable Court deems (sic) just.”

[40] In my view, the trial process is not required on any of these issues. A full appreciation of all of the evidence and the relevant provisions of the Act leads me to conclude that I can and should make dispositive findings on these claims and issues at this stage. The interests of justice do not therefore require a trial of these issues.

[41] The Defendants have an obligation to put their best foot forward in a motion for summary judgment. They are not entitled to rest on mere denials in their pleading. (See Maindonald v. McKeown, 2011 ONSC 4709 at para. 58). The Defendants have failed to put forward any specific facts showing that there is a genuine issue for trial.

[42] The Plaintiff is entitled to judgment in the amount of $52,183.28. This amount has been arrived at by using the Bank of Canada exchange rate of USD to Canadian dollars of 1.0020 for the date of February 13, 2013.

[43] The court finds that the Defendant Thom Win Construction Limited has breached s. 8 of the Act. The court finds that the Defendants William Norman Thompson and Wendy Anne Thompson are jointly and severally liable on the judgment.

[44] The court further finds that the balance due and owing by the project owners to the Defendant contractor in the amount of $122,205.12 is subject to the trust provisions in s. 8 of the CLA.

[45] In the event that the parties are unable to agree on the issue of costs or the content or form of the judgment, either party may arrange through the trial coordinator at Barrie for a further attendance before me on those issues. There shall be judgment accordingly.

McCARTHY J.

Released: February 22, 2013