SUPERIOR COURT OF JUSTICE – ONTARIO

COURT FILE NO.: 12-1327OT
DATE: June 26th, 2013

In the matter of the Construction Lien Act, R.S.O. 1990, c. C.30 as amended

RE: 1652472 ONTARIO INC. o/a NORTH KEY CONSTRUCTION, Plaintiff

AND:

MIWEL CONSTRUCTION LIMITED et. al., Defendants

BEFORE: MASTER MACLEOD

COUNSEL:
Christopher Morris, for the Plaintiff

Allison Russell for the defendant Miwel

Counsel listed in Schedule A attached participated by telephone

HEARD: June 25th, 2013

ENDORSEMENT

[1] There were two motions before the court affecting more than 45 construction lien actions commenced in Ottawa, Brockville and Picton. The first of those motions was a motion by the plaintiff in this proceeding (Brockville Court file no. 12-1327) seeking transfer and consolidation of the lien proceedings. The second motion was a motion by the defendant Miwel to reduce the amount of security posted with the Accountant as security for the various liens.

[2] I will deal with each of these in turn.

Background

[3] By way of background these liens are in relation to a series of five separate but related projects to install solar generating capacity. Each solar farm project is located on different parcels of land spread across Eastern Ontario. For convenience these may be referred to as Belleville South, Belleville North, Rideau Lakes, Crosby and McCann projects.

[4] Miwel Construction Limited is the general contractor for each of these projects under five separate general contracts. The owner for the purpose of each project is a separate Northland Power corporation (in this action “Northland Power Solar Belleville Crosby GP Inc.”) and the original land owner (in this action, “William John Martin Brus”).

[5] The plaintiff, “North Key Construction” was the principal sub-contractor for each of the projects. All of the other lien claimants are sub-trades, suppliers or sub-sub-trades or perhaps sub-suppliers to North Key. In some cases the sub-trades’ work is confined to only one of the projects and in other cases affects more than one.

[6] The relationship between North Key and Miwel broke down at some point in 2012 culminating in premature termination of North Key’s contracts. Subsequently 47 claims for lien were registered totalling almost $15 million. In most cases the lien claimants perfected their liens by commencing actions and registering certificates. There may be one or two liens that are sheltering. The actions were commenced in Ottawa, Brockville and Picton. Most but not all of the claimants have liens that attached to more than one project. The issues in relation to each lien and each project are interrelated but not necessarily identical.

Bonding off of the liens

[7] The issues in all of these pieces of litigation involve disputes between Miwel and North Key or between North Key and its subs but do not involve the Northland entities or the landowners because all of the liens have been vacated and no longer attach to the land.

[8] The orders vacating the liens were obtained by Miwel pursuant to s. 44 (1) of the Act which permits an interested party to move without notice to vacate liens by posting security in lieu of the land. Those motions were brought in Ottawa in January of this year and were granted upon Miwel posting security for the full amount of each lien claim as well as the statutory amount for security for costs. Consequently Miwel is currently paying the carrying charges for over $16 million in lien bonds.

[9] Under the provisions of s. 44 (5) (b) of the Act after security has been posted Miwel is permitted to bring a motion to reduce the security and the court may make such an order where it is appropriate to do so. As I will come to in a moment, there is no doubt that in totality the liens are over secured. It is appropriate to make an order granting Miwel some relief. A more difficult question is how much relief can be granted while still protecting the rights of each individual lien claimant.

[10] I turn first to the motion for consolidation.

Consolidation

[11] The motion by the plaintiff was to transfer all of the North Key court actions to Ottawa for consolidation or trial together and also to consolidate all of the subcontractor lien claims wherever the court file may currently be located with the respective North Key action. The reason for this was to ensure that the actions proceeded on a common timetable in an orderly fashion under case management and to ensure that timetables and deadlines in each individual action did not conflict. These goals make eminent sense and are also in accordance with the scheme of the Act.

[12] While the goal of designating a main action for each project and ensuring orderly adjudication of each lien claim is important, and while transfer and consolidation are options, I think there may be a better way to achieve this. The administrative burden on both courts administration and counsel of actually transferring each of these actions and consolidating them in Ottawa seems unnecessary.

[13] Construction lien actions proceed under a modified version of the Rules of Civil Procedure and the court is charged to limit procedural steps to those reasonably necessary to achieve the objectives of the Act. This is set out in s. 67 of the Act which provides that the court is to adopt a procedure “as far as possible of a summary character having regard to the amount and nature of the liens in question”. The section also provides that no interlocutory step not specifically provided for in the Act may be taken without leave of the court and provides that the Rules of Civil Procedure and the Courts of Justice Act apply only to the extent they are not inconsistent with the Act.

[14] The Act then contains a number of provisions designed to provide the court with great flexibility in determining lien actions. One of those provisions is s. 59 which permits the court to assign carriage of a lien proceeding to one of the lien claimants and also permits an order consolidating all lien actions in relation to a single improvement into one action. This provision permits the court to ensure that various lien claimants do not work at cross purposes and may be used to avoid duplication of counsel fees and other costs.

[15] Consolidation is an option but it is not mandatory. Indeed it is usually unnecessary. True consolidation results in combining all of the proceedings under a single court file number. The prospect of combining 45 or 47 sets of existing pleadings and sorting out which claims should become cross claims, counter claims or third party actions has little appeal. A true consolidation would likely result in a confusing amalgamated proceeding and require costs to be run up unnecessarily on pleading amendments.

[16] It is not necessary to consolidate the actions because all lien claimants ultimately are parties to every lien action. S. 57 of the Act provides that all persons served with notice of trial become parties to the action and s. 60 requires notice of trial to be served on all lien claimants who have registered liens against the land. S. 51 requires the court to dispose of all questions necessary to determine the rights and liabilities of all parties to the action and to grant necessary relief. Thus every lien action acquires aspects of a class action and is an action in which every other lien in relation to the same improvement may be tried.[^1]

[17] In my view it lends itself to more efficient organization to keep the separate actions but to designate the “main action” which is the action in which notice of trial will be served. The other actions may be stayed for the time being but if, as is frequently the case, several liens are settled prior to trial then the individual actions can be dismissed and those lien claimants let out of the main action. The court files in relation to the subsidiary actions will not be active and can be left to act as a sort of bookmark to ensure all of the issues are ultimately dealt with. The pleadings in those actions define the issues in relation to each subtrade lien and remain readily available.

[18] Similarly it is not necessary to transfer each of the subtrade lien actions to Ottawa. An order to transfer the file only authorizes transfer. The party seeking a transfer must then file a praecipe with the local court, pay an administrative transfer fee and any courier charges. The registrar in the local court must prepare the file for transfer and send it to the Ottawa court where the Registrar in Ottawa must open a new file and data enter the events that have already occurred out of town. Given that the subtrade lien actions will be subsumed in the main actions, no purpose is served by imposing such an administrative burden and cost on either the Ministry or on the parties. Those files can stay where they are subject to orders I will issue indicating that the files are to be stayed and are not to be subject to any sort of automatic administrative dismissal.

[19] It may not even be necessary to transfer the main actions to Ottawa. I have recommended to the plaintiff that it obtain a judgment of reference in relation to each of the projects. S. 58 contains no geographic restriction on the authority of a judge to refer a lien action to a case management master for trial. If the matter proceeds by reference there is no need to transfer the action from the local court to Ottawa. The reference file will be in the Office of the Master in Ottawa but ultimately the decision of the master will become a judgment in the original proceeding upon confirmation of the report. As I understand it, all parties have been advised of the intention of the plaintiff to move for a judgment of reference and no one has indicated they are opposed to that manner of proceeding. Under the reference procedure the master is imbued with all of the powers of the court under the Act to organize, case manage and adjudicate the issues in dispute.

[20] I wish to be clear that I am not encouraging a flood of lien references from across the province. Though the Act permits references to a case management master of any lien action in Ontario, judges sitting outside the centres to which case management masters are assigned (Ottawa, Toronto and Windsor) would not ordinarily make such orders without first discussing the transfer of work with the Regional Senior Justice. In this case however because there are already Ottawa actions, because the actions will have to be tried together and because the lands on which the improvements are located are five separate parcels of land located in at least two other counties, all in the East Region, it makes sense to centralize the proceeding in Ottawa. If there is ultimately a trial, the physical location of the trial will have to take into account such factors as the location of witnesses and counsel but that need not be determined today.

[21] I have no jurisdiction to make the judgment of reference myself. S. 58 specifically prohibits a master from doing so and reserves the power to a judge. That is necessary for constitutional reasons since the authority of the master to try the case is delegated authority.[^2] Accordingly the plaintiff will have to bring a motion to a judge. Assuming it will not be opposed, it may be brought in writing as a basket motion.

[22] I will therefore dispose of the consolidation motion by granting alternative relief. Certain orders will apply if there is no judgment of reference but in the event such a judgment is obtained those orders will be replaced by the reference procedure. A reference commences by way of a hearing for directions (what in Toronto used to be called the 1st pre-trial) and in a lien reference rather than serving Form 55A by serving a Notice of Trial returnable on that date. I have fixed a date for such a hearing on October 11th, 2013; a date on which all counsel participating in the motion indicated they are available.

[23] If a judgment of reference is not obtained then it would be appropriate to order a court supervised settlement meeting for that same date. I will also adjourn the balance of the motion to the date so that further direction can be given. In the meantime I am making orders to ensure that there are not conflicting steps taken in individual actions and all proceed on a common timetable.

[24] Nothing in this order should be taken as discouraging resolution of individual claims or of all of the claims. The parties are encouraged to discuss steps to resolve claims or streamline procedures in advance of the October 11th date. They may for example wish to create a carriage committee or a vetting committee in respect of each of the projects.

[25] The parties may also wish to consider mediation in advance of the October date.

[26] In respect of the plaintiff’s motion the court therefore orders as follows:

a. Leave is granted to bring this motion in Ottawa in respect of all of these actions.

b. The plaintiff is to bring the motion to a judge for a judgment of reference in each of its actions in respect of each project directing a reference of that action and all of the subsidiary lien claims to a case management master in Ottawa. That motion is to be brought prior to the end of July, 2013.

c. Provided such a motion is brought and granted there will be a first hearing for directions before the master on October 11th, 2013 at 10:00 a.m. Three hours will be reserved and the plaintiff is to serve all other lien claimants and all proper parties with Notice of Trial under the Act with the trial to commence by hearing for directions on the date in question.

d. Whether or not the judgment of reference is obtained, there will be an order designating each of the actions listed at paragraph 1 of the notice of motion as the “main action” for each of the five projects.

e. In the event that no judgment of reference is obtained by the end of July, 2013 then each of these main actions is ordered transferred to Ottawa. In that case the hearing on October 11th, 2013 will be deemed to be a motion for directions pursuant to s. 67 of the Act and no interlocutory steps are to be taken in those actions without leave of the court or consent of all parties.

f. In the event there is no judgment of reference in each of the main actions, the October 11th date will be a settlement meeting in each of the main actions and all lien claimants and other interested parties are to be served with notice in accordance with the Act.

g. Regardless of whether a judgment of reference is obtained, there will be an order in each of the lien actions listed in Schedule A to the notice of motion directing that Rule 48 of the Rules of Civil Procedure will not apply and the Registrar is not to issue a status notice or dismiss the action.

h. There will also be an order in each of the Schedule A actions that no interlocutory steps be taken in those proceedings without leave of the court in the main actions.

i. All of the main actions and the subsidiary lien actions in respect of each project will proceed on a common timetable to be established by order or agreement with a view to trial together or one after the other as may subsequently be ordered.

j. By agreement the parties may create a carriage committee or a vetting committee. The parties involved in each improvement are directed to consider the need for such committees and if they agree to appoint them the committees are to report to the court on the September date.

k. The balance of the plaintiff’s motion including the issue of costs is adjourned to be spoken to on October 11th, 2013 at 10:00 a.m.

Reduction of Security

[27] Miwel’s motion to reduce security may be granted in part today and must in part be adjourned for additional negotiation and calculations. As discussed above the Act provides a quick unilateral method by which an interested party may clear liens from title. That is achieved by posting security for the full amount of the lien plus security for costs. Thereafter the party may move to reduce the security on proper grounds.

[28] Under normal circumstances when numerous liens are registered, if they are all bonded off in accordance with the act, there is likely to be over security. This is because the liens will overlap. For example North Key has claimed for all money owing to it by Miwell. Included in that some is money which North Key owes to its sub trades. Since the sub trade liens have also been bonded off, there is some duplication. By agreement it may be possible to pool the security and to agree on a single bond sufficient to cover off all liens but in the absence of consent, it is not so simple to determine which liens should be reduced.

[29] In some cases there may be no real dispute between North Key and its subtrade. North Key may be claiming against Miwell for the value of work done by that subtrade and may agree to pay the subtrade when and if it is paid by Miwell. There may be a counterclaim against the subtrade for a chargeback only in the event that Miwell is successful in proving a deficiency which is within the subtrade’s scope of work. In such a case, the subtrade lien is effectively a flow through and is fully encompassed within North Key’s lien. Moreover, although the claim of the subtrade in contract against North Key is for the full amount owing under the subcontract, the subtrade’s claim against Miwell and against the lien security is only for holdback which may be less than 100% of its outstanding claim. In such a case there may be justification for reducing the bond securing the subtrade lien because the claim is effectively secured by the North Key claim for lien and the bond posted in respect of that claim.

[30] In other cases there may be a dispute between North Key and the subtrade regardless of the outcome of the litigation between North Key and Miwell. North Key may, for example be facing claims for extras to the subcontract that are not extras to the main contract and which it disputes. Or North Key may have claims for deficient work by the subtrade that it claims to have rectified itself or by extra payment to another subtrade. In those instances the subtrade claim for lien may not be fully encompassed in the North Key lien. On the other hand it is still the case that the lien claim as against Miwell or the owners is only a claim against holdback and not for the full value of the work.

[31] The analysis of which security should be reduced and by how much is not something that can occur without a detailed analysis of each lien claim and any counterclaim and without knowing the maximum holdback liability. The parties are directed to consider the factors outlined above and to attempt to reach agreement. There is mutual benefit in doing so. Miwell has served notice of the cost of its lien bonds and has clearly indicated that it will be seeking to recover those costs as damages under s. 35 of the Act which establishes liability on parties who knowingly register inflated liens.

[32] In the meantime certain lien claimants have conceded that their liens are too high or in some cases that the same claim for lien was registered on two improvements so that it has been bonded off twice. The affected liens are the liens registered by locals 247 and 527 and by Matthews Equipment Service.

[33] With respect to the locals it is agreed that the amounts set out in the chart in paragraph 14, page 9 of the notice of motion are now the amounts actually claimed. Thus the liens on McCann by local 247 and Belleville South and North by local 527 should be discharged in full, the security released and the action dismissed subject to Miwell’s counterclaim for damages and costs. The other liens should be reduced to the amounts set out in the chart in respect of each project and the security reduced accordingly.

[34] With respect to Matthews, it is conceded that the liens registered on Belleville South and North for $92,265.35 and on Crosby and McCann for $230,663.90 are each duplicate liens securing the same debt. Accordingly one of the lien bonds for each set of projects should be delivered up for cancellation and there should be an order that the remaining bond stands as security for the duplicate lien registered on each of the properties.

[35] In respect of the motion to reduce security the court orders as follows:

a. Leave is granted to bring this motion in Ottawa in respect of all of these actions.

b. There will be an order reducing the claims for lien of locals 247 and 527 in respect of each improvement to the amounts shown in the chart in the notice of motion.

c. With respect to the claims for lien reduced to $0 the lien will be discharged and the security delivered up for cancellation. The action of the local in respect of that improvement will be dismissed subject to Miwell’s claim for damages and costs.

d. With respect to the other claims that have been reduced, Miwell shall have an order permitting the security to be reduced. This may be accomplished either by reduction of the existing bonds by rider or by substituting new bonds for the correct amount of security and delivering up the old bonds for cancellation. Counsel may confer with the Accountant and bonding company to determine which procedure is most appropriate.

e. With respect to the duplicate liens registered by Matthews, one of each pair of duplicate bonds may be delivered up for cancellation. The other bond will stand as security for the lien originally registered against both properties.

f. All lien claimants and Miwell are to review the amounts properly lienable and in particular they are to review the maximum holdback liability to which the liens could attach.

g. North Key is to carefully review its position with each of the other lien claimants to determine whether or not North Key agrees that it will pay when paid and that the subtrade lien is fully encompassed within the North Key lien.

h. The balance of the motion is adjourned to be spoken to on October 11th, 2013 or to be brought back on an earlier date on at least 10 days notice.

i. Miwell’s claims for costs and damages under s. 35 are specifically preserved and adjourned to be spoken to on the return of the motion.

[36] I may be spoken to with regard to the form of the necessary orders to carry out all of the above. It may be more convenient to have separate orders in respect of each lien claim. Counsel for the plaintiff is also to advise my office as soon as possible if the matter will be proceeding by reference and may obtain further direction if required.

June 26, 2013

Master Calum MacLeod

Schedule A – Counsel appearing by telephone:

Charles Sinclair for Locals 247 & 527

Janice Quigg for Matthews Equipment Ltd. & St. Mary’s

Damon Stoddard for Local 793

Paul Fay for David Adams

Joseph Cosentino for Cleave

David Dwoskin for CRS 1759005 Ontario Ltd.

Andrew Ferguson for Eastern Welding

James Morgan for Total Rentals

[^1]: See Deslaurier Custom Cabinets Inc. v. 6383009 Canada Inc., 2012 ONSC 3350 (S.C.J. – Master)

[^2]: Ontario v. Victoria Medical Building Ltd., 1959 20 (SCC), [1960 S.C.R. 32 (S.C.C.)