ONTARIO

SUPERIOR COURT OF JUSTICE

COURT FILE NO.: CV-13-474457
DATE: 20131024

BETWEEN:

KAMALI DESIGN HOME INC.

Plaintiff

– and –

OLGA BONDARENKO, VADIM BONDARENKO and HSBC BANK OF CANADA

Defendants

Atoosa Mahdavian, for the Plaintiff/Respondent
Stanley Fienberg, for the Defendant/Applicant

HEARD: August 23, 2013

T. mcewen j.

reasons for decision

[1] The defendants Olga Bondarenko (“Mrs. Bondarenko”) and Vadim Bondarenko (“Mr. Bondarenko), (collectively the “Bondarenkos”), bring a motion to vacate and discharge the registration of a construction lien and a certificate of action registered against title to lands owned by them, known municipally as 38-40 Bayview Ridge, Toronto, Ontario (the “property”). They also seek a dismissal of the action against them. The construction lien and certificate of action were registered by the plaintiff Kamali Design Home Inc. (“Kamali Design”). The defendant HSBC Bank of Canada has not defended the action and takes no position on the motion.

background

[2] The Bondarenkos, in 2008, commenced construction of a new residence on the property. Ultimately, they ran into financial difficulties and sought additional financing.

[3] In or about the spring of 2012 they met Mostafa Kamali (“Kamali”), who is the principal of Kamali Design. Discussions took place between Kamali and Mr. Bondarenko. A contract was entered into between the Bondarenkos and Kamali Design whereby the Bondarenkos would pay Kamali Design the amount of $250,000.00 essentially for construction management and supervisory work on the property (the “contract”). The contract was dated June 27, 2012.

[4] Kamali also agreed to assist the Bondarenkos with obtaining additional financing for the construction project.

[5] In November 2012, Mr. Bondarenko advised Kamali that since no financing was obtained they could not complete the work set out in the contract, and that the Bondarenkos had decided to sell the property in its current unfinished condition.

[6] Thereafter, Kamali Design registered the disputed construction lien and certificate of action on the property.

position of the parties

The Position of the Bondarenkos

[7] The Bondarenkos submit that Kamali Design’s claim does not constitute a bona fide construction lien claim but rather is a claim to recover a fee set out in the construction contract that was never performed. They submit that a construction lien action can only be used to recover the costs or charges for an actual improvement to property, and not for recovery for a payment in a contract. In this regard, the Bondarenkos submit that Kamali Design never performed any improvements to the property or if it did so, they were de minimis and unrelated to the fee charged. They further allege that Kamali Design engaged in dishonest acts in order to advance its claim, including the fabrication of invoices, claiming for work which was not done and failing to provide honest answers to questions at Kamali’s cross-examination. At its highest, the Bondarenkos claim that Kamali Design’s claim for a construction lien is grossly exaggerated and has no semblance of propriety. Accordingly, it should be discharged and vacated and the action dismissed.

[8] In support of their allegations, the Bondarenkos have tendered affidavit evidence of Mr. Bondarenko as well as affidavit evidence of Siu Yeung Tang (“Tang”), a property appraiser who is employed by Centract Settlement Service, Barry Cohen (“Cohen”), a real estate broker with Re/Max Realtron Inc. who listed the property and Olga Tchetvertnykch (“Tchetvertnykch”), a neighbour. All of the aforementioned affiants generally depose that between the end of June and the time the contract was terminated in November 2012, little if any work was done at the property.

Kamali Design

[9] Kamali Design, on the other hand, has tendered affidavit evidence from Kamali. It has also tendered affidavit evidence from Ali Ghorbani (“Ghorbani”), who was allegedly employed by Kamali Design to remove garbage and dirt from the property and Cheung Mai Ping (“Ping”), whose company, 8163073 Canada Inc. (“8163073”), was allegedly retained by Kamali Design to remove drywall, insulation and mould from the property and install new drywall and insulation for which she claims Kamali Design was invoiced $35,000.00 plus HST. Kamali Design also relies upon an invoice submitted by Columbus Aluminum and Roofing Limited (“Columbus”) dated October 5, 2012, in the amount of $25,425.00 allegedly relating to certain work to the roof and windows at the property.

[10] Kamali Design claims that the following invoices were sent to the Bondarenkos:

Date
Amount

July 6, 2012
$65,000.00

September 5, 2012
$92,500.00

October 26, 2012
$92,500.00

[11] The Bondarenkos dispute ever receiving the aforementioned invoices until the invoices were provided to their solicitor after the construction lien was registered.

the law

[12] The Bondarenkos have brought this motion pursuant to s. 47 of the Construction Lien Act, R.S.O. 1990, c. C.30 and rule 20.01(3) of the Rules of Civil Procedure, R.R.O. 1990, Reg. 194, which respectively read as follows:

i) General power to discharge lien

47. (1) Upon motion, the court may,

(a) order the discharge of a lien;

(b) order that the registration of,

(i) a claim for lien, or

(ii) a certificate of action,

or both, be vacated;

(c) declare, where written notice of a lien has been given, that the lien has expired, or that the written notice of the lien shall no longer bind the person to whom it was given; or

(d) dismiss an action,

upon any proper ground and subject to any terms and conditions that the court considers appropriate in the circumstances.

Direction by court

(2) Where a certificate of action is vacated under subsection (1), and there remain liens which may be enforced in the action to which that certificate relates, the court shall give any directions that are necessary in the circumstances in respect of the continuation of that action subject to paragraph 4 of subsection 44 (9).

ii) 20.01 (3) A defendant may, after delivering a statement of defence, move with supporting affidavit material or other evidence for summary judgment dismissing all or part of the claim in the statement of claim.

20.04 (2) The court shall grant summary judgment if,

(a) the court is satisfied that there is no genuine issue requiring a trial with respect to a claim or defence;

[13] In Beaver Materials Handling Co. Ltd. v. Hejna, (2005) 2005 23127 (ON SC), 45 C.L.R. (3d) 242 (Ont. Sup. Ct.), Shaughnessy J. summarized the case law with respect to such motions as follows:

[24] The Defendants have brought this motion pursuant to s. 47 of the Construction Lien Act. In the case of Dominion Bridge Inc. v. Noell Stahl und Maschinebau GmbH, (1999) CarswellOnt 5067, Justice Ferrier reviews the case law which I would summarize as follows:

(1) Section 47 of the Construction Lien Act, R.S.O. 1990, c. C.30 gives the Court authority to vacate the registration of the Construction Lien and Certificate of Action; declare that the lien has expired, or that written notice of the lien shall no longer bind the person to whom it was given and/or dismiss the action.

(2) The motion under s. 47 of the Construction Lien Act is akin to a motion for summary judgment and therefore Rule 20 of the Rules of Civil Procedure, R.R.O. 1990, Reg. 194 applies.

(3) Therefore the moving party must establish in a Section 47 motion that there is no genuine issue for trial.

(4) If there are genuine issues of fact the matters should be left to be determined by the Trial Judge.

(5) If it is not patently demonstrable on an interlocutory motion that a party has no right to a lien, or unless the court is satisfied that the cause of action could not possibly succeed at trial, then the matter should be left to the Trial Judge.

(6) Assessing credibility, weighing the evidence and drawing inferences are the function of the Trial Judge, not the Motions Judge.

[14] In light of the changes that have been made to rule 20.04(2)(a), the test is no longer whether there is “no genuine issue for trial” but rather whether there is “no genuine issue requiring a trial”.

[15] With respect to a motion brought pursuant to s. 47(1) of the Construction Lien Act, in 1246789 Ontario Inc. et al. v. Sterling et al., (1999) 1999 15095 (ON SC), 46 O.R. (3d) 72 (S.C.), Quinn J. held as follows at para. 21:

As I see it, under s. 47(1) of the CLA, the onus is not on the lien claimant; it is on the moving party. The moving party must establish the invalidity of the lien. But this is not a straight balance-of-probabilities exercise. To find in favour of the moving party the court must be satisfied that a determination of the validity of the lien does not require a trial. Since a litigant should not be too quickly deprived of the right to prove a claim for lien at trial, I think a motions judge should not assess credibility, weigh evidence or find facts (where they are disputed). Rather, the court should limit itself to deciding whether the question of the validity of the lien merits a trial; in other words, is there a genuine issue for trial. If there is, lien rights should not be tampered with on a motion. At bar, the material facts are not in dispute and an assessment of credibility is not needed. The judge at trial, in my view, would not enjoy the usual advantage he or she has over me as the motions judge. I am satisfied that the claim for lien is invalid. I do not see any issue relating to the validity of the lien which deserves a trial.

[16] More recently, Power J. in Louch v Louch, 2011 ONSC 2998, (2011) 4 C.L.R. (4th) 209, in considering a motion brought pursuant to s. 47 of the Construction Lien Act, held as follows:

[26] Mr. Ryder-Burbidge, relying on s. 67 of the Act, argues that Mr. Lochner must satisfy the test set out in Rule 20.04 of the Rules of Civil Procedure with respect to summary judgment motions. He submits that the applicant must be able to satisfy the Court that there is no genuine issue requiring a trial. I do not accept this as a correct interpretation of s. 67. Section 47 of the Act does not restrict my jurisdiction and/or discretion as does Rule 20.04. Notwithstanding this difference, I am, nevertheless, of the opinion that the interim relief which Mr. Lochner and Magenta seek should be granted only where they can demonstrate that the evidence before the Court on the motion is such that the motion’s judge can and should make a decision, in a summary way, on the motion.

[27] I appreciate that the distinction is not a great one; however, it would not be appropriate, in my opinion, simply to read into s. 47 the provisions of Rule 20.04. The jurisdiction under s. 47 is to make an order “upon any proper ground and subject to any terms and conditions that the court considers appropriate in the circumstances.” Mr. Lochner does not seek an order dismissing the action. As aforesaid, he seeks an order “discharging” the lien and an order “vacating” the registration of the lien claim and the certificate of action.

[28] Accordingly, the rationale of the Divisional Court in Michaels Engineering Consultants Canada Inc., v. 961111 Ontario Limited, 1996 11806 (ON SC), [1996] O.J. No. 2030 does not apply in this matter. The issue before the court in that case was whether a motion for summary judgment under Rule 20 is appropriate in the context of a construction lien action.

[29] Mr. Culic, counsel for Mr. Lochner, submits that there is no absolute right in law to register a construction lien and/or a certificate of action. Notwithstanding that, in appropriate circumstances, there is a statutory right to do so, it is not an absolute one. I agree. Otherwise, why would s. 47 allow a person to seek an order discharging a lien and/or vacate a lien and certificate of action “upon any proper ground subject to any terms and conditions that the court considers appropriate in the circumstances?” The right to register a lien and a certificate of action is a privilege under our law. However, it is a privilege that can be removed in appropriate circumstances. Mr. Louch is not the only one to have a claim against the subject lands. Both Mr. Lochner and Magenta possess rights in the land and those rights also warrant consideration in the exercise of my discretion under s. 47.

[33] The Ontario Court of Appeal dealt with the issue of good faith in Russell v. Ontario Foundation and Engineering Co., 1925 463 (ON CA), [1926] 1 D.L.R. 760. I am aware that, in Russell, supra, the Court had before it a situation where the alleged work was clearly trivial. However, in my opinion, the general principles in that case apply to the case at bar – i.e., assuming work was done, was it done in good faith to complete the contract or was it done for some other purpose?

[37] I pause to make it clear that I am not determining this motion on the basis that the work allegedly performed in 2010 was “trivial” in nature even though it is clear that the alleged work was not significant in light of the entire project, even if the project was still ongoing. The amount of work alleged to have been carried out in 2010 is but one of the factors I have considered in exercising my discretion.

[39] In conclusion, therefore, I find that there is good reason to believe that the lien claim is false and is an attempt to frustrate the mortgagees in their attempts to pursue their mortgagee remedies. Indeed, counsel advised me on the argument of the motion that there is an outstanding offer to purchase that cannot be accepted because of the encumbered title. Unfortunately, the Court did not have before it any testimony or other evidence from Ms. Louch. However, I find that it is highly unlikely that, in all of the circumstances, she would have committed herself to pay for further work on the property by Mr. Louch. In any event, I have not been asked to dismiss the action against her. Therefore, the granting of the relief requested by the applicant mortgagees will not prejudice Mr. Louch’s right to pursue his claim against Ms. Louch. As aforesaid, Ms. Louch has already been noted in default.

[40] Earlier in these Reasons I commented on the fact that the registration of a construction lien and a subsequent certificate of action is not an absolute right. The right to register a lien is an extraordinary one. The following is a quote from the decision of Master Albert in Federated Contractors Inc. v. Ann-Maura Developments Inc., 2010 CarswellOnt 370, 2010 ONSC 346with which I agree and which applies to the case at bar:

20. The court will not be an accomplice to an abuse of the Construction Lien Act. The Act is designed to provide an extraordinary remedy to legitimate suppliers of materials and services to construction projects. Federated has not come to court with clean hands. It forfeits any entitlement to benefit from the extraordinary remedies the Act provides.

[17] Power J.’s decision was affirmed by the Divisional Court in Louch v. Louch, 2013 ONSC 4755, [2013] O.J. No. 3349. Whitaker J. noted, at para. 14, that Justice Power was not required to apply the test set out in rule 20.04, as the motion was not seeking to have the action dismissed. He held that Justice Power could reasonably have concluded based on the evidence that the lien was registered in bad faith, and that he had “appropriately exercised the broad powers permitted under section 47 of the Act.”: see paras. 15-17.

ANALYSIS

[18] The plaintiff has two motions before the court, as noted. The first one is for an order dismissing the action pursuant to rule 20.01(3). The second is for an order vacating and discharging the plaintiff’s claim for lien and certificate of action pursuant to s. 47 of the Construction Lien Act.

[19] I will deal with each in turn.

Motion to Dismiss

[20] This motion cannot succeed on the record before me. In order to succeed, the Bondarenkos need to establish that there is not a genuine issue requiring a trial insofar as Kamali Design’s claim for a payment of $250,000.00 is concerned.

[21] Firstly, it is not disputed by the Bondarenkos that they entered into a contract with Kamali Design in the amount of $250,000. They also do not dispute that they terminated the contract without making payment.

[22] Secondly, both sides have adduced evidence with respect to the work done at the property. As I will discuss in further detail below, the Bondarenkos have cast doubt as to the amount of work that Kamali Design completed. The conflicting affidavit evidence, however, does not permit me to make a determination on a motion for summary judgment dismissing the action. It is not possible to gain a full appreciation as to exactly how much work was done or whether any work was undertaken at all. Clearly, Kamali Design has proffered evidence suggesting that in fact it did provide the Bondarenkos with construction management and supervisory work pursuant to the contract with respect to the alleged work carried out by Colombus, 8163073 and Ghorbani.

[23] In my view, given the above, there are obvious genuine issues requiring a trial.

Section. 47 Motion to Discharge and Vacate

[24] The case law referred to above provides guidance as to how a motions judge should deal with a motion brought pursuant to s. 47 of the Construction Lien Act. On the one hand, a motions judge should not assess credibility, weigh the evidence or draw inferences, as these are the function of the trial judge. The motion judge, further, should not deal with the issue of the lien unless it is patently demonstrable that a party has no right to a lien. On the other hand, the right to register a lien and a certificate of action is a privilege under our law and can be removed in appropriate circumstances at a motion. In this regard, the court should not be an accomplice to an abuse of the Construction Lien Act.

[25] Lastly, while I do not disagree that a motion under s. 47 is akin to a Rule 20 motion, I agree with the comments of Power J., as well as the Divisional Court affirming his decision, that s. 47 does not restrict my discretion as does Rule 20.04 given its wording, which allows the court to fashion a remedy that is appropriate in the circumstance.

While I am hesitant to provide a remedy to the Bondarenkos on a motion given the caution provided for in Dominion Bridge Inc., I am satisfied that to simply dismiss the motion based on the evidence before me would provide Kamali Design with an extraordinary remedy in the form of a $250,000 construction lien when it is not warranted in the circumstances of this case. Accordingly, it is my view that the lien ought to be discharged subject to an appropriate term requiring a payment into court.

[26] I am aware that in Louch, Power J. found that the lien was registered in bad faith—it was done so to frustrate the remedies of mortgagees. I am also aware that in Federated, a decision relied on by Power J., the court’s decision was ultimately based on a finding that the lien was registered outside of the time prescribed. Moreover, in both Louch and Federated, the court discharged the liens as opposed to varying them, which is what I intend to do. Although I have not found that Kamali registered the lien in bad faith or out of time, I nonetheless accept the guiding principles in Federated and Louch that the court must not be an accomplice to an abuse of the Construction Lien Act. Accordingly, a reduction in the lien amount is appropriate.

[27] In any event, although neither party raised the issue, s. 44(2) of the Construction Lien Act states as follows:

44. (2) Upon the motion of any person, the court may make an order vacating the registration of a claim for lien, and any certificate of action in respect of that lien, upon the payment into court or the posting of security of an amount that the court determines to be reasonable in the circumstances to satisfy the lien.

[28] The case law suggests that a reduction is only appropriate where the evidence clearly and unequivocally proves that the lien as registered is excessive or improper: see Structform International Ltd. v. Ashcroft Homes Construction Inc., 2013 ONSC 4544, [2013] O.J. No. 3152, at para. 11. For the reasons stated above, I find that the evidence establishes that the lien registered by Kamali Design is excessive. In the event that I am incorrect in reducing the lien pursuant to the principles from Federated and Louch, I rely on s. 44(2) in deciding to reduce the lien to a reasonable amount.

[29] I therefore order that the construction lien and certificate of action be vacated and discharged, if and when the Bondarenkos pay the amount of $100,000 plus $25,000 for costs into court as provided for by the Construction Lien Act.

[30] I make this order for the following reasons:

(i) As noted above, both sides have adduced evidence with respect to the work done. The Bondarenkos’ counsel concedes that if, in fact, Kamali Design performed construction management and supervisory work on the property, a lien is available to it in law;

(ii) As noted, there is a genuine issue for trial as to the amount of the work done by Kamali Design at the property and there is conflicting affidavit evidence in this regard; and

(iii) That being said, it would not be in the best interests of justice to simply allow the lien in the amount of $250,000 to remain in place pending the trial of the action since I am satisfied that the Bondarenkos have established on the motion that the amount of the lien is grossly inflated for the following reasons:

(a) Although the amount claimed by Kamali Design for its construction management and supervisory work is $250,000, it could only produce invoices totalling approximately $60,000 with respect to the companies it allegedly retained to conduct the actual labour and provide materials;

(b) It was anticipated that the financing required to complete the work on the property would be in the neighbourhood of $2.5 million; therefore, over $2 million in future construction costs was anticipated;

(c) It is not disputed that Kamali Design was discharged approximately four months into a contract that was anticipated to take much longer;

(d) The timing of the invoices is questionable. Assuming they were sent and received (which is in debate), one would have to accept that Kamali Design was prepared to accept 100 per cent of the contract price in the first four months and thereafter work without compensation; and

(e) No invoices were provided by Ghorbani to substantiate the work he performed.

(f) The Affidavits of Tang, Cohen and Tchetvertnykch demonstrate that little work was done at the property.

[31] Based on the unique facts of this case, I cannot find that the lien is entirely false on a motion, but the overwhelming weight of the evidence demonstrates that the lien is grossly inflated.

[32] I also agree with the Bondarenkos’ counsel that Kamali, at his cross-examination, provided wholly unsatisfactory answers to questions as to how he could justify the construction management and supervisory work fees in the amount of $250,000 given the short timeframe and the lack of supporting evidence from actual suppliers of labour and materials.

[33] Counsel for Kamali Design conceded that prior to the motion she had raised the issue of a lien reduction with Bondarenkos’ counsel, presumably given the evidentiary difficulties.

[34] Taken at its highest, the evidence adduced by Kamali Design and its contractors discloses that the construction was at a very early stage at the time the contract was terminated.

[35] Based on the foregoing, with respect to the lien claim only, I find that the evidence discloses that Kamali Design has inflated the amount of the lien and to allow it to continue in place would constitute a significant abuse of the Construction Lien Act.

[36] That being said, it is impossible to determine exactly the amount of claim that Kamali Design would be entitled to. At its highest, in my view, Kamali may be entitled to $100,000, which would constitute 40 per cent of the contract price. There is no genuine issue, in my view, that it could be any higher. Of course, the true amount would have to be determined at trial.

[37] I stress that my findings do not relate to Kamali Design’s overall claim in the amount of $250,000 with respect to its claims for breach of contract, unjust enrichment and quantum meruit, which have to be determined at trial.

disposition

[38] The Bondarenkos’ motion to dismiss the action is dismissed.

[39] The construction lien and certification of action registered against the property shall be vacated and discharged, if and when the Bondarenkos pay into court the amount of $100,000 plus $25,000 for costs.

[40] Since the parties had mixed success at the motion and the matter is ongoing, I reserve costs of the motion to the trial judge.

McEwen J.

Released: October 24, 2013

COURT FILE NO.: CV-13-474457
DATE: 20131024

ONTARIO
SUPERIOR COURT OF JUSTICE

BETWEEN:

KAMALI DESIGN HOME INC.
Plaintiff

– and –

OLGA BONDARENKO, VADIM BONDARENKO and HSBC BANK OF CANADA
Defendants

REASONS FOR DECISION

T. McEwen J.

Released: October 24, 2013