COURT FILE NO.: C-816-10
DATE: 20130103
ONTARIO
SUPERIOR COURT OF JUSTICE
BETWEEN:
Mould Clean Laboratories Ltd.
Plaintiff
– and –
Fort Albany First Nation
Defendant
T. Michael Hennessy, for the Plaintiff
Sylvano A. Carlesso, for the Defendant
HEARD: November 15, 2012
R.D. Gordon, j
RULING ON MOTION
Overview
[1] On August 4, 2010 the Plaintiff obtained judgment against the Defendant for the sum of $1,605,778.00. The judgment was based on the consent of Andrew Solomon who was then the elected Chief of the Defendant. On December 1, 2010 the Plaintiff received payment of $405,778 on account of four of the five invoices included in the judgment.
[2] The Plaintiff took no steps to enforce the balance of the judgment until August 2, 2012, when, without any prior notice to the Defendant of its intention to do so, it had a Notice of Garnishment issued to certain of the Defendant’s debtors. By that time, Mr. Solomon was no longer the Chief, much of council had been replaced, and a new executive director had been hired. The Defendant claims that this was its first notification of the existence of the Judgment and seeks an order staying its enforcement, setting it aside and granting leave to file a Statement of Defence.
Background Facts
[3] Several years ago, a number of houses were built on the Defendant’s reserve. In 2007, a number of these homes were identified as having mould problems and on September 4, 2007 the Defendant wrote to Indian and Northern Affairs Canada (hereafter referred to as “INAC”) submitting a plan to remediate 26 units affected by mould and moisture related problems and estimating the cost of remediation to be $2,374,675.
[4] B.H. Martin Consultants Ltd. (hereafter referred to as “Martin”) subsequently completed a report to the Defendant dated January 29, 2008 in which it finalized a budget for the cost to upgrade 14 houses said to have required remediation. Although the Martin Report includes a title page named “Fort Albany First Nation 26 Unit Mould Impacted Houses January 29, 2008”, it identifies only 14 units for remediation and makes no reference to the remaining 12 units.
[5] The Plaintiff carries on the business of mould identification and remediation. Its president is Scott Davies. Mr. Davies says that in the summer of 2008 he was asked to submit a proposal for the remediation of the homes and that a written contract was entered into between the Plaintiff and the Defendant for that purpose. There has been produced a written contract dated August 21, 2008 signed by Mr. Davies, on behalf of the Plaintiff and then Chief Solomon, on behalf of the Defendant, identifying the work in two parts: The first part deals with the 14 homes identified in the Martin Report and provides for remediation of those homes at a price of $1,400,000; the second part deals with the remaining 12 homes not covered in the Martin Report and provides for their remediation at a cost of $1,200,000.
[6] With the assistance of INAC, the Defendant then sought financing from the Royal Bank and was approved for a loan of $853,000. In addition, INAC provided $568,000, resulting in total project financing of $1,421,000. This coincides exactly with the summary of costs in the Martin Report for the 14 units referred to therein. There appears to have been no commitment from INAC with respect to the remaining 12 units, and no application to any lender by the Defendant to fund those units.
[7] Mr. Davies and Mr. Solomon swear that the Plaintiff completed all of its work on all 26 homes in accordance with the contract of August 21, 2008. Mr. Solomon’s evidence is that he was advised by personnel at INAC that funding for the 12 units would be forthcoming, and it was determined that the work would be contracted for on the basis of that representation.
[8] The Plaintiff acknowledges receipt of payment for the 14 homes covered by the Martin Report. In its statement of claim, it sought payment of five outstanding invoices, four of which were subsequently paid by the Defendant. Outstanding is an invoice dated January 18, 2009 for $1,200,000 relating to the work on 12 homes not covered by the Martin Report. This is the invoice that continues to be outstanding under the consent judgment.
[9] There has been some communication with INAC seeking funding for the 12 units. That funding has never come to fruition. In August of 2010, Chief Solomon accepted service of the Plaintiff’s statement of claim and consented to judgment for the principal amount owing and a reduced amount of interest.
[10] Mr. Solomon was unsuccessful in his bid for re-election in the summer of 2012. Shortly after that election the Plaintiff initiated its collection proceedings.
The Position of the Plaintiff
[11] The Plaintiff views this as a straight forward collection matter. It says it completed work for the Defendant in accordance with a signed contract, submitted its invoice for payment and was never paid. It says that it negotiated with the Chief of the Defendant in good faith both in coming to contract terms and arriving at the amount of the judgment (which did not include a significant amount of interest). It says the Defendant was at all times aware of what was being done. It says it determined that collection proceedings were necessary when it became apparent that INAC was not coming to the table with a financing proposal.
The Position of the Defendant
[12] The Defendant takes the position that the judgment amounts to fraud. It says there was no contract relative to the 12 units and the Plaintiff completed no work on them. Essentially, it alleges a conspiracy between Mr. Davies and Mr. Solomon to defraud the Defendant of over 1.6 million dollars.
[13] There is also a subsidiary issue of whether Mr. Solomon had the authority of the Defendant to enter into any contract with the Plaintiff and to enter into the consent judgment on its behalf. The Defendant points to the absence of any minutes or notes of any meeting dealing with the Plaintiff’s claim, and the absence of any resolution authorizing Mr. Solomon to act in its negotiation or resolution of the mould remediation of the twelve homes.
The Applicable Law
[14] A party to litigation can bring an action to set aside a judgment based on common law principles or may move under the Rules of Civil Procedure for the appropriate relief.
[15] At common law, the right to bring an action to set aside a consent judgment has traditionally been restricted to situations in which the judgment does not express the real intention of the parties or where there is fraud. The right has been likened to a party’s right to set aside a contract [see Monarch Construction Ltd. v. Buildevco Ltd. et al. 26 C.P.C. (2d) 164]. More recently, in the matter of Stoughton Trailers Canada Corp. v. James Expedite Transport Inc. 2008 ONCA 817 the Court of Appeal provided a brief endorsement in which it indicated the court’s discretion to set aside a consent order was broader and should be exercised where necessary to achieve the justice of the case. The Court referred to Beetown Honey Products Inc. (Re) (2003) 2003 32918 (ON SC), 67 O.R. (3d) 511 (S.C.J.) in support of its position. At a glance, the Stoughton Trailers case expands the court’s discretion on such motions. On closer review, however, it is appropriate to draw a distinction between a consent judgment which disposes of the parties’ substantive rights on a final basis, and a consent order which deals with the parties’ procedural rights and obligations. In the former, it is appropriate to apply the standard set out in Monarch Construction, and in the latter, the standard set out in Stoughton Trailers.
[16] In any event, the Defendant’s motion is brought under the Rules of Civil Procedure which provide another source of jurisdiction to set aside an order. Although the Defendant’s motion materials make reference to rule 19.08 as the grounds for bringing this motion, it is clear the judgment was not obtained on default and is in fact a consent judgment. Accordingly, the applicable rule is 59.06(2), which provides as follows:
(2) A party who seeks to,
(a) have an order set aside or varied on the ground of fraud or of facts arising or discovered after it was made;
(b) suspend the operation of an order;
(c) carry an order into operation;
(d) obtain other relief than that originally awarded,
may make a motion in the proceeding for the relief claimed.
[17] First Albany First Nation alleges the judgment was obtained through fraud. It says it was unaware of any contract with the Plaintiff and that in any event Mr. Solomon had no authority from the Defendant to enter into any contract with the Plaintiff. It also says the Plaintiff performed no work on the 12 units and there is therefore no basis for any judgment in its favour even if a contract is found to have existed. Finally, it says that Mr. Solomon had no authority to consent to judgment on its behalf.
[18] In International Corona Resources Ltd. v. LAC Minerals Ltd. 1988 4534 (ON SC), 66 O.R. (2d) 610, Osborne J. identified the following requisites to setting aside a judgment on the basis of fraud: (1) the fraud must be proved on a balance of probabilities, and the more serious the fraud, the more cogent should be the evidence; (2) the fraud must be material and go to the foundation of the case; (3) evidence of the fraud must not have been known to the party seeking to set aside the order at the time of the hearing: and (4) the party seeking to set aside the order must have acted with due diligence and constructive knowledge of the fraud cannot be imputed [as summarized in The Law of Civil Procedure in Ontario, Perrell and Morden, 1st Edition. Lexis Nexis Canada Inc. 2010 p. 712].
Analysis
Has the Defendant Proved Fraud on a Balance of Probabilities?
[19] Fundamental to the Defendant’s allegation of fraud is its position that the Plaintiff did not perform any work on the 12 units in question. In support of this position, the Defendant offered several arguments.
[20] First, it argued that the Plaintiff offered no proof the work had been completed (other than his word and the word of Mr. Solomon) and refused to provide any documents to prove the work had been done. In my view, the Plaintiff’s failure in this regard is of limited probative value. In the face of real evidence the work had not been done it may well have been incumbent upon the Plaintiff be more forthcoming with such proof. However, it is important to understand that the burden of proof rests with the Defendant. That is, it is not for the Plaintiff to prove the work was done; it is for the Defendant to prove it was not done. In this context, and given my findings below, the Plaintiff’s failure to provide additional evidence is of limited consequence.
[21] Secondly, the Defendant argued that completion of the work was contra-indicated by the Plaintiff’s reliance on the Trow Engineering Reports. In Mr. Davies’ affidavit he referred to inspection reports completed by Trow Engineering as confirming the completion of the work on the additional 12 units. However, when one examines the 11 units identified in the Trow reports, all but 5 had already been included in the initial 14 units for which the Plaintiff was paid in full. In addition, the Trow reports pertain to remediation work undertaken in relation to sewer backups in 2009, and not mould remediation identified in 2008. Counsel for the Plaintiff basically acknowledged that the reports are of no assistance in confirming the work was completed but offered an explanation that the materials had to be assembled in considerable haste and were included in error. Certainly the Trow reports are of no assistance in establishing whether or not the work was completed. The reliance on those reports by Mr. Davies was misguided and ineffectual. However, this argument of the Defendant amounts to little more than a challenge to the Plaintiff’s contention that the work was actually done. Although in the face of conflicting evidence it might affect Mr. Davies’ credibility, it does not, on its own, amount to evidence the work was not done.
[22] The Defendant’s evidence that the work was not done is far from persuasive and really amounts to bare allegation. I would have thought that there might be tendered an affidavit from someone who had inspected the 12 units and could say there had been no mould remediation work done on them. No such affidavit was tendered. I would have thought that those persons in occupation of the 12 units might have provided an affidavit indicating the Plaintiff had never worked on their homes and no mould remediation work was done. No such affidavit was provided. Instead the court was offered the evidence of current Chief Rex Knapasweet, current executive director Brian Nakogee, and executive director when the work was undertaken, Lucie Edwards.
[23] It turns out Chief Knapasweet was not living in the community when the work was being completed and therefore has no firsthand knowledge of what work was or was not done.
[24] Brian Nakogee admitted to having no personal knowledge of what work was or was not done.
[25] Lucie Edwards’ evidence on the issue of whether the work was done on the 12 units was: “I’m not sure”, “I don’t know”, and “I can’t remember”.
[26] Although I would agree the Plaintiff has not provided sufficient evidence on this motion to substantiate its claim, the onus is not the Plaintiff’s to meet. The onus is upon the Defendant to prove fraud on a balance of probabilities. It has not done so. There is basically no evidence before me to establish the work was not completed. It follows that this aspect of the Defendant’s motion must fail.
Was There a Contract for Completion of the Work?
[27] Also fundamental to the Plaintiff’s claim of fraud is that there was never any contract for completion of work on the 12 units. Implicit in this argument is that the contract of August 21, 2008 is a sham. The Defendant says this must be the case because there is no authority for the contract in the minutes of the meetings of council for the Defendant, there was no funding arrangement for the additional 12 homes, and no one knew of the existence of the contract, including the executive director at the time, Lucie Edwards.
[28] What I find problematic is the Defendant’s failure to produce a different contract for the remediation of the first 14 homes, its failure to produce a band council resolution authorizing work on those 14 homes, and its acceptance and payment of the Plaintiff’s invoices for those 14 homes.
[29] It seems highly unlikely that the Defendant would enter into a contract for $1.4 million without some agreement in writing. In the absence of any other agreement, the almost inescapable inference is that the contract of August 21, 2008 was in fact the governing document and is not a sham.
[30] In the absence of a band council resolution authorizing the work on the 14 homes, the inference is that such work could be and was undertaken without such a resolution. If work on the 14 homes could be undertaken without specific authorization from council, it follows that work on the 12 units could be undertaken in the same manner.
[31] That leaves the apparent lack of knowledge of the contract by council and Lucie Edwards. I note that I have no direct evidence from any member of the council (in existence at the time) that council was never informed of this contract or the judgment. In his affidavit, Mr. Nakogee stated that he consulted with all council members, Chief, all members of the administrative staff and several other individuals in the community to determine whether or not anyone was aware of the lawsuit, whether anyone had authorized the Chief to consent to judgment and whether anyone was aware a judgment has been granted. His evidence is that “Virtually no one had any information of any kind surrounding the lawsuit, the consent to judgment and the judgment”. This is hearsay evidence and is not admissible for its truth. If I am mistaken in that regard, the veracity of this evidence is lessened by his use of the word “virtually” as a qualifier to “no one”, which suggests that some person or persons did have information on point. That information was not put before the court and appears not to have been pursued during Mr. Nakogee’s examination.
[32] The evidence of Lucie Edwards certainly does not amount to a compelling case of fraud. Her evidence on this point is captured by the following questions and answers at her examination, beginning at question 219:
Q. So you don’t have a recollection of a contract for 26 units, but you do have a recollection of a contract for 14 units?
A. I do. I mean, I remember a contract.
Q. For 14 units?
A. Fourteen, but it was so long ago, I can’t remember if it was that or – I don’t remember because – ‘cause the – the monies coming in, we’ve already gone through the process, so you know, it could have been there. I’m not sure. I can’t remember, but the process was we had to have everything in place.
Q. What everything? Everything in place for what?
A. Because the monies was coming from INAC.
Q. Money coming from INAC for what?
A. For those 14 units.
Q. All right. So if there was money coming from INAC for 14 units that means there weren’t 26?
A. No. Because – because they would only give us a certain amount of money for those units, that was it.
Q. Right.
A. Yeah.
Q. If you had money coming from INAC for 14 units as far as you can – your evidence would be that there was no contract for 26?
A. I would think so, yes, because I remember at the time they were supposed to go advocate for more funding for the other 12 units, what I remember during that period.
Q. All right. So the Band was going to try and get more money, but the Band did not approve the work on the 12 units, is that what you’re saying?
A. I would think that’s what I’m trying to say.
[33] This evidence is far from a “smoking gun”. In fact, it indicates that Ms. Edwards was aware that work was required on the other 12 units and that the Band and perhaps even INAC was actively pursuing funding for that work.
[34] Read as a whole, the evidence of the Defendant falls far short of establishing that the contract of August 21, 2008 entered into by the Plaintiff with Mr. Solomon was a sham.
Did Mr. Solomon Lack Authority to Contract on Behalf of the Defendant?
[35] The Defendant contends that Mr. Solomon had no authority to contract on behalf of the band with respect to the 12 units in question and did not have authority to consent to judgment. In this regard, it points to the complete lack of any band council resolution relating to the contract or the consent, the complete lack of any reference to either in the minutes of the meetings of council, and the lack of knowledge of these actions by the Defendant’s chief executive officer at the time.
[36] Mr. Solomon has sworn that he had the authority of council and that he met with council regularly, in the absence of the executive director, to discuss the project and advise them of steps he was taking on its behalf. Notably, he is unable to recall when these meetings took place or who attended them and was not able to produce any minutes from any of the meetings.
[37] It is reasonably clear to me that there was no band council resolution authorizing any contract with the Plaintiff – not for the initial 14 homes and not for the additional 12 homes. Yet, the Defendant does not contest the existence or validity of a contract for the initial 14 homes. The mould remediation project seems to have been left to Mr. Solomon to take care of, and he did so. He contracted on behalf of the Defendant for the first 14 homes, and that work was completed and paid for. He also contracted for the second 12 homes and it appears that work was also completed. The difference lies with the funding. Although funding was sought and obtained for the 14 units, there appears to have been no funding in place and none sought from anyone other than INAC for the additional 12 units.
[38] As between Mr. Solomon and the Defendant there may well be an issue of whether Mr. Solomon exceeded the authority granted to him to resolve the mould issue. However, does the existence of that issue mean that the Plaintiff is to be left without recourse?
[39] Notwithstanding section 2(3) of the Indian Act, there have been several cases dealing with the principle of ostensible authority as it applies to actions taken by a Chief on behalf of council. These authorities are nicely summarized in Maloney v. Eskasoni Indian Band 2009 Carswell INS 321 (N.S. Sup. Ct.). Ostensible authority will be found when a party makes a representation, through words or conduct, that leads another to believe that the apparent agent has actual authority, and the party to whom that representation is made relies on that representation to its detriment.
[40] Although I have not been provided with council minutes for all meetings leading up to the start of the mould remediation work, it is clear Mr. Solomon was dealing with the Plaintiff on behalf of the Defendant to arrange that work. Band Council essentially ratified Mr. Solomon’s actions by authorizing the borrowing of money to complete the first 14 units, and processing requests for payment by the Plaintiff as that work progressed. From the perspective of the Plaintiff, Mr. Davies dealt with Mr. Solomon, who was then Chief of the Defendant. It contracted with the Defendant via Mr. Solomon, began and completed significant work and was paid for much of the work he completed. In a community the size of Fort Albany, it is virtually impossible to contemplate that the work was physically undertaken without the knowledge of council members. Consequently, it is reasonably safe to infer that council allowed the Plaintiff to begin and complete the mould remediation work in reliance upon its contractual dealings with then Chief Solomon.
[41] On these facts, ostensible authority is clearly established. If, in circumstances such as these, Mr. Davies could not rely upon the authority of Mr. Solomon to bind the Defendant in their dealings relative to the mould remediation project it would be most unfair and inequitable.
Conclusion
[42] The Defendant has failed to establish fraud on a balance of probabilities and accordingly, its motion is dismissed. Had fraud been established, I would have little difficulty finding that the remaining requisites to success, as set out in International Corona, have been met.
[43] That I have dismissed the Defendant’s motion should not be taken as an indication that I am not troubled by the manner in which the Plaintiff’s case has proceeded. That the judgment allows for interest at the rate of 24% per year is troubling. That the Plaintiff sat on the judgment for almost two years, amassing almost half a million dollars in interest is troubling. That the Plaintiff would initiate its collection proceedings in the manner it did without some final demand for payment being made, I find troubling. However, none of this amounts to the proof of fraud necessary to set aside judgment.
[44] By virtue of my earlier orders, the Defendant is holding monies in trust pending this decision. All such money shall be remitted in accordance with the Plaintiff’s Notice of Garnishment within 45 days of this decision.
[45] If the parties are unable to agree on costs, they may make written submissions to me within 45 days, not to exceed 5 pages exclusive of attachments.
Mr. Justice R.D. Gordon
Released: January 3, 2013
COURT FILE NO.: C-816-10
DATE: 20130103
ONTARIO
SUPERIOR COURT OF JUSTICE
BETWEEN:
Mould Clean Laboratories Ltd.
Plaintiff
– and –
Fort Albany First Nation
Defendant
RULING ON MOTION
R.D. Gordon J.
Released: January 3, 2013