2013 ONSC 7104

NEWMARKET COURT FILE NO.: CV-09-097426-0000T

DATE: 20131118

CORRIGENDA: 20131118

SUPERIOR COURT OF JUSTICE – ONTARIO

RE: Commander Construction, Plaintiff

and

The Sovereign General Insurance Company, Defendant

BEFORE: The Honourable Madam Justice C.A. Gilmore

COUNSEL:
Patrick DiMonte, for the Plaintiff

Jonathan Goode, for the Defendant

HEARD: November 15, 2013

revised ENDORSEMENT

The text of the original endorsement has been corrected with the text of the corrigendum (released today’s date)

Overview

[1] This matter was scheduled for a one day Rule 76.12 summary trial. On Sunday November 10, 2013, the plaintiff Commander Construction (“Commander”) served the within motion. As Monday November 11, 2013 was Remembrance Day and the courts were closed, service was effective on Tuesday November 12, 2013. On Thursday November 14, 2013 at 5:00 p.m. the parties were advised the matter would be proceeding on November 15, 2013. The defendant, The Sovereign General Insurance Company (“Sovereign”), prepared responding materials for this motion on the evening of November 14, 2013.

[2] In this motion Commander seeks to amend its pleadings as follows;

(a) In action 49725-02;

(i) change the bond number from “44-17526” to “44-17549”;

(ii) add the words “labour and material bond” after the word “performance bond”;

(iii) increase the amount of the claim from $10,000.00 to $20,560.00 plus interest and costs; and,

(iv) add a claim for relief from forfeiture pursuant to the Courts of Justice Act and the Insurance Act.

(b) In action 49724-02;

(i) increase the claim from $10,000 plus $2,000 in costs to $11,647.50 plus interest and costs; and,

(ii) add a claim for relief from forfeiture pursuant to the Courts of Justice Act and the Insurance Act.

Background Facts

[3] Commander commenced two separate small claims court actions in 2002 naming Cortrad Construction (1999) (“Cortrad”) and Sovereign as the defendants with respect to two separate construction projects; a renovation of a social services building on Wilson Avenue in Toronto (the “Wilson project”) and renovations to the Grafton Municipal offices in Haldimond, Ontario (the “Grafton project”). The small claims court action related to the Wilson project was claim number 49725/02 and the one related to the Grafton project was 49724/02.

[4] Sovereign issued a Labour and Materials bond (an “L & M Bond”) for each project naming Cortrad as the principal and Sovereign as the surety for each bond.

[5] At the time of issuing the small claims court claims, the jurisdiction of the Small Claims court was limited to $10,000. As Cortrad did not defend either action, Commander obtained default judgment for $10,000 against Cortrad in both actions.

[6] In November 2003, Commander amended its claim with respect to the Wilson project claiming that their outstanding invoice for that project exceeded $20,000 but they limited their claim to $10,000 due to the Small Claims Court limit. The claim referenced Cortrad entering into a performance bond with Sovereign, being bond number 44-17526. Sovereign defended by claiming that no such performance bond existed on that project.

[7] On the Grafton project, Commander takes the position that the balance owing was $11,647.50. The difference of $1,647.50 is the amount by which Commander seeks to increase its claimed amount in that action.

[8] Commander takes the position, therefore, that it is owed a total $32,207.50 for both projects, plus costs and interest from October 5, 2001.

[9] Both actions were consolidated and transferred to the superior court in Newmarket on November 16, 2009. The parties agreed that the matter would proceed under the simplified rules given the amounts claimed.

[10] In August 2011, Commander brought a motion for summary judgment against Sovereign seeking partial summary judgment of $20,000. That motion was dismissed. Mulligan J. felt that there were too many factual issues in dispute to grant summary judgment for the amount sought, which included limitation period issues and whether the L & M bond provided coverage for Commander. Costs of $6,000 plus HST were ordered to be paid by Commander. Those costs have been paid.

[11] The matter is now ready to proceed to trial subject to this ruling and its effect on Commander’s claims.

The Issues

(a) Increasing the Monetary Claims

The Position of the Plaintiff

[12] Commander seeks to increase its claim on the Wilson project by $10,560 and on the Grafton project by $1,647.50.

[13] Commander argues that these increases cannot come as a surprise to Sovereign as it was always known that they limited their claims in order to fall within what was then the small claims court jurisdiction of $10,000. Further, in its motion brought in October 2009 to consolidate the claims and traverse them to the superior court made specific reference to the likelihood of an amendment and the increased amounts which would be sought was made in the supporting affidavit of Mr. Esho.[^1]

[14] Commander’s counsel submitted that rather than proceeding with the amendment, the motion for summary judgment was sought. The endorsement of Mulligan J. makes specific reference to the “remant” of Commander’s claim that would remain if they were successful with their motion for summary judgment.[^2] Thus, it was well known throughout that Commander would seek to increase its claim and the amount by which it would be increased. A motion could have been brought earlier but was not because no opposition to the motion was anticipated.

[15] Commander refers to Rule 26 of the Rules of Civil Procedure which stipulates that the granting of an amendment is not discretionary so long as prejudice would not result that cannot otherwise by compensated by costs. Commander argues that Sovereign is not prejudiced by their request to increase the claims not only because their position on this has long been known by Sovereign, but also because Sovereign’s defences are legal ones which do not include any defence that the amounts invoiced are wrong. Therefore, any amendment of the amounts does not prejudice Sovereign in pursuing its defences as currently framed.

The Position of the Defendant

[16] Sovereign submits that the old Limitations Act governs in this case. In the construction industry, the limitation period for invoices as of the date of the original small claims court actions would have expired six years and thirty days after the date of the last invoice.

[17] The only invoice which has been produced in relation to the Wilson project is dated August 5, 2001.[^3] The limitation period for making additional claims in relation to that invoice would have expired on or about September 5, 2007.

[18] The only invoice produced in relation to the Grafton project is dated October 5, 2001.[^4] The limitation period in relation to claiming additional amounts for that invoice would have expired on or about November 5, 2007.

Ruling on Increasing the Monetary Claims Issue

[19] Commander is not seeking to make a new claim. It is seeking to increase the amount already claimed. As such, it is my view that the limitation period does not apply in this case and the matter is restricted to considerations under Rule 26.

[20] In terms of prejudice to Sovereign, while the motion to amend should certainly have been made earlier, the fact is that the defences to the increased claim will be exactly the same. Further, Sovereign cannot argue that it had no notice of the increase. The invoices clearly reference the increased amounts as does the affidavit of Mr. Esho in 2009. Further reference to “excess” over the $10,000 claims is referenced in Mulligan J.’s endorsement in relation to the motion for summary judgment in 2012.

[21] Given all of the above, I will grant the relief sought in paragraphs 3 and 5 of Commander’s pre-trial motion. The result is that the claim in action 49724-02 is increased to $20,560, plus pre-judgment interest and costs, and the claim in action 49725-02 is increased to $11,647.50, plus pre-judgment interest and costs.

(b) Amendment to Paragraph 10 of Action 49725-02

[22] This part of the motion relief deals with adding a reference to the L& M Bond and inserting the proper bond number. The amended claim from 2003 made reference only to a performance bond.

[23] Both projects had L & M bonds with Cortrad. As Cortrad defaulted on its payments to Commander, Commander was entitled to make a claim under the L & M bond so long as the claim was made in writing within one-hundred and twenty days of its last supply of services or materials under its contract with Cortrad, and in any event, within one year of the principal ceasing work on the project.

[24] In its original statement of claim on the Wilson project, Commander named Sovereign as a defendant but did not assert a cause of action against Sovereign. Sovereign defended on that basis.

[25] In its amended statement of claim, dated November 21, 2003, Commander claimed it was entitled to be paid under the performance bond 44-17526. Sovereign defended on the basis that no such performance bond had been issued for that project and that Commander was not entitled to be paid under the performance bond as Cortrad was the principal on the performance bond and the City of Toronto was the obligee.

[26] In fact a performance bond had been issued in relation to the Wilson project but it was bond number 44-17549. It is not denied by Commander that they would not be entitled to payment under the performance bond in any event. The only bond under which Commander would be entitled to receive payment would be the L & M bond.

[27] Until now, Commander has never asserted a claim in relation to the L & M bond and Sovereign has continued to defend on the basis that there is either no cause of action against them, or if there is (that is, if the amendment is allowed and Commander is allowed to claim under the L & M bond), Commander has failed to abide by the strict provisions within the bond with respect to the process for making claims. The one year limitation period for doing so has long since passed.

[28] Sovereign also relies on the doctrine of Estoppel by Representation in that it has relied to its detriment on the amended claim against the incorrectly numbered performance bond.

[29] Commander argues that the parties have always known that the claim related to the L & M bond and not the incorrectly referenced performance bond. Indeed these very issues were adverted to by Mulligan J. in his reasons why the claim for summary judgment summary should be dismissed.

Ruling on the Amendment to Paragraph 10 – Action 49725-02

[30] In making my ruling in this regard, I rely on Frohlick v. Pinkerton[^5] with respect to the presumption of prejudice in relation to the expiry of a limitation period. Commander’s amendments result in a new statute barred claim which gives rise to a presumption of prejudice.

[31] I do not find the fact that there are any special circumstances which would justify the granting of leave in this case. That is, if it was clear that the error in relation to the wrong bond number and the wrong bond was known for a considerable period of time, there was no reason why Commander could not have swiftly and efficiently taken steps to clarify their actual claim. Doing so some 11 or 12 years later is not acceptable. The fact that this issue may have been adverted to by Mulligan J. also does not create any special circumstances.

[32] The fact is that Sovereign must know the case it has to meet. Part of its defence in the 49725 action was that Commander had no ability to claim against a performance bond and even if it did, the bond that was referenced did not pertain to that project. To now change that to what is effectively a completely different claim; that is, a claim on an L & M bond which did exist means that Sovereign is facing a new case. Not a case in which they can plead that no cause of action exists, a completely different case in which they must now plead limitation defences.

[33] Given all of the above, the request to amend paragraph 10 of action 49725-02 is dismissed.

(c) Request for Relief from Forfeiture

[34] Commander anticipates that Sovereign will argue issues of timeliness and limitation periods. In response, it wishes to argue relief from forfeiture pursuant to section 98 of the Courts of Justice Act and section 129 of the Insurance Act and seeks an amendment to its pleadings in that respect.

[35] Sovereign opposes the amendment and invokes the equitable defence of laches. Sovereign argues that Commander has not met the test for this exceptional remedy, in that Commander’s conduct has not been reasonable in waiting ten years to request this amendment and further that such a remedy is not available to Commander given that it failed to comply with an integral condition precedent in the L & M bond.

[36] The relevant governing principle for granting relief against forfeiture as set out in Liscumb v. Provenzano (1985)[^6] is that the conduct of the plaintiff must have been reasonable in the circumstances.

[37] Relief from forfeiture under the Insurance Act is generally granted where a beneficiary has failed to give notice in a timely fashion. This is described in the case law as “imperfect compliance”, which is to be contrasted with the failure to institute an action within a prescribed time, which is viewed as a breach of a condition precedent.

[38] As per Stuart v. Hutchins[^7] where the notice requirement in an insurance contract forms an integral part of the event triggering coverage, then failure to give notice is breach amounting to non-compliance and section 129 of Insurance Act does not assist, as non-compliance must be distinguished from imperfect compliance. Section 129 of the Insurance Act relates only to relief from forfeiture where there has been imperfect compliance. Likewise, the reach of section 98 of the Courts of Justice Act cannot extend beyond that of section 129 where there is non-compliance with a condition precedent to coverage.[^8]

[39] I find that the requirements in the L & M bonds are condition precedents to coverage. The requirement to give written notice of a claim within one-hundred and twenty days of the completion of work, and within one year of the principal ceasing work on the project cannot be anything but condition precedents. The published Certificates of Substantial Completion were available for both projects. I do not accept that the default judgment against Cortrad can act as any form of notice of Sovereign. There is no evidence that Sovereign knew about the default judgments at the time, nor that they in fact were ever given a copy of them.

[40] Given all of the above, I do not find that Commander’s conduct was reasonable with respect to the availability of this remedy, nor do I find that the case law supports that it should be granted.

[41] Given all of the above, I dismiss paragraphs 4 and 6 of their pre-trial motion.

Justice C.A. Gilmore

Released: November 18, 2013

CORRIGENDA

1. Paragraph [21] – has been changed from “relief sought in paragraphs 2 and 5” to “relief sought in paragraphs 3 and 5”.

[^1]: Affidavit of Johnny Esho sworn August 25, 2009. Para 7 & 8.
[^2]: Endorsment of Mulilgan, J. dated February 14, 2012. Para 6.
[^3]: Trial Record, p. 44.
[^4]: Trial Record, p.45.
[^5]: 2008 ONCA 3, [2008] O.J. No. 17 (OCA).
[^6]: 1985 2051 (ON SC), 51 O.R. (2d) 129 (H.C.J.), aff’d (1986), 1986 2595 (ON CA), 55 O.R. (2d) 404 C.A.
[^7]: [1988] O.J. No. 3672 (OCA) at para 37.
[^8]: Ibid at paras 43 and 44.