ONTARIO
SUPERIOR COURT OF JUSTICE
IN THE MATTER OF the Construction Lien Act, R.S.O. 1990, c.C.30
COURT FILE NO.: CV-11-428554
DATE: January 22, 2014
BETWEEN:
PARAGON BUILDING LTD.
John L. O’Kane, for the plaintiff,
Tel.: 905-216-4661,
Fax: 1-866-269-5791.
Plaintiff
-and-
BERTHA AIELLO, the Estate Trustee of the the Estate of Karafil Bleta, deceased, DONERITE CONSTRUCTION and ALFIE MARINACCI
Leroy A. Bleta, for the defendant, Bertha Aiello, the Estate Trustee of the Estate of Karafil Bleta,
Tel.: 416-221-8181,
Fax: 416-231-1280.
Defendants
HEARD: December 18, 19 and 20, 2013.
Master C. Wiebe
REASONS FOR JUDGMENT
I. BACKGROUND:
[1] Bertha Aiello is the estate trustee of the estate of Karafil Bleta (“Karafil”). Karafil’s estate will be called “the Estate.” Prior to his death in 2008, Karafil acquired, owned and managed several residential properties in Toronto, including a residential property located at 58 Donald Street, Toronto, a bungalow (“the Property”). The Property is presently owned by Bertha’s son, Johnkarl Aiello, but it is undisputed that Johnkarl Aiello holds the Property in trust for the Estate.
[2] The following facts are largely undisputed. In 2010 the Estate started to renovate the Property from a bungalow into a two storey home. On November 15, 2010 the Estate entered into a general contract with a company named The Renovation Guy Ltd. (“RGL”) whereby RGL would renovate the Property in accordance with plans prepared for the Estate by an architect some time earlier (hereinafter “the Project”). The principal of RGL is one Wesley Webster. RGL commenced working in October, 2010 and worked through to the end of 2011. It was paid 18 cheques in the net amounts totaling $332,063.18. Therefore, the personal liability of the Estate for basic holdback concerning the Project pursuant to Construction Lien Act (“CLA”) section 22(1) is well in excess of the amount of the plaintiff’s claim for lien in this case. The Estate is therefore liable for the total of the proven Paragon claim.
[3] RGL retained a company named Donerite Construction (“Donerite”) as a subcontractor to assist on the Project. RGL also retained the principal of Donerite, Alfie Marinacci, as construction foreman for the Project. In turn, Donerite used the labour services of, amongst others, one Paul Oliveira to do work on the Project such as framing.
[4] On May 5, 2011, Mr. Oliveira had a claim for lien registered on the title to the Property in the amount of $9,076.06. The claim for lien was in the name of “Paragon Building Ltd.” (“Paragon”) which is a company that was incorporated in 2005 by one Cesar Oliveira. Paragon claims that $9,076.06 is owed to it under its alleged contract with Donerite, and that it worked on the Project from January 31, 2011 to March 30, 2011.
[5] Paragon purported to perfect its lien by starting an action on June 13, 2014 and by registering a certificate of action. It named the Estate, Donerite and Mr. Marinacci as defendants claiming the $9,076.06 from all of these parties. No issues as to the timeliness of the Paragon claim for lien or as to the lienability of the alleged work done by Paragon were raised. The case focused on the quantum of the Paragon claim for lien.
[6] Donerite and Mr. Marinacci have been noted in default, and no effort has been made to set these defaults aside.
II. ISSUES:
[7] This case raises the following issues:
a) Did Paragon or Paul Oliveira contract with Donerite to do the work?
b) Did Paragon or Mr. Oliveira do the work alleged?
c) Were the charges rendered proper and in accordance with the contract?
d) Were there deficiencies in the work of Paragon or Mr. Oliveira, and, if so, by what amount should the said claim be reduced as a result?
e) Was the subject contract properly terminated by Donerite, and, if so, what is the effect?
f) Did Paragon or Mr. Oliveira have the right to allocate payments received from Donerite first to accounts owed by Donerite on other projects?
g) Should the subject contract be rendered void pursuant to the doctrine of ex turpi causa because it intended in part to avoid payment of applicable tax?
h) What judgment should be rendered as against Donerite and Mr. Marinacci?
III. WITNESSES:
[8] The reference trial proceeded as a summary trial with affidavit evidence in chief filed in advance of trial, and time limited cross-examination and redirect examination conducted viva voce at trial. Paragon called three witnesses: Paul Oliveira; Rob Calautti, the principal of Calautti Electric, an electrician firm Paragon alleges it retained to do work on the Project; and Attilio Zorzetto, an electrician with Calautti Electric who worked on the Project. The Estate called three witness: Bertha Aiello; Wesley Webster; and Alfie Marinacci.
[9] Paul Oliveira I found to be a credible witness. He stated that he is a carpenter that has operated Paragon for 15 years. His affidavit contained little hearsay evidence. It also contained considerable corroboration in the exhibits that he filed with his affidavit. Concerning his evidence about the work performed, he referred to the relevant parts of his diary and his time cards (produced by the defendants in the action). Concerning the issue of contract termination, he produced the relevant text messages he sent to Mr. Marinacci which corroborate his evidence that he took Mr. Marinacci’s saw temporarily for safekeeping and returned it soon thereafter. Concerning the issue of contracting parties, he produced the Paragon articles of incorporation showing his brother Cesar Oliveira as the sole shareholder and first director of the company, the company resolution appointing Paul Oliveira as director, Paragon OHSA and HST filings, and Paragon internal tax records for the relevant period. This all shows that Paragon was a functioning company with Paul Oliveira as its director during the relevant period, just as he asserted.
[10] Mr. Oliveira withstood cross-examination well. He readily admitted complications with Paragon’s case. He admitted that the time cards submitted to Mr. Marinacci for payment did not include tax or name Paragon. This cash arrangement was subsequently corroborated by Mr. Marinacci himself in cross-examination. Mr. Oliveira openly admitted to the anomaly in the date of the Paragon invoice, namely February 6, 2011, and his explanation for it, namely that the invoice was a running document that was opened on that date and that was submitted almost three months later for payment when cash payments ceased and the contract was terminated, was consistent with the cash arrangement (predicated on timely payment) and was not shaken in cross-examination. Mr. Oliveira’s evidence that Paragon had produced all of its HST filings for the relevant period (namely its one annual filing) was also not seriously shaken.
[11] Rob Calautti and Atillio Zorzetto were also credible witnesses. Neither had any stake in this action as Calautti Electric was fully paid by Paragon in a timely way. Mr. Calautti did admit to receiving a cash payment from Paragon initially without tax and then being asked by Paragon later to prepare the two Calautti invoices showing tax and a $10 increase in the charged hourly rate, all of which might suggest dishonesty. Again, the non-payment of tax is consistent with the cash arrangement that Mr. Marinacci himself admitted to. The $10 hourly rate up-front discount was explained by Mr. Calautti as also being a part of the cash arrangement, which makes sense. Furthermore, Mr. Calautti underlined the bona fides of the invoices by showing that Paragon eventually paid the tax and the rate difference to Calautti. Both of these witnesses were also attacked in relation to the last day of work they alleged for Calautti Electric, namely April 7, 2011, but their evidence was not shaken on this point.
[12] The Estate’s principle witness, Mr. Marinacci, on the other hand, was not as credible a witness. Firstly, Mr. Marinacci’s affidavit provided no corroboration for any of his evidence. This was a glaring absence since his affidavit was sworn over 2 years after the events in issue. The absence of collaboration was particularly telling in relation to his allegation that Mr. Oliveira stole his saw, an act that he stated partly justified terminating the subject contract. His affidavit stated that this alleged theft happened at the end of March, 2011. Yet, there was no evidence that he reported this to the police, that he brought this up with Mr. Oliveira in writing or verbally in a timely way, or that he made an insurance claim concerning this theft. The only evidence presented by the Estate in support of Mr. Marinacci’s evidence in this regard was a text message from Mr. Marinacci to Mr. Oliveira dated April 29, 2011, a month after the alleged contract termination, stating only that “you stole tools.” This message was sent only after Mr. Marinacci had received numerous emails from Mr. Oliveira demanding payment. At trial Mr. Marinacci produced a bill dated October 5, 2012 from Stephenson’s Rental showing that he had purchased a saw at that time, namely about 1 ½ years after the alleged theft. He called this the “replacement saw” for the saw Mr. Oliveira allegedly stole. Because of the lapse of time from the date of the alleged theft, these two pieces of evidence do not give credible corroboration to Mr. Marinacci’s allegation of theft. An allegation of criminal conduct is a serious matter, particularly if made under oath. That Mr. Marinacci would make such an allegation under oath without credible corroboration seriously undermines his credibility.
[13] Secondly, there was the matter of Mr. Marinacci’s failure to defend this action. He and his company, Donerite, are noted in default and are therefore deemed to admit the allegations of fact made against them in the Statement of Claim. No action was taken to set this default aside. Mr. Marinacci’s evidence at trial contradicted these deemed admissions. While these deemed admissions do not bind the Estate, they show at minimum a cavalier attitude on the part of Mr. Marinacci towards this action that further undermines his credibility. This attitude was underscored when he stated in cross-examination that he had “stuff some place” about the case that he did not bring with him despite the demand for same in the Summons to Witness. This attitude needs to be born in mind given the many allegations against Paragon that implicate Mr. Marinacci himself such as deficiencies in the work.
[14] Thirdly, there was the issue of Mr. Marinacci’s delayed attendance at the trial. Mr. Marinacci was properly served with a Summons to Witness by Mr. Bleta, but failed to appear as ordered on the second day of the trial causing a short adjournment. He appeared the next day stating that he had not appeared on the previous day because he, a construction foreman, did not have a driver’s license, did not have a vehicle and had relied upon a third person to drive him to Toronto from Penetanguishene (where he resides), a ride that did not materialize. He offered no explanation as how the ride suddenly materialized to make his attendance on the third day possible. This left me wondering whether Mr. Marinacci was being forthright with the court and the parties.
[15] Finally, in cross-examination and re-examination, Mr. Marinacci contradicted key areas of his affidavit. For instance, in his affidavit he blamed Mr. Oliveira for changing the layout that led to the fire shutter. In cross-examination, he blamed the owner for making that change. In his affidavit, he blamed Mr. Oliveira for the deficiency concerning the deck. In cross-examination, he admitted that the problem stemmed from the requirement for sonic tubes. In cross-examination, he admitted that the work was initially well inspected by the city. In re-examination, he went so far as to state that there were not many problems with Mr. Oliveira’s work. He added that the inspections that led to the deficiency issues were done much later after variances were obtained in relation to the Project This left me wondering whether his affidavit truly reflected his evidence.
[16] The Estate’s other important witness was Mr. Webster. His evidence also lacked credibility and weight. Firstly, Mr. Webster and his company did not contract with or have much dealing with Mr. Oliveira. As a result, his affidavit was full of either argument or hearsay evidence derived from either Mr. Marinacci or Mr. Bletha. Secondly, as with Mr. Marinacci, Mr. Webster’s affidavit had no corroboration, a telling absence since it was sworn over 2 ½ years after the events in issue. Thirdly, Mr. Webster’s cross-examination contradicted a key part of his affidavit evidence, namely about Mr. Oliveira’s alleged deficiencies. Mr. Webster admitted in cross-examination that the issue of Mr. Oliveira’s deficiencies came up long after Mr. Oliveira left the site and after a new inspector performed inspections. He admitted serving no deficiency notices on Donerite or Mr. Oliveira. He stated that RGL then repaired Mr. Oliveira’s alleged deficiencies at its own expense and did not pursue Donerite or Mr. Oliveira for reimbursement of these costs or bill the owners for these costs. This left me wondering whether it was RGL that was really responsible for the deficiencies. Finally, I noted that Mr. Webster has had a close relationship with the owners for many years. This was raised by Ms. Aiello in her evidence. I also noted that Leroy A. Bleta is shown as a director of RGL in its Corporation Profile Report dated May 10, 2013. This all indicates that Mr. Webster was not unbiased in his evidence.
[17] The Estate’s third witness, Ms. Aiello, was forthright and clear in her affidavit evidence, and was not seriously challenged in cross-examination. However, her direct evidence was largely on uncontentious matters. As to contentious matters, such as deficiencies, her evidence was either argumentative or hearsay, and therefore of little value.
[18] Therefore, on balance I find that the witnesses produced by Paragon were more credible that the witnesses produced by the Estate. Where the two conflict, I prefer the evidence of the plaintiff’s witnesses, particularly that of Mr. Oliveira.
IV. ANALYSIS
a) What was the contracting party?
[19] Mr. Oliveira maintained consistently that the company he was director of, Paragon, was that party that contracted with Donerite, and that has the lien right. The contract, he stated, was a verbal one negotiated by him and Mr. Marinacci in December, 2010. The contract, he stated, was for the supply of labour (primarily carpentry) to the Project as directed by Mr. Marinacci at an agreed hourly rate of $35, with any materials supplied to be reimbursed at cost.
[20] As stated earlier, Mr. Oliveira produced documentation showing that Paragon was an active company at the time and that he had been appointed a director of the company. There was the company resolution appointing Mr. Oliveira director. Mr. Oliveira did not produce the WSIB Clearance Certificate he said he gave to Mr. Marinacci at the time of the contract. But he did produce the company’s journal entry for the relevant period, which showed that Paragon paid WSIB premium during that time. This indicates that Paragon was employing labourers during this time. Mr. Oliveira also produced the company’s HST return for 2011 and internally generated HST documentation showing the invoice to Donerite as a Paragon account.
[21] Most importantly, in my view was the account that was rendered to Donerite itself. It is dated February 6, 2011 and references work done weekly throughout February and March, 2011. It includes a WSIB premium expense. Mr. Oliveira stated that this invoice was a running document that captured the weekly work he did. It was finalized and rendered on or about April 26, 2011 just after the contract was terminated by Mr. Marinacci. It clearly was in the name of Paragon. Mr. O’Kane rightly pointed out that there was no advantage to Mr. Oliveira in having the account rendered by the company as opposed to by himself. In fact, if anything there would be a disadvantage, as the proceeds of a company invoice would be paid to the company to be used to pay company obligations. Therefore, the fact that Mr. Oliveira chose to render the account in the name of the company is strong evidence that the contract was with Paragon in the first place.
[22] I further note that Calautti Electric provided an estimate for its scope of work to “Paragon Building Ltd.” The evidence was that this estimate predated the start of Calautti’s work on March 25, 2011 and before the dispute between Paragon and Donerite. While the eventual Calautti Electric invoices were prepared after the breakdown in the relationship, this earlier estimate is consistent with Paragon’s position that it was the contracting party.
[23] Mr. Marinacci stated in his affidavit that he never contracted with Paragon. His stated that the contract was with Mr. Oliveira personally, whom he described as an employee. Mr. Marinacci stated that, had the contract been with Paragon, he would have had a written contract with a defined scope of work and periodic payments, and that he would have exercised less control over Paragon. Given my reservations about Mr. Marinacci’s credibility, I do not accept this evidence. Mr. Marinacci stated that, had the contract been with Paragon, he would have required a WSIB “clearance slip” and HST account information. As stated above, the plaintiff produced evidence that it paid WSIB premium during this time and that it accounted to the CRA for HST billed to Donerite. I note that Mr. Marinacci produced no documentation in support of his position that this was an employment relationship, such as a formal record of employment upon contract termination.
[24] I, therefore, find that the contract for the work in question was between Paragon and Donerite, and that Paragon has whatever lien right it can prove.
b) Did Paragon do the work alleged?
[25] The evidence of the work done by Mr. Oliveira was compelling. Mr. Oliveira produced the time cards that he stated he submitted to Mr. Marinacci on a weekly basis and that Mr. Marinacci paid until the end, with the exception of the cards for the week of March 14 to 20, 2011. Those cards were missing because they had not been produced by the Estate. Mr. Oliveira did not retain copies of any time cards when he delivered them to Mr. Marinacci. The produced time card entries correlate with the Paragon invoice that was eventually rendered on April 26, 2011 when the contract was terminated. Mr. Oliveira also produced his diary for the relevant time period and it largely correlated with the time included in the Paragon invoice, including the time not covered by the produced time cards. The time cards and diary are compelling evidence because they are contemporaneous documents created by Mr. Oliveira when there was not dispute. The Estate made no reference to these documents in argument.
[26] The Estate argued that some of the billed time related to work on other projects. Paragon admits this conceding that some 29 hours of Mr. Oliveira’s billed time related to work he performed on four other properties, namely Tridel, 725 King Street West, 25 Church Street and 523 Runnymede.
[27] Mr. Marinacci maintained in his affidavit that the standard work day started at 7:30 a.m. and ended at 4:30 p.m. thereby rendering charged time outside of these time limits invalid. Mr. Oliveira’s evidence was that there was no set daily work time. This was corroborated by the time cards. I accept Mr. Oliveira’s evidence on this point.
[28] In the submitted Scott Schedule the Estate challenged various aspects of the Paragon invoice on the ground that the work was not done or was done by someone else. This all stems from the uncorroborated evidence of Messrs. Marinacci and Webster, which I do not find credible for the reasons already stated.
[29] The Estate challenged the two entries in the Paragon invoice for the electrical work done by Calautti Electric. It argued that this was not a part of Paragon’s work. Yet, it produced no evidence that the Calautti Electric contract was with anyone other than Paragon. On the contrary, it produced the Calautti Electric initial estimate which was directed to Paragon, not Donerite.
[30] The Estate argued that Calautti Electric did not obtain the permit for its work. Mr. Calautti in his re-examination clarified on the contrary that, while his company’s estimate had included the 100 amp service with panel and the ESC electrical permit, that scope was removed by Paragon on instructions from Donerite. The permit was to be obtained by others, and the evidence was that it was so obtained. I accept Mr. Calautti’s evidence on this point.
[31] The Estate initially also challenged whether the 2 hours of work that Mr. Zorezetto performed on April 7, 2011 actually took place in light of statements made by Mr. Oliveira in previous examinations that Paragon’s work ceased as of March 30, 2011. I do not take Mr. Oliveira’s previous statements as contradicting the Zorzetto evidence as Mr. Oliveira was referring to his own work per se. I therefore find that this work was done.
[32] Mr. Bleta in argument urged that I find the February 6, 2011 Paragon invoice and the entire Paragon claim to be a fabrication. For the reasons stated above, I do not do so.
[33] I find on balance that Paragon has established that it did the work alleged, including the two items included in the Paragon invoice for Calautti Electric.
c) Were the rendered charges proper?
[34] There was no dispute over the following four items in the Paragon invoice: (a) the hourly rate charged for Mr. Oliveira’s time, namely $35; (b) the amount charged for the bolts, fasteners and nails, namely $176.52; (c) the quantum of the charged WSIB premium, namely $1,010.63 (being 10% of the total Paragon labour cost); and (d) the payments made by Donerite to Paragon in 8 cheques, dating from February 9, 2011 to March 25, 2011, namely $6,300.
[35] What was in issue was the charged tax, both on the Paragon bill and on the Calautti Electric bill. The evidence was clear that the arrangements both as between Paragon and Donerite and as between Calautti Electric and Paragon were cash arrangements made primarily to avoid payment of tax. The Estate therefore argued that the tax was therefore not a proper charge. However, the HST is an unavoidable tax on charges from independent contractors such as Calautti Electric and Paragon. No authority to the contrary was provided to me. The effect, if any, of the agreements not to pay tax will be discussed later. I find that the tax was a proper charge.
[36] The Estate also raised in its questioning of Mr. Calautti the issue of the propriety of the $10 Calautti Electric added to its hourly rate in its rendered invoices. Mr. Calautti’s evidence was that the $10 discount was a part of the cash arrangement he had with Paragon, and that Paragon in fact paid Calautti Electric in cash in a timely way. The $10 was added later when Calautti Electric prepared its bills at the request of Paragon, and the increase was at the request of Paragon because it was not being paid its cash in a timely way by Donerite. Paragon paid the $10 difference to Calautti Electric. Cash arrangements such as this one that include a discount are typically entered into for two reasons: to avoid the tax, and to encourage timely payment. If Donerite is found to owe the money alleged by Paragon, I find that Paragon was entitled to add the $10 per hour amount to the Calautti Electric charges.
[37] I find that Paragon has established that the charges in its invoice were proper.
d) Were there deficiencies in Paragon’s work?
[38] In their affidavits Messrs. Marinacci and Webster raised numerous allegations of deficient work on the part of Paragon none of which were corroborated by documents in those affidavits. With claims of deficient work, one would expect that contractors such as Donerite and RGL would deliver contemporaneous letters and notices to the alleged responsible party, Paragon, demanding that the deficiencies be corrected. Not only is this the most cost effective approach, it is consistent with the common law which gives trades the right to correct their own deficiencies in order not to prejudice payment of their accounts. Therefore, I approached this evidence with skepticism from the outset.
[39] In fact, as stated earlier, the Estate’s evidence concerning deficiencies broke down during the cross-examinations and re-examinations of the Estate’s witnesses. As Ms. Aiello pointed out in her affidavit, there were two major deficiencies that allegedly implicated Paragon. The first was a change in the configuration of the second floor bedroom that violated the Ontario Building Code (“OBC”) and that required the construction of a fire shutter. The Estate produced two photographs of the second floor bedroom showing the absence of the indentation in the wall that is shown on the plans. The Estate also produced three invoices dated in October, 2012 showing that the fire shutter was installed at that time. The second major alleged deficiency was the construction of the front verandah and second floor balcony in a way that violated the OBC and the plans, necessitating that both be cut back, at considerable expense.
[40] However, Mr. Marinacci stated in cross-examination that the fire shutter issue was the result of a design change approved by the owner, and that the deck issue was the result of the inclusion of sonic tubes in the design. In fact, Mr. Marinacci in re-examination confirmed that the Paragon work was well inspected and approved of by the city, that the deficiency issues arose only much later after variances were obtained in relation to the Project that necessitated new inspections, and that there were no real issues with the quality of Paragon’s work.
[41] Mr. Webster confirmed in cross-examination that issues of deficiencies came up well after Paragon left the Project and after the new inspectors conducted inspections. Furthermore, Mr. Webster’s company did not notify Paragon or Donerite of these issues, did the correction work itself, and made no effort to get reimbursement for its costs from Paragon or Donerite.
[42] As noted earlier, several other allegations of deficiencies were leveled against Paragon. But these stemmed from the affidavits of Messrs. Marinacci and Webster and, as discussed earlier, none of these allegations were corroborated. I do not give credence to them.
[43] I find that the Estate has failed entirely to prove that Paragon was responsible for any deficient work.
e) Was Paragon’s contract properly terminated?
[44] In paragraph 25 of his affidavit, Mr. Marinacci stated that the subject contract was terminated at the end of March, 2011. Mr. Oliveira’s evidence was that it was terminated by Mr. Marinacci on April 25, 2011 after a month of attempts by Mr. Oliveira to get paid. Mr. Oliveira produced a series of text messages from him to Mr. Marinacci that corroborate Mr. Oliveira’s evidence. I therefore find that Donerite terminated the Paragon contract on April 25, 2011.
[45] Was it properly terminated? In paragraph 25 of his affidavit, Mr. Marinacci stated that he terminated the subject contract for two reasons: Mr. Oliveira’s alleged “poor work performance”; and Mr. Oliveira’s alleged theft of tools and equipment. Concerning the alleged theft of tools and equipment, I have already discussed this allegation and found it wanting of credibility. Mr. Bleta raised in argument the point made by Ms. Aiello in her affidavit that Mr. Oliveira had also allegedly delayed in returning truck and property keys. But these grounds were not relied upon by Mr. Marinacci to justify the contract termination. Concerning the alleged poor performance, I have already found that the Estate has not established that Paragon is responsible for deficiencies or improperly billed work.
[46] I therefore find that Donerite improperly terminated the Paragon contract.
f) Did Paragon have the right to allocate payments to other projects first?
[47] It is undisputed that Paragon allocated Donerite’s payments first to outstanding accounts it had with Donerite on the four other projects. The amount of this payment Mr. Oliveira stated to be $1,015 plus HST and applicable WSIB premium (10% of the applicable labour).
[48] The Estate raised no contractual bar to such an allocation. Its argument was that the trust provisions of the CLA, namely Part II, prohibit such an allocation. Without a doubt, the Donerite payments were trust monies under Part II. However, it is clear under Part II that the trust obligations are owed to those “subcontractors” who are in privity of contract with the trustee and that the trust obligations are discharged by paying those subcontractors; see CLA section 11. Where all subcontractors of a trustee have been paid trust monies under the CLA, any residue belongs to the trustee without restriction.
[49] The only relevant “subcontractor” of Paragon that I was made aware at trial was Calautti Electric, and it is clear that Calautti Electric was paid by Paragon in a timely way. Therefore, the residue of trust money that was paid to Paragon belonged to Paragon without restriction.
[50] Mr. O’Kane made the additional argument that Mr. Oliveira was not aware of how Donerite got paid the monies it used to pay Paragon, and therefore could not have known that the monies were trust monies. Given my above noted findings, I do not find it necessary to make a ruling on this argument, and I do not do so.
[51] My understanding of the common law is that a creditor has the right to allocate monies received from a debtor to accounts owing from that debtor as the creditor sees fit. I find that Paragon had that right in this case, and that it properly allocated the Donerite payments to the non-Project accounts.
g) Should the contract be rendered void due to the doctrine of ex turpi cause?
[52] The Estate argued that the Paragon contract should be rendered void or unenforceable due to the doctrine of ex turpi causa. This is the common law doctrine that prohibits a party from enforcing performance of an agreement founded on consideration that is contrary to public policy. The Estate argued that the consideration that was contrary to public policy in this case was the agreement in the Paragon contract not to pay applicable tax. This was the basis for the cash arrangement that both Messrs. Oliveira and Marinacci confirmed existed.
[53] Mr. Bleta relied upon the case of Tsoi v. Lai (2012), 2012 CarswellBC 2138 (B.C.S.C.). Here the plaintiff sought repayment of a loan given to the defendant to conduct his mah-jong business, a gambling business that contravened section 197 of the Criminal Code. The plaintiff knew that the loan was for this purpose. Justice Bowden discussed the doctrine of illegality, another name for the doctrine of ex turpi causa, and concluded that there were two categories: (1) common law illegality, where an agreement offends public policy; and (2) statutory illegality, where an agreement offends a statute. He found that the illegality in the Tsoi case was one under the common law, despite the fact that the illegality on its face stemmed from a statutory offence, namely the Criminal Code. He made this finding because of what he determined to be a broader offence against public policy that formed the purpose of the loan in question, namely the running of a gambling business. He nevertheless ordered a repayment of the loan on the basis of unjust enrichment, as he stated that, even with immoral contracts, courts are now balancing the need to preserve public policy by not enforcing the contracts against the need to avoid unjust enrichment.
[54] Non-payment of HST is not, to my knowledge, an offence under the Criminal Code. I was given no authority for that proposition. Therefore, at most, the agreement in question not to pay HST was an agreement for the purpose of a “statutory illegality.” As a result, the Tsoi decision would not apply to this case.
[55] Should the Paragon contract be voided as being a contract for a statutory illegality? Mr. O’Kane produced the leading case that discussed the analysis to follow with such agreements, Still v. Minister of National Revenue (1997), 1997 CarswellNat 2702 (Fed.C.A.). In Still a foreign person without a work permit was given employment as a housekeeper before she became a permanent resident, thereby contravening the regulations under the Immigration Act. Shortly after she became a permanent resident, she was laid off and she sought unemployment insurance benefits. The Tax Court denied the application stating that the employment contract was void for illegality and that a valid employment contract was a precondition for entitlement to unemployment benefits.
[56] The Federal Court of Appeal reversed this ruling. It applied what it called a “modern approach” to the question of contracts that infringe statutes. This approach begins with an analysis of the statute that is infringed to determine whether an agreement that infringes the statute is expressly or impliedly prohibited by that statute. In the Still case, the Immigration Regulations, 1978, subsection 18(1) prohibited the applicant from entering into and pursuing employment without a work permit. The court therefore had to embark upon an analysis as to whether this prohibition should be enforced by the court by way of an order that the contract was void ab initio. It did so by reviewing of the purposes of the statutory prohibition and the values and purposes of the governing legislation, and by balancing the effects of an order voiding the contract against these statutory purposes to determine whether the voiding order was a disproportionately onerous penalty. In the end, the court ordered that the applicant be paid the benefits.
[57] In our case, the Estate provided me with no authority concerning the governing statute that implemented the HST, much less authority as to whether that statute impliedly or expressly prohibits contracts for the sale of services and materials that purposefully avoid the payment of the applicable HST, such as the Paragon contract. While I am prepared to give judicial notice of the requirement to pay the HST in this case, I cannot go further and grant an order voiding the entire contract on account of the agreement not to pay HST without further and detailed information as to what the governing statute states concerning such agreements, if anything. I am therefore left to speculate as to what the statute states, which I will not do.
[58] The doctrine of ex turpi causa was raised by the Estate. Therefore, it has the onus of establishing that defence. I rule that it has failed to do so.
[59] In any event, if I am wrong in this analysis and if the traditional analysis of illegal and immoral contracts as described in Tsoi applies, I would not void the contract in the Paragon case in any event on account of unjust enrichment. Voiding of the contract would result in an unjust enrichment for Donerite, RGL and the Estate, as they would all get the benefit of Paragon’s work without paying for it. Against that result lies the other reality, namely that Paragon did not benefit in the end by this agreement not to pay HST.
h) What judgment should be rendered against Donerite and Mr. Marinacci?
[60] As stated earlier, Donerite and Mr. Marinacci have been noted in default. This noting in default was referred to in the judgment of reference of Madam Justice Allen dated March 27, 2013 that referred this action to me. The parties are agreed that nothing has been done by Mr. Marinacci and Donerite to set these defaults aside.
[61] CLA section 54(4) is clear that where a defendant has been noted in default, he or she shall be “deemed to admit all allegations of fact made in the statement of claim,” and judgment may be given against the said defendant accordingly. The Amended Statement of Claim makes the following allegations of fact against Mr. Marinacci and Donerite: they hired Paragon to provide specified work in relation to the Project; they agreed to pay Paragon at the rate of $35 an hour plus materials plus HST; Paragon worked on the Project from January 31, 2011 to March 30, 2011 as directed by them; Paragon’s work was in a good and workmanlike manner; Paragon issued “progress invoices” to them from time to time; on March 30, 2011, they fired Paragon; they failed to pay Paragon $9,076.06 for its work despite Paragon’s repeated demands that they do so; they breached the contract by so failing to pay; and Paragon registered a claim for lien in relation to this outstanding account on May 5, 2011.
[62] I note that the evidence at trial largely verified these allegations. In any event, I rule that Paragon is entitled to a personal default judgment against Mr. Marinacci and Donerite in the amount of $9,076.06.
V. CONCLUSION
[63] This court, therefore, finds that the Estate must pay Paragon $9,076.06 in respect of its claim for lien. The Estate’s liability arises from its holdback obligations under the CLA Part IV.
[64] This court also find that Donerite and Mr. Marinacci must pay Paragon the same $9,076.06 on account of their deemed admissions of fact pursuant to CLA section 54(4), as they have been noted in default.
[65] This court also finds that Mr. Marinacci and Donerite must pay Paragon pre-judgment interest on $9,076.06 from May 5, 2011, the date of the registration of the Paragon claim for lien, to the date the court’s report is issued, at the Courts of Justice Act pre-judgment interest rate of 1.3 percent.
[66] This court also finds that Mr. Marinacci and Donerite must pay Paragon post-judgment interest on $9,076.06 at the Courts of Justice Act post-judgment interest rate from the date of the report of the date of payment.
[67] I heard no submissions as to whether the Estate should pay interest on its holdback obligation to Paragon, and I invite counsel to do so when they attend before me to make their submissions as to costs, as discussed below.
[68] The court further finds that if the Estate defaults in payment as ordered, its interest in the premises may be sold under supervision of this court and the purchase money be paid into court to the credit of this action to be dispersed as ordered by the court.
[69] I asked for and received bills of costs from the parties on the last day of the trial. The Estate’s Bill of Costs shows a partial indemnity claim of $21,374.83 and a substantial indemnity claim of $30,132.33. Paragon’s Costs Outline shows a claim of $23,847.32 in costs.
[70] This court directs the parties to attend before the court on January 31, 2014 at 10:30 a.m. at the 6th floor, 393 University Avenue, Toronto to make submissions as to costs, and to finalize the reference report. If a party fails to attend without having been excused from attendance, the court will proceed in their absence to fix costs and settle the final report.
MASTER C. WIEBE
Released: January 22, 2014
COURT FILE NO.: CV-11-428554
DATE: January 22, 2014
ONTARIO
SUPERIOR COURT OF JUSTICE
BETWEEN:
Paragon Building Ltd.
Plaintiff
- and -
Bertha Aiello, the Estate Trustee of the Estate of Karafil Bleta, deceased, Donerite Construction and Alfie Marinacci
Defendants
REASONS FOR JUDGMENT
Master C. Wiebe
Released: January 22, 2014