ONTARIO
SUPERIOR COURT OF JUSTICE
COURT FILE NO.: 14-45379
DATE: 2014-11-25
B E T W E E N:
RAMCO INSTALLATION LTD.
Ron Allan, for the Plaintiff
Plaintiff
- and -
MOMETAL STRUCTURES INC., ARRIGO CICCARELLI, and JOSEPH CICCARELLI
Marco Drudi, for the Defendants
Defendants
HEARD: October 28, 2014
JUDGMENT
INTRODUCTION
[1] The plaintiff Ramco Installation Ltd. (Ramco) is the supplier and erector of structural steel, steel deck and shear studs. The defendant Mometal Structure Inc. (Mometal) is a structural steel fabricator owned and operated by its principals, the two defendants Arrigo Ciccarelli and Joseph Ciccarelli.
[2] The defendant corporation had acted as a subcontractor for either Ellis Don or Walsh Bondfield Construction with respect to three projects; the Richard Ivey School of Business, the Women’s Hospital and the Krembil Discovery Centre.
[3] The plaintiff had commenced this action against the defendants for breach of trust, (essentially breach of trust created by Section 8 of The Construction Lien Act, R.S.O.) and breach of contract relative to the three projects referred to above. In the course of this litigation Justice R. Reid endorsed the record June 17th, 2014 that the defendants, amongst other things, are to provide “an accounting of trust funds as requested in the plaintiff’s letter dated March 12th, 2014”. Counsel for the plaintiff had written on that date stating in part “in providing Mometal’s accounting please ensure that we are provided source documentation including copies of Mometal’s separate bank accounts for each of the said improvements and copies of all cancelled cheques”.
[4] As it was, Mometal did not have a separate bank account for each individual project and in its compendious production it did not actually provide cancelled cheques.
[5] Although the worth of these projects was in the hundreds of thousands, what was in issue at the commencement of these proceedings was $131,393.31. That sum has been subsequently reduced by payment from Mometal in the amount of $54,107.06. So what is at stake is $77,286.25. Mometal acknowledges having received all of the funds from the principal contractors sufficient to satisfy the plaintiff’s claim, and is prepared to acknowledge that the two personal defendants are jointly and severally liable with the corporate defendant Mometal (which is the effect of a finding of a breach of trust under the statute) for what is found to be owed. The defendants plead that there were deficiencies in the work of the plaintiff, work contracted for was not performed, and in some instances because the contracts were varied to delete certain specifications, there should be credits due to the defendants, as some work was not necessary.
ISSUES
[6] The plaintiff has moved (1) to strike the pleadings of the defendants as the endorsement of Reid J. was not complied with, especially with the provision of cancelled cheques, and (2) that there should be a partial summary judgment in that there be a declaration of a breach of trust by the defendants.
[7] So the questions to be decided are (1) does the “breach” of the order of Reid J. merit striking the pleadings and (2) should there be a declaration of breach of trust at this juncture?
ADDITIONAL BACKGROUND INFORMATION
[8] Mometal provided the following:
(1) an analysis of what the original contract was worth, when the last payment was made
and what was the remainder,
(2) the subcontract agreement,
(3) the quotation for each improvement,
(4) accounting records showing what was received and paid, various groupings; the job
costs which were broken down to the various descriptions: for example, salaries
pertaining to the installation, material delivered to Quebec, “sous traitant”
(subcontractors such as Ramco), materiaux (material some of which was delivered to
Quebec),
(5) payments to suppliers and subtrades (en Francais) alphabetically set out for each
improvement. This material would reveal what was paid to a particular supplier
referring to a transaction number, invoice number, the invoice amount, the date of the
cheque and payment. Finally there were totals and outstanding balances.
[9] The material provided was voluminous. Counsel for the plaintiff was not satisfied. He e-mailed August 22nd, 2014 stating that in order to establish a breach of trust he needed evidence of conversion or appropriation of trust funds (which is true). He was certain that the cancelled cheques would furnish that proof.
[10] This court questions that necessity as the accounting provided clearly showed the amount held back or not given to the plaintiff. Counsel for the defendants questioned the utility of the plaintiff’s demands since given the admission of liability of all the defendants (if any) and the costs of producing the actual cheques was prohibitive or disproportionate to what was actually at stake.
[11] The affidavit of Joseph Ciccarelli dated September 26th, 2014 clearly acknowledges all the holdback funds had been received and there are sufficient funds (an assertion which flies in the face of a suggestion of encroachment).
[12] Mr. Ciccarelli explained in paragraph 10 that all funds received by the defendant corporation go into one account, and “we have a software program which segregates the funds from project to project; however, we have conceded that there has been sufficient funds received in the project to pay the plaintiff…the only issue is what the plaintiff is entitled to”. Mr. Ciccarelli then went into considerable detail as to why he believed that the plaintiff had received everything it was entitled to. The problem in his words with producing all the bank statements is that the deposits are not identified in terms of projects, in other words Ellis Don, for example, has many projects on the go with the defendant. What is paid out to suppliers, subtrades, employees and other expenses cannot be broken down or allocated to a particular project. Frankly, Mr. Ciccarelli believed any further accounting would be irrelevant.
STRIKE OUT OF PLEADINGS
[13] As Justice Horkins noted in Signal Chemicals Ltd. v. Singh (2014) Carswell Ont. 12545, 2014 ONSC 5228, striking out pleadings is an extreme remedy. The Divisional Court panel in Starland Contracting Inc. v. 1581518 Ontario Ltd. (2009) 2009 30449 (ON SCDC), 252 O.A.C. 19 stated the same.
[14] The jurist hearing such a request engages in a balancing act. On one side there is the right of the litigant to have the case determined on its merits, and on the other side there should be an orderly “procedural progress” (ref. para. 18).
[15] There is this belief that noncompliance with an order per se does not necessarily lead to a striking out of pleadings. Has noncompliance reached a point that is can no longer be excused? Has it reached a point that a mockery is made of the rules?
[16] Obviously every case is fact specific and dependent upon the issues at stake. In this matter the spirit of Justice Reid’s endorsement was complied with save and except for the provisions of cancelled cheques. The defendants have provided a feasible explanation for that delict. And to some extent that delict is academic as the defendants admit they have received the money sufficient to cover the claim. Furthermore, they have taken the additional step of waving aside the corporate veil to admit joint liability.
[17] To strike the pleadings of the defendants is to foreclose the possibility of the defendants demonstrating that the plaintiffs are not entitled to the full contract price. The pleadings being struck would effectively give the plaintiffs the full amount of their claim without having to answer to the complaints of the defendants. If the complaints are without merit, there are cost consequences for the defendants which given the amount remaining, i.e. $77,000, could effectively double the amount allegedly outstanding. A very expensive gamble if the complaints are unfounded.
[18] On balance, striking the pleadings is too draconian, especially so when the spectre of costs would by economic necessity keep everyone prudent or wise.
A DECLARATION OF A BREACH OF TRUST
[19] As previously mentioned, the effect of such a declaration is that the personal defendants are jointly liable with the corporation, an effect which is conceded before such a declaration.
[20] As the statute states in Section 8, there is a breach of trust if funds inbued with a trust to a complainant are encroached upon. Justice Coo in Datasphere Sales Ltd. v. Universal Light and Power Corp. 1991 Carswell Ont. 804, 48 C.L.R. 25 stated in paragraph 11, “in all of these situations there may be or more be a contest as to the legitimacy and propriety of the payment made, but that does not bar payment by a trustee prior to the ultimate determination of any such issue. Allegations of breach of trust and responsibility remain open.” Obviously there is no right to put the funds to general use. Justice Coo observed, the risk is that there would be insufficient funds to satisfy the claim, (ref. para. 14).
[21] Justice Coo in order to address the above risk, ordered that the funds in question be either paid into an agreed upon investment vehicle or into court.
[22] Jurists such as Justice LaForme (as he then was) in Arborform Countertops Inc. v. Stellato, 1996 7999 (ON SC), 1996 Carswell Ont. 1287, 29 O.R. (3d) 129, focus on the accuracy of the particular accounting system. If the records are incomplete it would be difficult to resist a declaration of a breach of trust. A general operating account raises a concern. However, in the matter at hand, the funds sufficient to cover the claim are conceded. The issue is not that the funds have been spent. It is that the balance is not owed for the reasons pleaded. Surely as a condition precedent to the declaration of the breach of trust is proof that there was an encroachment of funds actually owed. If the funds are not owed or due for an established reason, the use of the funds is not necessarily a breach (ref. Cronk J.A. in Colautti Construction Ltd. v. Ashcroft Development Inc. 2011 ONCA 359 para.28). Practically speaking, the evidentiary burden shifts to the defendants to establish why the plaintiff should not receive the full contract price.
[23] The declaration of a breach at this juncture is premature. There has to be a determination of entitlement to the outstanding $77,000.
[24] This prematurity impacts upon whether a partial summary judgment in the form of a declaration of a breach of trust should be granted. That declaration cannot be made without a trial of the issue as to whether or not the plaintiff did as was expected of it, qualitatively and necessarily. The latter adverb referring to the credits that the defendant has pleaded.
[25] This necessity of a trial of that issue is the remaining genuine issue for trial. Therefore, summary judgment is not available at this juncture. This court orders a trial of an issue as per paragraph [25] above.
[26] That being said, given the concession that there were sufficient funds available, the outstanding balance of $77,000 should as per Justice Coo’s example be paid by the defendants into court or into an agreed upon investment vehicle within 30 days of this judgment. In that way, any suggestion of breach of trust becomes moot as the funds are secured.
CONCLUSION
[27] For all of the above reasons, the application to (1) strike out the pleadings of the defendants, and (2) the request for a partial summary judgment consisting of a declaration of breach of trust is dismissed with the proviso that the outstanding balance of $77,000 is to be paid into court or is otherwise agreed upon. A trial of the issue of whether or not the claim of the plaintiff should be reduced for the reasons set out by the defendants is directed.
[28] If counsel cannot agree as to the entitlement and quantum of costs resulting from this application, submissions of no greater than five pages are to be exchanged along with a bill of costs and to be filed with the court within 30 days of this judgment.
Whitten J.
Released: November 25th, 2014
COURT FILE NO.: 14-45379
DATE: 2014-11-25
ONTARIO
SUPERIOR COURT OF JUSTICE
B E T W E E N:
RAMCO INSTALLATION LTD.
Plaintiff
- and –
MOMETAL STRUCTURES INC., ARRIGO CICCARELLI, and JOSEPH CICCARELLI
Defendants
REASONS FOR JUDGMENT
ACRW:mw
Released: November 25th, 2014