Frank's Drilling and Blasting Inc. v. Isbester

Ontario Reports

Ontario Superior Court of Justice,

Belch J.

July 10, 2015

127 O.R. (3d) 388 | 2015 ONSC 3581

Case Summary

Civil procedure — Parties — Adding parties — Plaintiff suing defendant for balance owing on construction invoice and for breach of trust provisions of Construction Lien Act — Plaintiff subsequently seeking to add defendant's wife as defendant and to make breach of trust claim against her — Limitation period for breach of trust claims starting to run when defendant received trust moneys and not when plaintiff last worked on project — Both breach of trust claim against defendant and motion to add his wife as defendant brought within limitation period — Adding wife as defendant not resulting in any prejudice which could not be remedied by costs award. [page389]

The plaintiff sued the defendant, the president of North Key Construction, for the balance owing on a construction invoice and for breach of the trust provisions of the Construction Lien Act, https://www.canlii.org/en/on/laws/stat/rso-1990-c-c30/latest/rso-1990-c-c30.html. The plaintiff subsequently brought a motion to amend the statement of claim to add the defendant's wife, M, as a defendant, submitting that the corporate profile report for North Key showed the defendant as director, president and secretary and identified no other director, but that the plaintiff had subsequently discovered that M was an officer of North Key and played an active role in the company at all material times. The plaintiff sought to make a breach of trust claim against M.

Held, the motion should be granted.

Both the trust claim against the defendant and the motion to add M as a defendant were brought within the limitation period, which began to run not when the plaintiff last worked on the project, but when the defendant received moneys that were impressed with a trust under the Construction Lien Act. Adding M as a party resulted in no prejudice which could not be addressed by an award of costs.

Statutes referred to

Construction Lien Act, https://www.canlii.org/en/on/laws/stat/rso-1990-c-c30/latest/rso-1990-c-c30.html#sec8_smooth, https://www.canlii.org/en/on/laws/stat/rso-1990-c-c30/latest/rso-1990-c-c30.html#sec13_smooth

https://www.canlii.org/en/on/laws/stat/so-2002-c-24-sch-b/latest/so-2002-c-24-sch-b.html#sec21_smooth Limitations Act, 2002, S.O. 2002, c. 24, Sch. B, s. 21

Rules and regulations referred to

https://www.canlii.org/en/on/laws/regu/rro-1990-reg-194/latest/rro-1990-reg-194.html#sec5.04subsec2_smooth Rules of Civil Procedure, R.R.O. 1990, Reg. 194, rules 5.04(2), https://www.canlii.org/en/on/laws/regu/rro-1990-reg-194/latest/rro-1990-reg-194.html#sec26.01_smooth 26.01

Authorities referred to

Archibald, Todd, Gordon Killen and James C. Morton, Ontario Superior Court Practice, 2015 ed. (Markham, Ont.: LexisNexis, 2014)

MOTION to amend a statement of claim to add a defendant.

David M. Adams, for plaintiff/moving party.

Robert G. Smart, for the defendant/respondent.

[1] BELCH J.: — This is the plaintiff's motion for an order allowing the plaintiff to amend its statement of claim to add Michelle Isbester as a defendant. For the reasons that follow, the court grants leave to the plaintiff to add Michelle Isbester and awards set-off costs to the plaintiff of $800, including fees, disbursements and HST where applicable.

[2] The plaintiff, Frank's Drilling & Blasting Ltd., an Ontario corporation caused to be issued a statement of claim on July 2, 2014. Andrew Isbester ("defendant") was named as the only defendant.

[3] Andrew Isbester was identified as the principal and president of 1652472 Ontario Inc. o/a North Key Construction ("North Key"). Details in the claim allege North Key contracted with the plaintiff to provide drilling and blasting services for six solar energy projects. The work was completed. Invoices were submitted [page390] totalling $1,931,625.95 for services and materials provided. This balance remains owing.

[4] In addition to the balance owing, the plaintiff in his claim alleges North Key breached the trust provisions of the Construction Lien Act, https://www.canlii.org/en/on/laws/stat/rso-1990-c-c30/latest/rso-1990-c-c30.html (the "Act") as North Key received funds from the general contractors but converted all, or part, of these trust funds for its own use contrary to https://www.canlii.org/en/on/laws/stat/rso-1990-c-c30/latest/rso-1990-c-c30.html#sec8_smooth the Act.

[5] Paragraph (k) of the grounds for this motion reads:

Michelle Isbester, as an officer and person with effective control of North Key, is personally liable for North Key's breach of trust pursuant to https://www.canlii.org/en/on/laws/stat/rso-1990-c-c30/latest/rso-1990-c-c30.html#sec13_smooth section 13 of the https://www.canlii.org/en/on/laws/stat/rso-1990-c-c30/latest/rso-1990-c-c30.html Act. Michelle Isbester assented to, or acquiesced in, conduct that she knew, or reasonably ought to have known, amounted to a breach of trust by North Key.

[6] Lenore Sinnett, a law clerk for the plaintiff's lawyer, deposes Michelle Isbester was, at all material times, an active officer and the founder of North Key and Michelle Isbester and Andrew Isbester are husband and wife.

[7] In an affidavit sworn June 12, 2015, plaintiff's counsel deposes:

(a) his client only received details of when North Key received the contract moneys from Black & McDonald ("B & M"), the general contractors, in late June 2013 by way of an affidavit of Phillip O'Connor, project manager, for B & M;

(b) by June 21, 2013, the date Phillip O'Connor's affidavit was sworn, B & M had paid the defendant $1,430,451.94;

(c) none of the $1,430,451.94 was paid to the plaintiff;

(d) the corporate profile report for 1652472 Ontario Inc., North Key, shows Andrew Isbester as director, president and secretary of North Key. No other director is identified, however, a detailed document list search of North Key shows Michelle Isbester had been a director, secretary and treasurer until May 29, 2013;

(e) a corporate profile report of North Key as of June 25, 2013 would make no mention of Michelle Isbester;

(f) Andrew Isbester has maintained throughout Michelle Isbester had nothing to do with the business of North Key;

(g) in early 2015, a search of news articles about North Key turned up two articles indicating Michelle Isbester had a very active role in the company during the time North Key received the moneys from the general contractor. [page391]

Plaintiff's Position

[8] The plaintiff submits:

(a) Any limitation period for a trust claim commences when the claimant first discovers the moneys to which the trust claim relate were received. With respect to Andrew Isbester, that date would be late June 2013 and as the statement of claim was issued July 2, 2014, the action was commenced well within the two-year limitation period.

(b) Had the plaintiff been aware of the active role of Michelle Isbester as a person with control or as a director in North Key as of late June 2013, the two-year limitation period for an action against her would also commence June 2013.

(c) However, the plaintiff discovered in early 2015 that Michelle Isbester played an active role in North Key from newspaper articles first published November 7, 2012 in the Globe and Mail and confirmed she was a director from a corporate point in time report as of June 23, 2013 received June 5, 2015.

(d) The plaintiff submits, at the very least, leave to amend the statement of claim should be granted with leave to allow Michelle Isbester to plead a limitation defence as there is a live issue as to when the limitation period began to run.

Position of Andrew Isbester

[9] Andrew Isbester, in his affidavit, deposes North Key last received payment from the general contractors November 14, 2012, and the plaintiff last worked for North Key on November 26, 2012. Accordingly, he requests an order dismissing the plaintiff's action to amend on the basis that any claim against Michelle Isbester would be contrary to the https://www.canlii.org/en/on/laws/stat/rso-1990-c-c30/latest/rso-1990-c-c30.html Act as the limitation period has expired.

[10] The defendant submits any limitation period regarding Michelle Isbester would start when the plaintiff last performed work and services for the defendant at the sites in the fall of 2012. Due diligence in the form of a corporate records search as of that date would have identified Michelle Isbester as a director, secretary and treasurer of North Key.

Analysis

[11] Rule 5.04(2) [of the https://www.canlii.org/en/on/laws/regu/rro-1990-reg-194/latest/rro-1990-reg-194.html Rules of Civil Procedure, R.R.O. 1990, Reg. 194] provides as follows: at any stage of a proceeding, the court may by order add, delete or substitute a party or correct [page392] the name of a party incorrectly named, on such terms as are just, unless prejudice would result that could not be compensated for by costs or an adjournment.

[12] Rule 26.01 provides: on motion, at any stage of an action, the court shall grant leave to amend a pleading on such terms as are just, unless prejudice would result that could not be compensated for by costs or an adjournment.

[13] https://www.canlii.org/en/on/laws/stat/so-2002-c-24-sch-b/latest/so-2002-c-24-sch-b.html#sec21_smooth Section 21 of the https://www.canlii.org/en/on/laws/stat/so-2002-c-24-sch-b/latest/so-2002-c-24-sch-b.html Limitations Act, 2002, S.O. 2002, c. 24, Sch. B reads as follows:

21(1) If a limitation period in respect of a claim against a person has expired, the claim shall not be pursued by adding the person as a party to any existing proceeding.

[14] The court has found helpful the footnotes and case reviews found in the publication, Archibald, Killen and Morton, Ontario Superior Court Practice, 2015 ed. (Markham, Ont.: LexisNexis, 2014), pp. 765 through 772, particularly,

(a) At p. 770, the text reads "the difference in wording between rule 26.01, which is mandatory and rule 5.04, which is discretionary, has no bearing on how a court is to address the issue of prejudice when a limitation period has expired. The mandatory nature of rule 26.01 only becomes important after the issue of prejudice has been dealt with. . . .["]

(b) At p. 771, a defendant may be added after the expiry of the limitation period where discoverability is a live issue and it is not clear that prejudice would result that could not be compensated for. Determining the application of the discoverability principle in any given case necessarily requires a determination of facts -- an exercise that is generally discouraged on interlocutory motions.

(c) At p. 768, if there is an issue of fact or credibility on the discoverability allegation, the proposed defendant should be added with leave to plead a to limitations defence. If there is no such issue, the motion should be refused; evidence is appropriate and necessary on a pleading amendment motion for a motion to add a party. The court must look at the evidentiary record to determine if there is a basis for the claim that a limitation period has not expired; . . . Taking no steps to make necessary inquiries will not be sufficient. Ignorance of the possible liability of a particular defendant will not extend the limitation period . . . .["]

(d) Finally, at p. 771, ". . . In order to add a defendant after the passage of the limitation period, the court should not [page393] require the plaintiff to put forward evidence of discoverability where the constituent facts relating to discoverability of the cause of action are properly pleaded in the proposed amendment."

[15] Paragraphs 13-21 of the original statement of claim contain allegations of negligent and fraudulent misrepresentations of Andrew Isbester addressing financial issues which the plaintiff alleges persuaded it to remain on the job sites or lulled it into a false sense of security about eventual payments for its work and services.

[16] The plaintiff's proposed amended claim sets out, in paras. 3(a), 27(a) and 29(a), the nature of its claim against Michelle Isbester without details of discoverability. Those details are set out in the affidavit of plaintiff's counsel sworn June 12, 2015.

[17] The court has examined the proposed amended statement of claim to determine whether the plaintiff put forward evidence of discoverability. The plaintiff pleads, in para. 3(a), the defendant, Michelle Isbester, at all material times was an active officer and the cofounder of North Key. Michelle Isbester and Andrew Isbester are husband and wife. At para. 27(a), the plaintiff pleads Michelle Isbester, as an officer in person with effective control of North Key, is personally liable for North Key's breach of trust pursuant to s. 13 of the Construction Lien Act. Michelle Isbester ascended to, or acquiesced in, conduct that she knew, or reasonably ought to have known, amounted to a breach of trust by North Key. At para. 29(a), the claim against Michelle Isbester is in the amount of $1,931,625.95 for breach of trust provisions.

Conclusion

[18] Section 13 of the Construction Lien Act describes liability for breach of trust.

13(1) In addition to the persons who are otherwise liable in an action for breach of trust under this Part,

(a) every director or officer of a corporation; and

(b) any person, including an employee or agent of the corporation, who has effective control of a corporation or its relevant activities,

who assents to, or acquiesces in, conduct that he or she knows or reasonably ought to know amounts to breach of trust by the corporation is liable for the breach of trust.

[19] I reject the defendant's submissions the two-year period commences in 2012, when the plaintiff last worked at the sites. [page394]

[20] A trust is imposed over moneys received; therefore, the date moneys are received is critical to a determination of when the limitation period commences.

[21] Regarding Andrew Isbester, the court is satisfied the plaintiff discovered, in late June 2013, B & M had paid North Key $1,430,451.94. The limitation period starts late June 2013, and I find the plaintiff, having issued its claim July 2, 2014, is within the two-year limitation period.

[22] Regarding Michelle Isbester, even if I ignore the plaintiff's contention it only learned of her active role in the company in early 2015, then confirmed she was a director in June 2015 from a corporate records search, and accept the limitation period starts in late June 2013, the notice of motion to add her as a party was issued April 9, 2015 and is within the two-year limitation period.

[23] This is not a motion for summary judgment, but to add Michelle Isbester as a party. Rule 5.04(2) is discretionary and I am satisfied results in no prejudice which could not be eventually addressed in costs. When it is combined with rule 26.01, which is mandatory, the court grants leave to the plaintiff to amend its pleadings by adding Michelle Isbester as a party as, again, I am satisfied it results in no prejudice which cannot be addressed by an award of costs.

[24] The court finds it is unnecessary to address whether the plaintiff was lulled into a false sense of security causing it to remain on the job sites.

Costs

[25] The plaintiff's failure to originally file with this motion an affidavit outlining discoverability resulted in the need for the parties to return to court after their first appearance on May 28. Costs are awarded to the defendant for attendance at and preparation for that first court appearance and fixed at $1,000 payable by the plaintiff.

[26] The plaintiff was successful in having Michelle Isbester added as a party and is entitled to its costs. Counsel for both parties agreed that the successful party was entitled to costs for July 3 in the amount of $1,800. Setting off the cost amounts, the defendant is to pay to the plaintiff costs of $800, including disbursements and HST where applicable.

Motion granted.

[page395]

End of Document