DCM Erectors Inc. v. City of Ottawa, 2015 ONSC 5171

COURT FILE NO.: CV-12-459244

DATE: 20150821

ONTARIO

SUPERIOR COURT OF JUSTICE

BETWEEN:

DCM ERECTORS INC.

Plaintiff

– and –

CITY OF OTTAWA and HORSESHOE HILL CONSTRUCTION INC.

Defendants

Douglas Loucks, for the Plaintiff

Matthieu Charron, for the City of Ottawa

Howard Wise and Kellie Hodges, for the Horseshoe Hill Construction Inc.

HEARD: August 11, 2015

REASONS FOR DECISION

DIAMOND J.:

Overview

[1] The plaintiff DCM Erectors Inc. (“DCM”) was retained to supply structural steel erection services with respect to the construction of a bridge being built on land owned by the defendant City of Ottawa (“Ottawa”).

[2] Under the terms of its contract, DCM was to be paid in accordance with a schedule of values as the project ensued. Due to the insolvency of Ottawa’s original general contractor, DCM was unable to complete the work contemplated in its contract.

[3] A dispute subsequently arose between DCM, Ottawa and Ottawa’s second general contractor, the defendant Horseshoe Hill Construction Inc. (“Horseshoe”). The dispute focused upon the continued use by Ottawa and Horseshoe of certain equipment which DCM claimed was still its property.

[4] Ottawa and Horseshoe took the position that the subject equipment was “bought and paid for” with the funds remitted to DCM prior to the insolvency of Ottawa’s original general contractor.

[5] DCM now brings a motion for summary judgment on its claim for damages for the tort of conversion.

[6] While the building of metaphorical bridges is always preferable to the pursuit of legal proceedings, for the reasons which follow, I have granted DCM’s motion for summary judgment.

Initial Stages

[7] For the purpose of constructing the bridge, in late May 2010 Ottawa retained the services of Concreate USL Ltd. (“Concreate”) as its original general contractor. Concreate was in charge of overseeing the entire construction project.

[8] By written agreement dated February 16, 2011, Concreate subcontracted with DCM to supply structural steel erection services for the construction of the bridge (the “Subcontract”). The Subcontract is a standard, pre-printed form contract. Under its terms, DCM is not obligated to supply any specific equipment, nor are any payments thereunder allocated to DCM for any specific equipment which it uses or brings to the job site.

[9] To fulfill its obligations under the Subcontract, DCM arranged for certain customized pieces of equipment to be created. At issue on this motion are two specific types of equipment. First, DCM arranged for a third party to supply and manufacture Arch Cord Assembly Jigs (“Jigs”), which were custom designed to allow DCM to hold pieces of the bridge arches in place while they were being welded together.

[10] Second, DCM supplied a sea container which had been modified and fitted with electrical panels connected to the local power grid. The parties referred to this modified sea container as a “power container” as it was used to power electrical welding machines on site.

[11] The expenses associated with the Jigs were included in DCM`s contract price to Concreate. The steel used for the Jigs was brought on site so that the Jigs could be assembled there. The cost of assembling those Jigs was invoiced, in part, during the term of DCM’s Subcontract.

[12] The bridge was to consist of three separate arches, which the parties have described as the north arch, center arch and south arch. The Jig used to construct the north and south arches was delivered on site and erected in October 2011.

[13] The power contained had been brought on site approximately one month earlier and was already operational by the time the north/south Jigs were assembled.

[14] The center Jig was delivered to the site and erected in or around February 2012.

Concreate is Insolvent

[15] On or about March 15, 2012 Concreate became insolvent and went into receivership. All work on the bridge ceased. The north/south Jig, the center Jig and the power contained were all on site. At that point in time, more than 50% of the welding work for the north arch had been completed.

[16] Of note, Concreate had provided a performance bond and labour and material payment bond. In late May 2010, the bonding company Guarantee Company of North America (“GCNA”) issued bonds totaling $23,000,000.00 in relation to the project.

[17] When Concreate became insolvent, DCM made a claim against GCNA under the bonds and subsequently commenced legal proceedings against GCNA in respect of the work it had performed under the Subcontract. In DCM’s original Statement of Claim filed against GCNA, DCM included the following paragraph:

“In order to perform the Subcontract work DCM had certain custom Jigs designed and manufactured for it. These Jigs were for use in pre-assembling and welding segments of the bridge arches. DCM also installed an electrical distribution system on the project site to supply power for its welding work on the bridge arches. The cost of the Jigs and the electrical distribution system would have been recovered if DCM had been permitted to complete its work under the Subcontract. In the circumstances DCM has incurred unrecoverable costs related to the Jigs and the electrical distribution system for which it is entitled to compensation under the terms of the Subcontract.”

[18] For reasons not fully explained on this motion, by amendment dated April 18, 2013 DCM subsequently withdrew the above paragraph from its claim against GCNA.

[19] In its claim against GCNA, DCM seeks payment of the sum of $2,771,566.00 comprised of, inter alia, the hold-back, costs incurred due to Concreate`s insolvency and "amounts for changes to the Subcontract work".

[20] Various internal financial records were produced by DCM on this motion. It appears that as of the date of Concreate’s insolvency, DCM had invoiced approximately $924,000.00, and had been paid that sum (or very close to it).

[21] In addition, commencing in or around November 2011 Concreate had agreed to issue payments to DCM on a bi-weekly basis in the approximate amount of $164,000.00 each. These additional payments were made to afford DCM the operating funds required to advance its work under the Subcontract, and continued until Concreate`s insolvency resulted in an additional (approximate) $620,000.00 paid to DCM.

[22] Accordingly, as of the date of Concreate`s insolvency DCM had received payment of approximately $1,575,000.00 through Concreate. There is no evidence that any of these payments were allocated under the Subcontract for the equipment including the Jigs and power container in particular. However, from these payments, DCM confirmed that it did pay its suppliers for the cost of designing, supplying and manufacturing the Jigs.

A New General Contractor

[23] After Concreate`s insolvency, Ottawa needed to retain the services of a new general contractor with a view to completing the project. In or around June 2012, Ottawa entered into an agreement with Horseshoe to act as general contractor. Horseshoe hired certain managers previously employed by Concreate to oversee the completion of the work. Horseshoe was retained on a cost plus basis, i.e. Horseshoe would be reimbursed for all of its own costs plus an additional 12% of the cost of the remaining work.

[24] Prior to being formally retained by Ottawa, Horseshoe had approached DCM with a view to negotiating a new contract for the purpose of resuming the balance of the structural steel erection. In May 2012, Horseshoe delivered a proposal to DCM for the completion of the work. Horseshoe’s proposal was a form of cost plus contract which included a site overhead fee and payments for equipment to be rented from DCM. In response, DCM prepared a counter proposal which included the following additional clause:

“Upon execution of this agreement HHC will pay DCM $200,000 to purchase Arch Cord Assembly Jigs and 20' Sea Container including electrical power distribution system.”

[25] DCM’s counter proposal resulted in a further offer from Horseshoe which deleted the above proposed clause and inserted the following:

“Equipment fee for Arch Cord Assembly Jigs, Sea Container including electrical power distribution system, and other DCM owned equipment on site as of May 11, 2012 is to be invoiced at $500/working day.”

[26] DCM submits that the above clause confirms that Horseshoe knew that the Jigs and the Sea Container were owned by DCM. In any event, the parties were unable to reach an agreement and Horseshoe ultimately retained another steel erector company to complete the outstanding work. Horseshoe advised DCM of this decision by e-mail dated June 11, 2012. Within that e-mail, Horseshoe stated as follows:

“It is our understanding that DCM has some owned equipment on site that needs to be demobilized, we can co-ordinate this as soon as we accept the site. We do not consider the assembly Jigs as DCM owned equipment as they were paid for as part of the works previously completed.

Please provide a list of owned/rented equipment and we will co-ordinate release promptly.

If there is an interest in selling some owned equipment on site to save demob costs for DCM please let us know as we may consider purchase. Of note is the power container which we may consider useful for the project completion. We may also consider some rental transfers should this save on pickups/float charges on your end.”

[27] As stated above, DCM’s subcontract with Concreate, on its face, does not seem to include the supply of any equipment to the project. There is no dispute that both the Jigs and power container were equipment that DCM brought and assembled on site to facilitate its structural steel erection work.

[28] Shortly before delivery of the June 11, 2012 correspondence, Horseshoe wrote to Ottawa to inquire about the arrangements to be made to secure the site and all its contents. In that letter, Horseshoe advised Ottawa that DCM had been granted access to the site for the purpose of demobilizing equipment and materials, and asked Ottawa if it was aware of DCM’s purpose on site, and whether Ottawa knew what equipment and materials are considered “project specific” as opposed to “contractors’ tools and equipment (i.e. Arch Assembly Jigs, etc.)”.

[29] DCM takes the position that by sending this letter, Horseshoe was “meddling” into DCM’s affairs and indirectly suggesting to Ottawa that DCM was not the owner of the Jigs (and presumably the power container). For its part, Horseshoe submits that as the newly appointed general contractor, it was merely seeking information and instructions from Ottawa surrounding the security of the site.

[30] In response to the June 11, 2012 letter, DCM confirmed with Horseshoe that it was no longer required on site and would therefore begin demobilization from the site on June 18, 2012. DCM provided Horseshoe with a summary of the equipment which DCM claimed to own, and offered Horseshoe the chance to purchase equipment for use on the project. That summary included both the Jigs and the power container.

Second Set of Negotiations

[31] Further negotiations then ensued between DCM and Horseshoe with respect to the potential purchase of equipment. Unlike the previous negotiations to retain DCM’s services to complete the outstanding work, these negotiations were focused upon the potential purchase of the Jigs and power container.

[32] DCM offered to sell the equipment (including the Jigs and power container) to Horseshoe for the sum of $187,405.98. DCM considered this sum to be approximately half of the equipment’s market value, and copied Ottawa with the offer.

[33] In response, Horseshoe made a counter-offer to purchase the equipment for $120,000.00 plus HST. I note that Horseshoe’s counter-offer listed the Jigs with “stamped design drawings”. DCM did not accept this counter-offer, but made its own counter-offer to sell the equipment for $140,000.00 plus HST.

[34] Neither Horseshoe nor Ottawa responded to DCM’s counter-offer. DCM was provided access to the site to remove its tools and equipment save for the disputed items (Jigs, power container, etc.). On June 25, 2012, Horseshoe wrote to DCM advising “with regards to the Jigs, power container, shelter unit please be advised that we are waiting for the erection and that these items are not to be addressed until further notice”. DCM states that it was confused by this statement as Horseshoe had offered to purchase the Jigs and power container merely days earlier.

[35] Within hours of DCM’s June 25, 2012 letter to Horseshoe, Ottawa responded to DCM stating, inter alia, as follows:

“Please be advised that you do not have any authorization from the City of Ottawa to be on the bridge construction site to remove the equipment. The site is controlled by the completion contractor, Horseshoe Hill Construction Inc., and any access to the site must be approved by staff of HHCI.

Your e-mail mentions Jigs and the power distribution hut or ‘power container and shelter unit’ and the City of Ottawa takes the position that these items were manufactured for the project and specifically paid for by the City under the contracts. These items are the property of the City and cannot be removed from the site. Any attempt to remove them is specifically unauthorized. The removal of any of these items would cause damage to the construction that has been paid for by the City and would result in your company being liable for that damage.”

[36] Ottawa reconfirmed its stated position in two subsequent e-mails over the next week. Horseshoe claims to have followed Ottawa’s instructions and directions, and submits that it believed the subject equipment was owned by Ottawa and could be used for the remainder of the project. Horseshoe denied DCM further access to the site to remove the equipment.

[37] Interestingly, Horseshoe then contacted DCM’s designer of the Jigs to “determine whether payment for the design drawings had already been made”. DCM produced evidence from its supplier that Horseshoe was in fact looking to purchase the design for the Jigs. The supplier advised Horseshoe that the designs were not for sale because they were designed specifically for DCM.

[38] Horseshoe allowed the new structural steel erector to complete the outstanding work by using the Jigs and power container. There is no dispute that the Jigs and power container were used to complete the project.

[39] When the bridge was complete, DCM was invited to take back the Jigs. DCM did not remove those Jigs.

Summary Judgment

[40] Rule 20.04(2)(a) of the Rules of Civil Procedure provides that the Court shall grant summary judgment if the Court is satisfied that “there is no genuine issue requiring a trial with respect to a claim or defence”. As a result of the amendments to Rule 20 introduced in 2010, the powers of the Court to grant summary judgment have been enhanced to include, inter alia, weighing the evidence, evaluating the credibility of a deponent and drawing any reasonable inference from the evidence.

[41] In Hryniak v. Mauldin 2014 SCC 7, the Supreme Court of Canada established a road map in terms of how a motions judge should approach a motion for summary judgment. The Court must first determine whether there is a genuine issue requiring a trial based only upon the evidence filed with the Court and without using the new fact finding powers set out in the 2010 amendments. Summary judgment will thus be available if there is sufficient evidence to justly and fairly adjudicate the dispute, with the motion being an affordable, timely and proportionate procedure.

[42] If the Court finds the presence of a genuine issue requiring a trial, the motions judge must then determine if the need for a trial can be avoided by using the new, enhanced powers under Rules 20.04(2.1) and (2.2).

[43] The Court of Appeal for Ontario subsequently held in Baywood Homes Partnership v. Haditaghi 2014 ONCA 450 that summary judgment is appropriate where it will lead to a fair and just result and will serve the goals of timeliness, affordability and proportionality in light of the litigation as a whole (my emphasis). The Court is obliged to assess the advisability of a summary judgment process in the context of the litigation as a whole. As stated by the Supreme Court of Canada in Hryniak:

“The “interests of justice” inquiry goes further, and also considers the consequences of the motion in the context of the litigation as a whole. For example, if some of the claims against some of the parties will proceed to trial in any event, it may not be in the interest of justice to use the new fact-finding powers to grant summary judgment against the single defendant. Such partial summary judgment may run the risk of duplicative proceedings or inconsistent findings of fact and therefore the use of the powers may not be in the interest of justice. On the other hand, the resolution of an important claim against a key party could significantly advance access to justice, and be the most proportionate, timely and cost effective approach.”

[44] It is important to remember that the applicable evidentiary principles developed under the previous incarnation of Rule 20.04 continue to apply. The motions judge must still take a “hard look” at the evidence to determine whether it raises a genuine issue requiring a trial, and as a result each party must still put its “best foot forward” and submit cogent and compelling evidence to support or oppose the relief sought. As I stated in Forestall v. Carroll 2015 ONSC 2732, a moving party has both a legal and evidentiary onus to satisfy the Court that there is no genuine issue requiring a trial. It is the moving party’s obligation to present a record that can enable the Court to avail itself of the enhanced powers under Rule 20.04 if the record warrants the exercise of such discretion.

[45] I find it appropriate to dispose of this action by way of summary judgment. I have reviewed the key documents produced by the parties. Based upon the record before me, I do not find the presence of a genuine issue requiring a trial, and I am able to justly and fairly adjudicate this matter for the reasons which follow.

The Tort of Conversion

[46] A party is liable for tort of conversion when he/she wrongfully interferes with the goods of another in a manner which is inconsistent with the owner’s right of possession to the goods. Conversion is a strict liability tort. As held by the Court of Appeal for Ontario in Westboro Flooring and Décor Inc. v. Bank of Nova Scotia (2004), 2004 CanLII 59980 (ON CA), 71 O.R. (3d) 723 (C.A.), proof of a wrongful act is not essential for a party to establish conversion. The term “wrongful” does not mean “blameworthy”; the wrongful aspect of the tort of conversion is based upon the offending party acting in a manner that is inconsistent with the owner’s right of possession.

[47] Ottawa and Horseshoe submit that an offending party’s refusal to return goods to its rightful owner must be absolute and unqualified. In other words, if the refusal to return the Jigs and the power container was qualified and reasonable, then Ottawa and Horseshoe are not liable for the tort of conversion. In support of this position, Ottawa and Horseshoe rely upon Clayton v. Le Roy, [1911] 2 K.B. 1031, and in particular submit that it is reasonable for a party to refuse to return goods when there is doubt as to the claimant’s rights to the goods in question.

[48] An assessment of the reasonableness of the refusal on the part of Ottawa and Horseshoe to allow DCM access to disassemble and pick up the Jigs and power container is a question of fact. In my view, the record before me supports a finding that the positions taken by Ottawa and Horseshoe were not reasonable.

[49] Neither Ottawa nor Horseshoe had any direct contractual relationship with DCM. The only document which sets out DCM’s rights and obligations is its Subcontract with Concreate. There appears to be no dispute that both Ottawa and Horseshoe had access to and reviewed DCM’s Subcontract at the relevant times.

[50] As stated previously, neither the Jigs nor the power container are even mentioned in the terms of DCM’s subcontract. Essentially, DCM was retained to erect the structural steel for the bridge, and was at liberty to do so through methods of its choosing. The hard costs of supplying those structural steel erection services were determined by DCM in its own internal pricing calculations.

[51] DCM could use any tool(s) in its tool box to perform the necessary services. Rather than renting or supplying crane equipment, DCM chose to retain suppliers to design and manufacture the Jigs. In my view, those Jigs are no more tools than welding equipment.

[52] Had DCM supplied a crane on site for the purpose of erecting the structural steel, surely Ottawa/Horseshoe could not claim title to that crane even if DCM’s subcontract had been paid in full. Title to the Jigs and the power container never passed to Ottawa, Horseshoe or Concreate.

[53] While it is true that the Jigs would likely have little value to DCM if completed its Subcontract (most likely scrap metal), that is not determinative of the right to possess that equipment. Unless DCM’s Subcontract specifically provided for the Jigs and power container to be supplied and sold, the Jigs and power container remain the property of DCM.

[54] Ottawa and Horseshoe submit that DCM did not provide any documentation or evidence demonstrating that it was “the true owner of the equipment”. This argument is somewhat specious. DCM’s Subcontract with Concreate is a key document upon which Ottawa/Horseshoe relies in support of their position that title to the equipment no longer rested with DCM as the equipment was purportedly “paid for by Ottawa”. This is not what the Subcontract provides, and DCM need not produce any further documentation or evidence other than the Subcontract itself.

[55] The Jigs and power container were purchased by DCM from its suppliers, and not conveyed to Concreate, Horseshoe or Ottawa. DCM was entitled to immediate possession of the Jigs and power container, and there was no reasonable basis for Ottawa or Horseshoe to deny DCM access to the site for that purpose.

[56] Finally, Horseshoe advances a separate argument that in the event a conversion did take place, it was carried out by Ottawa and not Horseshoe. I do not agree with this position. Horseshoe was retained to ensure that the bridge construction work was completed. Horseshoe was hired on a cost-plus basis. Horseshoe claims it thus had no motivation to provoke Ottawa into claiming ownership over the equipment. The bottom line is that unless the bridge was built, Horseshoe would not be paid. Without the Jigs and the power container, the new structural steel erector would have had to supply its own Jigs and power container, or come up with an alternative method of completing the project which would have certainly been more expensive.

[57] As general contractor, Horseshoe was Ottawa’s authorized representative. It took the position on several occasions that the Jigs and the power container were “for sale” by DCM. Horseshoe submits that its offers to purchase the equipment were only made with a view to “speeding up the process” to enable a faster completion of the project. Of note, in a much later internal e-mail (i.e. after this legal proceeding was commenced), Ottawa advised Horseshoe that based upon Horseshoe’s negotiations to purchase the Jigs, it appeared that DCM was the proper owner of the equipment.

[58] I find that through its conduct summarized herein Horseshoe did act in concert with Ottawa, and it was in Horseshoe’s interest to preclude DCM from access to the site in order that DCM disassemble and remove the equipment. DCM never contracted to sell, and neither Ottawa nor Horseshoe contracted to buy, any goods at all, other than the bridge as a finished product, which upon completion would have been a fixture.

[59] I thus find both Ottawa and Horseshoe liable for the tort of conversion.

Damages

[60] The prima facie measure of damages for the tort of conversion is the market value of the converted goods on the date of the unlawful act. However, as conversion is a strict liability tort, the Court will attempt to assess the plaintiff’s loss in terms of actual damages suffered. DCM claims that its costs of manufacturing, supplying, assembling and delivering the Jigs and power container total the sum of $317,407.28. DCM claims damages for conversion in this amount.

[61] The evidence is clear that the Jigs were custom designed and fabricated to hold the bridge arch sections in place while they were being welded together. Had DCM been permitted to complete the work under its subcontract, the Jigs would have been disassembled and brought back to DCM’s shipyard for use on future projects. However, those Jigs could only have been used if DCM was retained on a project to build a bridge with similar, if not exact, designations as the Ottawa bridge. Therefore, I find that the Jigs had little residual value other than for scrap purposes.

[62] It is telling, but not determinative, that DCM did not take up Horseshoe on its offer to attend to disassemble and remove its Jigs once the project was completed. That said, the equipment obviously held a corresponding value to Ottawa and Horseshoe, as the new structural steel erector did not have to manufacture and supply new equipment to complete the construction of the bridge.

[63] DCM was, at one time, willing to accept the sum of $140,000.00 plus HST to sell the equipment. However, I believe that the “yardstick” to be used in the circumstances is the sum that Horseshoe believed represented fair market value for the equipment, namely $120,000.00 plus HST being the amount of Horseshoe’s counter-offer.

[64] Ottawa/Horseshoe would have incurred a significant necessary expense had the new structural steel erector not been able to use the existing Jigs and power container. They assessed the value of losing the ability to use the equipment at $120,000.00 plus HST. While it can be argued that DCM’s true loss was the inability to rent the equipment to Ottawa/Horseshoe for the balance of the time it took the new structural steel erector to complete the work, I assess DCM’s damages for conversion in the amount of $135,600.00 (being $120,000.00 plus HST).

Costs

[65] At the conclusion of the hearing, I asked counsel for all parties to deliver written costs submissions. I did not review any of those submissions until these Reasons for Decision were completed.

[66] DCM requests costs of the motion and the action to be awarded on a substantial indemnity basis. In support of its claim for costs of the action, DCM relies upon its offer to settle dated July 16, 2013 in the all-inclusive amount of $244,000.00.

[67] In its responding submissions, Horseshoe correctly points out that the issue of the costs of the action should have only been canvassed after the release of my decision. I agree. There may be other offers to settle made by the parties during the currency of this proceeding which could impact the disposition of the costs of the action.

[68] If the parties cannot agree upon the costs of this action, the defendants shall serve and file their written costs submissions totaling no more than four pages (including a Costs Outline) within ten business days of the release of this decision. DCM may thereafter serve and file brief reply costs submissions, totaling no more than two pages, within ten business days of the receipt of the defendants’ costs submissions.

[69] Dealing with the costs of this motion, DCM’s bill of costs for the entire action, inclusive of HST and disbursements, totals $71,962.61. Approximately $30,000.00 of that sum relates to its motion for summary judgment.

[70] Even if I were to award DCM its costs of the action and motion in the amount of $71,962.61, the total result achieved on this motion would not equal or exceed the terms of DCM’s offer to settle. I see no other basis upon which DCM ought to be granted its costs of the motion and action on a substantial indemnity basis.

[71] In reviewing DCM’s bill of costs, and reviewing the bills of costs prepared by Ottawa and Horseshoe relating to DCM’s motion with a view to assessing the reasonable expectations of Ottawa and Horseshoe, I award DCM its costs of the motion on a partial indemnity basis fixed in the all-inclusive amount of $20,000.00 and payable jointly and severally by Ottawa and Horseshoe.

Diamond J.

Released: August 21, 2015

CITATION: DCM Erectors Inc. v. City of Ottawa, 2015 ONSC 5171

COURT FILE NO.: CV-12-459244

DATE: 20150821

ONTARIO

SUPERIOR COURT OF JUSTICE

BETWEEN:

DCM ERECTORS INC.

Plaintiff

– and –

CITY OF OTTAWA AND HORSESHOE HILL CONSTRUCTION INC.

Defendants

REASONS FOR DECISION

Diamond J.

Released: August 21, 2015