COURT FILE NO.: CV-03-252906CM
DATE: 20151103
ONTARIO
SUPERIOR COURT OF JUSTICE
BETWEEN:
698147 Ontario Limited c.o.b. Imperial Trim Supply & Installation
Plaintiff
– and –
Cornell Enescu, Arcadia Queensway Development Inc., Ruth Bassel, John Blackburn and Claudio Cinapri
Defendants
Mauro Marchioni, for the Plaintiff
Claudio Cinapri, for himself
HEARD: November 2-3, 2015
S. F. Dunphy J.
[1] I am asked in this case to determine whether the defendant Mr. Cinapri can be held personally responsible for the debts of the defendant Arcadia Queensway Development Inc. owing to the plaintiff.
Background Facts and Overview
[2] In 2002-2003 the defendants Bassel, Blackburn and Cinapri formed Arcadia as a single-purpose entity for the purpose of carrying out the development of a property at 964 The Queensway in Etobicoke known as “The Cloisters”. Each were officers or directors of Arcadia.
[3] The development was a 14 town house project to be developed as a “live work” project. Arcadia owned the land and raised financing for the construction. Of the three principals of Arcadia, Mr. Cinapri was the party primarily responsible for supervising the construction process. He was not personally involved in every single aspect of construction, delegating things to a variety of people including a project manager/site supervisor, Mr. Roccasalva and a company he was associated with named “The Forefront Group”. I shall revert to the role of Forefront later. Mr. Cinapri admits that he did supervise construction of the project generally and was involved in negotiating with the trades, including the plaintiff.
[4] For a variety of reasons, the project did not prosper. The last townhouse was sold on October 29, 2003. The proceeds were not enough to repay all creditors of Arcadia. This suit is the outcome of that.
[5] The plaintiff was not content to accept late-tendered financial statements of the magnitude of the loss, but had nothing to contradict Mr. Cinapri’s evidence (that I accept) that the project lost a significant amount of money and resulted in his own personal bankruptcy. Whether the 2004 financial statements are completely accurate or not, I accept Mr. Cinapri’s evidence that significant money was lost.
[6] By May 2003 it had become clear that the project was in financial difficulty. Mr. Cinapri attributes problems to slowness of sales and other market forces. Whatever the cause, the trades were not being paid in a timely fashion. The plaintiff had rendered its first interim invoice in early February, 2003 (dated as of January 31, 2003) in the amount of $20,207.72 for work that had been signed off by Mr. Roccasalva as completed on January 31, 20003 but only $10,000 of which had been paid on account. Four further invoices for the balance of the contract were rendered by the plaintiff by May 1, 2003. Each of these invoices were subject to varying levels of dispute but there is no dispute that the first invoice was paid only partly and was at all times due and payable in full. Nothing else was ever paid.
[7] In early May, 2003 all 17 of the trades with outstanding balances owing were approached individually by Arcadia. A deal was proposed for discounting the amounts owing to each. The plaintiff was asked to accept a reduction of $10,000 out of approximately $60,000 then alleged to be owing. The plaintiff declined to accept. It was perfectly entitled to do so. Other trade creditors accepted their offers and were eventually paid.
[8] The plaintiff alleges that the proceeds of sale of the 14 units, as and when received by Arcadia, were trust funds. It claims that Mr. Cinapri, as a director and principal of Arcadia, may be pursued as a trustee of such trust funds under the Construction Lien Act, R.S.O. 1990, c. C.30 (the “CLA”).
[9] This trial was held over two days. The only defendant remaining at this point was Mr. Cinapri. Mr. Cinapri testified that Arcadia itself was dissolved several years ago, the precise date not being in evidence before me. The project having lost a significant amount of money, the company was simply allowed to be dissolved after it had paid its creditors to the extent of funds received.
[10] Mr. Enescu was named as a party defendant for reasons that were never particularly clear. He appears simply to have been one of the first purchasers of a unit from Arcadia and otherwise to be unconnected. However, he was not in court and no relief against him was sought before me. Ms. Bassel and Mr. Blackburn were noted in default in 2009. They were not before me either and no relief is sought against them.
[11] The case initially arose as a simple lien claim. No breach of trust allegations were made. The original claim, dated July 24, 2003, claimed a lien over the lands described therein and named Arcadia as owner of the land and Mr. Enescu, apparently, as contractor with whom the plaintiff bafflingly claimed to have a contract. No such contract existed. A lien in the amount of $60,598.70 was claimed and registered as Lien AT186179 against PIN 07526-0355 in the Toronto Land Titles office. It appears that the lien was registered against the wrong land. It was eventually withdrawn.
[12] By an order dated July 16, 2008 Master Glustein (as he then was) gave the plaintiff leave to add the three directors of Arcadia as parties. This was done by way of an amended Statement of Claim that for some reason was not filed until December 29, 2008.
[13] The Amended Statement of Claim deleted any claim for a lien on the lands in question. While the claim continues to be in respect of the same alleged balance due under the contract that was the subject-matter of the lien, the amended claim otherwise is entirely different from the original. The claim against the three directors – including the defending director Mr. Cinapri – was for breach of trust and misappropriation or defalcation in their fiduciary capacity.
[14] Mr. Cinapri was originally represented by counsel but has been acting on his own since 2010. In the course of his testimony, he disclosed that the failure of this project had resulted in his own personal bankruptcy in 2004 from which he received a discharge effective May 17, 2005 (Exhibit 2). After ascertaining that the plaintiff at least had been aware of this fact for some time (it having been specifically referenced in the pre-trial memorandum which Mr. Cinapri appears to have believed was a pleading), I gave leave to Mr. Cinapri to amend his Amended Statement of Defence to include an allegation that the claims if any against him had been released by reason of his discharge from bankruptcy with leave to the plaintiff to allege that it was not by virtue of s. 178(1)(d) of the Bankruptcy and Insolvency Act, R.S.C. 1985, c. B-3 and to resume the cross-examination of Mr. Cinapri on that issue alone should the plaintiff desire to do so. The plaintiff determined that no such further examination was required and the trial resumed with final argument today.
[15] I shall review the remainder of the evidence in connection with the issues to be determined on this case. Prior to leaving the overview, however, it is appropriate to comment on the evidence received more generally.
[16] Two witnesses were heard at the trial: Mr. Giuseppe (Joe) Ceccarelli and Mr. Cinapri.
[17] The plaintiff is a family business in which Mr. Ceccarelli, his late father and his mother worked in 2003. While I had no issues with his credibility generally, it was clear to me that Mr. Ceccarelli had very limited personal knowledge of any of the facts related to this project which his late father had been more closely connected with. He was able to speak generally, but when matters related to the project arose, he was generally required to speculate as to what “would have” or “must have” happened. I say this without intended criticism. The general public is not as attuned to hearsay as members of the bar and judiciary and I did not reject as unreliable his evidence on that basis alone. I simply note its fallibility where he is relying on inference and speculation as to what likely occurred.
[18] Mr. Cinapri was similarly afflicted, but for different reasons. He had delegated a significant amount of day-to-day responsibility to parties such as Mr. Roccasalva and Forefront or his own accountant. With those qualifications, I found his evidence to be quite frank and candid. He was, for example, generally prepared to accept that the plaintiff had done most of the work that it was claiming payment for.
[19] There were very few facts in dispute and I had little cause to doubt the sincerity of either witness, subject only to reservations about their evidence when they strayed into areas of inference, assumption or similar matters.
[20] I would also like to make a last general comment before turning to the specific issues. This action was for a debt of about $60,000 that has been owing for over a decade. There were frailties in the evidence, it is true. However, I don’t seek to point fingers over them. Neither the interests of justice nor of either party would have been served by turning over every rock and stone “by the book” and running up $150,000 or more in costs to seek to recover $60,000. This case raised issues that could easily bedevil a million dollar action. There were frailties and gaps in the evidence but I must simply grapple with them.
Issues
[21] The issues the parties have placed before me may thus be summarized as follows:
a. What was the amount owing to the plaintiff in respect of the project?
b. Were any funds subject to a trust under the CLA?
c. Has the plaintiff established that Mr. Cinapri is liable under s. 13 of the CLA?
d. What is the effect of the bankruptcy discharge of Mr. Cinapri?
Discussion and Analysis
(i) Amount owing plaintiff under the project
[22] On December 5, 2002, the plaintiff received a purchase order from “The Forefront Group” to perform certain carpentry and finishing work on the town house project. The contract price listed was $70,727 for supplying and installing trim work on the 14 town houses which were contained within the project.
[23] No evidence was led before me to establish who “The Forefront Group” is or was. Discovery evidence read in by the plaintiff established Forefront as a “project manager” who acted as agent of Arcadia with its authority.
[24] The owner of the lands on which the project was being constructed was Arcadia. The one cheque paid to the plaintiff in respect of the work came from Arcadia and Mr. Cinapri admitted that the “Completion Slips” given by Forefront (signed by Mr. Roccasalva, the site supervisor) were delivered with Arcadia’s authority. There is no suggestion that Mr. Roccasalva or The Forefront Group received closing proceeds directly, paid contractors directly (the only cheques produced in evidence were from Arcadia directly) or acted other than with the authority of Arcadia.
[25] It is not possible completely to reconcile the invoices rendered with the original contract. Completion slips produced appear to show that work was only performed/invoiced for 13 of 14 units (there are no invoices for unit 12). There were extras, some of which were approved without agreeing upon a price, others of which were agreed. At the end of the day, the invoices rendered add up to $70,598.70 compared to an original contract price of $70,727.
[26] The plaintiff only ever received $10,000 as payment on account of what was due. The plaintiff has claimed $60,598.70.
[27] This claim is subject only to a small number of issues raised by Mr. Cinapri. These are:
a. The invoice of $4,161.23 for “extras” net of credits invoiced by the plaintiff on March 7, 2003; and
b. Three back-charges made by Arcadia for allegedly completing work left incomplete by the plaintiff for a total of $13,511.25.
[28] Mr. Cinapri candidly admitted that the plaintiff was owed money by Arcadia and that, subject to these issues, the work had been done. Mr. Cinapri’s evidence is at least somewhat corroborated by the fact that the completion slips signing off on the work indicated issues with the adequacy of the work performed for all but 7 of the units.
[29] The accounting issues can be relatively quickly dealt with.
[30] It seems common ground that the plaintiff downed tools and did not fully complete the work it originally agreed to perform. I don’t fault them for that – they were largely unpaid and had no obligation to dig themselves a deeper hole to lie in. However, I do have to work out what the unfinished work adds up to in order to resolve the amount of the claim.
[31] Firstly, the defendant claims that the “extras” were never authorized. While it would appear that the value of the extras has never been agreed, Tab 7 of Exhibit 1 contains a fax of February 3, 2003 outlining the “extras” which was initialed by the site supervisor Mr. Roccasalva. I find that the extra work was authorized but agree with Mr. Cinapri that I have no evidence of the value of the work delivered. Mr. Ceccarelli gave general evidence about the practices of the plaintiff in always completing work and giving every possible allowance to customers, but had no specific evidence on the value of the actual extras listed in the document or the invoice. Mr. Cinapri said that in such matters he would normally meet the contractor half way. I accept that evidence as an admission that the value of the extras was thus $2,080.61.
[32] There were three back-charges made for work that allegedly had to be completed by Arcadia. These were as follows:
a. $3,042 paid to Plywood Trim & Co for invoice 190502;
b. $8,328.35 paid to Omega Trim & Door for invoice TRM30588 dated July 31, 2003; and
c. $2,140 as “estimated amount of work in progress to complete”.
[33] The first item paid to Plywood Trim & Co. I would reject. The invoice in question is dated January 31, 2003 before any issues had arisen between Arcadia and the plaintiff. There is nothing before me to substantiate the allegation that the work performed by Plywood Trim & Co. was work that the plaintiff had contracted to perform and failed to do.
[34] I also reject the third item of $2,140. This was a mere estimate (originally made in August, 2003). There has been plenty of time to substantiate this estimate since the last unit was sold in October, 2003. The one sole invoice located – without proof of payment – does not satisfy me that the work was performed or that it related to the plaintiff’s claim.
[35] I do accept the defendant’s evidence regarding the $8,328.35 charge-back. The plaintiff admitted that there had been incomplete work at the time the dispute between the parties regarding unpaid bills resulted in a downing of tools. The plaintiff claims that it attempted to complete work in June, 2003 but Mr. Ceccarelli Sr. was escorted from the site. There is no question that the work on at least 5 of the 13 units for which invoices were provided was not accepted as complete by the site supervisor. The matter was to be the object of further discussion about which no evidence was led by either side. The plaintiff disputes the quantum but had nothing beyond its own suspicions of fabrication to back up its dispute. Having regard to the totality of the evidence, including the other claims, disallowed, I am prepared to accept this claim as reasonable in all of the circumstances.
[36] Accordingly, I would find that the plaintiff’s unpaid amount owing from the project is as follows:
Invoices Received:
$70,598.70
less
payment on account
-$10,000.00
reduction re extras
-$2,080.62
allowed charge-back
-$8,328.35
Allowed Claim
$50,189.73
(ii) CLA Trust Claim
[37] The evidence seems clear that all of the proceeds of sale of the fourteen units comprising the development were ultimately received and deposited into the bank account of Arcadia at Toronto-Dominion Bank.
[38] The plaintiff relies upon s. 8 of the CLA to claim that all of the funds received by Arcadia were trust funds and impressed with a trust in its favour. On reading the statute, I cannot agree.
[39] Section 8 of the CLA establishes a trust fund in favour of subcontractors and other persons who have supplied services or materials to an improvement “who are owed amounts by the contractor or subcontractor”. The trust fund consists of all amounts owing to a contractor, whether or not due.
[40] A “contractor” is defined by s. 1(1) of the CLA as “a person contracting with or employed directly by the owner or an agent of the owner to supply services or materials to an improvement”.
[41] It is clear in the present case that Arcadia fits the definition of “owner” in the CLA (a person with an interest in the land on whose credit or on whose behalf the improvement is made).
[42] The Amended Statement of Claim attempts to plead that Arcadia was a “subcontractor” in paragraph 10. This pleading seems in direct contradiction with the pleading that Arcadia was “owner” (paragraph 4). It also begs the question of who the contractor was.
[43] I cannot read the definition of “contractor” as applying to an owner. An owner cannot contract with itself. The plain language used by the statute can only mean that a contractor is someone other than the owner.
[44] Normally, the plaintiff would have had its remedy against the owner through its lien on the land. Unfortunately, in this case, for whatever reason, that lien was improperly filed and pursued and ultimately had to be withdrawn. While this appeared to me to be a matter that was unlikely to be one of first impression, Mr. Marchioni assured me that he had been unable to find any cases dealing with the matter of whether an “owner” can be deemed a contractor for the purposes of s. 8 of the CLA as he strongly suggested I find.
[45] The plaintiff suggested that perhaps Forefront might be considered to be the contractor on this project. Unfortunately, it is rather late in the day to be making such a suggestion. Forefront is not a party to this action and I have very little evidence before me as to its precise role beyond the admission that it was an “agent” and “project manager”. More importantly, there is no evidence to suggest that s. 13 of the CLA could be used against the defendant Mr. Cinapri in relation to Forefront, rendering the question moot for present purposes at least.
[46] In conclusion, I cannot find that Arcadia was a “contractor” as defined by s. 1(1) of the CLA and I must accordingly find that Arcadia did not hold any trust fund under s. 8 of the CLA.
(iii) Section 13 CLA
[47] It is admitted that Mr. Cinapri was at all materials times a director and officer of Arcadia. There is little doubt that s. 13 would apply to Mr. Cinapri in respect to any breaches of a s. 8 trust by Arcadia. However, having found no breach of s. 8 by Arcadia, I cannot attribute liability for a non-existent trust to Mr. Cinapri.
(iv) S. 178(1)(d) of the BIA
[48] Mr. Cinapri testified that Arcadia was a single-purpose entity with a single bank account. He claims that there was no co-mingling of proceeds in the account with any other matter and that all funds paid out of the account were for the project. He denied that any of the funds from the account went to him personally. There is no evidence of management fees or wages being paid to him or for his benefit. It is clear that he was operating under some legal advice at the time and I accept that he made efforts to ensure that the funds in the account were used solely to pay creditors of the project.
[49] This does not in any way suggest that the funds were handled to the highest standards of prudence or fairness. While a bankruptcy might well have achieved a more equitable result among creditors in May, 2013, it is unlikely it would have produced a better overall result. What happened in this case however was clearly a case of some co-operative creditors being preferred over the plaintiff whose lack of co-operation was its right. I cannot however find on the evidence before me that there was any dishonesty or knowing malfeasance on the part of Mr. Cinapri.
[50] There was some issue on the facts of this case whether any party found vicariously liable for a breach of trust under s. 13 of the CLA necessarily falls within s, 178(1)(d) of the BIA such that such liability can never be discharged by bankruptcy. In light of my finding regarding the lack of a breach of trust in this case, I find it unnecessary to rule on the matter beyond my findings of lack of any evidence of actual dishonesty or misappropriation by Mr. Cinapri personally.
Disposition
[51] For the foregoing reasons, I dismiss this action with costs payable to the defendant Mr. Cinapri. I asked the parties for costs submissions. The plaintiff had a very modest ask of only $3,500 in the event it was successful. I think that figure is rather low in the circumstances. I shall award Mr. Cinapri costs in the amount of $5,000 against which the plaintiff shall be entitled to offset the two outstanding unpaid costs awards in its favour which I understand total $1,500. Even this figure is low, but having regard to the amounts at issue and quite frankly the participation of Mr. Cinapri in preferring other creditors of the project to the plaintiffs, I do not wish to be condoning the behavior that led to this law suit. The plaintiffs could and should have been given the undisputed amount they were owed at the very least.
S. F. Dunphy J.
Released: November 3, 2015
COURT FILE NO.: CV-03-252906CM
DATE: 20151103
ONTARIO
SUPERIOR COURT OF JUSTICE
BETWEEN:
698147 Ontario Limited c.o.b. Imperial Trim Supply & Installation
Plaintiff
– and –
Cornell Enescu, Arcadia Queensway Development Inc., Ruth Bassel, John Blackburn and Claudio Cinapri
Defendants
REASONS FOR JUDGMENT
S. F. Dunphy, J.
Released: November 3, 2015