ONTARIO SUPERIOR COURT OF JUSTICE

COURT FILE NO.: CV-15-123841-00
DATE: 20151105

ONTARIO
SUPERIOR COURT OF JUSTICE

BETWEEN:

LaFarge Canada Inc.
Plaintiff

– and –

B. Gottardo Construction Ltd., Sundial Homes (Sharon) Limited and The Bank of Nova Scotia
Defendants

Janice Quigg, for the Plaintiff

Sam P. Rappos, for BDO Canada Limited, as Court Appointed Receiver for B. Bottardo Construction Ltd. and B. Gottardo Site Services Limited
Karey Dhirani, for the Defendant, Sundial Homes (Sharon) Limited
Evan L. Cappe, for the Defendant, The Bank of Nova Scotia
Jack Masterman, for M-Con (Lien Claimant)

HEARD: October 26, 2015

REASONS FOR DECISION

eDWARDS J.:

Overview

[1] The defendant, Sundial Homes (Sharon) Limited (“Sundial”), is the owner of lands in the Town of East Gwillimbury (the “Property”) and is presently in the process of developing and constructing a residential subdivision (the “Project”) on the Property. Sundial contracted with the defendant, B. Gottardo Construction Ltd. (“Gottardo”), to install the underground services and roads at the project.

[2] At the end of July 2015, Gottardo abandoned the project and on August 10, 2015, a receiver for Gottardo was appointed. Shortly thereafter Gottardo has been adjudged a bankrupt.

[3] There are eight construction liens registered against title to the project, which total approximately $2,900,000. Part of the dispute which is before the court today is with respect to the amounts certified as owing to Gottardo. The dispute in that regard is whether the amount certified is approximately $1,000,000 or $1,300,000. Regardless of whether the amount is $1,000,000 or $1,300,000, it is beyond dispute that that would be the maximum amount for which Sundial could be found responsible to Gottardo is either $1,000,000 or $1,300,000. Under no circumstances could Gottardo ever become responsible for the total amount of the various lien claimants which equate to approximately $2,900,000.

[4] There are two motions before me today. The first relates to an order that all liens be vacated upon the posting of security. The second relates to the quantum of the security for costs.

The Facts

[5] Sundial is the owner of the Property and entered into a contract with Gottardo on March 31, 2015. Gottardo agreed to perform various services including the supply and installation of underground services and roads at the project. Pursuant to the terms of the contract, Sabourin Kimble and Associates Ltd. (“Sabourin”), agreed to act as the consultant (the “Consultant”). Sabourin had the responsibility of certifying amounts owed by Sundial to Gottardo. The estimated contract price for the work to be performed by Gottardo under the contract was approximately $8,800,000 plus HST.

[6] Gottardo commenced its work on the underground services at the project in April 2015. Gottardo abandoned the project without any prior warning or explanation on July 29, 2015.

[7] On August 4, 2015, Sabourin delivered a notice of default to Gottardo, pursuant to the terms of the contract and on August 5, 2015, Sundial also delivered a notice of default to Gottardo. No response was filed by Gottardo to those notices of default and on August 10, 2015, Newbold J. appointed BDO Canada Limited (“BDO”) as the receiver of Gottardo. Sundial first learned of BDO’s role in these proceedings on August 14, 2015. On August 28, 2015, Gottardo was adjudged bankrupt and a bankruptcy order was made against it.

[8] Between March 2015 and September 2015, Sabourin delivered payment certificates and Sundial made payments on those certificates and withheld statutory holdbacks. In that regard, the total amount certified, including HST, within that time frame was $3,387,187.68, of which Sundial had paid $2,755,053.19 together with statutory holdbacks retained in the amount of $379,448.31. As such, on these calculations, Sundial would be required to pay to Gottardo, $1,011,582.80.

[9] BDO takes the position that, in fact, the amount certified and unpaid is not the aforesaid $1,011,582.80, but rather $1,318,875.45. The difference between what Sundial says is owed and what BDO says is owed flows from a concern that BDO has with respect to an amount certified by Sabourin on July 27, 2015, in the amount of $895,549.24. The amount certified on July 27, 2015, was subsequently changed by Sabourin on July 31, 2015, to $588,256.59. The difference between the amounts certified on July 27, 2015 and July 31, 2015, is $307,292.65, which is essentially the amount that is in dispute between Savourin and BDO. In the responding affidavit from BDO, sworn by Josie Parisi, it is acknowledged that BDO has been unable to confirm, based on the records of Gottardo and Sabourin, whether the reduction of the payment certificate from $895,549.24 to $588,256.59 was appropriate. That said, the affidavit of Ms. Parisi went on to state,

It is necessary in the circumstances for Sabourin to swear an affidavit in this proceeding, produce any and all documentation in its possession, power and control with respect to the reduction of payment certificate A6, and be available for cross-examination, so that all parties with an interest in this proceeding can ensure that the reduction in payment certificate A6 by Sabourin was justifiable.

[10] The affidavit of Ms. Parisi was sworn on October 9, 2015. An affidavit from Sabourin in response to paragraph 18 quoted above, was sworn by Ryan Sabourin on October 14, 2015. Mr. Sabourin, in his affidavit, explains the correction in the payment certificate from $895,549.24 to $588,256.59.

[11] The motion before me was heard on October 26, 2015. Between the time of Mr. Sabourin’s swearing of his affidavit and the hearing of the motion before me, there was no request made by counsel for BDO to cross-examine Mr. Sabourin on his affidavit. There was no request to adjourn today’s motion to allow for the cross-examination of Mr. Sabourin. Counsel for BDO, in his submissions did implicitly, however, suggest that the difference between the two certificates was still something that BDO would need to satisfy itself on and that it would be appropriate to require Sundial to post as security, the greater amount of approximately $1,300,000 as opposed to $1,000,000, until this issue had been resolved. Essentially it was suggested that there would be no prejudice to Sundial, other than the obvious requirement to post the larger amount versus the lesser amount, with a clear understanding that Sundial could seek to lower the amount once cross-examinations have taken place.

Analysis

[12] The motion before this court is brought under section 44(2) of the Construction Lien Act, R.S.O. 1990, c. C.30 (the Act), which provides:

On payment in of reasonable amount

(2) Upon the motion of any person, the court may make an order vacating the registration of a claim for lien, and any certificate of action in respect of that lien, upon the payment into court or the posting of security of an amount that the court determines to be reasonable in the circumstances to satisfy the lien.

[13] Sundial, in my view, correctly argues that the entitlement of the seven lien claimants who claim directly through Gottardo is restricted to the maximum potential amount which might be owed by Sundial to Gottardo, ie: that the value of all the liens registered by Gottardo as the contractor and its subcontractors/workers cannot exceed what the owner owes to the contractor, provided, of course, that the owner has complied with its holdback obligations.

[14] The total lien claims in this matter total approximately $2,900,000. Sundial’s legal obligations in this regard are limited to the holdback provisions of the Act. The obligations of Sundial in this motion are limited by Section 17 of the Act. There can be no legal basis to require the owner to post as security, an amount to reflect the subcontractor’s lien claims where they exceed the contractual amount that might be found owing as between the owner and Gottardo as the contractor. The sole issue that this court has to determine is whether the amount certified by Sabourin was the amount originally certified of $895,549.24 or the subsequent amount certified of $588,256.59.

[15] While counsel for BDO in its capacity as the receiver of Gottardo, was correct in raising as an issue whether the correct amount certified was $895,549.24 versus the subsequent amount certified at $588,256.59. I am satisfied on the evidence before me that Sundial has properly responded to paragraph 18 of the affidavit of Josie Parisi, when it filed its supplemental affidavit of Mr. Sabourin, sworn October 14, 2015. While the time between when Sabourin’s affidavit was sworn on October 14, 2015 and today’s hearing of the motion was relatively short, the fact still remains that no request was ever made to cross-examine Mr. Sabourin on his affidavit. Even at the hearing of the motion, no formal request was made to cross-examine Mr. Sabourin or to adjourn the hearing of the motion to allow for such cross examination. On the evidence before this court, I am satisfied that the correct amount certified by Sabourin was $588,256.59 and not the original amount certified of $895,549.24. The amount to be paid into court, therefore, to vacate all of the liens shall be $1,011,582.80.

[16] The sole remaining issue is the quantum of security for costs. Counsel for Sundial suggests that the security for costs should be $50,000 and refers to section 44(2) of the Act that states,

On payment in of reasonable amount

(2) Upon the motion of any person, the court may make an order vacating the registration of a claim for lien, and any certificate of action in respect of that lien, upon the payment into court or the posting of security of an amount that the court determines to be reasonable in the circumstances to satisfy the lien.

[17] The quantum of the security for costs is determined by section 44(1)(d) of the Act which quantifies the security for costs as the “lesser of $50,000 or 25% of the amount described in clause (c) as security for costs.”

[18] The plaintiff in this matter, LaFarge Canada Inc. (“LaFarge”), amongst other things, carried on business as a supplier of aggregate and concrete materials. LaFarge filed a lien claim on August 4, 2015 in the amount of $518,343.18. As previously noted, there are a total of eight lien claims, including the lien claim of Gottardo. The total of those lien claims comes to approximately $2,900,000.

[19] In determining the amount of the security for costs, LaFarge argues that the correct amount is $270,803.67. This amount is based on the calculation of the total lien claim of approximately $2,900,000, as opposed to the potential exposure of Sundial, the maximum amount of which has now been determined by this court at $1,011,582.80.

[20] Counsel for LaFarge argues that the amount of security to be posted should be arrived at by starting with the amount claimed for each lien, and then adding the lesser of $50,000 or 25% of that amount. The total amount of security for costs to be deposited with the court, it is argued, should then be calculated by adding together the amounts of security calculated for each lien. In doing so, the court ensures that there is sufficient security for costs that will be posted with the court for all of the lien claimants. Support for this proposition can be found in the decision of Clarke J. in R.E. Clipshem Ltd. v. Halton Hills Development Corp., 1990 Carswell Ont 686 at para. 8.

[21] While I agree with the general proposition that the security for costs provisions in the Act are intended to prevent prejudice to lien claimants, the court nonetheless, in my view, cannot ignore that, on the fact that Sundial cannot be found responsible to Gottardo for anything more than approximately $1,000,000. It would seem incongruous then that the security for costs that this court should order would be based on a fictional amount of $2,800,000 where the actual amount that Sundial can be found responsible to Gottardo is approximately $1,000,000.

[22] The court has discretion under the Act in fixing security for costs to an amount that the court determines to be “reasonable in the circumstances”. In Tom Jones Corp. v. OSBBC Ltd., (1997) OJ No. 2166, there were three subcontractors’ liens totalling approximately $181,000. Ultimately it was determined that only approximately $70,000 was owing and security for costs was calculated on the basis of 25% of the $70,000 as security for costs and not 25% of the total subcontractors’ liens of $181,000.

[23] A similar result was arrived at by this court in Unimac Group v. Trustees of the Mount Albert United Church, 2013 ONSC 5624, where the plaintiff argued that the appropriate amount for security for costs should be an amount to reflect, not just the plaintiff’s lien claim, but also three subcontractors’ liens claims. This court rejected that argument and held,

If there is a dispute between the plaintiff and its subcontractors, those disputes are the subject matter of the contractual relationship between the plaintiff and the subcontractors and not the Foundation. I see no reason to require the Foundation to post as security an amount to reflect the subcontractors’ lien claims. In the result then, I am ordering that the four claims for lien and three certificates of action registered against title to the Home shall be vacated upon payment into court by the Foundation of the sum of $1,038,867.76, plus costs of $50,000.00 for a total of $1,088,867.76.

[24] In Unimac, the total of the lien claims came to approximately $1,800,000, as opposed to the amount which the owner could be found responsible of approximately $1,000,000.

[25] I have come to the conclusion in the facts of this case, that where Sundial ultimately can only be found responsible to Gottardo for approximately $1,000,000, that the security for costs should be fixed on the basis of that figure and not the totality of all lien claims which amount to approximately $2,800,000. As such, Sundial shall post as security for costs in the amount of $50,000 which shall be paid into court as agreed, as required by the Act.

[26] If the parties cannot agree on costs, written submissions limited to five pages in length shall be filed with the court by November 30, 2015.

Mr. Justice M.L. Edwards

Released: November 5, 2015