COURT FILE NO.: 12-54244R

DATE: 23/11/2015

SUPERIOR COURT OF JUSTICE - ONTARIO

RE: Dulepka Equipment Rentals Limited, Plaintiff

AND:

City of Ottawa and DCM Erectors Inc., Defendants

BEFORE: MASTER MACLEOD

COUNSEL: Andrew Ferguson for moving party, DCM Erectors Inc.

James W. MacLellan for Guarantee Company of North America, City of Ottawa, All Canada Crane Rental Corp. and one other lien claimant

HEARD: November 18th, 2015

ENDORSEMENT

[1] On September 24th, 2015 I issued an interim report partly on consent and partly unopposed granting lien judgments and personal judgments against DCM Erectors Inc.

[2] DCM now brings a motion to stay enforcement, to stay the action of All Canada Crane until an order to continue is obtained, to remove Borden Lander Gervais LLP as lawyers of record and to set aside the personal judgment. For the reasons that follow, there will be a partial stay of enforcement but the balance of the motion is dismissed.

Background and Procedure

[3] Very briefly by way of background, the liens that were the subject of the reference relate to the construction of what is now the Vimy Memorial Bridge and at the time was the Strandherd-Amstrong Bridge project. The City of Ottawa is the owner of the bridge and the land on which it is constructed. Concreate USL (GP) Inc. was the general contractor which suffered insolvency and was placed into receivership in March of 2012.

[4] When Concreate became insolvent, several liens were registered against the project and ultimately were the subject of a reference to the master. Though there were other liens, for purposes of this decision, I am only concerned with the "DCM stream".

[5] DCM Erectors Inc. was the prime sub-contractor involved with construction of the bridge. DCM has a substantial lien of just over $1.7 million either representing funds unpaid by the City for work covered by the DCM sub-contract or funds paid to Concreate but not paid to DCM. The City disputes that this amount is owing and advances a large counterclaim and claim for set-off.

[6] The other lien claimants in the DCM stream were sub-trades or suppliers of DCM who were unpaid by DCM. For purposes of these reasons I will refer to both as sub-trades. The largest of those debts was the debt owing to All Canada Crane Rental Corp. (ACC)

[7] Almost all of the sub-trade liens are encompassed in the DCM lien. That is to say, DCM acknowledges that if it is paid the amount it says is owing then it would in turn have to pay the sub-trades. For that reason it was agreed that it would not be necessary to bond off each lien individually and instead the City posted $1.9 million as security for all of these liens. That security was posted on behalf of the City of Ottawa in the form of a lien bond issued by The Guarantee Company of North America (GCNA).

[8] GCNA is also the surety under both a performance bond and a labour and materials payment bond. As surety under the performance bond CGNA was obliged to fund the completion of the project on the insolvency of Concreate. As Surety under the payment bond, CGNA may have to pay DCM if DCM proves the amount it claims is owing. CGNA's position is identical to that of the City and both the City and CGNA have been represented throughout this proceeding by the same lawyer, Mr. MacLellan.

[9] ACC owns and operates specialized crane equipment. To ensure the completion of the project, and as consideration for All Canada entering into a new sub-contract with the new general contractor, GCNA paid a substantial portion of the All Canada lien but not all of it. GCNA is therefore subrogated to a portion of that lien claim and will be entitled to a proportionate share of any recovery by ACC.

[10] When the reference commenced, Mr. MacLellan was acting for both the owner and the surety. Up until recently, ACC was represented by separate counsel, Mr. Kazushner. DCM is represented by Douglas Loucks although Mr. Ferguson appeared for his client on this motion. Mr. Ferguson was counsel for Dulepka Equipment Rentals, another lien claimant no longer actively involved in the litigation.

[11] There continues to be related litigation both here and in Toronto. First there is the receivership of Concreate which is on the Commercial List. Secondly there is litigation between DCM and GCNA under the payment bond (Action CV-13-473616). There is also a conversion action against the new general contractor and the City (Action CV-12-459244). There is or was also a breach of trust claim.

[12] At a certain point in the reference it became apparent that the amount owed to DCM and the counterclaim against DCM are also central to the Toronto litigation. It was agreed that those issues be determined in the larger context of that litigation and not also litigated in the reference. The issues to be determined in the reference were to be limited to the quantum of the claims against DCM (both lien claims and breach of contract claims) as well as the holdback liability of the City and of Concreate. The latter of course may depend on the value of the work completed in accordance with s. 1 (1) of the Act.

[13] The interim report in September was the result of a settlement of the quantum of the three outstanding lien claims. The settlement resulted in judgment against DCM on the three liens as well as personal judgment for the lien claims, additional non lien amounts, pre-judgment interests and costs.

[14] The report contained a provision that the lien claimants could not enforce the liens without further order of the court. Of course the enforcement of the liens would have been enforcement against the lien bond held by the Accountant. It would be inappropriate to enforce against that bond because it was posted on behalf of the City and the question of the holdback liability is still in issue. It is the position of the City that the holdback is $0.

[15] It is important to bear in mind that only DCM has a direct claim against the City's holdback. As sub-trades or suppliers of DCM, the holdback against which the other lien claimants would be claiming is the Concreate holdback.

[16] The purpose of the settlement and the interim report was to avoid the need to try the liability of DCM. The interim report therefore resolved that question without the need for a trial. DCM did not consent to judgment but it advised that it would not oppose it. As a result, the report was issued and following confirmation it became a judgment of the court.

Assignment and Enforcement

[17] As discussed above, ACC had been represented by Mr. Kazuchner. On July 28th, 2015 it appointed Mr. MacLellan as its lawyer of record. Thus Mr. MacLellan now represents the City, CGNA, ACC and another lien claimant, Access Rigging. More precisely Access Rigging has fully assigned its rights of action to CGNA and following an order to continue, the Access Rigging action against DCM is pursued in the name of CGNA. As I will come to momentarily, the ACC rights are only partially assigned.

[18] All of these parties have consented to being represented by one lawyer and have waived any conflict of interest. In the final result, DCM is plaintiff in certain proceedings against CGNA and the City and defendant in proceedings by its sub-trades. All the opposing parties are now represented by one lawyer.

[19] Prior to July 28th, Mr. Kazuchner had been pursuing an admission or adjudication of the minimum holdback amount owed by the City of Ottawa on behalf of ACC. He had anticipated this would result in an interim payment to the lien claimant at least sufficient to cover its costs to date. Since the City resolutely advances its position that there is no holdback liability – and certainly none that is available to the sub-trades of DCM - this has not yet occurred.

[20] I have now examined the agreement between CGNA and All Canada Crane. As had been represented, it contains a partial assignment of rights and a partial assignment of recovery. CGNA has the right to take carriage of the action if ACC does not vigorously pursue the lien claim but until it does so ACC was obliged to pursue the claim itself. Moreover any recovery under the litigation is to be distributed pro-rata between CGNA and ACC in accordance with the proportion of the ACC claim against DCM previously paid out by CGNA. This is not a case in which all of ACC's rights are vested in DCM and so ACC continues to have an independent interest in the litigation.

The judgment

[21] The report became a judgment 15 days after it was served because no party brought a motion to oppose confirmation. It was therefore confirmed pursuant to Rule 54.09.

[22] the land or rather now against the security that stands in place of the land but

[23] The judgment grants lien judgments which are enforceable against the land or rather now against the security that stands in place of the land but or the money which stands in court as security in place of the land but only to the extent of the applicable holdback. The judgment also grants "personal judgment" which means a judgment enforceable against DCM. Of course if the personal judgment was paid in full there would be no need to enforce the liens because the liability would be extinguished.

[24] The judgment specifically provides that the lien claimants may not enforce the liens without further order. This was necessary because the portion of the $1.9 million lien bond available to these sub-trade lien claimants has not yet been determined. The judgment is silent concerning the enforcement of the personal judgments.

[25] Although DCM now asserts that it agreed not to oppose the motion for an interim report because it believed the judgments would not be enforced, it is clear there was no such agreement. In fact Mr. Kazushner made it clear to Mr. Loucks that he could not bind CGNA. Nevertheless the major benefit to all parties was intended to be fixing the liability of DCM without the need for a trial.

[26] What has now occurred subsequent to CGNA having Mr. MacLellan take over carriage of the ACC action is that the judgment has been enforced by way of garnishment. Because of the notice of garnishment, certain funds held in a DCM bank account have been frozen pending the outcome of this motion.

The issues raised by the motion

Conflict of Interest

[27] Dealing firstly with the conflict of interest allegation, I do not agree that Mr. MacLellan or BLG must be removed from the record. It is quite common for an owner, general contractor or, as here, a bonding company to pay out sub-trades and take assignments of their lien claims or other rights of action against the prime subcontractor with whom they are locked in a dispute. As is the case here, it is sometimes necessary to pay a proportion of the claim to ensure the sub-trades or suppliers stay on the job to complete the project. By taking an assignment of the sub-trade claims, the payor can ensure the subtrades are satisfied but can also reduce its liability under the main lien by any amounts it has already paid out.

[28] It is true that in theory the sub-trades would have an interest in maximizing the amount of the holdback liability whereas the City and CGNA have an interest in minimizing it. The holdback is in reality of no practical concern to sub-trades who have made an agreement with the bonding company and have been paid in whole or in part. To the extent that they have not been fully paid, their interest is in being paid what they are still owed by DCM. Another theoretical conflict would exist where the City is asserting a counterclaim against DCM and DCM counterclaims against the sub-trades in the individual lien actions for a chargeback or indemnity from each sub-trade. Theoretically the sub-trades share an interest in maximizing DCM's recovery from the City or the bond whereas the City and CGNA wish to minimize it or reduce it to zero. That is no longer of concern once the bonding company makes a deal with the sub-trades and takes an assignment.

[29] While the ACC assignment is only partial (roughly two thirds of the claim was paid by CGNA) ACC has waived any conflict and agreed to joint representation as have all of the other affected parties. Parties should be able to reap the efficiencies of representation by a single counsel unless it is clearly improper.

[30] All of these parties are adverse in interest to DCM. All have expressly agreed to joint representation. There is no inherent prejudice to DCM. The joint representation does not have an appearance of impropriety that threatens to undermine the integrity of the justice system.[^1]

[31] Though the joint representation itself is not improper, now that all parties are represented by the same counsel and CGNA holds assignments, enforcement of the judgments from one side while resisting judgment from the other may create injustice. I address this below.

Setting aside the judgment

[32] Even though I remain seized of the balance of the reference, I have no jurisdiction as referee to vary or set aside a report that has been confirmed. Exercising my jurisdiction as master, I could vary or set aside the resulting judgment if the factors set out in Rule 59 apply. Those are narrow. There is no basis to set aside the judgments against DCM which DCM agreed not to oppose.

[33] This is not a judgment that was obtained by fraud or a judgment which contains a clerical error. DCM does not suggest that the amounts are in error or that it does not ultimately owe the debts.

[34] Nor is this a default judgment despite being described as such in Mr. Louck's affidavit. DCM was at all times on notice that the interim report was being sought by the plaintiff. The report was unopposed because DCM specifically decided not to oppose it and advised the other parties that while it would not consent, it would not oppose. An unopposed judgment obtained on notice is not the same thing as a default judgment.

Order to Continue

[35] I do not agree that CGNA was required to obtain an order to continue by virtue of the partial assignment of the proceeds of the ACC litigation and the potential assignment of the right of action and carriage of the proceeding. At the time of the interim report, ACC was still represented by Mr. Kazushner and was acting independently of CGNA notwithstanding CGNA had a right of oversight and approval. Indeed Mr. Kazushner and Mr. MacLellan were at odds on a number of occasions.

[36] I have now examined the assignment agreement. Though it does contain a provision subrogating, assigning and transferring the right of action to the extent of the CGNA payment, it also provides that that ACC will continue to pursue the lien claim and any other rights of discovery against DCM with recovery to be shared on a pro-rata basis. CGNA is entitled but not obliged to take carriage of the matter if ACC does not actively pursue recovery.

[37] In my view this was not a transmission of interest within the meaning of Rule 11. Rather this was in the nature of subrogation. Subrogated claims are normally pursued in the name of the subrogor and not the subrogee. That is particularly the case when a claim is a mixture of subrogated and non-subrogated claims.

[38] In any event all parties were aware of the interest of CGNA in the ACC debt though not of the precise percentage. Neither the interim report nor the resulting order were nullities. The action was not stayed by operation of Rule 11.

[39] Now that Mr. MacLellan has taken over carriage of the matter and CGNA is directing the litigation under the assignment of rights an order to continue may be appropriate. That may be obtained administratively from the Registrar and I will leave it to Mr. MacLellan to determine if the action should now proceed in the name of CGNA or should now be in the names of both parties as co-plaintiffs. I note that an order to continue was obtained in the Access Rigging matter and that action now continues in the name of CGNA.

Staying Enforcement

[40] Staying enforcement of a judgment is a different question than staying the action. The court has broad discretion to stay enforcement of a judgment if enforcement would be unjust. The courts have on occasion been prepared to grant judgment on a claim which is clearly owing but to stay enforcement of that judgment because the defendant may be successful against the plaintiff in another matter that would result in a countervailing debt. An example of this was Iraco Ltd. v. Staiman Steel Ltd.[^2] In that instance the motions judge granted summary judgment to the plaintiff because the equitable claim of setoff could not be a defence to the debt. The Court of Appeal agreed with the legal result but stayed the judgment pending the trial of the counterclaim. It was felt that in the circumstances of that case it would be unjust to permit the plaintiff to enforce the judgment when as defendant to a counterclaim the plaintiff might have to pay the money back.[^3]

[41] One of the concerns in Iraco was that the plaintiff was a foreign party and there was reason to be concerned that if the plaintiff was paid, the counterclaim might be unenforceable. There is of course no such concern in the case at bar. There are at least two and perhaps three bonds that are available to satisfy a judgment by DCM. CGNA is highly regulated and is required to demonstrate solvency on an ongoing basis. There is more reason to be concerned about DCM because there is some evidence that it or one of its affiliates is in significant legal difficulty in the United States.

[42] If there is injustice in permitting CGNA to enforce the assigned judgments it is not because DCM may not be able to get the money back. The apparent unfairness in this case runs in the opposite direction. It seems unreasonable to permit CGNA to gather up the sub-trade debts by assignment and then to enforce those debts while it simultaneously resists paying DCM. The point of taking assignments is so that those sub-trade debts can be deducted from the amount eventually found to be owing to DCM and in effect CGNA can then garnish itself to pay the sub-trades or reimburse itself for paying off those trades.

[43] I recognize that the City and CGNA assert that DCM may have been overpaid. If that is ultimately found to be correct then DCM will not be owed any money and it should have paid its trades and suppliers. But if DCM prevails in the litigation even partially then it is being deprived of the very funds out of which it is supposed to be paying them.

[44] In litigation generally but in construction litigation in particular, the parties should be encouraged to narrow the issues as much as possible and only to submit real and focused issues to adjudication. In a case such as this, where DCM does not dispute the amounts it should be paying its sub-trades and suppliers, consenting to judgment fixing the amount of those debts is both appropriate and commendable. It would discourage such partial settlements if CGNA is permitted to squeeze DCM financially by enforcing the judgments while refusing to pay it out of either the lien bond or the payment bond.

[45] DCM has put no evidence before the court about its financial status but any construction project that ends with a $1.7 million lien claim will at minimum have created a major disruption of cash flow.

[46] Now that ACC and GCNA have settled the dispute between them, it is CGNA that is seeking to enforce the ACC personal judgment against DCM. That should not be permitted. Accordingly there will be an order staying enforcement of the personal judgment until further order.

[47] The funds currently frozen as the result of the notice of garnishment are to be paid into court to the credit of this action but the garnishment is otherwise stayed and no further enforcement steps shall be taken.

[48] Any party may bring a motion to lift the stay on proper grounds. Furthermore, this is not in any way to be taken as restricting the right of a party to move for security for costs or for Mareva relief should proper grounds exist.

Costs

[49] The motion advanced several grounds and sought relief which I have not granted. Though I have agreed with the stay of enforcement, much time was spent in addressing the question of the order to continue and the conflict of interest.

[50] As a consequence, the costs of this motion shall be reserved to the conclusion of the reference.

Master MacLeod

November 23rd, 2015

[^1]: Mallory v. Werkman Estate, 2015 ONCA 71

[^2]: (1986) 1986 CanLII 2739 (ON SC), 54 O.R. (2d) 488 (H.C.J.)

[^3]: (1987) 1987 CanLII 4072 (ON CA), 62 O.R. (2d) 129 (C.A.)