Citation: Wolseley v. City of London, 2016 ONSC 1307

COURT FILE NO.: 193/10

DATE: 20160226

ONTARIO

SUPERIOR COURT OF JUSTICE

BETWEEN:

Wolseley Canada Inc. Plaintiff

– and –

City of London and Jemini Construction Ltd. Defendant

Paul Amey, for Con-Cast Pipe Inc.

Geoffrey Belch and Danilo Popadic, for the City of London

• and –

Jemini Construction Ltd. Plaintiff by Counterclaim

• and -

Wolseley Canada Inc. Defendant by Counterclaim

• and –

Ipex Inc. Third Party

HEARD: August 20 and October 1, 2015

hockin j.

1. The Motion

[1] Con-Cast Pipe Inc. (“Con-Cast”) moves for a final order that a release executed by Jemini Construction Ltd. (“Jemini”) is not a bar to Jemini’s claim for damages against the City of London (“London”) in this action, Wolseley Canada Inc. v. City of London and Jemini Construction Ltd., court file no. 193/10. Jemini is bankrupt. Con-Cast’s status to sue for this relief is derived from an order of the Deputy Registrar in Bankruptcy made May 1, 2013 pursuant to s. 38 of the Bankruptcy and Insolvency Act, R.S.C. 1985, c. B.3.

[2] Whether the release stands in the way of Con-Cast’s intention to pursue London assumes the existence of a sustainable crossclaim by Jemini against London. One was not delivered. Con-Cast moves therefore for an order nunc pro tunc for leave to amend Jemini’s Statement of Defence and Counterclaim against London. Determination of this aspect of the motion, involves a consideration of the Limitations Act, 2002, S.O. 2002, c. 24, Sched B; and whether a crossclaim under the Construction Lien Act, R.S.O. 1990, c. C. 30 may stand alone.

Background

[3] In 2009 Jemini entered into an agreement with London for the installation of sewer and water mains beneath Florence Street.

[4] Jemini was the general contractor. Wolseley was Jemini’s subcontractor for the purpose of supplying the pipe.

[5] Water quality tests were carried out and at some point before January 2010, work stopped for the purpose of completing the tests. There were delays. There was no agreement on the cause or origin of the contamination.

[6] On January 12, 2010 Wolseley served a Claim for Lien claiming from Jemini, its contractor and London, the owner of the project, the price of the pipe supplied. The figure was $118,246.28.

[7] On January 21, 2010 Wolseley commenced this action, Wolseley Canada Inc. v. City of London, file no. 193/10 under the Construction Lien Act, R.S.O. 1990, c. C.30.

[8] The action was defended. Each party blamed the other for the contamination. London delivered a statement of defence and crossclaim February 10, 2010. In its crossclaim against Jemini, London claimed damages against Jemini for the amount of the unpaid Wolseley account. London was prepared to pay the holdback, subject to other claims, but took the position that Wolseley’s claim was a claim in contract with Jemini and Jemini should pay.

[9] Jemini retained Lerners, London. Lerners for Jemini on February 25, 2010 delivered a statement of defence and counterclaim. In the defence, Jemini alleged that the Wolseley pipe was defective or unclean. In its counterclaim, it claimed inter alia, penalties paid to London and other charges related to ongoing water tests. The pleading did not include a crossclaim against London.

[10] On July 6, 2010 Lerners indicated, by letter, that they had received instructions from Jemini to assert a crossclaim against London. On July 29, 2010 Lerners purported to deliver to Wolseley and London an Amended Statement of Defence Counterclaim and Crossclaim.

[11] On August 20, 2010 by order, Jemini posted as security for Wolseley’s claim for lien, $147,807.85. With that, on August 26, 2010 Wolseley’s Claim for Lien was vacated. Also on August 26, 2010 the City’s solicitor pointed out to Jemini’s solicitor that Jemini would have to move for leave to deliver a crossclaim since it did not accompany Jemini’s defence. Jemini’s solicitor acknowledged that this was so.

[12] On September 7, 2010 the City’s solicitor reminded Jemini’s solicitor that leave was required; and advised that since security in the full amount of Wolseley’s claim had been posted that it was prepared to consent to an order dismissing the action without costs subject to receiving full and final releases from Wolseley and Jemini.

[13] Also on September 7, 2010 Wolseley’s solicitor suggested to Jemini’s solicitor that in the event Wolseley discontinued its action, Jemini’s claim for relief from London should be prosecuted by third party proceedings.

[14] On September 20, 2010 London’s solicitor repeated that it was prepared to leave the action without costs but required “fully executed releases”. In particular, London required “Jemini’s agreement to release any of its alleged claims”.

[15] Leave under s. 53(3) of the Construction Lien Act was not obtained nor was a third party proceeding commenced.

[16] The Wolseley action lingered on. Affidavits of documents were requested and dates for mediation were suggested. London’s solicitor in correspondence dated May 6, 2011 wondered why London was still involved and expressed no interest in mediation. It delivered an offer to settle which included an offer to consent to a dismissal without costs and again, a release was requested.

[17] On October 26, 2011 Lerners advised London and Wolseley of the bankruptcy and the stay of the action. By order dated November 30, 2011 leave was granted to Wolseley to continue the action.

[18] On January 10, 2012 Lerners obtained an order removing it as solicitor of record for Jemini.

[19] There were two meetings of Jemini’s creditors which are relevant to this matter. On December 14, 2011 Mr. Funtig advised that “there may be a further $500,000 potentially collectible; however, an estate solicitor would be required to assist in this recovery”. He recommended the Miller, Canfield firm in Windsor. Mr. Funtig mentioned the Wolseley litigation and indicated that the Lerner firm had “specifics of this matter” and would “require their account to be paid in full … before they would pursue matters further”. An inspector advised the trustee not “to pay the account and continue the matter without knowing the merits of the case”.

[20] Mr. Leslie of the Miller, Canfield firm was retained after the meeting.

[21] On February 28, 2012 Mr. Funtig met again with Jemini’s creditors/inspectors. The Wolseley action was again discussed and Mr. Funtig indicated that once settled, there would be “funding in place to proceed with the action against the City of London for approximately $500,000 to $750,000”.

[22] I pause in the history of this proceeding to describe the evidence of Mr. Funtig. In his affidavit of August 13, 2014 he indicated that he reviewed the pleadings including Wolseley’s Statement of Claim, London’s Statement of Defence and Crossclaim and Jemini’s statement of Defence and Counterclaim, its Crossclaim against the City and the Third Party Claim of Wolseley against Ipex Inc. On his cross-examination, however, it is clear that he did not review the pleadings. See his answers at questions 33-39. It is also clear that there was no inquiry of Lerner’s on the state of the Wolseley action. See questions 55 and 56. If there had been, Mr. Funtig would have discovered:

1. there was no Jemini crossclaim;
2. there was no action by Jemini against London; and
3. there was no third party proceeding by Jemini against London.

[23] It is not the case, however, that the state of the pleadings remained unknown to Mr. Funtig and his solicitors. When steps were taken to complete the Wolseley action, it fell to Miller, Canfield to prepare the closing documents. Miller, Canfield prepared the Minutes of Settlement which were then executed. Mr. Funtig signed for Jemini. They provided for an order dismissing the claim and counterclaim and the third party claim and the execution of a full and final release by the parties.

[24] Miller, Canfield prepared a motion and explanatory affidavit to have the money in court paid out and the order dismissing taken out. Grace J., by endorsement, asked for greater detail which was then provided by a supplementary affidavit dated August 13, 2012. All the pleadings were attached as exhibits including the statement of defence and counterclaim of Jemini. There was of course no crossclaim. Grace J., by order dated August 15, 2012 obliged the parties and ordered payment of the monies in court. The order included the following language:

1. THIS COURT ORDERS that the Defendant, Jemini Construction Ltd., pay to the Plaintiff, Wolseley Canada Inc., the net amount of $115,000.00 CDN as a full and final settlement of the main action and third party claim.
2. THIS COURT ORDERS that, once the aforesaid payments have been made, the claim and counterclaim in the main action and the third party claim shall be dismissed on a without cost basis.

[25] Execution of the release followed, but slowly, for reasons not clear to me nor important for my purpose. Paragraphs 1, 2, 4, and 8 apply to this case.

MUTUAL FULL AND FINAL RELEASE

1. WE, the Plaintiff and Defendant to the Counterclaim, Wolseley Canada Inc. (hereinafter referred to as “Wolseley Canada”), the Defendant, City of London (hereinafter referred to as “London”), the Defendant and Plaintiff by Counterclaim, Jemini Construction Ltd. (hereinafter referred to as “Jemini”) and the Third Party, Ipex Inc. (hereinafter referred to as “Ipex”) in consideration of the Minutes of Settlement entered into by Wolseley Canada, London, Jemini, and Ipex, and sufficiency of which is acknowledged, for itself, its successors and assigns, each releases, acquits and forever discharges each other and their respective directors, officers, employees, successors, subsidiaries, heirs, executors and estate trustees, and each of them, from and in respect of any and all actions, causes of action, claims debts, dues and demands which it had or may have had, my now have or in the future gave against each other in any way arising from the matters pleaded or the claims, counterclaims and causes of action that were raised or ought reasonably to have been raised in Court File No. 193/10.
2. The undersigned further agree not to make any claims or take any proceedings against each other or any other person or corporation who might claim contribution, indemnity or other relief over or against each other pursuant to the provisions of the Negligence Act or any other law or laws.
3. If the undersigned commence any proceedings involving any claim, complaint or demand against each other for any cause, matter or thing related to the matters dealt with in this Mutual Full and Final Release, this Mutual Full and Final Release may be be raised as a complete bar to any claim, complaint or demand.
4. It is hereby declared that the terms of this Mutual Full and Final Release are fully understood and that the said Mutual Full and Final Release is given voluntarily for the purpose of making a full and final compromise, adjustment and settlement of the aforesaid claim.

[26] London received the release as executed by Mr. Funtig by email from the Miller Canfield April 8, 2013. Mr. Funtig signed the release March 14, 2013.

[27] In May 2013 Con-Cast commenced an application pursuant to s. 38(1) of the Bankruptcy and Insolvency Act, RSC 1985, c. B-3, to take proceedings in its own name. By order of the Deputy Registrar in Bankruptcy at London, an order was issued. Paragraph 1 of the order reads as follows:

1. IT IS ORDERED that the applicant may and it is hereby authorized to commence and prosecute proceedings in its own name and at its own expense and risk, to continue action no. 193/10 in the Superior Court of Justice at London with regard to the Crossclaim by the bankrupt, Jemini Construction Ltd., against its Co-defendant, the City of London.

[28] Counsel for Con-Cast by correspondence dated July 18, 2013 invited London to complete the discovery stage of the action between Jemini and London in action no. 193/10. On July 19, 2013 London’s solicitor answered that Jemini had released London from any and all claims and actions.

[29] This proceeding was then begun.

Analysis

[30] There are two parts to this case. One, should leave be granted to allow Con-Cast to prosecute by crossclaim a claim for damages against London in action No. 193/10. Two, do the Minutes of Settlement and the Mutual Full and Final Release entered into by the parties including the trustee, Mr. Funtig bar the crossclaim in the event leave is granted.

Should Leave be Granted

[31] Con-Cast seeks an order nunc pro tunc by motion for leave to amend Jemini’s Statement of Defence in action 193/10. If granted, Con-Cast asks that the effective date of the amendment be July, 2010. The sense of this is that without an early date, the crossclaim may be out of time. It coincides with Lerners’ first mention of a crossclaim.

[32] Con-Cast points to a number of cases. For example, Salter Farrow Pilon Architects Inc. v. Thunder Bay Regional Hospital, [2006] O.J. No. 4715, 60 C.L.R. (3d) 219 (S.C), a decision of Platano J. on a motion by the defendant hospital to add a counterclaim to its statement of defence in an action commenced under the Construction Lien Act. Platana J. pointed out that s. 53(3) of the Act is not mandatory but permissive unlike r. 26.01. He refused leave on the basis that the action would become too cumbersome if the amendment was made.

[33] Con-Cast cited the cases of McKenna Estate v. Marshall, [2005] O.J. No. 4394, 37 R.P.R. (4th) 222, per Sproat J. and Re: Caswan Environmental Services Inc., 2001 ABQB 240, 287 A. R., 11 a decision of Registrar Walker in support of its position that absent prejudice which cannot be relieved by a costs order, a nunc pro tunc order should issue to cure an irregularity. It is important, however, to note that Salter, Marshall and Caswan are cases where leave was sought to amend or cure an irregularity to an existing action. That is not this case.

[34] By the minutes of settlement and the August 15, 2012 order of Grace J. this action was dismissed. Under s. 53(3) of the Construction Lien Act, a party’s crossclaim must “accompany” its statement of defence but it is gone. There is no existing justiciable aspect to the action for the crossclaim to accompany and more to the point, to plead to. If the order was made, the crossclaim would amount to a stand-alone originating claim. That is not permissible under the Construction Lien Act. The only way this could be accomplished would be the revival of the action after setting aside the settlement negotiated by counsel now four years ago. For the reasons which now follow, that will not happen.

Do the Minutes of Settlement and Release bar the crossclaim?

[35] In my view, this question should be answered in the affirmative.

[36] There was every opportunity with the exercise of a reasonable measure of diligence for the trustee to discover the state of the pleadings in the Wolseley action and in particular whether there was a crossclaim. However, there was no inquiry of Lerners and for the reasons set out above, it is the case that the trustee is mistaken that he reviewed the pleadings. More importantly, Jemini before the bankruptcy and afterward was represented by counsel; before the bankruptcy by Lerners and after the trustee’s appointment, by Miller, Canfield. The Minutes of Settlement and the Release were prepared by Miller, Canfield. The Minutes and the Release were reviewed by him with the advice of counsel. They were prepared with the knowledge that the City required a comprehensive and mutual release. They were signed after a full review of the pleadings by the trustee’s adviser. There was no exception for a crossclaim in the language of the documents. I reject any suggestion of a unilateral mistake in these circumstances.

[37] The assumption by Con-Cast is that in the circumstances of this case I should exercise a discretion to set aside the agreement where it was entered into with legal advice by a sophisticated party, the trustee, to permit an order to revive an action which is now time-barred. I choose not to do so.

[38] I am instructed by the principles set out in Scherer v. Paletta, 1966 CanLII 286 (ON CA), [1966] 2 O.R. 524, 57 D.L.R. (2d) 532 (C.A.), at pp. 534-535 on the enforcement of settlement agreements. As well by Simpkins v. Simpkins (2004), 2004 CanLII 28909 (ON CA), 187 O.A.C. 325, 1 R.F.L. (6th) 219 and Mandos v. Ontario Home Warranty Program, (1993), 1993 CanLII 9350 (ON SCDC), 105 D.L.R. (4th) 627, 33 R.P.R. (2d) 298, Ont. Div. Crt., aff’d 86 O.A.C. 382 (C.A.) on the significance of legal advice on the enforceability of a release.

[39] The language of the Minutes disposed of the action. The language of the release was wide and comprehensive. The crossclaim was not excluded. The agreement is enforceable. The release is a bar to the crossclaim.

Should the court exercise its discretion under [s. 37](https://www.canlii.org/en/ca/laws/stat/rsc-1985-c-b-3/latest/rsc-1985-c-b-3.html#sec37_smooth) of The [Bankruptcy and Insolvency Act](https://www.canlii.org/en/ca/laws/stat/rsc-1985-c-b-3/latest/rsc-1985-c-b-3.html)?

[40] Section 37 of the BIA reads as follows:

37. Where the bankrupt or any of the creditors or any other person is aggrieved by any act or decision of the trustee, he may apply to the court and the court may confirm, reverse or modify the act or decision complained of and make such order in the premises as it thinks just.

[41] I choose not to exercise my discretion to reverse the trustee’s decision to reverse the Release. The trustee’s decision to settle the Wolseley action was reasonable. This required a release of any claim Jemini may have had against the City. If the action had not been settled, the City wanted its costs. In any event, not to enforce the settlement, in my view, will work a greater injustice to Wolseley and the City. The crossclaim became time-barred in July 2012 or two years after Lerners indicated they were instructed to make a crossclaim. It cannot be the case that s. 37 may be applied to suspend or disregard the limitation period.

[42] For these reasons, Con-Cast’s motion is dismissed.

[43] Costs submissions with a short outline, first by London by the end of March, Con-Cast by April 15, 2016.

“Justice P. B. Hockin”

Justice P. B. Hockin

Released: February 26, 2016

CITATION: Wolseley v. City of London, 2016 ONSC 1307 COURT FILE NO.: 193/10 DATE: 20160226

ONTARIO SUPERIOR COURT OF JUSTICE

BETWEEN:

Wolseley Canada Inc. Plaintiff

– and –

City of London and Jemini Construction Ltd. Defendant

• and –

Jemini Construction Ltd. Plaintiff by Counterclaim

• and -

Wolseley Canada Inc. Defendant by Counterclaim

• and –

Ipex Inc. Third Party

REASONS FOR decision

HOCKIN J.

Released: February 26, 2016