Employment Professionals Canada Inc. v. Steel Design, 2016 ONSC 1722

Court File and Parties

CITATION: Employment Professionals Canada Inc. v. Steel Design, 2016 ONSC 1722

COURT FILE NO.: CV-14-500934

DATE: 20160310

ONTARIO

SUPERIOR COURT OF JUSTICE

BETWEEN:

EMPLOYMENT PROFESSIONALS CANADA INC. formerly known as ERIE PERSONNEL CORPORATION Plaintiff

– and –

STEEL DESIGN AND FABRICATORS (SDF) LTD., TRIWEST CONSTRUCTION LP, CODY T. CHURCH, DEREK MARTIN, NORMAN ROKOSH, GORDON TOZER, RON ADAMS, LORNE H. JACOBSON, and JOHN DOE Defendants

Neil Kotnala, for the Plaintiff

Brittany Déziel, for the Defendants Church, Martin, Rokosh Tozer Adams and Jacobson

HEARD: November 16, 2015

M. D. FAIETA J.

REASONS FOR DECISION

INTRODUCTION

1In September 2011, the plaintiff agreed to provide the services of labourers to the defendant Steel Design and Fabricators (SDF) Ltd. (“SDF”) for the purpose of the construction of the Strandherd-Armstrong Bridge in Ottawa, Ontario (the “Agreement”). The Agreement did not oblige SDF to use the plaintiff’s services. The Agreement provided that all but the first invoice issued by the plaintiff had to be paid within 30 days of the date of issue. The plaintiff issued 26 invoices from October 4, 2011 to March 6, 2012.

2The first nine invoices were paid by SDF. The remaining 17 invoices, which total $205,510.33, are unpaid. The corporate defendants, including SDF, are now bankrupt.

3The defendants Church, Martin, Rokosh, Tozer, Adams and Jacobson (“Individual Defendants”) were officers or directors of the corporate defendants. The plaintiffs claim that the Individual Defendants are liable in breach of trust pursuant to section 13 of the Construction Lien Act, R.S.O. 1990, c. C.30, as amended (the “Act”).

4This action under section 13 of the Act against SDF, its affiliated corporate entities, and the officers and directors of SDF was commenced on March 26, 2014.

5The uncontradicted evidence of Marina Butler, the President of the Plaintiff, is that:

(1) the invoices were to be paid within 30 business days from the date upon which each invoice was issued;

(2) in late January 2012, Ms. Butler spoke with the defendant Martin, of SDF, regarding payment of the outstanding invoices who explained that he was awaiting payment from the owner of the project. At Martin’s request, Ms. Butler agreed to amend the Agreement to provide that SDF would pay the Plaintiff within a reasonable time after it received payment from the project owner in April or May 2012 (the “Amendment”).

6The plaintiff continued to provide the services of temporary labourers to SDF after the above telephone call as it issued eight further invoices, totalling more than $41,000.00, to SDF on a weekly basis from January 30, 2012 until March 6, 2012.

7The Individual Defendants also submit that the limitation period for all but five invoices, representing $15,413.75, had passed by the time this action was commenced.

8The Individual Defendants bring this motion for summary judgment on the grounds that this action was commenced after the expiry of the applicable limitation period in respect of 12 of the 17 invoices. Their motion raises the following issues:

(1) Is the Amendment to the Agreement (which extended the time for payment of the invoices) legally unenforceable because the plaintiff received no consideration for it?

(2) Does the limitation period for an action under section 13 of the Construction Lien Act, R.S.O. 1990, c. C.30 (the “Act”) against the officers of a contractor commence when payment is due pursuant to the terms of the agreement between a supplier and a contractor?

9For reasons that follow, my answer to both questions is “No”.

ANALYSIS

10This motion for summary judgment is brought pursuant to Rule 20 of the Rules of Civil Procedure, R.R.O. 1990, Reg. 194. Its objective is to promote access to justice by providing a streamlined and fair process which results in the just adjudication of a dispute.¹

11The following principles are applicable on a motion for summary judgment:

• a 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.²

• the onus is on the moving party to show that there is no genuine issue requiring a trial;

• the summary judgment process must:

(a) allow the judge to make the necessary findings of fact,

(b) allow the judge to apply the law to the facts, and

(c) be a proportionate, more expeditious and less expensive means to achieve a just result.³

• each side must "put its best foot forward" with respect to the existence or non-existence of material issues to be tried;⁴

• a court may exercise any of the following powers for the purpose of determining whether there is a genuine issue requiring a trial, unless it is in the interest of justice for such powers to be exercised only at a trial.

1. Weigh the evidence.

2. Evaluate the credibility of a deponent.

3. Draw any reasonable inference from the evidence.

4. Order that oral evidence be presented by one or more parties for the purposes of exercising the above powers.⁵

• If the court cannot grant judgment on the motion, the court should:

(a) decide those issues that can be decided in accordance with the principles described above;

(b) Identify the additional steps that will be required to complete the record to enable the court to decide any remaining issues;

(c) In the absence of compelling reasons to the contrary, the court should seize itself of the further steps required to bring the matter to a conclusion.⁶

ISSUE #1: IS THE AMENDMENT TO THE AGREEMENT UNENFORCEABLE BECAUSE THE PLAINTIFF RECEIVED NO CONSIDERATION FOR IT?

12The Individual Defendants, being the principals of SDF, submit that the Amendment sought by SDF is unenforceable because SDF did not provide fresh consideration for the Amendment.

13The Individual Defendants rely upon the following passages from In Hamilton (City) v. Metcalfe & Mansfield Capital Corporation, 2012 ONCA 156, at paras 73-75, the Ontario Court of Appeal stated:

At common law, a creditor and debtor can agree to forbear enforcement of a debt, and such an agreement would suspend the limitation period for the period of forbearance. In order to achieve this result, the creditor must promise not to enforce the debt, and the debtor must provide some consideration in exchange for this promise. In other words, a creditor’s promise to forbear will not suspend the limitation period unless the debtor provides consideration for that promise: Shook v. Munro et al, 1948 CanLII 8 (SCC), [1948] S.C.R. 539. [Emphasis added]

Each of the cases the City relies on dealt with a debtor-creditor scenario in which the creditor promised not to sue on the debt and the court had to determine whether the creditor provided consideration in return for that promise. In cases where there was no corresponding promise, the limitation period for the action to enforce the debt was not suspended: see Shook Estate; Arrow-Kemp Heating and Air Conditioning Ltd. v. Oddi, 2009 CanLII 23865 (Ont. S.C.). In a case where the creditor did provide a corresponding promise, the limitation period for the action to enforce the debt did not commence until after the period of forbearance: see Mortgage Insurance Co. of Canada v. Grant, 2009 ONCA 655, 99 O.R. (3d) 535, at para. 30.

The cases relied on provide a means by which parties can agree to suspend the limitation period for an action to enforce payment on the debt. This makes sense because, if a creditor and debtor agree to change the repayment terms of the debt obligation, they have essentially renegotiated their debt agreement. So the limitation period for the creditor's action to collect on the debt would not run because - due to the agreement to change the repayment terms - the debtor is not effectively in default.

14A voluntary forbearance by a mortgagee will not prevent the running of a limitation period unless a mortgagor has done or promised something in exchange for the forbearance. In Shook v. Munro 1948 CanLII 8 (SCC), [1948] S.C.R. 539 Justice Rand stated:

No doubt a mortgagor and a mortgagee can bind themselves to new times for the payment of the moneys, to be substituted for those provided in the mortgage. The effect would be to postpone the mortgagee's right to payment, extend the mortgagor's obligation to pay interest, and affect the times of both redemption and foreclosure. But the question here is not whether forbearance or a promise of it is good consideration: it is rather whether anything had been done or promised by the mortgagor to bind the mortgagees to forbear. If, for instance, the latter had in 1930 brought foreclosing proceedings, could they have been restrained on the ground that the mortgagor was not in default? Hope J.A. says yes, but I am forced to the conclusion that nothing had taken place that could have supported that plea: the forbearance was at most a voluntary abstention from exercising rights by the mortgagees which of itself could not affect the running of the statute.

Voluntary forbearance may too in appropriate circumstances be sufficient when performed to bind the person requesting it to a new obligation arising at that time: i.e. if you forbear for a year, I will then pay you: but at any time during the year action could be taken on the existing default. In such case, it is not whether, by reason of the performance of the requested forbearance, the estate has become liable then as on a new promise to pay, but the title to the property in the mortgagees have not in the meantime been extinguished, whether the mortgagees have not in fact forborne themselves into the statute. It may be that the personal obligation would in effect be preserved, but that is not the point here.

15However, a request by a borrower for forbearance from an existing obligation may be sufficient consideration for a new repayment agreement. In Hutchison v. Royal Institution for the Advancement of Learning 1931 CanLII 76 (SCC), [1932] S.C.R. 57 the Appellant paid $100,000 towards his pledge to contribute $200,000 in five equal instalments of $40,000 starting in 1922 to a McGill University endowment fund when, due to financial difficulties, he asked for an extension of time for payment of the balance. McGill agreed and it accepted a promissory note in the amount of $100,000 that was payable three years after the date of its issuance in December, 1925. The Supreme Court of Canada dismissed the argument of the Appellant’s trustee in bankruptcy that no consideration was provided by McGill for the promissory note. The Court stated “…as to the note, by the giving of which Mr. Ross, at his urgent request, secured an extension of the time limited for the payment of the balance of his subscription, the consideration was valuable…”. In coming to this conclusion the Supreme Court of Canada relied on English cases that had decided forbearance was legally enforceable where the forbearance was extended to the person who asked for it.⁷

16As noted earlier, SDF requested forbearance of its obligation to pay invoices and promised to pay the invoices after it was paid by the owner. Such forbearance was granted and SDF enjoyed the benefit of that forbearance as well as the continued provision of services by EPC. Accordingly, consideration was exchanged and the Amendment is enforceable. To come to any other conclusion would allow the doctrine of consideration to work an injustice.

ISSUE #2: DOES A CLAIM FOR BREACH OF TRUST UNDER SECTION 13 OF THE ACT COMMENCE THE DAY AFTER PAYENT IS DUE UNDER THE INVOICE?

17The Individual Defendants submit that the limitation period for the plaintiff’s claim against them under section 13 of the CLA began running the day after payment was due for each invoice. It submits that the limitation period for all but five of the invoices delivered by the plaintiff has expired.

18EPC’s claim against the Individual Defendants is based on section 13 of the CLA and indirectly on section 8 of the CLA.

19The purpose of the CLA is “…to prevent unjust enrichment of those higher up in the construction pyramid by ensuring that money paid for an improvement flows down to those at the bottom.”⁸ To that end, the CLA imposes trust obligations on contractors and their officers and directors.

20Section 8 of the CLA imposes a trust on money owing to or received by contractors to ensure the payment of suppliers. To establish that it was a beneficiary of a trust under s. 8(1) of the Act, EPC must prove that:

• SDF was a contractor or subcontractor;

• EPC supplied services or materials to a project on which SDF was a contractor;

• SDF received or was owed monies on account of its contract price for the project; and,

• SDF owed EPC money for those services or materials.

21Once a trust is established, the onus shifts to the contractor, SDF, to show that payments from the trust fund were made to proper beneficiaries of the trust.⁹

22In order to promote compliance with section 8 of the CLA, the CLA imposes personal liability for breach of trust on certain persons in control of the corporate trustee. In order for EPC to prove that the Individual Defendants are liable under section 13 of the Act it must demonstrate that:

• The defendant is a director or officer of SDF or a person who has effective control of the corporation or its relevant activities;¹⁰

• The defendant assented to or acquiesced in conduct that he or she knows or reasonably ought to know amounts to breach of trust by the corporation.¹¹

23Turning to the question of when does the limitation period for an action under section 13 of the Act commence, I note that the Act follows the recommendation of the Attorney General’s Advisory Committee Report in 1982 which rejected a proposed provision that stated “no proceeding to assert a claim to any trust fund shall be brought later than one year after the payment upon which the claim is made became due”. [Emphasis added] The Committee stated:

In the opinion of the Committee, no claim arising from breach of trust should be barred by a special limitation period. The ordinary limitation periods, as well as the equitable doctrine of laches, should apply to such claims. In these circumstances, there should be no special exemption for banks and other financial institutions.¹²

24Accordingly the determination of when a limitation period commences for an action under section 13 of the Act is governed by sections 4 and 5 of the Limitations Act, 2002 (the “LA”)¹³.

25Section 4 of the LA states that:

Unless this Act provides otherwise, a proceeding shall not be commenced in respect of a claim after the second anniversary of the day on which the claim was discovered.

26In turn, section 5 of the LA provides that a claim is discovered when the plaintiff knew or ought to have known of the material facts of the claim, whichever occurs first.

27Subsections 5(1) and (2) of the Act state:

(1) A claim is discovered on the earlier of,

(a) the day on which the person with the claim first knew,

(i) that the injury, loss or damage had occurred,

(ii) that the injury, loss or damage was caused by or contributed to by an act or omission,

(iii) that the act or omission was that of the person against whom the claim is made, and

(iv) that, having regard to the nature of the injury, loss or damage, a proceeding would be an appropriate means to seek to remedy it; and

(b) the day on which a reasonable person with the abilities and in the circumstances of the person with the claim first ought to have known of the matters referred to in clause (a).

(2) A person with a claim shall be presumed to have known of the matters referred to in clause (1) (a) on the day the act or omission on which the claim is based took place, unless the contrary is proved.

28The Individual Defendants rely on Carmen Drywall Ltd. v. BCC Interiors Ltd.¹⁴ for the proposition that the claim arises when the payment is due. The Plaintiff completed its work in December 2007 and initially requested payment on January 8, 2008. The court stated:

The Anron Mechanical case was decided prior to the Limitations Act which provides, pursuant to s. 5(1)(b), that a claim is discovered on the day on which a reasonable person with the abilities of the person with the claim first ought to have known of the injury, damage, or loss suffered.

Thus, the limitation period commences to run not following any misappropriation of the trust funds by the contractor or knowledge of when the contractor received the trust funds, but on the day a reasonable person ought to have known that the damage or loss had occurred. Indeed, s. 39 of the Construction Lien Act entitled the plaintiff as a trust beneficiary of the hold back funds to request from TTC or BCC at any time, the state of accounts between the owner and the contractor and the material payment bond, posted by the contractor with the owner. Mr. Stornelli indicated in his affidavit that he only contacted the TTC in May 2010 seeking assistance to recover payments.

This raises the question regarding “discoverability” of a statutory construction trust by a beneficiary of the trust. In Cast-Con Group Inc. v. Alterra (Spencer Creek Ltd.)…the court concluded that reasonable diligence when the contractor did not pay the sub-contractor could have revealed the trust claim and consequently, the limitation period ran concurrently with that of the breach of contract. A similar conclusion can be found in Aldine Construction Ltd. v. Brucegate Holdings Inc.

Based on these decisions, the plaintiff could well have and should have taken the required steps to commence its action against the defendants within two years of December 2007. The failure to do this means that the plaintiff’s statement of claim filed in January 2012 is statute barred.¹⁵ [Emphasis added]

29I do not accept the submission that Carmen Drywall, or either of Cast-Con and Aldine cited therein, stand for the principle that a claim for breach of trust under section 13 of the Act runs concurrently with a claim for breach of the construction contract. Had that been the Legislature’s intention, then such words, similar to those proposed by the 1982 Advisory Committee, would have been used. In my view, the Courts in the above cases reached applied the discoverability principle.

30As in Carmen Drywall, the Plaintiff as a beneficiary of the trust could have requested information on the state of the accounts between the SDF and the owner under section 39 of the Act. However, the assessment of when the Plaintiff should have discovered the claim in these circumstances, especially given the circumstances surrounding the Amendment, turns on the facts of this case and not the date on which payment was due under the Agreement. I accept the Plaintiff’s submission that a breach of trust does not exist if the trust does not exist. The trust does not exist until monies have been received by the contractor from the general contractor or are payable. Nor is there a breach of trust if the funds were paid by the contractor to proper beneficiaries.

31Applying the discoverability principle in light of the available evidence, it is my view that the Individual Defendants have not demonstrated that this action was commenced after the expiry of the limitation period for any of the invoices issued by the plaintiff.

CONCLUSIONS

32For the reasons given above, I have dismissed the motion for summary judgment. I have concluded that consideration for the Amendment was exchanged and thus the Amendment is enforceable. I have also concluded that the limitation period for a breach of trust claim under the Act does not, as a matter of law, commence on the day after payment is due to the contractor.

33I have seized myself of this action. I direct that a brief case conference, by telephone, be held on March 22, 2016 at 8:45 a.m. My assistant will provide the parties with the conference call details.

34The plaintiff claims costs in the amount of $16,627.89 on a partial indemnity basis. The Individual Defendants’ claim costs in the amount of $9,657.07 on the same basis. The main difference in the costs incurred for this motion is in counsel’s actual hourly rate ($205 versus $375). In my view, it is fair and reasonable for the Individual Defendants to pay costs in the amount of $12,000.00, inclusive of disbursements and HST, to the plaintiff.

Mr. Justice M. D. Faieta

Released: March 10, 2016

CITATION: Employment Professionals Canada Inc. v. Steel Design, 2015 ONSC 7877

COURT FILE NO.: CV-14-500934

DATE: 20160310

ONTARIO

SUPERIOR COURT OF JUSTICE

BETWEEN:

EMPLOYMENT PROFESSIONALS CANADA INC. formerly known as ERIE PERSONNEL CORPORATION Plaintiff

– and –

STEEL DESIGN AND FABRICATORS (SDF) LTD., TRIWEST CONSTRUCTION LP, CODY T. CHURCH, DEREK MARTIN, NORMAN ROKOSH, GORDON TOZER, RON ADAMS, LORNE H. JACOBSON, and JOHN DOE Defendants

REASONS FOR JUDGMENT

Footnotes

1. 1Trotter v. Trotter, 2014 ONCA 841, (2014), 122 O.R. (3d) 625, para. 49.
2. 2Rule 20.04(2)(a).
3. 3Hryniak v. Maudlin, 2014 SCC 7, [2014] 1 S.C.R. 87, at para. 49.
4. 4Canada (Attorney General) v. Lameman, 2008 SCC 14, 1 S.C.R. 372, para. 11
5. 5Rule 20.04(2.2).
6. 6Sweda Farms Ltd. v. Egg Farmers of Ontario, 2014 ONSC 1200, [2014] O.J. No. 851, para. 33; aff’d [2014] O.J. No. 5815, 2014 ONCA 878, leave to appeal refused, [2015] S.C.C.A. No. 97.
7. 7Crears v. Hunter (1887) 19 Q.B.D. 341, at 346 (C.A.); Fullerton v. Provincial Bank of Ireland [1903] A.C. 309, at 313 (H.L.)
8. 8Sunview Doors Limited v. Pappas, 2010 ONCA 198
9. 9Sunview Doors Ltd. v. Pappas ,[2010] O.J. No. 1043, 2010 ONCA 198, para. 84.
10. 10Sunview, paras. 103-106;
11. 11Tam-Kal v Stock Mechanical Inc. [1998] O.J. No. 4577; aff’d [1999] O.J. No. 4371 (C.A.)
12. 12Page 47. Such provision is found in the Builder’s Lien Act, SBC 1997, c45, which provides that “[a]n action by a beneficiary or against a trustee of a trust created under section 10 must not be commenced later than one year after (a) the head contract is completed, abandoned or terminated, or (b) if the owner did not engage a head contractor, the completion or abandonment of the improvement in respect of which the money over which a trust is claimed became available.”
13. 13S.O. 2002, c. 24, Sched. B .
14. 14[2013] O.J. No. 3245.
15. 15Paras 27-29.