Court File and Parties

Court File No.: CV-14-507974 Date: August 18, 2016 Superior Court of Justice – Ontario

Between: Dean’s Standard Inc., Plaintiff

And: Siljub Toronto Ltd., Defendant

Counsel: J. Thomas, for the plaintiff T. Brook, for the defendant

Heard: August 17 and 18, 2016 Before: Master C. Albert

A. Overview

[1] Dean’s Standard Inc. (“Dean’s”) registered a construction lien on May 23, 2014 as instrument number AT3588813 claiming $22,197.00 for services and materials supplied to renovate a hotel room at 145 Yorkland Boulevard, Toronto in a property owned by Siljub Toronto Ltd. (“Siljub”). Dean’s registered a certificate of action as instrument number AT3629342 and issued a statement of claim on July 24, 2014.

[2] The claim proceeded as a reference pursuant to the judgment of reference of Justice Goldstein dated October 22, 2014 and the order for trial of Master Muir dated November 20, 2014. Dean’s called two witnesses at trial. Siljub called no evidence but cross-examined Dean’s witnesses.

[3] Dean’s claims payment for renovating and furnishing a sample hotel room as a mock up for the anticipated renovation of 100 hotel rooms. For the reasons set out below the claim is dismissed and the construction lien is ordered discharged.

B. Background

[4] The subject premises is known as the Don Valley Days Hotel and Conference Centre (“Days Inn”). In or about January 2014 Dean Sanaee, principal of Dean’s, and his contractor Shahab Vafaie, met at the premises with William O and Vlad Marchuk. They identified themselves to Mr. Sannaee as the new owners of the premises and explained that they were in the process of buying the hotel and converting it to a Double Tree hotel. There is no evidence of the corporate name by which Mr. O and Mr. Marchuk intended to purchase the hotel, although Mr. O appears to have signed his emails “Chief Operating Officer, Palais Pacifique Hotel & Conference Centre”. The purpose of the meeting was to discuss renovating the hotel rooms, beginning with a mock-up or sample room. If Mr. O and Mr. Marchuk were satisfied with the sample room they would authorize Dean’s to proceed to renovate a block of 100 rooms similarly.

[5] Mr. Sanaee has been in the business of renovating hotel rooms for many years. He contracts with Mr. Vafaie, through Mr. Vafaie’s company, as his construction manager and has done so since 2006. Both are very experienced in the renovating of hotel rooms.

[6] Mr. Sanaee and Mr. Vafaie testified about their meeting with Mr. O and Mr. Marchuk in January 2014. I found both witnesses to be credible.

[7] Both witnesses described that they met in Mr. O’s office, which was near the hotel reception area, the first office down the corridor. Mr. O’s name was not on the door but he had a picture of his family in the office. Mr. Marchuk, who worked with Mr. O, was also at the meeting. Mr. Sanaee’s evidence on the relationship of Mr. O and Mr. Marchuk to the Days Inn was vague and somewhat ambivalent. Mr. Varfaie’s evidence was clearer: Mr. O and Mr. Marchuk identified themselves as purchasers who were in the process of buying the hotel. From this evidence it is clear that none of Mr. O, Mr. Marchuk or a company owned by one or both of them, owned the hotel at the time of the meeting. Nor is there any credible evidence before the court that they were employed by Siljub, the entity that owned the hotel at the time.

[8] Dean’s did not name either Mr. O, Mr. Marchuk or a company owned by one or both of them as a defendant in the action. As purchasers pursuant to an agreement of purchase and sale they would have been “owners” as that term is defined in the Construction Lien Act, R.S.O. 1990, c.C.30, being persons having an interest in the premises. Dean’s failure to name them as parties to the action is fatal to their recovery in this claim.

[9] At the first meeting in January 2014 Mr. Sanaee, Mr. Varfaie, Mr. O and Mr. Marchuk discussed renovating a sample room on the ninth floor. Mr. Senaee and Mr. Varfaie returned the next day with samples from which Mr. O and Mr. Marchuk made selections. They discussed a price. I accept the evidence of Mr. Sennai and Mr. Varfaie that if they were only hired to renovate the sample room the price for that room would be higher than the price per room if they were hired to renovate the block of 100 hotel rooms. I accept that the amount charged to renovate sample room 915 reflects the work that was carried out and the services and materials actually supplied.

[10] Mr. O and Mr. Marchuk instructed Mr. Sennai and Mr. Varfaie to proceed to renovate sample room 915. They arranged for Mr. Varfaie to have card key access to room 915, elevator access and a place for the garbage dumpster for the materials removed from room 915.

[11] Mr. Shariff, owner of Siljub, had not participated in any of the discussions or meetings to this point. Mr. Varfaie testified that Mr. Shariff was aware that it was going on and did not stop the renovation. The basis of his understanding is that he saw him once in the hotel lobby near the beginning of the project and then in April 2014, after room 915 was completed, Mr. Shariff asked Dean’s to quote on various repairs required to the lobby, the basement and the corridors following a fire in the electrical room.

[12] In February 2014 Dean’s commenced the renovation of room 915 as a mock up. The renovations included demolition and removal of existing materials, drywall, tiling, plumbing and painting. It also included the supply of furniture [1].

[13] A fire occurred in the electrical room of the hotel on or about February 7, 2014. The hotel lost electricity and closed for several days. The fire disrupted Dean’s renovation of the sample room but after three days the Fire Marshall allowed Dean’s back in and they completed the renovation of the sample room using the stairs and generators, completing it in late March, 2014.

[14] After the fire Siljub asked Dean’s to provide quotes to restore certain areas that had been damaged in the fire and to renovate a room as a prayer room, all unrelated to renovating sample room 915 (the “April 2014 quotes”). There is no evidence of any discussions between Dean’s and Mr. Shariff about the hotel room improvement project for which Dean’s had renovated sample room 905.

[15] According to their evidence at trial, Mr. Sannee or Mr. Vafaie or both asked Mr. O or Mr. Marchuk to pay for the sample room renovation and they said they would, but when Mr. Sannaee and Mr. Vafaie tried to reach Mr. O and Mr. Marchuk subsequently they did not answer the phone, they did not return messages and they could not be found.

[16] Dean’s had issued an invoice for $22,197.00 to “Days Hotel” on May 3, 2014 for the services and materials supplied to renovate and furnish sample room 915. Mr. Sannaee met with Mr. Shariff in mid-May 2014 about the April 2014 quotes for the common area spaces. In that meeting he asked Mr. Shariff to pay the May 3, 2014 invoice and according to the evidence of Mr. Sannaee and Mr. Vafaie, Mr. Shariff gave the invoice to his daughter who was a controller for Siljub and instructed her to pay the invoice. This evidence given at trial contradicts the witness statements of Mr. Sannaee and Mr. Vafaie wherein they stated (and signed) that Mr. Shariff refused to pay the invoice and directed them to pursue Mr. O for payment. Neither Mr. Shariff nor his daughter testified at trial [2].

[17] Mr. O and Mr. Marchuk did not pay Dean’s for the sample room. The sale of the hotel to them from Siljub did not proceed.

[18] Siljub’s position is that Siljub did not authorize the renovation and there is no contract to pay for it. Siljub did not tender a witness at trial.

C. The Issue

[19] Did Dean’s and Siljub enter into a contract to renovate the sample room? Were Mr. O and Mr. Marchuk authorized to bind Siljub to a contract as agents for Siljub?

D. Analysis

[20] The only evidence of a contract is that of Mr. Sannae and Mr. Vafaie, who both testified that Dean’s entered into an oral agreement with Mr. O and Mr. Marchuk as purchasers of 185 Yorkland Boulevard. The terms of the oral contract were that Dean’s would supply services and materials to renovate a sample room for the cost of the renovation, but if the project proceeded with the renovation of the block of 100 rooms then the price of the sample room would be less.

[21] A construction contract requires certain essential elements to constitute an agreement: contracting parties, scope of work and price. In the present case the parties to the action do not dispute the price or the scope of work. They dispute the identity of the contracting parties. Dean’s alleges that it contracted with Siljub. Siljub’s position is that if there was a contract it was not with Siljub but rather it was with Mr. O and Mr. Marchuk personally, or with their company.

[22] It is not disputed that there was no actual authority given by Siljub to Mr. O and Mr. Marchuk to contract with Dean’s to renovate the sample room. Mr. O and Mr. Marchuk, who are not officers or directors of Siljub, did not have express authority from Siljub to bind the company.

[23] Dean’s relies on the law of agency. Dean’s does not rely on actual agency, acknowledging that there is no evidence that Siljub expressly authorized Mr. O and Mr. Marchuk to act as its agent in contracting with Dean’s to renovate the sample room. Rather, Dean’s relies on the legal principle of apparent or ostensible agency, arguing that Mr. O and Mr. Marchuk had Siljub’s apparent or ostensible authority to contract with Dean’s because of Siljub’s conduct.

[24] Dean’s argues that Mr. O and Mr. Marchuk had apparent or ostensible authority to bind Siljub to pay Dean for the work, relying on the four-part test set out by the Alberta Court of Appeal in Doiron v Devon Capital Corp, 2003 ABCA 336 at paragraph 13 for the proposition that the doctrine of ostensible authority serves to give an agent the authority to bind a principal to agreements with third parties in circumstances where the agent has no actual authority, referring to the test set out in the leading case of Freeman & Lockyer v Buckhurst Park Properties [1964] 1 All E. R. 630 (Eng.C.A.) cited therein. According to the Alberta Court of Appeal the requirements to establish ostensible authority are (paraphrased):

a) a representation was made to the contractor that the agent had authority on behalf of the company to enter into the contract; b) the representation was made by a person who had actual authority to manage the business of the company in general or in relation to the subject of the contract; c) the contractor was induced by the representation to enter into the contract; and d) the company’s articles of incorporation do not preclude the contract or delegation of authority to contract to an agent.

[25] As to the first two parts of the test, the representation must be that of the principal, not of the agent. I rely on Hav-A-Kar Leasing Ltd. v Vekselshstein, 2012 ONCA 826 wherein the court opined at paragraph 42 that “Apparent or ostensible authority in favour of an agent only arises where the alleged principal has impliedly represented that another person has the authority to act on the principal’s behalf. The implied representation must be that of the principal, not that of the agent.”

[26] There is no evidence in the present case that Mr. Shariff, the only person who, according to the evidence at trial, had actual authority to bind Siljub, represented to Dean’s that Mr. O or Mr Marchuk had authority to bind Siljub’s to the construction contract.

[27] As to the third part of the test, Dean’s could not have been induced to contract by reason of Mr. O and Mr. Marchuk representing that they had authority to bind Siljub because (i) there is no evidence that such a representation was made and (ii) all parties knew that Mr. O and Mr Marchuk were contracting as the purchasers of the hotel and not on behalf of the vendor, Siljub.

[28] As to the fourth part of the test, there is no evidence of Siljib’s articles of incorporation.

[29] Dean’s relies on paragraph 15 of the Doiron decision, wherein the court states that the law of ostensible authority does not require an explicit representation of authority:

“It is found where the principal has created a situation such that it is reasonable to infer and rely upon the apparent authority of the person.”

[30] Dean’s argues that by placing Mr. O and Mr. Marchuk in an office in the management area of the hotel, and by authorizing (or acquiescing in) Mr. O and Mr. Marchuk giving Dean’s access to room 915 and the elevator, and by allowing Dean’s to place a dumpster near the loading dock, Siljub has created a situation such that it is reasonable to infer and rely on Mr. O’s and Mr. Marchuck’s apparent authority to bind Siljub to a contract to renovate room 915.

[31] On the issue of apparent authority, Justice Wilson of the Ontario Superior Court of Justice stated in Amato v Welsh, 2016 ONSC 1575 at paragraph 35, citing Strauss Estate v Decaire, 2011 ONSC 1157, on the issue of apparent authority that:

“apparent authority will be found where the words of the principal ‘would lead a reasonable person to believe that the agent was authorized to act, notwithstanding the fact that the principal and ostensible agent had never discussed such authority’.”

[32] Firstly, there is no evidence that Mr. Shariff as owner of Siljub’s (the principal in the agency relationship if one exists) made any representations to Dean’s regarding the authority of Mr. O and Mr. Marchuk to act as an agent of Siljub. Secondly, I do not find that a reasonable person would believe that Siljub’s conduct amounts to implied authority for Mr. O and Mr. Marchuk to contractually bind Siljub. Siljub’s conduct of allowing Mr. O and Mr. Marchuk, who were purchasers of the hotel awaiting the transfer of the hotel to them, (i) to use an office in the management area of the hotel, (ii) to have a sample of the proposed renovated room prepared in advance of closing, (iii) to have key card access to the sample hotel room, is consistent with the pending purchase and not necessarily consistent with Siljub authorizing Mr. O and Mr. Marchuk to contract on behalf of Siljub to renovate a sample hotel room. The evidence is clear that Mr. O and Mr. Marchuk asked Dean’s to renovate the sample hotel room on their own behalf as purchasers of the hotel, with the intention to renovate the hotel consistent with the style of what they expected to become a Double Tree Hotel rather than a Days Inn.

[33] Mr. O and Mr. Marchuk held themselves out as purchasers of the hotel and not as agents of Siljub. They were clearly contracting on their own behalf as purchaser and not as an agent of Siljub. Siljub’s failure to actively bar Dean’s from renovating room 915 does not constitute implied authority for Mr. O and Mr. Marchuk to contractually bind Siljub to pay Dean to renovate a sample room for the purchaser.

[34] Dean’s argues in the alternative that Siljub ratified the contract to renovate room 915 by acquiescing in the construction when it was undertaken. Dean’s relies on the decisions of the British Columbia Supreme Court and Court of Appeal in Community Savings Credit Union v U.A., Local 324, 2001 BCSC 413 and 2002 BCCA 214. In particular, Dean’s cites paragraph 53 of the lower court decision wherein the court opines that “acquiescence with knowledge of the disputed transaction is sufficient to constitute ratification”. However, that finding is premised on the agent having authority to bind the principal in the first place, but having gone beyond the authority actually given to the agent by the principal, the court considered whether the principal acquiesced to the agent exceeding the parameters of his authorized agency.

[35] In the present case Mr. O and Mr. Marchuk did not have authority in the first place to bind Siljub to any contracts so there was no agency scope to extend by acquiescence and thus nothing to ratify. I do not accept the provision of an access key and placement of a garbage dumpster as acquiescence by Siljub to Mr. O’s and Mr. Marchuk’s contract to pay Dean’s for renovating room 915.

[36] My disposition of this case is supported by the policy underlying the leasing provisions of the Construction Lien Act, which I find somewhat analogous to the situation faced by Dean’s in the present case.

[37] When a claim is made under the Construction Lien Act, regard must be given to the policy underlying the statutory entitlement to encumber another’s property with a lien claim. A claim that an owner is obligated to pay for renovations contracted for by another party requires actual notice to the owner before the owner can be bound.

[38] Siljub’s position in Dean’s lien claim is analogous to that of a land owner who leases premises to a lessee who in turn contracts with a construction contractor to improve the property. Even though the property is owned by another, the landowner is not subject to a lien claim unless the contractor has first given written notice of the proposed improvement to the owner and the owner has had an opportunity to respond to the notice denying liability (section 19 of the Construction Lien Act).

[39] In the present case Dean’s argues that because the purchase by Mr. O and Mr. Marchuk did not close and Siljub continues to own the property, Siljub benefits from the improvement and should pay for it.

[40] Applying the same policy of notice that underlies the leasehold provisions of the Construction Lien Act, I find that in the absence of written notice to Siljub of the proposed improvement and the price of the work, together with an opportunity for Siljub to deny liability for it, Dean’s is not entitled to a lien claim against Siljub. However, this basis of denying Dean’s lien claim is secondary to the primary reason for dismissing its claim, namely that Siljub never contracted with Dean’s and Mr. O and Mr. Marchuk did not have actual, implied or ostensible authority to contract with Dean’s as agents of Siljub.

[41] The onus of proving the contract rests with Dean’s, the party seeking to enforce payment. I find that Dean’s has not met the onus of proving that on a balance of probabilities Siljub entered into a contract with Dean’s to renovate and furnish room 915 as a sample room for the price of $22,197.00.

[42] The real problem with Dean’s claim is that Dean’s failed to name Mr. O and Mr. Marchuk as defendants to the litigation. As the contracting parties they are the ones who are liable to pay for the services and materials that they purchased.

[43] It is unfortunate that a contractor that provided services and materials of value will not receive payment for it from the defendant named in the lawsuit. Had Dean’s sued Mr. O and Mr. Marchuk the result would likely have been different.

[44] I mention briefly that in argument Dean’s, having discovered that it had not based its claim in the alternative on unjust enrichment, asked for leave to amend its pleading. The test for leave to amend a pleading is different in an action under the Construction Lien Act. The Act prevails over the rule 26 of the Rules of Civil Procedure when the provisions are inconsistent. In my view the requirement in section 67 of the Act to resolve construction lien claims expeditiously overrides the broad discretion in rule 26 to grant leave to amend pleadings in almost every case.

[45] Leave to amend the statement of claim to add a claim for unjust enrichment after having adduced all trial evidence was denied. Such an amendment would have changed nature of the case considerably. Granting leave would have been prejudicial to the defendant and the prejudice could not have been overcome by costs or an adjournment of the trial. Parties to litigation develop a litigation and settlement strategy based on the allegations pleaded and their understanding of the strengths and weaknesses of their case. If the scope of the claim changes after trial evidence has been called then there is no opportunity to turn back the clock and prepare or present one’s case differently. The requested amendment is different from merely changing the quantum of the claim. It is a substantive and different cause of action from that pleaded and upon which the trial was based and granting leave would have been contrary to section 67 of the Construction Lien Act.

E. Conclusion

[46] For these reasons Dean’s claim fails and the action is dismissed. The lien claim is ordered discharged and the certificate of action is ordered vacated from title.

F. Costs

[47] Counsel may make submissions on costs viva voce.

Footnotes:

[1] Furniture that is not affixed to the premises is not lienable but given the outcome of the case no further discussion of this issue is required. [2] At the opening of trial the defendant advised that Mr. Shariff was ill and would not be attending and that the defendant would not be calling any evidence. Siljub’s counsel submitted a medical note indicating that Mr. Shariff is too ill to participate in the trial and not likely to improve in the foreseeable future. Neither party asked to adjourn the trial.

Released: August 18, 2016 Master C. Albert.