Court File and Parties

COURT FILE NO.: CV-13-559-00 CV-13-560-00 (Napanee) DATE: 2016/SEPT/30

ONTARIO SUPERIOR COURT OF JUSTICE

IN THE MATTER OF THE Construction Lien Act, R.S.O. 1990, c. C30

BETWEEN: LENNOX SNOW FENCE CO. (1982) LTD. Plaintiff – and – 1187855 ONTARIO INC. operating as CLARIDA CONSTRUCTION Defendant

Counsel: Andrew D. Ferguson, for the Plaintiff/Carriage Counsel for Lien Claimants Michael J. W. Round, counsel for ABB Inc. Wade W. Sarasin, counsel for Simpson’s Fence Chatham) Inc.

Heard: March 16, 2016

The Honourable Mr. Justice J. M. Johnston

AMENDED JUDGMENT

The text of the original endorsement was corrected on November 18, 2016 and the description of the correction is appended.

[1] This is a Ruling on a Motion by the Plaintiff, Lennox Snow Fence Co. (1982) Ltd. (“Lennox”) and certain Lien Claimants in the Consolidated Actions, to approve the recommendations of the Vetting Committee. There was a cross-motion commenced by ABB Inc. to inter alia reduce its security posted with respect to Simpson Fence liens registered against two properties.

Background:

[2] ABB was engaged to design and build large scale solar generating stations by SunEdison and, in turn, it contracted with the Defendant, 1187855 Ontario Inc. (“Clarida”) to construct the projects. Clarida subcontracted work to various subcontractors.

[3] The two projects involved in this Motion are the Odessa solar project and the Highway 2 solar project.

[4] Simpson’s Fence (Chatham) Inc. (“Simpson’s Fence”) was a subcontractor of Clarida and alleges that it was also a subcontractor of ABB, concurrently.

[5] Clarida was initially involved in the matter and perfected its Claims for Lien. On January 15, 2014, counsel for Clarida served Notice of Intention to Act in Person on behalf of the Corporation. On June 5, 2014, Orders were obtained that required Clarida to comply with Rule 15.01(2) of the Rules of Civil Procedure, and to provide supporting documentation to the Vetting Committee. Despite these Orders, Clarida has taken no steps to proceed with its claim.

[6] It is common ground that the liens of Mod Space Financial Services Canada Ltd. and one of the liens of SMS Rents, division of SMS Construction and Mining Systems Inc. have been paid.

[7] One of the sub trades, Simpson’s Fence, alleges that it had a concurrent contract with ABB and Clarida and that the amount of holdback is greater than what ABB has proposed to distribute. All other Lien Claimants are content with being paid what ABB has proposed.

[8] The Lien Claimants have been divided into two groups. The Lien Claimants from the Consolidated Action, of which Mr. Andrew Ferguson is carriage counsel (“the Consolidated Actions”) and the Simpson’s Fence Lien Claimants, including Simpson’s Fence and its subcontractors (“the Connected Actions”).

[9] Construction Liens were registered on title to the two projects commencing July, 2013. On September 5, 2013, Clarida stopped work on both projects.

[10] On January 24, 2014, Settlement Meetings were ordered pursuant to Section 60 of the Construction Lien Act to take place on June 5, 2014. On June 5, 2014, Orders were obtained that established Vetting Committees to review the liens for quantum and timeliness for each of the two projects, Odessa and Highway 2.

[11] On September 17, 2014, the Vetting Committees provided recommendations to all Lien Claimants. On September 18, 2014, an Order was obtained that required that any objections to the recommendations of the Vetting Committees be raised to the Vetting Committee by October 17, 2014. Simpson’s Fence objected to the recommended values of the liens on October 17, 2014. Thereafter, Simpson’s Fence objected to the recommendations made by the Vetting Committee. On November 13, 2015, Orders were made that consolidated certain actions connected to others and appointed a carriage lien claimant.

[12] Simpson’s Fence entered into an Agreement to provide labour and materials with respect to the projects pursuant to a subcontract dated April 26, 2013, change orders dated May 10, 2013 and August 19, 2013 and invoices dated September 30, 2013.

[13] Simpson’s Fence alleges that a significant amount of extra charges were incurred as the result of site conditions and shortage of supplies. It alleges that both ABB and Clarida were fully aware of these extra charges and insisted that Simpson’s Fence continue to provide its services, with assurance that Simpson’s Fence would be fully compensated for these extras to ensure that progress deadlines were met. Simpson’s Fence subcontract price was initially $3,231,235.00 including HST. However, the price increased to $4,733,508.63 as a result of the extras and change orders in accordance with the invoices rendered by Simpson’s Fence. Simpson’s Fence alleges the sum of $3,243,452.53 is owing to Simpson’s Fence.

[14] Aside from the Construction Lien claims, Simpson’s Fence alleges that it had a direct contract with ABB.

[15] All Lien Claimants, except for the Simpson’s Fence Lien Claimants, accept the Vetting Committee’s recommendations. Simpson’s Fence objects on various grounds, including it disputes the quantum of its liens as determined by the Committee, it disputes the determination of the “holdback” amount as being the amount invoiced by Clarida, there is disagreement how to distribute surplus funds in the event that ABB took assignment of all other Lien Claimants’ claims, in the event that it was determined Simpson’s Fence was a subcontractor of ABB instead of Clarida Simpson’s Fence does not agree with the method in which the Vetting Committee calculated the pro rata holdback amount attributed to each lien claimant.

[16] Clarida failed to perform its obligations under the subcontract with ABB on both projects. On September 6, 2013, ABB exercised its rights under the Subcontracts to “step in” and take over Clarida’s remaining work.

[17] ABB ultimately asserted a claim against Clarida to recover damages that ABB suffered as a result of Clarida’s breach of its obligations under the Subcontracts. ABB obtained Judgment against Clarida in the amount of $24,438,411.32, but has not been able to collect any part of the Judgment.

[18] ABB alleges that the subcontract price that would have been payable by ABB to Clarida for all work on the Odessa Project was $7,703,109.50 excluding taxes. The subcontract price that would have been payable by ABB to Clarida for all work on the Highway 2 Project was $7,707,467.00.

[19] In total, 21 liens have been filed against the Highway 2 Project and 25 liens have been filed against the Odessa Project, including lien claims by Clarida. ABB took steps to vacate all liens filed by Clarida and its unpaid subtrades by bringing ex-parte Motions pursuant to Section 44(1) of the Construction Lien Act. In order to do so, ABB was required to post security with the Court equal to the full amount of each lien, plus costs. In the result, ABB posted a total amount of $5,022,123.71 in relation to Highway 2 liens and $7,598,383.56 in relation to the Odessa liens.

Relief Sought in Each Motion:

[20] Lennox Snow Fence on behalf of Consolidated Actions \Lien Claimants: (1) an Order vacating and discharging lien claims for (a) Odessa Project : (i) 1187855 Ontario Inc. as Instrument Number LX51344 (ii) Mod Space Financial Services Canada, Ltd. as Instrument Number LX52701 (iii)SMS Rents, division of SMS Construction and Mining Systems Inc. as Instrument Number LX51428 (b) Highway 2 Project : (i) 1187855 Ontario Inc. as Instrument Number LX51343 (ii) an Order approving the recommendations of the Vetting Committees (iii) an Order that the Lien Claimants are not required to produce any further documentation or attend examinations for discovery (iv) if necessary, that the Consolidated Actions and Connected Actions shall have common discoveries and common production (v) if necessary, requiring that ABB pay the Lien Claimants the sum of $646,257.44 on the Odessa project and $698,122.74 on the Highway 2 project.

ABB Motion:

[21] In response to the relief requested by Lennox, if the Court discharges the lien sought therein, ABB then seeks Orders dismissing the lien action commenced by Clarida, an order the Accountant of the Superior Court of Justice deliver for cancellation the Financial Guaranty Bond previously posted as security by ABB in relation to Clarida’s Highway 2 Lien and Clarida’s Odessa Lien.

[22] If, in response to relief requested by Lennox, ABB seeks the Court to discharge the lien registered by Mod Space, then an Order dismissing the lien action.

[23] Similarly ABB seeks an Order, if the Court discharges the lien of SMS Rents, return of security. In response to the relief requested by Lennox, if the Court approves recommendations of the Vetting Committee, then ABB seeks an Order that the Lien Claimants, other than Simpson’s Fence, are not required to produce any documentation or attend oral examinations or produce any additional evidence at trial; an Order pursuant to Section 73 of the Act approving any written assignments of the lien claims of all Lien Claimants except Simpson’s Fence, Clarida, Mod Space, SMS Rents

[24] ABB seeks: An Order pursuant to Rule 72.03 of the Rules of Civil Procedure permitting the release to Faskin Martineau Dumoulin LLP, lawyers for ABB, of the security posted in connection with any lien claims that are assigned to ABB or its designate.

[25] ABB seeks an Order pursuant to Section 44(5) of the Act reducing the amount of security that ABB is required to post in relation to the liens of Simpson’s Fence and its subcontractors Go Drilling Inc. and St. Mary’s Cement and directing the Accountant of the Superior Court of Justice, upon presentation of the new Bond in the amount determined by the Court, to deliver to Faskin’s the Financial Guaranty Bonds previously posted as security by ABB in relation to each of those liens and specifying that Rule 72.03(2)(c) of the Rules of Civil Procedure does not apply.

[26] ABB also seeks an Order transferring the Trust Action commenced at London, Ontario as Court File 1666/15 to Napanee.

[27] ABB asks for an Order directing that any discoveries conducted in a lien action can be used in the Trust Action.

[28] The Construction Lien Act provides that leave is required to have interlocutory motions heard. All parties proceeded in argument on the basis that, while Justice Roccamo in her Order dated November 13, 2013 paragraph 6 did not explicitly grant leave for these Motions, it was implicit. I agree and proceed on the basis that leave, if required, is hereby granted.

Should the claims for liens of Clarida, ModSpace and SMS Rents and Clarida be vacated and discharged?

[29] I am satisfied on the evidence and it is not disputed that Mod Space has executed a Release of Lien and has no further claim. Counsel for SMS Rents indicates that it has been paid. Accordingly, both liens are vacated and discharged and security posted for said lien shall be returned as requested by ABB.

[30] Similarly, the claim for lien of Clarida is discharged. Security shall be returned to ABB as requested. Clarida is not entitled to a lien, it failed to comply with the Order of June 5, 2015, it has failed to set its action down for trial as required by the Construction Lien Act.

Should the recommendations and reports of the Vetting Committees with respect to quantum and timeliness be approved?

[31] The Vetting Committee was appointed to make recommendations with respect to the quantum and timeliness of the liens.

[32] ABB provided the Vetting Committee with a dollar amount it was prepared to pay as holdback for the two projects. The Vetting Committee then made recommendations relating to the pro rata distribution of the holdback among the Lien Claimants. Simpson’s Fence objects to the quantum of the holdback and the pro rata distribution proposed.

[33] Simpson’s Fence states that, given ABB and the other Lien Claimants are in agreement, there should be an Order that ABB be required to pay at a minimum 10% of the amounts invoiced as holdback and that an Order should be made fixing the minimum basic holdback and those funds be paid by ABB into Court and distributed to all Lien Claimants, rateably, in proportion to either (a) the approved/proven quantum of each lien; (b) the total value of each subcontract; or (c) the total amount invoiced by each subcontractor. Simpson Fence asks that the term “minimum” be used.

[34] It is the position of the other Lien Claimants that the result of failure to adopt the recommendations of the Vetting Committees will necessitate 45 lien trials; to establish quantum and timeliness of every lien. Further, the monies already spent on the Vetting Committees will have been wasted. The vast majority of Lien Claimants seek to have funds paid by the “owner”, assign their lien claims to the owner (ABB) and have no further involvement in the matter. Lien Claimants are in agreement to what is being proposed by ABB in their Motion. The Plaintiff, Lennox Snow Fence, was ordered to have carriage of this matter, to act on behalf of most of the Lien Claimants whose actions have been consolidated.

[35] Counsel for the Lien Claimants argues that many of the Lien Claimants are likely to recover only modest sums in the lien actions and, in many cases, likely only to cover legal costs. It is strongly urged by counsel for the Lien Claimants that the interests of justice require adopting the Vetting Committee report, on the basis that it is largely undisputed by Simpson’s Fence. To require participation by the other Lien Claimants at this juncture would be disproportionate, unreasonable and costly to those claimants. ABB’s position is that it wishes to facilitate a settlement, however, if Simpson’s Fence will not agree the holdback amount should be 10% of the amount invoiced by Clarida or at least 10% of the contract price between Clarida and ABB, it cannot accept.

[36] ABB argues that the solution contemplated by the relief requested by Lennox Snow Fence in its Motion, in the absence of a final determination as to the proper amount of holdback, would result in a risk of overpayment to some of the Lien Claimants in the event that: (a) Simpson’s Fence establishes that its liens were worth more than the amount determined by the Vetting Committee; or (b) if the Court should determine that the holdback amount should, in fact, be less than the amount proposed by ABB and the Lien Claimants.

[37] ABB proposes that it pay the Lien Claimants an amount equal to the respective shares of a notional holdback fund (equal to 10% of the amount invoiced by Clarida) in exchange for an assignment of their respective liens and their consent to release of the security posted by ABB to vacate their liens. ABB will then assume the risk of its recovery under the assignment liens may be less than the amount paid to the Lien Claimants, when the holdback amount is ultimately determined by the Court.

[38] ABB states that it cannot do so unless: (a) the timeliness and quantum of the liens being assigned is finally determined for the purposes of the Lien Action; (b) the assignments are approved by the Court; (c) ABB not be required to produce any documentation or oral evidence in relation to the assigned liens and (d) ABB has assurances that it will be promptly able to recover the security that it posted in connection with the assigned liens.

Analysis and Ruling:

[39] The purpose of the Vetting Committee was to make recommendations with respect to quantum and timeliness of the liens. Where there is no consensus or agreement the Vetting Committee cannot impose its position. In the absence of Simpson’s Fence consent I will not Order the Vetting Committee report be adopted.

[40] The Vetting Committee stated that it did not assess the value of improvements made by the Lien Claimants. It accepted the value proposed by ABB. This is addressed by the Vetting Committee at paragraph 44 of its Factum stating: It takes the position that ABB was required to provide its position on holdback in accordance with the June 5, 2014, Order. ABB did so by way of email to all counsel. The Vetting Committees “did not have any authority to undertake such a review nor to make recommendations with respect to the quantum of holdback.” Simpson’s Fence argues that the Vetting Committee cannot act as arbiter or impose its findings by way of decision making power. Simpson’s Fence argues that accepting the Vetting Committee’s recommendations as proposed in the two Motions will prejudice their position at trial and, as such, the recommendations must not be accepted and imposed upon them. Simpson’s Fence proposes that the word “minimum” holdback be adopted. For the reasons previously outlined, ABB disagrees. While it is not desirable to have 45 separate lien trials, in the absence of consensus and agreement, they will not oppose the Vetting Committee’s recommendation in the face of Simpson’s Fence objection.

Common Discoveries and Common Productions for Consolidated Actions and Connected Actions:

[41] Given my Ruling with respect to Vetting Committee recommendations, I am not prepared to relieve the Lien Claimants of the requirement for production of documentation and/or to attend Examinations for Discovery. I agree that, in the event a resolution is not reached, the other Lien Claimants are then required to proceed and there will be issues in common between the Consolidated Actions and the Connected Actions. Common discoveries and common productions are, therefore, ordered. I so order because it is likely the same or similar questions will be asked of the same witnesses.

[42] I agree the most obvious common issue is the determination of holdback, since that will affect every Lien Claimant. In addition, the issue of whether Simpson’s Fence contracted with either ABB or Clarida is one that bears relevance to all of the Lien Claimants, since that issue will determine whether Simpson’s Fence is entitled to any holdback payments from ABB. It would be unfair to the Lien Claimants to proceed to trial with evidence that differs from what ABB and Simpson’s Fence would have.

[43] In the absence of agreement, I am not prepared to grant the request by the Lien Claimants that ABB pay to the Lien Claimants an amount in partial or full satisfaction of its liability to the Lien Claimants. This is an interlocutory Motion.

ABB’s Motion to reduce security for Simpson’s Fence liens:

[44] ABB seeks an Order to reduce the security posted for the Simpson’s Fence liens. Simpson’s Fence argues no reduction ought to be granted as the issues with respect to quantum of holdback and class of Lien Claimants requires judicial determination on the merits and there is insufficient discovery/evidence to make such determination at this time. Discoveries have not yet been conducted.

[45] I agree with Simpson’s Fence that the test to be applied on a Motion of this nature is similar to the test on a Motion for Summary Judgment. Accordingly, the Court must be satisfied on the basis of the Motion materials that there is no reasonable prospect of the Plaintiff proving a lien for the amount that it has claimed. As discussed in some of the case law, a Motion under the security provisions of the Construction Lien Act, is not the venue for determining the complex issues of contested facts going to the very merits of the Claim. Motions to reduce security under Section 44(5) of the Act cannot succeed where there are genuine issues of fact that require a trial to determine whether the entire amount claimed or some lesser amount is appropriate. Only where the evidence clearly and unequivocally proves that the lien as registered is excessive or improper should a Court reduce or release the security at the interlocutory stage. A Motion is not a substitute for lien trial. ABB has not sought for an Order to reduce security with respect to other liens, only Simpson’s Fence.

[46] ABB argues that the 10% holdback that it was required to retain is to be determined based on the subcontract price that had been agreed upon between ABB and Clarida for the services and material that Clarida was to provide under its Subcontracts with ABB. The “actual value” or market value of those material or services would only be relevant if no price had been agreed upon under the Subcontracts between ABB and Clarida. ABB says this does not apply.

[47] The term “holdback” is defined in Section 1(1) of the Act as: “Holdback” means that 10% of the value of the services or materials supplied under contract or subcontract required to be withheld from payment by paragraph iv.

[48] The amount of the holdback that ABB was required to retain under its Subcontracts with Clarida is set out in Section 22 of the Act, according to ABB, which provides: Each payor upon a contract or subcontract under which a lien may arise shall retain a holdback equal to 10% of the price of the services or materials as they are actually supplied under the contract or subcontract until all liens that may be claimed against the holdback have expired as provided in paragraph v, or have been satisfied…

[49] Price is defined in Section 1(1) of the Act as: “Price” means the contract or subcontract price, (a) agreed upon between the parties or (b) where no specific price has been agreed upon between them, the actual value of the service or material that has been supplied to improvements under the contract or subcontract.

[50] ABB argues the price agreed to between Clarida and its own subcontractors is irrelevant to calculation of the amount that ABB was required to retain by way of holdback under its Subcontracts with Clarida. The price agreed to between Clarida and its Subcontractors determines Clarida’s own holdback obligations under the Subcontracts, but it does not play any role in determination of ABB’s holdback obligation.

[51] Overall, ABB argues that the security it posted is grossly in excess of its potential liability to the various Lien Claimants. ABB argues that it has currently posted security on the Odessa project approximately $7 million more than its potential liability to the Lien Claimants on the Odessa project and approximately $4.4 million more than its potential liability to the Lien Claimants on the Highway 2 project. The security that ABB has posted, according to it, should be reduced to an amount that better reflects the actual value of the lien claims and, therefore, ABB’s liability to the Lien Claimants.

Analysis:

[52] I accept Simpson’s Fence submission that no reduction ought to be granted in this case to ABB, as the issues with respect to quantum of holdback and class of Lien Claimants requires Judicial determination on the merits and there is insufficient discoveries/evidence to make such a determination at this time. I am not satisfied that ABB has met its obligations of proof that there is no reasonable prospect for Simpson’s Fence proving a lien for the amount claimed. Further, it would not be appropriate to exercise discretion and reduce the Simpson’s Fence lien where there is no claim for reduction of security for the other liens.

Transfer of Breach of Trust Action from London to Napanee

[53] The breach of trust claim raises many issues that are in common with the Lien actions. It is desirable in the interests of justice that the London action be transferred to Napanee and be heard one after the other.

Discovery\Disclosure

[54] The Lien Claimants argue that it would be too costly to prepare Scott Schedule setting out the limited information sought by Simpson’s Fence. They also argue that some of the information sought by Simpson’s Fence is easily available to them from the Claims.

[55] Rule 29.2.03 (1) of the Rules of Civil Procedure sets out the factors for the Court to consider when determining whether a party or persons must answer a question or produce a document. In the case at bar, none of the factors are present. The main argument against production by the Lien claimants is that they will not recover any costs, or nominal recovery on their claims. I find that it would not be unreasonable, unjust or cause undue prejudice to any of the parties to order the disclosure and or discoveries, if necessary. The information sought by Simpson Fence is relevant and necessary to the Claims.

[56] The parties are encouraged to discuss the discovery\disclosure issue and arrive at a mutual solution; such as a narrow exchange of Scott Schedule as proposed by Simpson’s Fence.

[57] The Order of Quigley J. apparently remains outstanding and, if it has not been complied with, it should.

[58] Costs: The parties are to consult with one another to attempt to agree upon the costs of these motions herein. In the event there is no agreement upon costs; the parties shall exchange written submissions, limited to three pages together with a Bill of Costs and file with the Court.

[59] Summary of Orders: a) Motions by ABB and the other lien claimants are dismissed; except for the discharge of liens as specified above. Return of security posted on the liens discharged herein; b) Request for transfer of London matter to Napanee is granted, to be dealt with after the trials in relation to the Lien Claims; c) An Order requiring the other lien claimants to produce affidavits of documents within 45 days: unless the parties agree otherwise; d) An Order requiring ABB to produce its affidavit of documents within 45 days, including those ordered by Quigley J. which have not been produced; e) An Order that ABB attend at examinations for discovery arranged at a date agreed upon. In the absence of an agreement, examination for discover to be conducted within 90 days.

The Honourable Mr. Justice J. M. Johnston

Released: September 30, 2016

APPENDIX

November 18, 2016:

[40] The Vetting Committee stated that it did not assess the value of improvements made by the Lien Claimants. It accepted the value proposed by ABB. This is addressed by the Vetting Committee at paragraph 44 of its Factum stating, it: “did not have any authority to undertake such a review nor to make recommendations with respect to the quantum of holdback.” The Vetting Committee position was that ABB was required to provide its position on holdback in accordance with the June 5, 2014 Order. ABB did so by way of email to all counsel. Simpson’s Fence argues that accepting the Vetting Committee’s recommendations as proposed in the two Motions will prejudice their position at trial and, as such, the recommendations must not be accepted and imposed upon them. Simpson’s Fence proposes that the word “minimum” holdback be adopted. For the reasons previously outlined, ABB disagrees. While it is not desirable to have 45 separate lien trials, in the absence of consensus and agreement, they will not oppose the Vetting Committee’s recommendation in the face of Simpson’s Fence objection.