CITATION: Trenchline Const. Inc. v. Unimac-United Mgmt. Corp., 2016 ONSC 6136
COURT FILE NO.: CV-12-454092
DATE: September 30, 2016
ONTARIO
SUPERIOR COURT OF JUSTICE
IN THE MATTER OF the Construction Lien Act, R.S.O. 1990, c.C.30
BETWEEN:
TRENCHLINE CONSTRUCTION INC.
Glenn Grenier for the plaintiff, Tel.: 416-307-4005; Fax: 416-865-7048.
Plaintiff
- and -
UNIMAC-UNITED MANAGEMENT CORP. and METROLINX
Greg Hersen for the defendant, Metrolinx Tel.: 416-863-1188; Fax: 1-888-812-2560.
Defendants
HEARD: June 2, July 6 and August 11, 2016.
Master C. Wiebe
REASONS FOR JUDGMENT
(notice holdback issue)
I. INTRODUCTION
[1] At the trial management conference on March 10, 2016 in this reference and at the urging of the parties, I directed that there be a trial of an issue to determine whether and to what extent the owner has notice holdback liability. The project was the “Willowbrook Rail Maintenance Facility Fuel Rehabilitation Project” (“the Project”). The owner was Metrolinx. The relevant contractor was Unimac-United Management Corp. (“Unimac”). The relevant subcontractor was Trenchline Construction Inc. (“Trenchline”). It installed a piping system. Only Trenchline and Metrolinx participated in the trial of an issue.
[2] Trenchline asserts that it issued 10 written notices of lien under the Construction Lien Act, R.S.O. 1990, c. C.30 (“CLA”), section 24 to Metrolinx between May 24, 2011 and December 10, 2011, and that Metrolinx has a notice holdback liability to all valid lien claimants in the amount of $1,085,210.09 as a result. This is in addition to the admitted statutory holdback liability of Metrolinx of $462,841.22. Metrolinx denies that any of these notices were written notices of lien, and that it has any notice holdback liability.
[3] Having reviewed the presented evidence and heard argument, I have determined that one of these alleged notices was a written notice of lien under CLA section 24, and that Metrolinx has notice holdback liability of $215,054.80 as a result.
II. BACKGROUND AND EVIDENCE
[4] On March 10, 2016, I ordered that the trial of an issue proceed in motion format, that the parties prepare an agreed statement of facts, that disputed facts be addressed by affidavits and cross-examinations out of court, and that the “hearing” be limited to the final argument.
[5] In the end, the parties prepared and submitted an Agreed Statement of Facts, a Notice Holdback Chronology and two volumes containing the production documents referred to in the Agreed Statement of Facts plus relevant portions of the discovery transcripts. Trenchline submitted two affidavits sworn by John Romanovich, president of Trenchline. Metrolinx submitted an affidavit sworn by a project manager for the Project, Elena Chanina. There were no cross-examinations on affidavits. Both parties filed facta and reply facta plus the related books of authorities. Argument took longer than expected. It stretched over three days, namely June 2, July 6 and August 11, 2016. Both parties and their counsel are to be commended for their work in preparing these documents and for the excellent closing arguments.
[6] I will summarize the relevant and undisputed facts. These come largely from the Agreed Statement of Facts, Notice Holdback Chronology and the facta. I will use tax-included figures, unless expressly stated otherwise.
[7] Between November 11, 2010 and April 4, 2011, the consultant on the project, Hatch Mott MacDonald Ltd. (“HMM”), issued five certificates of payment (“COPs”) for Unimac. All were paid by Metrolinx to Unimac. None of these are in dispute.
[8] On May 24, 2011, Trenchline sent Metrolinx an email with attachments concerning an amount Unimac owed Trenchline on the Project. Trenchline’s Progress Claim (“PC”) #2 dated April 13, 2011 for $586,616.79 was attached to the email. The email contained the following statement: “Can you please bring this up at Thursdays meeting this week, since I am not a participant. I would like to straighten this out prior to taking this one step further and placing a lien on the project.” Trenchline calls this email, Written Notice of Lien No. 1.
[9] On May 29, 2011, Trenchline sent HMM three emails with attached outstanding Trenchline invoices. In addition to Trenchline PC#2, these emails refer to Trenchline PC#3 in the amount of $210,727.50 and an invoice for “Delay Claim Long Weekend” in the amount of $33,041.53. The total stated to be outstanding in these emails is $830,385.82. Trenchline calls these three emails, Written Notice of Lien No. 2.
[10] On June 2, 2011, Trenchline sent Metrolinx an email and three attachments. These emails included portions of the earlier emails and reiterated the above-noted three outstanding amounts. Trenchline calls this email, Written Notice of Lien No. 3.
[11] Starting on June 3, 2011, Ms. Chanina’s emails to Trenchline were copied to her direct superior at Metrolinx, Juan Mejia, and to the supervisor of both of them, George Atikian, the Manager of Rail Facilities Infrastructure at Metrolinx.
[12] On June 13, 2011, Trenchline sent Metrolinx an email that refers to the above-noted three outstanding amounts plus an additional outstanding amount of $713.10 for “emergency repair.” Below the email is an earlier email from Unimac to Trenchline sent that day stating that Unimac is awaiting payment. The total of the four amounts in the Trenchline email is $831,098.92. In the email, Trenchline asked several questions including this one: “When will Trenchline be paid.” Trenchline calls this email, Written Notice of Lien No. 4.
[13] On June 14, 2011, Ms. Chanina emailed Mr. Romanovich. She confirmed that Metrolinx was in the process of reviewing Unimac’s latest progress draw (submitted on June 7, 2011). As to the Trenchline questions, she stated that Trenchline should discuss them with Unimac.
[14] On June 29, 2011 Walter Sweet of HMM emailed Ms. Chanina confirming her awareness that Trenchline had not been paid for certain double wall containment piping that had been on site “for some time,” that Unimac had sworn false statutory declarations that all subtrade accounts had been paid, and that this raised “grave concerns.”
[15] On July 13, 2011, Trenchline sent Metrolinx an email. Attached to this email is a formal letter under Trenchline letterhead from Mr. Romanovich to Ms. Chanina dated that same day. The covering email asked Ms. Chanina to “respond” to the attached letter. The attached letter listed the amounts that had not been paid to Trenchline. These included the above-noted four amounts plus $1,013.16 for a puddle repair, $6,238 for CI#2, $9,407 for CI#3, and $43,642.50 for “standby” costs concerning trenching. The total of all eight items was stated to be $891,369.58. Related documents were attached to the letter. In the letter, Mr. Romanovich stated that he was contacting Metrolinx “as the constructor for this project.” He stated the following: “I entrust supplying all information to Go Transit ‘the constructor’ creates onus and responsibility to ensure sufficient funding is withheld on the overall project until resolve between TCI and UNIMAC has been agreed upon.” Mr. Romanovich closed the letter by asking “if Go Transit will commit to withholding future funding should monetary mediation be required,” and if it will not so commit, what “procedures” Metrolinx would like Trenchline to follow regarding its claims. Trenchline calls this email and letter, Written Notice of Lien No. 5.
[16] On July 14, 2011, Ms. Chanina responded with an email stating that “this matter” could be discussed at the site meeting that day. She added that Metrolinx would be paying Unimac on its last draw that day.
[17] On July 14, 2011, Metrolinx paid Unimac the entirety of its COP#6, namely $870,466.56. This figure was net of statutory holdback.
[18] On July 14, 2011 there was a site meeting. Ms. Chanina was present. The minutes of the site meeting contains the following first entry: “Go Transit advises that TCIs [Trenchline’s] payment issues are between UNIMAC and TCI.”
[19] On July 18, 2011, Unimac paid Trenchline on its PC#2, namely $586,616.79.
[20] On August 8, 2011, Mr. Mejia emailed Ms. Chanina instructing her to “cut that line of communication” between Trenchline and Metrolinx, “as we will be held liable.”
[21] On August 19, 2011, Mr. Mejia sent Ms. Chanina another email which contained the following sentence: “We need to keep Unimac at bay but don’t squeeze too much or else we won’t have a contractor to work with.”
[22] On August 26, 2011, Trenchline sent an email to Metrolinx confirming, amongst other things, that it had received payment on its PC#2.
[23] On September 1, 2011, Trenchline sent an email to Unimac, copying HMM and Metrolinx, advising of, amongst other things, “past due claims for payment.” Attached were documents, one of which was an “Invoice Summary” showing six unpaid amounts, PC#3 for $210,727.50, PC#4 for $84,003.38, extras for $78,410.29, other extras for $45,951.67, CI#2 for $6,238 and CI#6 for $9,407. The total of these items was $434,737.64. Trenchline calls this email, Written Notice of Lien No. 6.
[24] On September 8, 2011, Trenchline sent an email to Metrolinx advising that Trenchline had not been paid since July 18, 2011 and that PC#3, PC#4 and extras associated with those PCs were now past due. Attached were minutes which detailed amounts outstanding, which amounts totaled the same $434,738.14. Trenchline calls this email, Written Notice of Lien No. 7.
[25] On September 12, 2011 Metrolinx paid Unimac on COP#7 in the amount of $123,656.38. This amount was net of statutory holdback.
[26] On October 20, 2011, Trenchline sent Metrolinx an email advising of an agreement between Unimac and Trenchline whereby those two parties had agreed to have Unimac defer payment to Trenchline of the outstanding amounts on certain terms. One of the terms was that Unimac was to sign off on the balance of extras totaling $89,698 and provide Trenchline with a cheque for that amount by October 28, 2011.
[27] On October 24, 2011, Metrolinx paid Unimac on COP#8 in the amount of $156,758.43. This amount was net of statutory holdback.
[28] On November 4, 2011 Unimac received a cheque for $89,689. However, Unimac immediately placed a “stop payment” on the cheque. Finally, on November 9, 2011, Unimac delivered a bank draft for $89,698 to Trenchline. This cheque cleared.
[29] On November 10, 2011, Trenchline made a formal claim by letter package on the labour and material payment bond that Unimac had provided to Metrolinx on the Project. The bonding company was Trisura Guarantee Insurance Company (“Trisura”). The claim was sent by courier. The package was sent to Trisura and was copied to Unimac and Metrolinx, as required by the bond. The amount claimed on the bond was $455,637.60. This figure was derived from the outstanding PC#3, PC#4 and four standby costs extras. Attached were copies of the outstanding invoices. Trenchline calls this letter package, Written Notice of Lien No. 8. On November 14, 2011, Trenchline sent the same package by registered mail, as required by the bond.
[30] On November 18, 2011, Trisura sent a letter to Trenchline requesting backup to its claim on the bond. On November 21, 2011, Trenchline delivered another package to Trisura, copying Metrolinx and Unimac. The covering letter now claimed $577,755.57, which was the above-noted $455,637.60 plus an adjustment for an extra sum of $122,117.97. Enclosed were copies of the documents Trisura had requested. Trenchline calls this, Written Notice of Lien No. 9.
[31] On November 30, 2011 Metrolinx paid Unimac on COP#9 in the amount of $38,726.70. This amount was net of statutory holdback.
[32] On December 22, 2011 Trenchline sent an email to Unimac, copying Metrolinx. The email listed outstanding accounts for work up to December 23, 2011 that had not been included in the bond claim. The additional amount was $199,305, which was composed of PC#5, Site Instruction 4A and 4B, and an extra for steel plate handling. Trencline calls this, Written Notice of Lien No. 10. Adding this additional amount to the bond claim produces a total of $777,061.23.
[33] On December 30, 2011 Metrolinx paid Unimac on COP#10 in the amount of $69,588.23. This amount was net of statutory holdback.
[34] Trenchline asserts that it rendered two further written notices of lien, one an email to Unimac, copied to Metrolinx, dated January 23, 2012 with attached invoicing, and the other an email to Metrolinx dated February 23, 2012 advising as to Trenchline’s “total lienable amount” as of February 8, 2012. As Metrolinx paid no further money to Unimac, these documents are of marginal relevance.
[35] On January 20, 2012 Trisura sent Metrolinx a letter stating that, given the Trenchline claim on the labour and material payment bond, all contract funds had been assigned to Trisura and “in no event should any further monies be released to United [Unimac].”
[36] On January 27, 2012 HMM issued COP#11 certifying payment to Unimac in the amount of $576,349.59.
[37] On February 9, 2012, Trisura sent Metrolinx a further letter advising of an agreement between Unimac and Trisura whereby contract funds owed to Unimac were to be wired to a bank account held jointly by Trisura and Unimac. Trisura requested that future contract funds be paid into that account.
[38] On February 10, 2012, Ian Caie, Procurement Manager at Metrolinx, emailed Ms. Chanina, Mr. Mejia and Mr. Atikian asking whether Trenchline had ever given notice to Metrolinx that it had not been paid by Unimac “and/or they were going to initiate a claim against Unimac for non-payment?” He added that any such notices should be forwarded to Paul Jackymek, in-house lawyer at Metrolinx.
[39] On February 20, 2012 Mr. Caie responded to both Trisura and Unimac with a letter. He stated that, “in light of Trenchline Construction Incorporated’s (“Trenchline”) notice of claim dated November 21, 2011,” Metrolinx required an indemnity from both Trisura and Unimac for any costs, damages, claims or other expenses Metrolinx might incur to Trenchline on account of any payments to the joint account. Alternatively, Mr. Caie stated that “Metrolinx will accept Trenchline’s written withdrawal of the claims made in its November 21, 2011 correspondence.” Mr. Caie concluded that, if neither the indemnity nor the withdrawal was received, “Metrolinx will be required to retain the full amount claimed in Trenchline’s letter in accordance with the notice holdback provisions of the Construction Lien Act.”
[40] The amount in the Trenchline November 21, 2011 letter exceeded the amount in COP#11. Metrolinx did not pay COP#11.
[41] On February 23, 2012 Trenchline registered its first claim for lien in the amount of $1,006,050.65.
[42] On March 9, 2012, Metrolinx removed Unimac from the Project.
[43] On April 4, 2012, Trenchline registered a second claim for lien in the amount of $79,159.44. The total of the two claims for lien is $1,085,210.09.
[44] On May 14, 2012, Metrolinx’s lawyers wrote a letter in response to a CLA section 39 demand for information from Trenchline. The letter was addressed to Trenchline’s lawyers and Unimac. One of the demanded pieces of information was the state of accounts as between Metrolinx and Unimac. Here there was the following statement: “Notice Holdback currently retained: $510,043.87.” $510,043.87 is the amount of COP#11 less the HST.
[45] Trenchline asserts that its first ten written notices of lien made Metrolinx potentially liable under the notice holdback provisions of CLA section 24 for the entirety of the payments it made on COPs #6, 7, 8, 9 and 10. These payments total $1,259,196.86. However, pursuant to the decision of Master Sandler in L.I.U.N.A. Employee Benefit Trust, Local 506(Trustee of) v. Bayview Hospital, 2000 CarswellOnt 714 (Ont. Master), the parties agree that Metrolinx’s notice holdback liability cannot exceed the amount of the Trenchline claim for lien, namely $1,085,210.09.
[46] The parties also agree that Metrolinx now has valid set-off claims against the $576,349.59 it retained, namely the amount of COP #11.
III. ISSUES
[47] Having reviewed the submissions and heard argument, I have concluded that the following issues are to be determined in this trial of an issue:
a) What constitutes “written notice of lien” under CLA section 24?
b) Do any of the alleged Trenchline written notices of lien qualify as such?
c) Were the Trenchline written notices of lien “received” under CLA section 24?
d) Did payments to Trenchline reduce Metrolinx’s notice holdback liability?
e) Does Metrolinx have a set-off against its notice holdback liability?
f) Were the Trenchline written notices of lien “withdrawn”?
g) What is Metrolinx’s notice holdback liability, if any?
h) Is Metrolinx liable for interest on its notice holdback liability?
i) What is the effect of the Metrolinx CLA section 39 response, if any?
[48] There were no issues as to the credibility of witnesses. Therefore, I will move directly into the analysis of the issues.
IV. ANALYSIS
a) What constitutes written notice of lien under CLA section 24?
[49] CLA section 24 specifies that a “payer” may, “without jeopardy,” pay on account up to 90 per cent of the price of the services supplied unless the payer has “received” prior to the payment a “written notice of a lien.” Where such a notice has been received, the payor can escape “jeopardy” by “retaining” not only the statutory holdbacks, but also “an amount sufficient to satisfy the lien.”
[50] CLA section 1(1) defines “written notice of a lien” as follow:
“written notice of a lien” includes a claim for lien and any written notice given by a person having a lien that,
(a) identifies his payer and identifies the premises, and
(b) states the amount that the person has not been paid and is owed to the person by the payer.
[51] None of the alleged Trenchline written notices of lien contained a claim for lien. Therefore, the first part of the definition does not apply.
[52] The second part of the definition establishes a baseline for what a written notice must contain. It must come from “a person having a lien,” and must identify the “payer,” the “premises” and the amount the person having a lien is owed. It was not disputed that all of the alleged Trenchline written notices of lien had these four elements. What is in dispute is whether there is a fifth element to be imputed, namely the requirement of a statement that the notice giver is claiming a lien or intends to register a claim a lien.
[53] Many of the leading cases on this subject stem from the Mechanics Lien Act, R.S.O. 1980, ch. 261 (“MLA”) that predated the CLA. The MLA had a notice holdback provision. However, unlike the CLA, the MLA did not have a statutory definition for the notice. MLA section 12(7) simply referred to “notice in writing of the lien given by the person claiming the lien.” Therefore, it was the caselaw that fleshed out the requirements for the notice.
[54] The leading case on this subject under the MLA was the Court of Appeal decision in Craig v. Cromwel, (1900), 27 O.A.R. 585. Here the notice in question was the following:
When you are making a payment to-day to Mr. Hayner, in the Lisgar Street buildings, kindly see that a cheque for at least $400 is made payable to us on account of brick delivered, as our account is considerably over $700, and we shall be obliged to register a lien if a payment is not made to-day.
[55] The Divisional Court ruled that this was a sufficient “notice in writing of a lien” under the MLA. The Court of Appeal dismissed the appeal. Writing for the Court of Appeal, Osler J.A. made several important points in paragraph 10 of the decision. First, he stated that the object of the notice is to warn the owner that he cannot safely pay the contractor without holding back funds due to the existence of liens. He stated that the notice’s sole purpose “is to stay the hand of the paymaster until he shall be satisfied – either by the direction of the debtor or of the Court, in case proceedings to realize the lien are taken – that there is a lien, and that some . . . amount is really due and owing to the lien-holder.”
[56] His Honour’s other comments concerned the contents of the notice. First, he stated that the notice could be quite informal, with “no form or special particulars of detail being prescribed” by the statute. Second, he stated that the notice could be read “in light of surrounding circumstances known to both parties.” Third, and most importantly, he stated that, “without deciding what is the minimum of information that such a notice should contain,” the notice in question had five features that made it a “notice in writing of a lien” under the MLA, namely the four features that later formed the expressed statutory definition of “written notice of lien” under the CLA as described above plus the following fifth feature, a statement “that the claimants have a lien, which they will register if a payment on account is not made that day.” He added, in contradiction of his earlier statement (that he was not prescribing a minimum requirement for a notice), that any notice that conveyed “to a reasonably intelligent man” the information contained in the notice in question “conveys all that the statute requires.”
[57] Mr. Grenier argued that this decision did not prescribe minimum requirements for a written notice of lien, and did not prescribe the need for a statement of an intention to lien. With respect, I disagree. Having rightfully focused on the underlying purpose of a written notice of lien, namely the purpose of warning the owner as to what he can and cannot safely pay, Justice Osler could not escape imposing minimal requirements for notice. A legal warning by its nature requires prescribed elements that can be readily understood by the recipient. Otherwise the recipient will be at a loss as to when the warning is given. That is why in the end, in my view, Justice Osler contradicted himself and acknowledged, despite his earlier statement that he was not imposing minimal requirements for notice, that the five elements he identified in the notice in question were the information that the statute required.
[58] Furthermore, the underlying purpose of warning necessitated, in my view, the fifth feature identified by Justice Osler, namely the need of a statement of an intention to claim a lien. The other four features are descriptive in nature. They describe the lien right in question, namely the lien claimant, the premises, the payer and the amount owed. They do not put the recipient on notice that he or she should now exercise caution in paying the payer. That notice is provided by the fifth feature, which is essentially a statement of action being taken by the lien claimant to disrupt the normal contractual flow of funds.
[59] I add here that I agree with Mr. Hersen that the underlying purpose of warning is consistent with the overall structure of the then MLA and the present CLA, and indeed business practice. These statutes did not, and do not, make the owner a “policeman” over the contractual flow of funds until the end recipients of the flow, the subcontractors and suppliers, take action to interrupt that flow. Only a clarion call to disturb the contractual flow of funds should cause the owner to do so. This is particularly the case given the potential liability to the owner of continuing with the status quo that arises with notice holdback. This is also consistent with reasonable human and business practice. Established practice creates expectations that should be interrupted only with a clarion call to do otherwise from those who have these expectations.
[60] I find, therefore, that the decision of the Court of Appeal in Craig required that five elements be present for there to be a written notice of lien. One of these is a warning to the payer of the notice giver’s present intention to preserve a lien. I view this fifth element as essentially being a statement of a present desire that the status quo flow of funds be interrupted. The decision did not require a specific form for the notice since it recognized that written notices of lien were to be used on project sites in real time by non-lawyers. There were no magic words or forms, as long as the substance of the notice contained the required elements. It was the “formal character” of the notice that the minority decision of Justice Meredith in the Divisional Court supported and which the majority of the Divisional Court and the Court of Appeal rejected.
[61] Several later decisions referred to the Court of Appeal decision in Craig and purported to follow it by imposing minimal requirements for the written notice of lien, including the requirement of a statement of an intention to lien. The first two cases come from Alberta. In Direct Lumber Co. v. Meda, 1957 CarswellAlta 62 (Dist. Ct.) the court dealt with an alleged notice by delivery of a bill of materials to the owners. In Bird Construction Co. v. Mountview Construction Ltd. 1969 CarswellAlta. 9 (S.C.) the court dealt with an alleged notice to the owner that did not identify that an amount was owed or the amount owed. Both decisions rejected the claims of written notice of lien. Both decisions characterized the Craig decision as subscribing to the “formalistic” school of jurisprudence concerning written notices of lien. In Bird, Justice Riley, referring to the Direct Lumber decision, outlined four requirements for a notice that were similar to the five features described in Craig. In the Ontario decision in 354628 Ontario Ltd. v. Mutic, 1978 CarswellOnt 198, Master Saunders dealt with an alleged notice by a contractor to a mortgagee which identified an amount owing in two weeks and asked for “proper arrangements” when making advances. Master Saunders adopted the four requirements outlined in Bird and rejected the claimed written notice of lien because there was no statement “that a lien is being claimed” and because “the letter states that the account is not yet payable.”
[62] I accept Mr. Grenier’s point that these decisions mischaracterized the Court of Appeal decision in Craig as subscribing to the “formalistic” school of jurisprudence concerning written notices of lien. However, I am not prepared to accept the argument that these decisions made a mistake in imposing the Craig features as minimal requirements for notice. The Craig decision, in my view, did establish such minimal requirements, although not with any prescribed form.
[63] The second leading decision on this subject is that of Justice LaForme in Andrew Paving & Engineering Ltd. v. Shell Canada Products Ltd., 1996 CarswellOnt 2065. This decision is important because it is the first to deal with the CLA and its provisions concerning “written notice of a lien.” Unlike the MLA, the CLA contains an expressed definition of a “written notice of a lien” as noted above, which definition refers to a “person having a lien” as opposed to “a person claiming a lien” as stated under the MLA.
[64] In Andrew Paving a subcontractor had served the contractor with three letters, copying the owner. The first letter asked as to when the subcontractor could get a cheque. The second letter the next day confirmed a conversation that morning wherein the contractor stated that the subcontractor would be paid on the following day. This letter stated also that a failure to pay this cheque “will force us to exercise or (sic) rights to protect our monies owing.” The third letter was sent later that same day stating that a letter the contractor sent had made it obvious that it was not honouring its commitments, and that the subcontractor would be placing a lien on the project and notifying the owner. That letter ended as follows: “We will allow you a small window of opportunity to revise your position of [by] 12:00 Noon, July 7, 1995 [the next day]. If we have not heard from you by this time, the above noted letters will be sent by fax and mail. Govern yourself accordingly.” Justice LaForme was asked to determine whether these three letters amounted to a “written notice of a lien” on the owner under the CLA.
[65] His Honour made reference only to Mutic. He reviewed the definition of a “written notice of a lien” under the CLA. He concluded that the substance of the notice was important, not the form, which is a reiteration of Justice Osler’s point in Craig. Justice LaForme went on to state that the CLA definition was less onerous than what had been required in Mutic. He held that the minimum required by the CLA was the following: “(a) an identification of the payer and the premises, and (b) the amount that the person has not been paid and is owed to the person by the payer.” He made no expressed reference to a need for a statement of an intention to make a claim for lien. He applied the statutory definition to the facts in question and found the alleged notice wanting because the letters did not state what was owed.
[66] What is interesting about this decision is what His Honour stated about the alleged notice that did not pertain to the amount owing. He stated the following:
If Country Style [the owner] did in fact receive the documents prior to July 6th, a fact I am not convinced of, on a plain reading of the documents they would rightfully have concluded that no action would be taken by the Plaintiff until at least Noon on July 7th. Country Style would of course be aware that problems existed between the Plaintiff and Vista [the contractor] in respect of payment but could have reasonably concluded that releasing its final progress draw would eliminate the problem.
A reasonable and fair interpretation of the letters of July 6th is that the matter of payment between Vista and the Plaintiff would not reach the lien stage until July 7th.
[67] Here His Honour, in my view, indirectly identified another requirement of the statutory definition of “written notice of a lien.” This was argued by Mr. Hersen. This added requirement is a statement that the dispute between the lien claimant and its payer has reached the “lien stage.” I view the “lien stage” in this context as being the stage where the lien claimant is not satisfied with the status quo flow of funds and wants it interrupted.
[68] His Honour did not explore this concept further than as indicated above. But the concept makes sense to me given my review of the caselaw on this subject. The concept is rooted in the word, “notice,” and the underlying purpose of a “written notice of lien” as identified by Justice Osler in Craig. The purpose of a “written notice of a lien” is to stay the hand of the paymaster. Only a clarion call, a warning, from a lien claimant which in essence, not in form, makes it clear that the lien claimant wants the status quo flow of funds to cease should have the legal effect of staying the paymaster’s hand. This clarion call could be in the form of a delivered claim for lien, or a letter asserting a lien, or a letter advising of a present intention to register a claim for lien, or a written demand to cease paying without even mentioning the word “lien.” The form, as has been made clear by Justices LaForme and Osler, does not matter. I, therefore, find that Justice LaForme, despite his earlier statements about the statutory minimum requirements, identified a further implicit requirement, namely one of “warning.”
[69] There have been several other decisions that include discussions of written notices of lien. They do not, however, show a consistent and fully analyzed path through this issue. In Schwegel v. Nelson, 2003 CarswellOnt 5605 (S.C.J.), Justice Reilly dealt with the issue of what amounted to “written notice of lien” for the purpose of a priority dispute between lien claimants and a mortgagee under CLA section 78. He purported to follow Mutic but did not refer to the factor contained in Mutic about expressing an intention to lien. There was no fulsome analysis of this issue. In Bestdoor Co. v. Toronto Economic Development Corp., 2004 CarswellOnt 2426 (Master), Master Sandler applied what he called were the “required four ingredients” of a written notice of lien to a document while referring to both Mutic and Andrew Paving. He did not identify the “four ingredients,” and did not analyze the issue. Mr. Grenier suggested that this conflation of the two decisions by Master Sandler was an oversight. I do not agree. As noted above, I find that the two decisions are not dissimilar on this point. In Federated Contractors v. Ann-Maura Developments, 2010 ONSC 346, 2010 CarswellOnt 370 (Master), Master Albert held that a document met the statutory requirements for notice without mentioning the need for a warning. However, the document in question was not reproduced, and there was no discussion of the applicable cases. Therefore, the weight to be given to this decision is unclear.
[70] The most recent decision on point is that of Justice Gunsolos in 755055 Ontario Ltd. v. McIntyre, 2011 CarswellOnt 5995 (S.C.J.). Here His Honour was confronted with another priority dispute between a contractor and a mortgagee under section 78 arising from an alleged “written notice of lien.” The document in question was a letter from a contractor to the owner and a bank which described arrangements being made to pay the contractor, which letter ended with the statement that if the arrangements were not finalized, the contractor would “be forced to protect his interest by any other legal avenues available to him.” His Honour referred to Schwegel and Mutic, and adopted the factors outlined in Schwegel which again did not include the requirement for a warning. Yet, His Honour concluded, referencing Mutic and Andrew Paving, that the document was not a written notice of lien as “the letter did not include a statement that the lien was being claimed.” Mr. Grenier argued that this conclusion was inconsistent with Andrew Paving. Again, with respect, I disagree. As stated earlier, I find that Andrew Paving identified an implicit requirement for such a warning.
[71] Therefore, I have concluded that a “written notice of a lien” under CLA section 24 requires a fifth element, namely a warning from the lien claimant to the recipient that the dispute between the lien claimant and its payer has reached “the lien stage” and that the status quo flow of funds is to be interrupted immediately. Again, this warning does not require any particular form. It can be a statement that the letter is a “written notice of lien” or that the lien claimant has a present intention to register a claim for lien. It can also be just a statement that the recipient is to stop paying the payer without even mentioning the word “lien.” There is no magic in the word “lien.” I base this conclusion on my reading of the word “notice” in the statute and its underlying purpose, and the decisions in Andrew Paving, Mutic and Craig.
b) Do any of the alleged Trenchline written notices of lien qualify as such?
[72] Having reviewed all of the alleged Trenchline written notices of lien, I have concluded that alleged Written Notices of Lien Nos. 1, 2, 3, 4, 6, 7, 8, 9 and 10 do not qualify as written notices of lien under CLA section 24 as none of these contain the required warning as I described above.
[73] Alleged Written Notice of Lien No. 1 bears further discussion. In argument, Mr. Grenier pointed out that this email did include a statement that Trenchline intended to place a “lien” on the project. However, as Mr. Hersen pointed out, this statement is not of a present intention to place a lien, but of a future intention to place a lien if the matter of the outstanding amounts was not “straightened out” at a future site meeting. As such, this document is comparable to the document in Andrew Paving that Justice LaForme found did not show that the issue had reached the “lien stage.” As a result, I have concluded that alleged Written Notice of Lien No. 1 is also not a written notice of lien under CLA section 24.
[74] Alleged Written Notices of Lien Nos. 8 and 9 also bear some further discussion. These are the two documents that form the Trenchline claim on the Trisura labour and material payment bond. The owner was copied with the letters and enclosures. What is missing here for our purposes is, again, a statement of an intention to register a lien or a requirement that the owner hold back funds. As a result, I do not find that these documents qualify. As to what, if any, affect the Metrolinx later position on alleged Written Notice of Lien No. 9 should have, I will defer that discussion to later in this judgment.
[75] However, alleged Written Notice of Lien No. 5 does, in my view, meet the notice requirements. This is an email dated July 13, 2011 with an attached formal letter with the same date under Trenchline letterhead sent to Metrolinx directly. Attached to the letter is a detailed statement of the outstanding accounts. The premises are identified, as are the payee and payer. As to a warning, I note that in the middle of the letter there is a clear statement that Trenchline wants Metrolinx to withhold payment from Unimac: “I entrust supplying all information to Go Transit ‘the constructor’ creates onus and responsibility to ensure sufficient funding is withheld on the overall project until resolve between TCI and UNIMAC has been agreed upon.” In my view, this is a clear statement that the matter has reached the “lien stage,” and that the status quo flow of funds is to be interrupted.
[76] Ms. Chanina in her affidavit and Mr. Hersen in argument pointed out that the words “lien” or “written notice of lien” do not appear in this document. Mr. Hersen also argued that Trenchline negated the warning by asking Metrolinx in the last paragraph in the letter as to whether Metrolinx would “commit” to withholding funds and, if not, what “procedures” Metrolinx would like Trenchline to follow concerning its claims.
[77] I do not accept these points. First, there is no magic in the words “lien” or “written notice of lien” as long as the document expresses a present intention to interrupt the status quo flow of funds. I find that there is such an expressed intention. Second, the last paragraph strikes me as nothing more than a request to have Metrolinx confirm that it will abide by its legal obligation to withhold funds. It also asks Metrolinx for alternative ways to meet that obligation. I am mindful that Mr. Romanovich, the author of the letter, is not a lawyer, and that the document should not be read as a pleading.
[78] I am also mindful of the surrounding circumstances in which this letter was sent. Justice Osler in Craig found that the court should interpret an alleged written notice of lien in the context of surrounding circumstances. By this point, July 13, 2011, Trenchline had kept Metrolinx regularly advised of its payment problems with Unimac through a steady stream of correspondence dating back to May, 2011. As of early June, 2011 this correspondence received the attention of Metrolinx senior management. On June 29, 2011, the consultant expressed concern to Metrolinx about Unimac not paying Trenchline and having sworn false statutory declarations in this regard. In this context, in my view, there can be no doubt that Trenchline’s July 13, 2011 letter to Metrolinx should have been read as a demand to withhold funds.
[79] I find that Written Notice of Lien No. 5 was a valid written notice of lien.
c) Was Written Notice of Lien No. 5 received under CLA section 24?
[80] CLA section 24 requires that the written notice of lien be “received” by a payer to be effective. Was Written Notice of Lien No. 5 “received”?
[81] It is admitted by Metrolinx that the email of July 13, 2011, Written Notice of Lien No. 5, was physically “received” by Metrolinx on July 13, 2011. Mr. Hersen argued, however, that this should not be enough. He argued that the requirement of “receiving” in CLA section 24 should be limited to the rules of “giving” in CLA section 87.
[82] CLA section 1(1) defines “written notice of a lien” to “include” written notice that is “given.” CLA section 87(1) states that all notices “required to be given or that may be given under this Act, may be served in any manner permitted under the rules of court or, in the alternative, may be sent by certified or registered mail” addressed to the recipient’s last known mailing address. It is accepted that the “rules of court” in 2011 did not include email. It is also accepted that Written Notice of Lien No. 5 was not sent by registered or certified mail.
[83] On its face, the definition of written notice of a lien in CLA section 1(1) does not limit the notice to those that are “given.” It only states that it “includes” those that are “given.” I was given no case or other authority for the proposition that the requirement of “receipt” in CLA section 24 should be limited to what CLA section 87(1) states can be done for notices that are required to be “given.”
[84] Mr. Hersen argued that I should impose this limitation because of the potential hardship other forms of “receipt” may have on an owner. He argued that an owner may be in receipt of much correspondence from subcontractors, particularly in the present age of electronic communication, and that the owner’s staff may as a result readily overlook correspondence that is not served in some formal way.
[85] I do not accept this argument. The statute carefully chooses its words. The word “given” is used in several places. For instance, it is used in CLA section 34(1) concerning the preservation of claims for lien where a lien does not attach to the premises. It is used in CLA section 41(2) concerning a release of a lien that does not attach to premises and the withdrawal of a written notice of lien. It is used in CLA section 40(3) for the giving of notices of cross-examination on a claim for lien. On the other hand, CLA section 24 is unique in the statute for specifying legal consequences simply to the passive act of receiving a document. This distinction must have meaning. I also note that the predecessor provision under the MLA specified that the triggering event was the “giving” of a written notice of lien. Therefore, the legislature must have made a deliberate decision not to carry that word forward into the CLA.
[86] On reflection, I find that the distinction between “giving” and “receiving” in fact has meaning. Mr. Grenier made the point, which I accept, that “receiving” is consistent with the informal nature of the written notice of lien process. Going as far back as Craig, written notices of lien were viewed by the courts as an informal process conducted in real time on the site by non-lawyers. To force the process into one requiring formal service of any kind is not consistent with this underlying spirit. The problem Mr. Hersen identified is, in my view, a management issue for an owner. With proper training, the owner’s management staff should be made alert at all times to the clarion call of a written notice of lien in their possession.
[87] I, therefore, find that Written Notice of Lien No. 5 was received by Metrolinx.
d) Did payments to Trenchline reduce Metrolinx’s notice holdback liability?
[88] The amounts specified by Trenchline as being owed in Written Notice of Lien No. 5 totaled $891,369.58. On July 14, 2011, Metrolinx paid Unimac $870,466.56 on COP #6 in the face of Written Notice of Lien No. 5, a figure which was net of statutory holdback. Four days later, on July 18, 2011, Unimac paid Trenchline $586,616.79. On September 12, 2011, Metrolinx paid Unimac $123,656.38 on COP #7. On October 24, 2011, Metrolinx paid Unimac $156,758.43 on COP #8. Both of these figures were net of statutory holdback. On November 9, 2011 Unimac paid Trenchline $89,698. All of these figures are tax inclusive. Did the two Unimac payments to Trenchline reduce Metrolinx’s notice holdback liability?
[89] Mr. Grenier argued that it should not. He argued that impugned payments under CLA section 24 should be treated essentially as impugned advances by mortgagees under CLA section 78, the section which governs priority disputes between mortgagees and lien claimants. Under subsections 78(4) and 78(6), mortgagees can lose priority to “liens arising from an improvement” in relation to any advance made in the face of a preserved or perfected lien or in the face of a written notice of lien served on the mortgagee.
[90] Mr. Grenier relied primarily on the decision of Justice Killeen in Boehmers v. 794561 Ontario Inc., 1993 CarswellOnt 821 (S.C.J.). This case dealt with a priority dispute between lien claimants and a “prior” building mortgagee. The mortgagee had advanced money in the face of a registered claim for lien, which was then vacated by the posting of security. It then made advances in the face of a second claim for lien, which was then vacated. Further advances were made. The mortgagee argued that the impugned advances should have priority to later claims for lien and that, alternatively, vacating the claims for lien created a fresh priority for later advances.
[91] Justice Killeen rejected both arguments. He held that, once a mortgagee loses priority for an advance, it loses that priority permanently as against all liens that arise from the improvement, not just the prior registered liens. He held that the order of priority is crystallized at the time of the impugned advance. He made the following statement in paragraph 61: “If an individual advance is bad because of an outstanding lien then the result must be that the liens have a fixed priority for the amount of the bad advance in the same way that they have a fixed priority for a holdback deficiency.” This decision was upheld by the Court of Appeal. It was also followed strictly by the court in J. Sousa Contractor Ltd. v. Kinalea Development Corporation, 1994 CarswellOnt 946 (S.C.J.) which held that a signed release of lien did not save a mortgage advance made just before the release of lien was registered.
[92] The argument appears to rest on this notion of holdback deficiency that Justice Killeen referred to, namely that impugned payments of notice holdback should be treated as impugned payments of basic and finishing holdback. A payer’s basic and finishing holdback retention liability is established upon payment on account, and this liability remains fixed to all lien claimants with claims against those holdbacks (present and future) until those liens are discharged, expired or vacated; see CLA section 26. The payer is personally liable to these lien claimants for impugned payment of holdback, namely holdback deficiency; see CLA section 23. The lien claimants have a fixed priority for holdback deficiency against any building mortgagee and subsequent mortgagee; see CLA section 78(2) and (5). This remains the case regardless of the status of any one lien.
[93] The argument appears to be that the liability for impugned payments of notice holdback should similarly be “untethered” from the claim of the notice giver, and should be “crystallized” and fixed for the benefit of all lien claimants with claims against that holdback regardless of payments subsequently made to the notice giver. I call this the “untethering” theory of notice holdback liability.
[94] I agree that there are features of notice holdback in the CLA that are similar to basic and finishing holdback. For instance, it is now well established that notice holdback stands to the eventual benefit at trial of all lien claims that would have claims against the basic and finishing holdback, not just to the benefit of the notice giver. This proposition was established under the MLA by the Court of Appeal decision in Len Aris & Co. Ltd. v. Peloso 1958 103 (ON CA), [1958] O.R. 643 at paragraph 43. That decision remains good law today. Furthermore, a deficiency in notice holdback will create a personal liability for payment of same on the part of the payer, as it does with basic and finishing holdback; see CLA section 23(1).
[95] However, there are features of the notice holdback in the CLA and as described in the case law that have driven me to the conclusion that this “untethering” theory of notice holdback liability does not apply. The following are my reasons in this regard.
[96] First, there is the provision in CLA section 28 which allows a payer to make direct payment to a lien claimant on notice to the lien claimant’s proper payer. That section draws a clear distinction between the effects of such payment on basic and finishing holdback, on the one hand, and notice holdback, on the other. The section specifies that any such direct payment does not reduce the payer’s liability for basic and finishing holdback liability and notice holdback, whereas such direct payment does reduce the payer’s liability for notice holdback in relation to a notice given by the notice giver who is being paid. The section does not require any form of certification, as is the case with an early release of basic and finishing holdback under CLA section 33. This indicates that the statute conceives of notice holdback as being tethered to the claim of the notice giver, with the payer being allowed to reduce its notice holdback obligation by paying the notice giver directly. On the other hand, the statute conceives of basic and finishing holdback as belonging to all lien claimants on the improvement.
[97] Second, I note that CLA section 28 is the only section in the statute that deals in a direct way with payment of notice holdback. There is no section which expressly provides that the notice holdback can only be paid “without jeopardy” when all liens against that holdback have been discharged, released or vacated, as is the case with basic and finishing holdback in CLA sections 26 and 27. This absence must have meaning.
[98] Third, there are key judicial decisions that indicate, indirectly, that notice holdback liability remains tethered to the claim of the notice giver. In Vaillancourt Lumber Co. v. Balfour (Township) Separate School Section No. 2, 1964 CarswellOnt (O.C.A.), the Court of Appeal dealt with a written notice of lien from a subcontractor to an owner in the amount of $4,551.78. The owner paid the contractor a total of $16,746.01 net of statutory holdback in the face of this notice. A claim for lien was registered by the notice giver, and a trial subsequently ensued wherein the notice giver was found to be entitled to a claim for lien in the amount of $4,130.95, apparently on consent. The trial judge found that the owner’s notice holdback liability was not the amount of the impugned payment to the contractor, namely $4,551.78, but the amount of the final determination of the notice giver’s lien, namely $4,130.95, reduced to the total amount of all proven lien claims not covered by the basic holdback. That notice holdback liability determination no doubt would have taken into consideration any payments made to the notice giver after the impugned payment to the contractor.
[99] The Court of Appeal did not disturb this determination by the trial judge. Interestingly, the Court made the following statement: “The appellant [the owner] accepts as law that where an owner receives notice in writing of a lien he must retain the sum therein set out in addition to the statutory hold back til such time as the lien is paid or discharged” (underlining added). This decision, in my view, can only be read as confirming that notice holdback liability remains tethered to the lien claim of the notice giver.
[100] In L.I.U.N.A. Employee Benefit Trust, Local 506 (Trustee of) v. Bayview Hospital, 2000 CarswellOnt 714, Master Sandler, sitting as a reference master, referred to the facts in Vaillancourt without criticism. This was a decision under the CLA. The facts in L.I.U.N.A. were somewhat different from Vaillancourt as in L.I.U.N.A. the notice giver’s proven lien claim exceeded the payer’s impugned payment. Therefore, the issue did not have to be determined.
[101] I note, though, that it was the L.I.U.N.A. decision on this point that caused Trenchline to agree to limit Metrolinx’s notice holdback liability to the amount of the Trenchline claim for lien, despite the fact that the alleged impugned payments by Metrolinx totaled in excess of the amount of the Trenchline claim for lien. If this is the accepted law, how can the “untethering” theory of liability apply? The notice holdback liability must be determined in light of what the notice giver was paid, whether that was before or after the impugned payment.
[102] Fourth, and as a last point, I am not sure that the rules of priority outlined in CLA section 78 are a proper guide for establishing the personal liability of an owner for notice holdback deficiency. Priority rules govern disputes between creditors concerning the allocation between them of their security in the land. These rules should be clear and fixed. Notice holdback liability, on the other hand, involves broader policy issues concerning the extent to which an owner should become the “policeman” of payment issues between contractors and subcontractors. On that point, for the reasons stated, I have concluded that the CLA conceives of that “policeman” function as more limited and flexible than what is urged by Trenchline.
[103] Incidentally, I note that CLA section 28 was not raised in argument. In preparing this decision I found it to be of consequence, as indicated above. I decided not to call counsel back for further argument on this point, however, as the other grounds for my conclusion here were raised in argument.
[104] In conclusion, based on my review of the statute and applicable judicial decisions, I find that notice holdback liability remains tethered to the claim of the notice giver until trial. A written notice of lien is first, and foremost, security for the notice giver. It can be dealt with as such. If the notice giver is paid directly by the payer from notice holdback, the statute expressly provides that notice holdback liability is reduced accordingly. There should be no different result, in my view, if the notice giver is paid indirectly through an impugned payment. The lien that gave rise to the notice will have been reduced in that event. The “jeopardy” of a payer referred to in CLA section 24 is not a “crystallized” one fixed for all lien claimants at the time of payment. It is the risk of having an impugned payment not used by the payee to pay the notice giver. In the end, the position of other lien claimants is simply that of residual beneficiaries of notice holdback that is available for distribution with basic and finishing holdback at trial. This end result is a function of the class nature of the proceeding. If the other lien claimants wish to enhance their positions, it is incumbent on them to serve their own written notices of lien.
[105] I, therefore, find that the payments that were made by Unimac to Trenchline reduced Metrolinx’s notice holdback liability
e) Does Metrolinx have a set-off against its notice holdback liability?
[106] The question came up in the course of argument as to whether Metrolinx could assert its set-off claim against its notice holdback liability. It is undisputed that Metrolinx did not retain any of the disputed funds after receiving alleged written notices of lien, with the exception of COP#11 in the amount of $576,349.59. It is also undisputed that Metrolinx can assert its set-off claims against COP#11.
[107] In my view, the law is now clear that a payer cannot assert set-off claims against notice holdback liability if it has not retained the funds. CLA section 24 makes it necessary to “retain” the notice holdback. Under the MLA the decisions of the Ontario Court of Appeal in S.I. Guttman Ltd. v. James D. Mokry, 1968 CarswellOnt 330 and of the Supreme Court of Canada in Canadian Comstock Co. v. Bankrupt Estate, 1969 CarswellOnt 141 established this proposition. Master Sandler adopted this proposition for the purposes of the CLA in his L.I.U.N.A. decision at paragraph 23. This decision was approved of by Justice Hoy in Bestdoor Co. v. Toronto Economic Development Corp., 2005 CarswellOnt 1708 (S.C.J.) at paragraph 14. As a result, I see no need to dwell on this issue further.
[108] I find that Metrolinx cannot assert its set-off claims against its notice holdback liability.
f) Was the Trenchline written notice of lien “withdrawn”?
[109] CLA section 41(2) states the following: “A written notice of a lien may be withdrawn by giving a withdrawal in writing to the person to whom the written notice of a lien was given, and a payer given the withdrawal shall, in respect of the operation of subsection 24(2), be in the same position as if the written notice of lien had never been given.”
[110] Mr. Hersen argued that there were eight “withdrawals” of written notices of lien by Trenchline. Only two of these eight have relevance to Trenchline’s Written Notice of Lien No. 5, the one I have found to be a “written notice of lien.” Therefore, I do not have to, and will not, deal with the other six alleged withdrawals.
[111] The first of the two is an email Trenchline sent to Unimac on July 15, 2011, copying Metrolinx. This is two days after Trenchline Written Notice of Lien No. 5 and one day after a site meeting on July 14, 2011. The email encloses Trenchline prepared minutes of the site meeting. Mr. Hersen argued that, since these minutes specified in item 2 that Metrolinx was paying Unimac that day and that Unimac should call Trenchline to advise that a cheque was ready for pick-up, they amounted to a “withdrawal” of previous Trenchline written notices of lien, as this was a statement that Trenchline was not seeking to “stay the hand of the paymaster.”
[112] The second of the two is an email from Trenchline to Metrolinx dated October 20, 2011 advising of an agreement between Unimac and Trenchline whereby Unimac would defer payment of outstanding amounts on certain terms. Metrolinx paid Unimac on COP#8 on October 24, 2011, namely during the deferral period. Trenchline was eventually paid the money specified by the deferral agreement on November 9, 2011. Mr. Hersen argued that the October 20, 2011 Trenchline email was a “withdrawal” because, again, it was a statement that Trenchline was looking to Unimac for payment and was not seeking to “stay the hand of the paymaster.”
[113] I accept neither of these arguments. Just as the “written notice of lien” must have a warning to stay the hand of the paymaster, the “withdrawal” in CLA section 41(2) must be a clear statement by the notice giver that it is expunging the payer of the entirety of the potential “jeopardy” associated with the original notice of lien. Again, there is no requirement for a form. There is not even a necessity to refer to the written notice of lien. The essence of the statement must be as I have described.
[114] As to the two documents in questions, they pertain to payment issues. Payment, whether from the owner directly or from the contractor, can mitigate or reduce notice holdback liability. But it does not expunge the whole of the “jeopardy” associated with the original written notice of lien. Therefore, I find that neither of these two documents were “withdrawals.”
g) What is Metrolinx’s notice holdback liability, if any?
[115] The amounts specified by Trenchline Written Notice of Lien No. 5 dated July 13, 2011 totaled $891,369.58. On July 14, 2011, Metrolinx paid Unimac $870,466.56 on COP #6 in the face of Written Notice of Lien No. 5, a figure that was net of statutory holdback. Metrolinx’s notice holdback liability on this payment was, therefore, $870,466.56.
[116] The residue of Written Notice of Lien No. 5 not covered by the above noted notice holdback liability was $20,903.02. On September 12, 2011, Metrolinx paid Unimac $123,656.38 on COP #7, also a figure that was net of statutory holdback and also that was in the face of Trenchline Written Notice of Lien No. 5. Therefore, Metrolinx’s impugned payments to Unimac totaled $891,369.59.
[117] Against this potential notice holdback liability, I must apply the payments that were made to Trenchline. On July 18, 2011, Unimac paid Trenchline $586,616.79. On November 9, 2011 Unimac paid Trenchline $89,698. This totals $676,314.79.
[118] Therefore, I find that Metrolinx has notice holdback liability of $891,369.59 - $676,314.79 = $215,054.80.
h) Is Metrolinx liable for interest on its notice holdback liability?
[119] In his factum, Mr. Grenier indicated that Trenchline seeks an order that the determined notice holdback and the admitted statutory holdback be paid into court. Trenchline also wants to make Metrolinx obligated to pay prejudgment interest under section 128 of the Courts of Justice Act, R.S.O. 1990, c. C.43 (“CJA”) on its overall holdback liability. Mr. Hersen responded that this was not appropriate or fair since there was no obligation on Metrolinx to pay the notice holdback to anyone. The only obligation was to retain the notice holdback.
[120] CJA section 128(1) specifies that any person “who is entitled to an order for the payment of money” is entitled to an order for prejudgment interest at the specified rate. In my view, the issue of Metrolinx’s liability for prejudgment interest on holdback is not appropriate for this trial of an issue. I am only determining Metrolinx’s notice holdback liability. Whether this is to be paid to Trenchline and the other lien claimants is yet to be determined, as their claims for lien have yet to be proven.
[121] Mr. Grenier presented me with several decisions where it appears that the lien claimants were able to obtain personal judgments for prejudgment interest on holdback as against owners; see for instance Master Albert’s decision in 1022423 Ontario Ltd. v. Metcap Living Management Inc., 2010 CarswellOnt 1719 at paragraph 16, and Justice Douglas’ decision in N.K.P. Painting Inc. v. Boyko, 2016 CarswellOnt 7332 (S.C.J.) at paragraph 51. All of these decisions came after a determination at trial of the lien claimant’s entitlement to payment. I, therefore, defer this issue to be determined at the overall trial hearing.
[122] As to whether I should order that these holdbacks be paid into court, again, this was not the subject matter of the trial of an issue. Metrolinx does not consent to this relief. It may consider doing so voluntarily in light of my decision, as there may be a question of interest entitlement to the lien claimants as of the date of this order.
i) What is the effect of Metrolinx’s CLA section 39 response, if any?
[123] There was considerable oral argument over the consequences of the Metrolinx letter to Trisura dated February 20, 2012 and the Metrolinx letter response to Trenchline, pursuant to CLA section 39, dated May 14, 2012.
[124] Mr. Grenier argued that these two documents, and the events surrounding them, should cause me to estop Metrolinx from denying that Written Notice of Lien No. 9 was a written notice of lien. He argued that in these two letters Metrolinx formally stated for the record, first to Trisura and then to Trenchline, that Written Notice of Lien No. 9 was indeed a legal “written notice of lien” and that Metrolinx had retained and continued to retain COP#11 in the amount of $576,349.59 as a result. If Metrolinx is so estopped, this would result in the addition of Metrolinx’s payments to Unimac on COP#9 and #10 to its notice holdback liability, as those were the last two payments to Unimac after the Written Notice of Lien No. 9. The total of these two payments is $108,314.93. Mr. Grenier argued that Metrolinx’s present position, which is a denial that Written Notice of Lien No. 9 is a “written notice of lien,” is a complete reversal of position by Metrolinx to suit its own interest, now that it has successfully asserted a set-off against the $576,349.59 it retained and faces notice holdback liability due to Written Notice of Lien No. 9.
[125] In response, Mr. Hersen argued that the Metrolinx retention of COP #11 was due to the Trisura letter to Metrolinx dated January 20, 2012 demanding that the owner hold back further draws. He also argued that, if I find that Metrolinx did take the position that Written Notice of Lien No. 9 was a “written notice of lien,” there is no basis for an estoppel.
[126] Based on the evidence presented, I accept Mr. Grenier’s version of the facts. Metrolinx did not retain COP#11 because of a demand from the bonding company. Indeed, Trisura made it clear to Metrolinx in its February 9, 2012 letter to Metrolinx that the bonding company wanted the contract funds to flow in the usual way. As is clear from the internal email at Metrolinx dated February 10, 2012, Mr. Caie, in response to the letter from Trisura, mounted an internal search for notices to Metrolinx from Trenchline that would meet the statutory definition of “written notices of lien.” He expressly included the in-house counsel at Metrolinx in this search to make sure Metrolinx’s position was on firm legal grounds. The purpose of this search was obvious, namely to justify retaining COP #11, as by this point Unimac was not performing. The result of the search was the Metrolinx letter to Trisura of February 20, 2012, which undoubtedly took the position that Written Notice of Lien No. 9 was a “written notice of lien” that justified retaining COP #11. What is curious is that there was no evidence that Metrolinx realized at any point that this position could expose it to liability under CLA section 24 (ie. notice holdback) for the payments it made to Unimac for COP#9 and #10.
[127] I also accept that the Metrolinx adopted this same position in its formal CLA section 39 response letter to Trenchline dated May 14, 2012. CLA section 39(1) provides lien claimants with a right to formally demand information from an owner. This demand must be responded to by an owner “within a reasonable time, not to exceed twenty-one days.” The May 14, 2012 letter is from Metrolinx’s lawyers to Trenchline’s lawyers. It appears from the body of the letter that the Trenchline demand letter was sent on or about February 24, 2012. Therefore, this response was exceedingly late. One of the items the statute expressly entitles the lien claimant to demand is “the state of accounts between the owner and the contractor.” Under this heading, the letter of May 14, 2012 from Metrolinx’s lawyers contains the following statement: “Notice Holdback currently retained: $510,043.87.” This figure is the amount of COP#11 less HST. There is no doubt that this portion of the section 39 response adopted the Metrolinx position on notice holdback that it took in its letter to Trisura of February 20, 2012.
[128] I also accept that Metrolinx has now completely reversed its position to suit its interests, now that it has a set-off against COP #11 and faces potential notice holdback liability for having paid COP #9 and #10. It did this knowing what was owed to Trenchline. It wants “to have its cake and eat it too.” Capricious conduct like this cries out for a remedy.
[129] The difficulty is the proper remedy. The estoppel remedy is an equitable one that usually turns on reliance that has been placed by a party on an erroneous position taken by another party on the facts or the law to the detriment of the first party. Equity intervenes in such a case to prevent the erroneous party from taking the otherwise rightful position. Here, there was no evidence before me that Trenchline relied on either the Metrolinx letter to Trisura of February 20, 2012 or on the Metrolinx letter to Trenchline dated May 14, 2012 to its detriment. Trenchline did not change its position in response to either of these letters. Mr. Grenier provided me with no judicial authority on how the doctrine of estoppel could be applied to this case.
[130] I examined the provisions of CLA section 39 to determine whether the statute created some form of “legal estoppel” or “issue estoppel,” namely a statutory prohibition against denying the truth of a response to a section 39 demand on an issue. The section does not do so. Therefore, based on the evidence and authorities presented, I cannot give Trenchline the estoppel remedy it seeks concerning Trenchline’s Written Notice of Lien No. 9.
[131] However, that is not the end of the matter. The remedy expressly specified by CLA section 39 for providing false or misleading information in a response is contained in CLA section 39(5). This subsection specifies the remedy of an action for damages. It states that “where a person who is required . . . to provide information or access to information, . . . knowingly or negligently mis-states that information, the person is liable to the person who made the request for any damages sustained by reason thereof.”
[132] In my view, the evidence presented in this trial of an issue shows that there is at least a real issue to be tried as to whether Metrolinx is liable to Trenchline (as opposed to all lien claimants) for the damages it suffered as a result of Unimac not being paid COP#11 in the amount of $576,349.59. The evidence suggests that Metrolinx may have been at least negligent in erroneously taking the position that Trenchline’s Written Notice of Lien No. 9 was a written notice of lien, a position which was adopted in its section 39 response. At minimal, there is no evidence that, despite its internal investigation, Metrolinx became aware that it had ignored that same Trenchline Written Notice of Lien No. 9 when it paid Unimac on COP #9 and #10, a time when Uimac was still performing. If Metrolinx became aware of these payments, there is no evidence that it appreciated the import of those payments. I note as well that the Metrolinx section 39 response of May 14, 2012 makes no reference to a set-off against the notice holdback. This suggests that, had Metrolinx taken the correct position on Trenchline Written Notice of Lien No. 9, it would have, and should have, paid the $576,349.59 to Unimac. Being trust money, this money, had it been paid, may well have found its way directly into the hands of Trenchline, given what was apparently owing to Trenchline by that point.
[133] The trial of an issue that is before me now is not an appropriate place to determine the issue of Metrolinx’s liability for damages to Trenchline. The trial of an issue was confined to the notice holdback issue. As a result, I have determined that this issue of Metrolinx’s liability in damages to Trenchline concerning the section 39 response must be determined at the overall trial in this reference, if it is not otherwise resolved in the meantime.
VI. CONCLUSION
[134] I, therefore, find that Metrolinx has a notice holdback liability of $215,054.80.
[135] I direct that there be a trial of the issue of Metrolinx’s liability to Trenchline on account of the Metrolinx CLA section 39 response. Whether that is to take place separately or as a part of the overall trial in the reference is yet to be determined.
[136] Concerning costs, I asked for and received costs outlines from the parties on the last day of the trial hearing. Trenchline’s Costs Outline shows a partial indemnity amount of $176,918.45, and a substantial indemnity amount of $264,890.08. Metrolinx’s Costs shows a partial indemnity amount of $110,580.02, and a substantial indemnity amount of $145,088.24. These figures are all tax inclusive.
[137] Generally costs follow the event. If the parties are unable to agree on costs, counsel may file written submissions on costs. Submissions may not exceed four pages (typed, 8 ½” x 11” pages, double spaced, minimum font size 12). Any party seeking costs must serve and file written submissions in this regard on or before October 14, 2016. Any responding submissions must be in writing which must be served and filed by October 28, 2016. Reply written submissions, if any, by November 2, 2016.
[138] Given the amounts in issue, the parties may wish to have oral argument on costs. If either side wishes to have oral argument, the parties are to arrange an attendance before me in this regard through my Assistant Trial Coordinator.
[139] The results of this trial of an issue should be embodied in an interim report. If the parties are unable to agree on the form of interim report, an attendance may be required to settle the report.
Released: September 30, 2016 __________________________
MASTER C. WIEBE
COURT FILE NO.: CV-12-454092
DATE: September 30, 2016
ONTARIO
SUPERIOR COURT OF JUSTICE
BETWEEN:
Trenchline Construction Inc.
Plaintiff
- and -
Unimac-United Management Corp. and Metrolinx
Defendants
REASONS FOR JUDGMENT
(notice holdback issue)
Master C. Wiebe
Released: September 30, 2016