COURT FILE NO.: CV-15-4437-0000 DATE: 2016 10 07
SUPERIOR COURT OF JUSTICE – ONTARIO
RE: Deep Foundations Contractors Inc. v. Bruno Gottardo and David Gottardo
BEFORE: Bloom, J.
COUNSEL: Theodore B. Rotenberg, for the Defendants, Moving Parties Harold Rosenberg, for the Plaintiff, Responding Party
HEARD: September 14, 2016
E N D O R S E M E N T
I. INTRODUCTION
[ 1 ] As particularized in their factum the Defendants’ motion is under Rule 21.01(1)(a) and Rule 20 seeking a dismissal of the action on the basis that the claim under the trust provisions of the Construction Lien Act is not sustainable in law, and under Rule 20 seeking a dismissal of the action on the basis of the running of a limitation period. I will address the trust and limitations issues separately.
II. THE TRUST ISSUE
A. THE FACTS
[ 2 ] The facts for purposes of the trust issue under Rule 21.01(1)(a) are by virtue of Rule 21.01(2)(a) those alleged in the Statement of Claim, unless leave is granted or the parties consent. In this matter leave to tender evidence is not necessary to frame the issue, nor is there a consent of the parties to tender evidence. Further, the allegations in the Statement of Claim are sufficient to raise the trust issue under Rule 20.
[ 3 ] I will now set out the material facts as alleged in the Statement of Claim.
[ 4 ] The Plaintiff, Deep, carried on business in the construction field, including excavation and foundation forming. The Defendants were officers of B. Gottardo Construction Ltd.(“ Gottardo Construction”) and persons who had effective control of its relevant activities. Gottardo Construction was a general contractor engaged in road and bridge related transit construction.
[ 5 ] Gottardo Construction contracted with Greater Toronto Transit Authority (hereinafter “GTTA”) to carry out construction work. In or about April of 2008 Gottardo Construction subcontracted Deep to carry out shoring and foundation work on the project. Deep fully completed its work on or about September 17, 2009. It was a term of Deep’s subcontract with Gottardo Construction that full payment including a 10% holdback was to be made within 45 days of substantial completion of the Plaintiff’s work with interest charged at 2% per month on overdue accounts.
[ 6 ] On October 29, 2009 Deep registered a Claim for Lien and an action was commenced in the Superior Court to enforce the claim.
[ 7 ] On December 5, 2013 an order was made in that action that Gottardo Construction pay to Deep $ 471,227.70 plus interest at 4% per annum, without prejudice to Deep’s claim to 2% per month on the outstanding balance which, along with Deep’s costs, were ordered to be determined at trial.
[ 8 ] On March 7, 2014 Deep received partial payment in the sum of $521,227.70 from the Accountant of the Superior Court of Justice following a demand on Gottardo Construction’s Lien Bond which had been posted as security for Deep’s lien. On May 23, 2014 Deep received payment of $ 32,502.08 being the balance owing under the December 5, 2013 order, subject to interest and costs issues to be tried.
[ 9 ] On September 29, 2014 an order was made in the lien action requiring Gottardo Construction to produce financial documentation requested by Deep. Gottardo Construction did not make production of any of that documentation.
[ 10 ] Deep brought a motion for summary judgement seeking inter alia direction of a trial to determine the interest payable pursuant to the December 5, 2013 order. Justice Ricchetti by order dated August 4, 2015 directed that either party may arrange with the Trial Coordinator’s office for a trial to decide the outstanding interest and costs issues under the December 5, 2013 order.
[ 11 ] By notice dated August 13, 2015 Deep was informed that BDO Canada Limited had become the Receiver in respect of the property of Gottardo Construction on August 10, 2015.
[ 12 ] On or about August 28, 2015, a Bankruptcy Order was made against Gottardo Construction.
[ 13 ] Gottardo Construction received payment from GTTA on account of its contract. Those funds constituted trust funds for the Plaintiff’s benefit under the Construction Lien Act.
[ 14 ] On September 25, 2015 the Plaintiff issued the Statement of Claim in the proceeding subject of the motion before me. That Statement of Claim claims against the Defendants under the trust provisions of the Construction Lien Act in respect of the trust monies; the claim is for the interest and costs under the order of December 5, 2013. The amount sought is over $700,000.00.
B. GOVERNING LEGAL PRINCIPLES
(i) The Test under Rule 21.01(1)(a)
[ 15 ] In a leading textbook on civil procedure, Paul M. Perell & John W. Morden, The Law of Civil Procedure in Ontario, 2d ed (Markham, Ontario: LexisNexis Canada Inc., 2014) at paras 6.167 to 6.171 the learned authors set out the following principles as to the application of Rule 21.01(1)(a):
- The court’s power is to be used only in the clearest cases; “the moving party must show that it is plain, obvious and beyond doubt that the respondent could not succeed in the claim”;
- “Matters of law that are not fully settled should not be disposed of on” a motion of this type; “[t]he law must be allowed to evolve and the novelty of a claim will not militate against a plaintiff.”
(ii) The Test under Rule 20
[ 16 ] Under Rule 20 the court is to grant summary judgement if “there is no genuine issue requiring a trial with respect to a claim.” In The Law of Civil Procedure in Ontario, supra at para 6.213 the following principles are set out relating to the disposition of a summary judgement motion on a question of law:
Rule 20.04(4) contemplates that a question of law may be decided on a motion for summary judgement “but where the law is unsettled and the legal issue is a difficult matter of statutory …interpretation, the issue should be left to be resolved on the full record of a trial….[I]f a fuller factual record is not necessary to determine the legal issue, the court should proceed to decide it on the motion for summary judgment.”
(iii) The Construction Lien Act
[ 17 ] A number of provisions of the Construction Lien Act are applicable to a consideration of the legal issue before me. I set them out below.
(1) In this Act,
“contract” means the contract between the owner and the contractor, and includes any amendment to that contract; (“contrat”)
“contractor” means a person contracting with or employed directly by the owner or an agent of the owner to supply services or materials to an improvement; (“entrepreneur”)
“holdback” means the 10 per cent of the value of the services or materials supplied under a contract or subcontract required to be withheld from payment by Part IV; (“retenue”)
“improvement” means, in respect of any land,
(a) any alteration, addition or repair to the land,
(b) any construction, erection or installation on the land, including the installation of industrial, mechanical, electrical or other equipment on the land or on any building, structure or works on the land that is essential to the normal or intended use of the land, building, structure or works, or
(c) the complete or partial demolition or removal of any building, structure or works on the land; (“améliorations”)
“owner” means any person, including the Crown, having an interest in a premises at whose request and,
(a) upon whose credit, or
(b) on whose behalf, or
(c) with whose privity or consent, or
(d) for whose direct benefit,
an improvement is made to the premises but does not include a home buyer; (“propriétaire”)
“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 services or materials that have been supplied to the improvement under the contract or subcontract; (“prix”)
“subcontract” means any agreement between the contractor and a subcontractor, or between two or more subcontractors, relating to the supply of services or materials to the improvement and includes any amendment to that agreement; (“contrat de sous-traitance”)
“subcontractor” means a person not contracting with or employed directly by the owner or an agent of the owner but who supplies services or materials to the improvement under an agreement with the contractor or under the contractor with another subcontractor; (“sous-traitant”)
Contractor’s and subcontractor’s trust
Amounts received a trust
(1) All amounts,
(a) owing to a contractor or subcontractor, whether or not due or payable; or
(b) received by a contractor or subcontractor, on account of the contract or subcontract price of an improvement constitute a trust fund for the benefit of the subcontractors and other persons who have supplied services or materials to the improvement who are owed amounts by the contractor or subcontractor. R.S.O. 1990, c. C.30, s. 8 (1).
Obligations as trustee
(2) The contractor or subcontractor is the trustee of the trust fund created by subsection (1) and the contractor or subcontractor shall not appropriate or convert any part of the fund to the contractor’s or subcontractor’s own use or to any use inconsistent with the trust until all subcontractors and other persons who supply services or materials to the improvement are paid all amounts related to the improvement owed to them by the contractor or subcontractor. R.S.O. 1990, c. C.30, s. 8 (2).
Liability for breach of trust
By corporation
(1) In addition to the persons who are otherwise liable in an action for breach of trust under this Part,
(a) every director or officer of a corporation; and
(b) any person, including an employee or agent of the corporation, who has effective control of a corporation or its relevant activities, who assents to, or acquiesces in, conduct that he or she knows or reasonably ought to know amounts to breach of trust by the corporation is liable for the breach of trust. R.S.O. 1990, c. C.30, s. 13 (1).
Effective control of corporation
(2) The question of whether a person has effective control of a corporation or its relevant activities is one of fact and in determining this the court may disregard the form of any transaction and the separate corporate existence of any participant. R.S.O. 1990, c. C.30, s. 13 (2).
Joint and several liability
(3) Where more than one person is found liable or has admitted liability for a particular breach of trust under this Part, those persons are jointly and severally liable. R.S.O. 1990, c. C.30, s. 13 (3).
C. ANALYSIS
[ 18 ] The Defendants’ argument is based on statutory interpretation of s.8(1) and s. 8(2) of the CLA. As applied to the case at bar the Defendants’ argument is that s. 8(2) obligates the contractor to hold the funds in trust until the Plaintiff subcontractor has been paid “all amounts related to the improvement owed to them by the contractor”; and that those amounts necessarily are only what is owed for services and materials. Further, the Defendants argue that that proposition is reinforced by s. 8(1) in its imposing the trust only on monies paid “on account of the contract…price of an improvement.” The Defendants argue that the proposition is additionally reinforced by the s. 1(1) definition of “price” which refers only to the contract price or the value of materials and services, and does not include interest or costs. The Defendants point out that if the trust fund obligation under s. 8(2) in relation to the Plaintiff included interest and costs, the contractor might have to supplement the trust funds with its own monies, since the contractor would not have received trust monies under s. 8(1) to cover the interest and costs claims of the Plaintiff subcontractor, nor would the contractor be aware of those claims when it received the funds impressed with the trust.
[ 19 ] The Plaintiff responds to that argument by asserting that a purposive interpretation of the CLA favours the inclusion of interest and costs. The Plaintiff also relies on the decision of R.S.J. Heeney in Forest City Protection v. General Refrigeration Canada, 2015 ONSC 2346. In that case Justice Heeney granted summary judgement under s. 13 of the CLA for interest and costs. It must be noted that in that case the contract provided for interest and costs; in the case at bar the subcontract in question provided only for interest. Moreover, there was no consideration in the Forest City reasons of the statutory interpretation argument raised before me by the Defendants.
[ 20 ] I am mindful of the two tests which I must apply in addressing the trust issue. In particular, I am cognizant of the fact that the law on whether interest and costs are covered by the trust imposed by the CLA is unsettled. It is not plain and obvious and beyond doubt that the Plaintiff could not succeed.
[ 21 ] I am of the view that a full factual record developed at a trial is the appropriate and necessary basis for answering the legal question raised. My conclusions in applying the test under Rule 21.01(1)(a) and the test under Rule 20 are the same; I dismiss the motion as it relates to the relief sought under both of those provisions in relation to the claims under s. 13 of the CLA.
III. THE LIMITATIONS ISSUE
A. THE FACTS
[ 22 ] The parties have accepted in their factums and oral arguments that the facts for purposes of the limitations issue are those set out above in relation to the trust issue as supplemented by affidavit evidence tendered. I will now set out additional material facts.
[ 23 ] The subcontract was certified as complete on October 5, 2009 and a certificate to that effect was published on October 23, 2009.
[ 24 ] The contract was certified as substantially performed on January 10, 2011.
[ 25 ] On or shortly after September 21, 2011 Deep was informed that the certificate of substantial performance of the contract was published on January 18, 2011.
[ 26 ] As attested to in the affidavit of Mauro Scanga sworn May 24, 2016, an affidavit of Emily Randle sworn July 28, 2015 filed in support of the application by Toronto-Dominion Bank for receivership of Gottardo Construction asserted that Gottardo Construction had made an investment of over $ 2,000,000.00 without the approval of the TD Bank. Further, as also attested to by Mr. Scanga in his affidavit, the first report of the receiver dated August 26, 2015 noted that there were large financial transactions with entities related to Gottardo Construction which required closer examination and investigation.
B. GOVERNING LEGAL PRINCIPLES
[ 27 ] Sections 4 and 5 of the Limitations Act, 2002 provide:
Basic limitation period
- Unless this Act provides otherwise, a proceeding shall not be commenced in respect of a claim after the second anniversary of the day on which the claim was discovered. 2002, c. 24, Sched. B, s. 4.
Discovery
(1) A claim is discovered on the earlier of,
(a) the day on which the person with the claim first knew,
(i) that the injury, loss or damage had occurred,
(ii) that the injury, loss or damage was caused by or contributed to by an act or omission,
(iii) that the act or omission was that of the person against whom the claim is made, and
(iv) that, having regard to the nature of the injury, loss or damage, a proceeding would be an appropriate means to seek to remedy it; and
(b) the day on which a reasonable person with the abilities and in the circumstances of the person with the claim first ought to have known of the matters referred to in clause (a). 2002, c. 24, Sched. B, s. 5 (1).
Presumption
(2) A person with a claim shall be presumed to have known of the matters referred to in clause (1) (a) on the day the act or omission on which the claim is based took place, unless the contrary is proved. 2002, c. 24, Sched. B, s. 5 (2).
Demand obligations
(3) For the purposes of subclause (1) (a) (i), the day on which injury, loss or damage occurs in relation to a demand obligation is the first day on which there is a failure to perform the obligation, once a demand for the performance is made. 2008, c.19, Sched. L, s.1.
Same
(4) Subsection (3) applies in respect of every demand obligation created on or after January 1, 2004. 2008, c.19, Sched. L, s.1.
[ 28 ] There is case law setting out general principles for the interpretation of s. 5 and case law of specific application to construction lien matters. I will now consider principles emerging from both areas.
[ 29 ] The Plaintiff has raised in oral argument s. 5(1)(a)(iv) and s. 5(1)(b) of the Limitations Act. In 407 ETR Concession Company Limited v. Day, 2016 ONCA 709 Justice Laskin for the Ontario Court of Appeal discussed those provisions. Applicable principles can be gleaned from his analysis at paras 21,30 to 35, 39, 40, and 44 to 48:
[21] Under the Limitations Act, 2002, the limitation period begins to run when a claim is discovered. But s. 5(1)(a)(iv) of the Act provides that a claim is not discovered until bringing a claim is an “appropriate means” to recover a loss.
[30] Assuming the 15-year limitation period in Mr. Day’s transponder lease agreement does not apply, 407 ETR’s claim is subject to the basic two-year limitation period in s. 4 of the Limitations Act, 2002. Under s. 4, “a proceeding shall not be commenced in respect of a claim after the second anniversary of the day on which the claim was discovered ” (emphasis added).
[31] The day on which 407 ETR’s claim was discovered is the day on which 407 ETR knew or ought to have known the four matters set out in s. 5(1)(a) of the Act:
(1) A claim is discovered on the earlier of,
(a) the day on which the person with the claim first knew,
(i) that the injury, loss or damage had occurred,
(ii) that the injury, loss or damage was caused by or contributed to by an act or omission,
(iii) that the act or omission was that of the person against whom the claim is made, and
(iv) that, having regard to the nature of the injury, loss or damage, a proceeding would be an appropriate means to seek to remedy it; and
(b) the day on which a reasonable person with the abilities and in the circumstances of the person with the claim first ought to have known of the matters referred to in clause (a).
[32] Obviously, 407 ETR knew the first three matters in s. 5(1)(a) as early as the delivery of its s. 16 notice in March 2011. It knew by then it had suffered a loss; it knew the loss was caused by the failure to pay an invoice that was due and payable; and it knew that Mr. Day had failed to pay it. This first issue on the appeal turns on s. 5(1)(a)(iv): when should 407 ETR have known that a civil action against Mr. Day was an “appropriate means” to recover its loss?
[33] The appropriateness of bringing an action was not an element of the former limitations statute or the common law discoverability rule. This added element can have the effect – as it does in this case – of postponing the start date of the two-year limitation period beyond the date when a plaintiff knows it has incurred a loss because of the defendant’s actions.
[34] Also, when an action is “appropriate” depends on the specific factual or statutory setting of each individual case: see Brown v. Baum, 2016 ONCA 325, 397 D.L.R. (4th) 161, at para. 21. Case law applying s. 5(1)(a)(iv) of the Limitations Act, 2002 is of limited assistance because each case will turn on its own facts.
[35] In the case before us, the date when a civil action would be an “appropriate means” for 407 ETR to recover its loss must be assessed not only in the context of the purpose of that element of s. 5(1)(a) and the words that qualify it, but also in the context of the statutory regime under which 407 ETR operates.
[39] A civil action only becomes appropriate when 407 ETR has reason to believe it will not otherwise be paid – in other words, when the usually effective licence plate denial process has run its course. Thus, the date when a vehicle permit expires for the failure to pay a toll debt is the date a civil action is an appropriate means to recover that debt. This date starts the two-year limitation period. For Mr. Day, this date is December 31, 2011. I say this for four reasons.
[40] First, under s. 5(1)(a)(iv) of the Limitations Act, 2002, the date a proceeding would be an appropriate means to recover a loss must have “regard to the nature of the ... loss”. So, in fixing the appropriate date, it may not be enough that the loss exists and the claim is actionable. If the claim is the kind of claim that can be remedied by another and more effective method provided for in the statute, then a civil action will not be appropriate until that other method has been used. Here, a claim will not be appropriate until 407 ETR has used that other method, without success.
[44] Second, in determining when a claim ought to have been discovered, s. 5(1)(b) of the Limitations Act, 2002 requires the court to take account of “the circumstances of the person with the claim”. …
[45] 407 ETR’s “circumstances” strongly suggest that requiring it to sue before finding out whether licence plate denial has achieved its purpose would be inappropriate. An important case on the significance of a plaintiff’s “circumstances” is the majority judgment in Novak v. Bond, [1999] 1 S.C.R. 808. In that case, McLachlin J. considered s. 6(4)(b) of British Columbia’s Limitations Act, R.S.B.C. 1996, c. 266, which provided that time did not begin to run against a plaintiff until “the person whose means of knowledge is in question ought, in the person’s own interests and taking the person’s circumstances into account, to be able to bring an action” (emphasis added). At para. 85 of her reasons, McLachlin J. discussed “interests and circumstances” and cautioned against the potential unfairness of requiring a plaintiff to bring an action at the time a claim first materializes:
Litigation is never a process to be embarked upon casually and sometimes a plaintiff’s individual circumstances and interests may mean that he or she cannot reasonably bring an action at the time it first materializes. This approach makes good policy sense. To force a plaintiff to sue without having regard to his or her own circumstances may be unfair to the plaintiff and may also disserve the defendant by forcing him or her to meet an action pressed into court prematurely. [Emphasis added; footnotes omitted.]
[46] Similarly here, holding that time begins to run against 407 ETR before it knows whether licence plate denial has prompted payment would be unfair, or to use the word of our statute, would not be “appropriate”.
[47] Holding that the two-year period begins after the licence plate denial process fails to prompt payment does not raise the concern Sharpe J.A. referred to in Markel Insurance Co. of Canada v. ING Insurance Co. of Canada, 2012 ONCA 218, 109 O.R. (3d) 652, at para. 34. There, he said that “appropriate” must mean “legally appropriate”. By using that phrase he signified that a plaintiff could not claim it was appropriate to delay the start of the limitation period for tactical reasons, or in circumstances that would later require the court to decide when settlement discussions had become fruitless. In this case, however, 407 ETR seeks to delay the start of the limitation period for a legally appropriate reason: waiting until a statutorily authorized process has been completed.
[48] A third consideration is what I take to be an important purpose of s. 5(1)(a)(iv). The overall purposes of limitation statutes are well-established and well-known: certainty, finality and the unfairness of subjecting defendants to the threat of a lawsuit beyond a reasonable period of time. But it seems to me one reason why the legislature added “appropriate means” as an element of discoverability was to enable courts to function more efficiently by deterring needless litigation. As my colleague Juriansz J.A. noted in his dissenting reasons in Hare v. Hare (2006), 83 O.R. (3d) 766 (C.A.), at para. 87, courts take a dim view of unnecessary litigation.
[ 30 ] The Defendants put emphasis on the reasoning of Justice Vallee sitting in the Divisional Court on appeal from the Small Claims Court in New Tec Building Envelopes Ltd. v. Deciantis Construction Ltd., [2015] O.J. No. 4995. Justice Vallee in considering similar issues to the ones at bar stated as follows at paras 1, 8, and 9:
[1] These appeals relate to two Small Claims court actions with respect to different construction projects. The parties are the same. One project involved work at St. Patrick’s Catholic Elementary School and the other related to work at St. Cosmas and Damian Catholic Elementary School. The plaintiff did not register liens. In both actions, the plaintiff claimed for money owing consisting of holdback, construction funds and loss of profit. The trial judge dismissed the plaintiff’s claims on the basis that they were commenced outside of the applicable limitation periods. The appellant (plaintiff) appeals these decisions.
[8] The certificate of substantial performance for this project was published on October 29, 2012. The [Construction Lien] Act provides that holdback funds may not be released until the time period in which any lien claimants might register a lien has expired. Regarding this project, the expiry occurs 45 days after the earliest of the following events: (i) publication of the certificate of substantial performance, and (ii) the date when the person last supplies services or materials. These provisions set out dates by which a lien claimant must register its lien.
[9] As noted above, the certificate of substantial performance was published on October 29, 2012. The holdback was payable 46 days later. Accordingly, the limitation period began to run on day 46 being December 14, 2012. It expired two years later on December 14, 2014.
[ 31 ] I must also bear in mind that in respect of the limitations issue I am exercising jurisdiction under Rule 20. I must grant summary judgement only if I am satisfied “that there is no genuine issue requiring a trial with respect to” the claim in view of the limitations defense. As the learned authors of The Law of Civil Procedure in Ontario, supra observe at para 6.219, “The question whether there is a genuine issue requiring a trial is answered in light of whether a full trial is required for the judge to have the ‘full appreciation’ of the evidence and issues needed to make dispositive positive findings, and the ultimate question is whether a trial is required in the interest of justice.”
C. ANALYSIS
[ 32 ] Relying on Justice Vallee’s reasoning in New Tec, supra the Defendants argue that the two year limitation period for the action against them ran from the time that the Plaintiff learned on or about September 21, 2011 that the certificate of substantial performance of the contract had been published on January 18, 2011 and had, therefore, expired before the action was brought.
[ 33 ] The Plaintiff argues relying on principles discussed by Justice Laskin in the 407 ETR case (although that case was decided after oral argument before me) that the action was commenced within the two year limitation period. The Plaintiff submits that until it learned of the facts supporting the appointment of the receiver it was not “legally appropriate” to commence the trust claim against the Defendants. Until learning of those facts, argues the Plaintiff, it was justified in relying upon its ongoing action under the Construction Lien Act against Gottardo Construction. It should be reiterated that the Randle affidavit in support of the appointment of the receiver was sworn July 28, 2015, and that the action subject of the motion before me was commenced on September 25, 2015.
[ 34 ] It is clear to me that there is a genuine issue requiring trial on the limitations issue. A full record of evidence at trial will be necessary to lay the foundation for legal argument on the limitations issue, including the application of the principles discussed in the 407 ETR case. I, therefore, dismiss the portion of the motion seeking a dismissal of the action under Rule 20 on the basis of the limitations defense.
IV. COSTS
[ 35 ] If the parties are unable to agree on costs, I will receive written costs submissions of no more than 3 pages excluding a bill of costs. The Plaintiff shall serve and file its submissions within 14 days from release of this endorsement. The Defendants shall serve and file their submissions within 14 days from service of the Plaintiff’s submissions.
Bloom, J.
DATE: October 7, 2016