CITATION: Lomax Realty Dev. Grp. Inc. v. New Foundations Dev. Co-op. Corp. 2016 ONSC 6276

COURT FILE NO.: CV-15-543497

DATE: October 7, 2016

SUPERIOR COURT OF JUSTICE - ONTARIO

RE: Lomax Realty Development Group Inc. (Plaintiff) v. New Foundation Development Co-operative Corporation (Defendant);

New Foundations Development Group Inc. (Plaintiff by Counterclaim) v. Lomax Realty Development Group Inc. and Richard Jeffrey (Defendants by Counterclaim);

BEFORE: MASTER C. WIEBE;

COUNSEL: Michael Hackl for New Foundations Development Co-operative Corporation;

Paul Hancock for Lomax Realty Development Group Inc. and Lomax Management Inc.;

HEARD: August 15, 2016.

REASONS FOR DECISION

I. INTRODUCTION AND BACKGROUND

[1] New Foundations Development Co-operative Corporation (“New Foundations”) is the owner of certain lands in Toronto. It hired Lomax Realty Development Group Inc. (“LRDG”) to construct a 12 storey, 105 unit, affordable housing condominium building on those lands. LRDG and several subtrades of LRDG registered claims for lien on the title to those lands and commenced lien actions. One of these subtrades is a company that is related to LRDG named Lomax Management Inc. (“LMI”).

[2] New Foundations brought this motion, returnable July 4, 2016, seeking leave under CLA section 56 to join “nunc pro tunc” two officers and directors of LRDG, Richard Jeffrey and Jean Danilko, as third parties in both the LRDG lien action and the LMI lien action claiming contribution and indemnity for having sworn statutory declarations allegedly fraudulently or negligently. I adjourned the motion to August 15, 2016. By the time of the argument of the motion, the relief sought had been reduced to leave to join only Danilko.

[3] The statutory declarations in issue were included in the New Foundations’ Supplementary Motion Record. There are 33 in number. They were all sworn by Danilko, who was stated in the earlier statutory declarations to be the LRDG Treasurer and in the later ones the LRDG Secretary. Each is in a standard CCDC9B form and states that LRDG has paid all accounts of subcontractors and suppliers concerning the performance of the project up to a specified date in the past (usually about two months before the date of swearing). The three stated exceptions to this statement are: (i) holdback monies properly retained; (ii) payments deferred by agreement; and (iii) accounts withheld by reason of legitimate dispute.

[4] The LRDG claim is against only New Foundations, and concerns alleged unpaid invoices for contract amounts and extras that LRDG alleges are due and owing. For the sake of the motion, it is undisputed that the LRDG claim incorporates the unpaid accounts of the subtrade lien claimants. New Foundations defended this action and commenced a counterclaim as against LRDG and Jeffrey. The counterclaim against Jeffrey was subsequently discontinued. Included in the counterclaim against LRDG was a claim for damages for allegedly “fraudulent and/or negligent misrepresentation” in the above noted statutory declarations. In the body of the counterclaim, New Foundations alleges that the statutory declarations falsely represented the state of accounts between LRDG and its subtrades in order to induce New Foundations to continue funding LRDG, and that New Foundations suffered damages as a result, including financing costs, increased bond premiums and legal fees.

[5] The LMI claim is against LRDG and New Foundations concerns unpaid invoices. As it pertains to New Foundations, the LMI claim concerns statutory holdback and “notice holdback.” New Foundations defended this action and crossclaimed against LRDG claiming contribution and indemnity for the LMI claim. Included in the body of the crossclaim was an allegation of “fraudulent and/or negligent misrepresentation” in the statutory declarations.

[6] New Foundations served its motion records not only on LRDG and LMI, but also on all of the other lien claimants. Only LRDG and LMI have responded. They oppose the motion. The motion material contains the draft third party claims against Danilko in the LRDG and LMI lien actions. These draft pleadings contain claims only for contribution and indemnity. They allege that Danilko had a duty of care to New Foundations to swear accurate statutory declarations, and failed to do so in order to induce New Foundations to fund LRDG. They allege that New Foundations suffered damages as a result, such as financing costs, increased bond premiums and legal fees.

[7] For the reasons stated herein, I have decided to dismiss the motion.

II. ISSUES

[8] Having reviewed the motion material and heard the arguments, I have determined that the following are the issues to be determined:

a) Are the proposed third party claims true claims for contribution and indemnity?

b) If so, will they unduly prejudice the ability of the third party or lien claimants to conduct a defence?

c) Will they unduly delay or complicate the resolution of the lien proceedings?

III. ANALYSIS

a) Are the proposed third paty claims true claims for contribution and indemnity?

[9] The Construction Lien Act, R.S.O. 1990, c. C.30 (“CLA”) section 56(1) specifies that a third party may be joined to a lien action “for the purpose of claiming contribution or indemnity from the third party in respect of that claim.” “That claim” in this section refers to the claim in the lien action of the lien claimant.

[10] There is clear authority for the proposition that this subsection prohibits a defendant from joining third parties for claims that are not strictly claims for contribution and indemnity concerning the plaintiff’s lien claim. Such prohibited claims include separate claims for damages against the third parties, such as contract or tort damages.

[11] In BMR Golf International Ltd. v. Forgehill Equities Inc., 1999 CarswellOnt 1870 (S.C.J.) the issue was whether the defendant, owner, could join as third parties two principals of the plaintiff company, the contractor. The owner had raised a counterclaim against the plaintiff company alleging that it had made misrepresentations in its tender that caused the owner to contract with the plaintiff. The proposed third party claim contained a claim over against the two principals for having caused the plaintiff company to make those allegedly false representations in its tender. The owner argued that the words “that claim” in CLA section 56(1) should be broad enough to refer to its own counterclaim, not just the plaintiff’s claim. In paragraphs 8 and 9, Justice MacKenzie disagreed. He found that the words, “that claim,” in CLA section 56(1) related only to the claim for which contribution and indemnity could be sought, namely the claim of the plaintiff. He found that what was being proposed was not a claim for contribution and indemnity, but rather a separate damage claim against the two principals. He denied the motion.

[12] In Hobbs Miller Maat Inc. v. UPI Inc., 2009 CarswellOnt 2093 (S.C.J.), the plaintiff performed remediation work on property that was leased by the defendants. The plaintiff allegedly caused a contamination in the course of its work. The plaintiff registered a construction lien for its unpaid work, and commenced an action. The defendants counterclaimed for damages relating to the contamination. The defendants brought a motion for leave to join as third parties the landlord and the former owner of the property claiming contribution and indemnity for what amounted to damages relating to the contamination. Referring to CLA section 56(1), Justice L. L. Gauthier denied the motion stating in paragraph 44 that the proposed third party claim was in essence a separate tort action that did not relate to the plaintiff’s claim for payment.

[13] On the other hand, where the proposed third party claim alleges that the third party caused or contributed to the plaintiff’s lien claim, the court should grant leave. Such claims are true claims for contribution and indemnity. In Domus Development Corp. v. York Condominium Corp. No. 82 [2001] O. J. No. 1479 (Ont. Master) a contractor did work for a condominium which had a consultant. The contractor registered a construction lien and commenced an action claiming that it had implemented design changes, errors, directions and approvals of the consultant, all of which the owner complained about and refused to pay for. The condominium owner brought a motion for leave to join the consultant as a third party claiming contribution and indemnity for the plaintiff’s claim. Referring to CLA section 56(1) and noting that the contractor pleaded that it had relied on the consultant in doing the work, Master Sandler granted leave to join the consultant in relation to the plaintiff’s claim for payment. I note that there were claims in the proposed third party claim for the condominium’s “own damages” (see paragraph 15 of the decision). These Master Sandler did not allow, stating that they could be brought by way a separate action that could be joined later to the lien proceedings.

[14] Therefore, the question is whether the proposed third party claims against Danilko contain allegations that Danilko caused or contributed (through the allegedly false statutory declarations) to the payment claims being made by LRDG and LMI. The proposed third party claims do not make such an allegation. They simply contain a bald, unsubstantiated claim for contribution and indemnity arising from the statutory declarations. This does not surprise me, because, as a matter of logic, I do not see how the allegedly false statutory declarations could have caused or contributed to any non-payment of subtrades. The statutory declarations are statements after the fact, namely after the payments were made, as to what was paid.

[15] The most that Mr. Hackl could say in this regard is that the allegedly false statutory declarations denied New Foundations the ability to mitigate or reduce its exposure (in holdback and otherwise) to the subtrade lien claims. The argument appeared to be that New Foundations, had it known of the true state of accounts between LRDG and its subtrades, would have paid the wronged subtrades directly from future draws. I note that the proposed third party claims plead that New Foundation relied on the statutory declarations in advancing funds to LRDG, a pleading that may incorporate Mr. Hackl’s point.

[16] I find this argument to be speculative and unacceptable. First, there is no evidence before the court showing that this was a real option for New Foundations under its contract with LRDG. Second, and most importantly, the argument defies logic. In my view the owner should have no exposure to the subtrade claims arising from properly paid certified progress draws that are not properly distributed by the contractor. The improper payments by the contractor should come out in the accounting and remain only a liability of the contractor and its principals. Third, holdback is a retention obligation that is set by the statute and cannot be changed. What Mr. Hackl is really arguing is that the New Foundations has been denied the ability to use LRDG’s draws to expand the scope of the owner’s set-off claim at the end of the contract against retained funds that would otherwise have to be used to pay holdback to subtrades. This is, therefore, at best a claim concerning the owner’s own damages, not one rooted in the plaintiff’s claim. These were arguments that Mr. Hancock made, and I accept them.

[17] In the end, the “exposure” that New Foundations appears to be concerned about in relation to the allegedly false statutory declarations is the inconvenience and loss to it (such as the payment of holdback) and the expense to it (such as higher bond premium, legal costs and financing costs) that arise from unpaid subtrades. While these may justify third party actions under Rule 29.01, they do not, in my view, amount to a true claim for “contribution and indemnity” under CLA section 56(1).

[18] I make another comment at this point. The proposed third party claims are troublesome because, in my view, they are tantamount to trust claims. The third party claims will require that the parties embark on a detailed accounting of what happened to the contract funds that New Foundations paid to LRDG throughout the project. This is the same kind of accounting that parties to a breach of trust action must undertake to determine what happened to trust monies that were paid to the contractor. CLA section 50(2) expressly prohibits the joinder of trust claims with lien claims. Allowing the proposed third party claims would, I fear, undermine this statutory prohibition.

[19] I, therefore, find that the proposed third party claims are not true claims for contribution and indemnity for the purposes of CLA section 56(1).

b) Will the third party claims unduly prejudice the ability of the lien claimants and the third party to conduct a defence?

[20] Having determined that the proposed third party claims are not true claims for contribution and indemnity, I do not have to answer this question.

[21] For the record, however, I accept Mr. Hackl’s submissions that this motion is being brought early enough to eliminate any serious concerns in this regard. Production and discovery in the lien proceedings have not happened.

[22] In addition, I will make a comment about a limitation argument that Mr. Hancock raised in his factum. He argued that Danilko would be denied a limitation defence with these third party claims. I fail to understand this argument. The Limitations Act, 2002, S. O. 2004, c. 24, section 18(1) makes it clear that the two year period for the running of a claim over for contribution and indemnity starts to run when the claim from which the claim is made was served. That service in this case happened in 2016, which is well within the limitation period.

c) Will the proposed third party claims unduly delay or complicate the resolution of the lien proceedings?

[23] Again, because I have found that the third party claims are not true claims for contribution and indemnity, I do not have to answer this question.

[24] However, I will make one comment in this regard. Because the proposed third party claims have many of the trappings of a trust action, I am concerned that the lien proceedings will become bogged down in side issues as to what happened with monies LRDG was paid. This is no doubt the reason the statutory prohibition against joining trust claims to lien claims exists in CLA section 50(1). As a result, if I had concluded that the third party claims were indeed claims for contribution and indemnity, I would have been reluctant to grant leave in any event.

[25] Mr. Hancock raised other issues in this motion. He complained that New Foundations used hearsay affidavits of a law clerk concerning substantive issues in this motion. He argued that no weight should be given to this affidavit as a result, and pointed to authority for this proposition; see Auto Workers’ Village (St. Catherines) Ltd. v. Blaney, McMurtry, Staples, Friedman, 1997 CarswellOnt 3509 (Ont. Gen. Div.) at paragraphs 13 and 14, and Glasjam Investments Ltd. v. Freedman, 2014 ONSC 3878 (Ont. Master) at paragraphs 32 to 35. I do not have to, and I will not, make a formal ruling of this point. Suffice it to say that I would have had great difficulty accepting this thin affidavit evidence on important points.

IV. CONCLUSION

[26] I, therefore, dismiss the motion.

[27] Concerning the costs of this motion, the parties submitted costs outlines. LRD’s costs outline shows the following amounts: $2,969.08 in partial indemnity costs; $4,392.88 in substantial indemnity costs; and $5,816.68 in actual costs. The New Foundaionts costs outline shows the following amounts: $9,651.90 in partial indemnity costs; and $13,937.45 in substantial indemnity costs.

[28] Generally, costs follow the event. If the parties cannot agree as to a costs of this motion, parties seeking costs must serve and file written submissions in this regard of no more than two pages, single spaced, on or before October 19, 2016. Responding submissions must be in writing and cannot exceed two pages, single spaced, and must be served and filed on or before October 31, 2016.

DATE: October 7, 2016 __________________________

MASTER C. WIEBE