SUPERIOR COURT OF JUSTICE – ONTARIO
RE: Quality Rugs of Canada Limited
AND:
Sedona Development Group (Lorne Park) Inc. Sedona Development Group Inc. Casaco Developments Inc. Casimiro holdings Inc., The Guarantee Company of North America and Laurentian Bank of Canada
BEFORE: Ricchetti, J.
COUNSEL: R. Harason, Counsel Quality Rugs of Canada Limited ("Quality Rugs")
C. Reed, Counsel for Casaco Developments Inc. and Casimiro Holdings Inc. ("Casaco/Casimiro")
R. Kennaley, Carriage Counsel
HEARD: October 31, 2016
REASONS FOR JUDGMENT
Table of Contents
Table of Contents. 1
THE BACKGROUND.. 2
MR. HARASON'S CLAIM FOR SALVAGE COSTS. 9
The Background to Mr. Harason's Claim for Salvage Costs. 9
The Affidavits of Lien Claimants' Counsel 12
The Issues. 14
Issue #1 - The Preliminary Issue. 14
Issue #2 - Mr. Harason's Entitlement to Salvage Costs. 15
The Law on the Jurisdiction to Award Costs. 15
Application to this Case. 21
Conclusion on Mr. Harason's claimed Salvage Costs. 26
THE VALIDITY AND QUANTUM OF QUALITY RUGS' LIEN CLAIM... 27
The Facts. 27
The Issues Raised. 28
i) Extras Not Signed by Prosocco. 29
ii) Whether Purchaser extras were part of Quality Rugs contract with Sedona. 29
iii) Lack of Purchaser files. 30
Revised Table of Changes and Documents Produced. 30
Conclusion on Validity and Quantum of Quality Rugs' Claim for Lien. 31
QUALITY RUGs' ACTION against Sedona. 31
COSTS. 31
Costs against Casaco/Casimiro of this action?. 31
Costs of this Motion. 32
THE BACKGROUND
1Casaco/Casimiro owned certain developable lands on Lorne Park Road in Mississauga (the “Lands”). In April, 2010, the Lands were transferred to Sedona Development Group (Lorne Park) Inc. (“Sedona”) for the construction of nine new homes (“Sale Agreements”).
2Sedona sold and commenced to build homes on the Lands. In late 2010, Sedona ran into financial difficulties. The project failed. Nine new homes had been built. The nine new homes had been sold to third party purchasers.
3Various lien claimants registered claims for liens on title. Numerous legal proceedings (mostly lien proceedings) were commenced. The Sale Agreements with the purchasers could not be completed in the circumstances.
4The numerous lien actions were never consolidated. This proceeding is but one of the numerous lien proceedings relating to this project.
5Casaco/Casmiro’s counsel, Mr. Reed of Laishley Reed LLP, commenced an application seeking an order of this court providing for the completion and orderly sale to the purchasers of the homes. Proceeds of the completed sales were sought to be paid into court or held in trust for distribution to all parties in the numerous legal proceedings entitled to those monies and subject to the priorities of all interested parties ("Trust Monies").
6Laishley Reed LLP's application was heard on September 27, 2012. This court ordered the completion of the sale of the nine homes to the purchasers in accordance with their respective agreements of purchase and sale by granting vesting orders and requiring that the Trust Monies be held without prejudice to the respective legal position of all interested parties (the “September 27, 2012 Order”). The respective claims of all interested parties would attach to the Trust Monies rather than the Lands.
7Mr. Reed was present at the hearing, as well as counsel for a number of lien claimants, mortgagees and other interested parties.
8At the conclusion of the hearing, Mr. Reed sought costs of the motion payable from the Trust Monies. After consideration and concluding that Mr. Reed had successfully advanced this application to generate the Trust Monies for the benefit of all lien claimants, mortgagees and owners (including potentially to Mr. Reed's clients), it was appropriate that an order for costs be made in the amount of $20,000 payable to Mr. Reed’s firm from the Trust Monies. None of the lien claimants or other potential stakeholders in the Trust Monies opposed Mr. Reed’s claim for his costs of the motion.
9An issue arose during the settlement as of the September 27, 2012 Order. Mr. Harason, who acted for one of the lien claimants, Quality Rugs, sought to preserve a claim for costs by him. Mr. Harason made written submissions on October 4, 2012 as to why such a term should be incorporated in the September 27, 2012 Order.
10A case conference was convened on October 9, 2102. Submissions were made. On this issue, this court ruled:
In my view, it is too late to make this claim. Costs were awarded in the Application on Sept. 27/12. No other costs were sought at the time. Mr. Reed’s firm was in a unique position, having brought this matter forward for the benefit of all parties. I see no reason to extend further incursions into the funds that should be and will be available to all parties, including the claimants like Mr. Harason’s client. I also note that the position taken by Mr. Harason was not accepted by this court. On that basis alone, I would have denied Mr. Harason’s client costs. No other lien claimant has made additional submissions to add paragraph 13 proposed by Mr. Harason. I will not include para 13 to the Order.
11The mortgagee claims were eventually resolved.
12The lien claimants actions continued unconsolidated.
13The primary claims to the Trust Monies was between Casaco/Casmiro and the lien claimants. Laurentian Bank, although its mortgage was repaid, also had an outstanding claim for costs.
14In early 2014, some of the lien claimants agreed to bring a summary judgment motion to deal with the issue of priority to the Trust Monies as between Casaco/Casimiro and the lien claimants. The summary judgment motion was eventually brought by Roni Excavating Limited, one of the lien claimants, but all lien claimants in their various proceedings agreed to be bound by this court’s decision on the motion. A number of the lien claimants had agreed to fund Mr. Kennaley, counsel for one of the lien claimants, to bring this motion.
15The summary judgment motion was heard on December 11 and 12, 2014. The Court determined that the Trust Monies were trust funds for the benefit of all lien claimants. Casaco/Casimiro appealed this court's decision.
16On May 4, 2015, Mr. Kennaley of McLaughlin & Associates was appointed as carriage counsel under the Construction Lien Act.
17On October 23, 2015, the Divisional Court dismissed Casaco/Casimiro's appeal.
18There was approximately $2,000,000 in Trust Monies.
19Mr. Harason was one of the lawyers who arranged for a Settlement Conference on November 20, 2015 before Justice MacKenzie. A number of lien claimant's counsel attended at the Settlement Conference. A "Conditional Settlement" was arrived at by counsel and parties in attendance. The Conditional Settlement is set out in detail in Justice MacKenzie's Report. The Conditional Settlement was conditional on:
a) acceptance by all lien claimants;
b) resolution of a mortgagee’s claim for costs; and
c) the sums believed available for distribution continued to be the minimum amount actually available for distribution.
20As part of the Conditional Settlement, $205,500 was to have first been paid from the Trust Monies for “carriage costs” to counsel for certain lien claimants before distribution of the balance of the Trust Monies to the lien claimants. Mr. Kennaley, carriage counsel would have received the largest portion; Mr. Harason was to receive $57,500; and 3 other lien claimant lawyers would receive a total of $48,000.
21Numerous problems arose with respect to the Conditional Settlement including the amount believed to be available for distribution on November 20, 2015 had decreased and at least one lien claimant also sought salvage costs and refused to agree to the Conditional Settlement. One of the lien claimants initially opposed the amount of salvage costs payable to Mr. Harason under the Conditional Settlement as being excessive and including legal fees which this court had rejected in September 2012. Other lien claimants subsequently also objected to the amount of salvage costs claimed by Mr. Harason under the Conditional Settlement. The Conditional Settlement fell apart.
22All lien claimant counsel were aware the conditions of the Conditional Settlement had not been met as numerous emails continued to be exchanged between counsel. In particular, Mr. Harason was copied (as were all lien claimants’ counsel) by Mr. Kennaley on an email dated December 3, 2015, setting out the issues that prevented the Conditional Settlement from being fully approved and going into effect. Details of the problems regarding the Conditional Settlement are set out in Justice MacKenzie's Settlement Conference report of December 4, 2015.
23Efforts continued to salvage a settlement acceptable to all the lien claimants, the owners and the mortgagee, Laurentian.
24A further Settlement Conference was scheduled before Justice MacKenzie on December 4, 2015. Mr. Harason knew that the Conditional Settlement had not been approved prior to the December 4, 2015 Settlement Conference. Nevertheless, Mr. Harason chose not to attend at the December 4, 2015 Settlement Conference.
25Not all lien claimants attended at the December 4, 2015 Settlement Conference. A new conditional settlement agreement was reached by the parties in attendance (“New Conditional Settlement”).
26One of the changes in the New Conditional Settlement included the reduction of the salvage costs to be paid to Mr. Harason from the Trust Monies from approximately $57,500 to $39,048.21.
27The New Conditional Settlement was conditional upon acceptance by all lien claimants.
28The rationale for the reduction of Mr. Harason's claimed salvage costs was based on what some lien claimants believed were excessive fees in relation to the amount of Quality Rugs' claim for lien and this court's ruling on October 9, 2012 to deny Mr. Harason's costs of the September 27, 2012 application. The lien claimants arrived at the $39,048.21 based on the removal of all Mr. Harason's legal fees and disbursements prior to this court's order on October 9, 2012.
29Despite submissions by Mr. Harason, the lien claimants refused to increase the amount payable to Mr. Harason for salvage costs under the New Conditional Settlement.
30Subsequently, all lien claimants and other parties agreed to the New Conditional Settlement except Quality Rugs, Mr. Harason’s client, (the "December 4, 2015 Settlement"). For Mr. Harason’s client, Quality Rugs, the sole issue in dispute was the reduction of approximately $18,000 in Mr. Harason’s claimed salvage costs.
31Some minor changes to the amounts payable to all lien claimants were made in May 2016 and some in July 2016. Again, all lien claimants except Quality Rugs agreed to the minor changes. Absent agreement of all lien claimants or a court order, the distribution of the Trust Monies could not proceed.
32As a result, an attendance was scheduled before this court on July 27, 2016. Mr. Harason sought to quash the December 4, 2015 Settlement and require all lien claimants to attend yet another Settlement Conference. It is important to remember that there were numerous lien claimants, numerous proceedings, the payments to the lien claimants had been outstanding for years, there were substantial monies in trust and the only outstanding issue at this time was the approximately $18,000 reduction in Mr. Harason's claimed salvage costs.
33After hearing from the parties, on July 27, 2016, this court ordered the following:
a) From the settlement funds available, there would remain in trust the full amount of Quality Rugs' Claim for Lien (not just the pro-rata amount being paid out to the other lien claimants) and the full amount of Mr. Harason’s claimed salvage costs;
b) The December 4, 2015 Settlement with all lien claimants, except Quality Rugs, would be completed; and
c) A motion date was scheduled for a summary determination of the validity and quantum of Quality Rugs' claim for lien and Mr. Harason’s claim for salvage costs.
34The issuance of the July 27, 2016 order was delayed. A further telephone attendance was required. This court signed the order and directed that the immediate payout to the lien claimants in accordance with the December 4, 2015 Settlement, as amended.
35The motion to determine the validity and quantum of Quality Rugs' claim for lien and Mr. Harason's claimed salvage costs was heard on October 31, 2016. Given the amounts at issue, the parties wanted the issues determined by this court if, at all possible, on this date rather than directing a trial or trial of an issue.
36Submissions were heard from Mr. Harason on behalf of Quality Rugs, Mr. Kennaley as carriage counsel on the issue of salvage costs only and Mr. Reed on behalf of Casaco/Casimiro.
37A decision on the motion was reserved.
MR. HARASON'S CLAIM FOR SALVAGE COSTS
38Mr. Harason claims entitled to the salvage costs of $57,496.25 (on a substantial indemnity basis) for the period 2012 until 2014.
39Mr. Harason submitted briefs containing communications amongst counsel for the lien claimants to demonstrate the work performed by him. Mr. Harason also submitted a cost outline.
The Background to Mr. Harason's Claim for Salvage Costs
40Mr. Harason's dockets disclose legal services incurred on the Quality Rugs matter from August 28, 2012 until April 21, 2014. A review of the dockets does not assist in the determination whether the time spent related to legal services for Mr. Harason's client, Quality Rugs, or performed for the benefit of all lien claimants.
41Mr. Harason's Responding Application Record sets out a considerable amount of correspondence between himself and other lien claimants counsel prior to the September 27, 2012 motion. These documents do not demonstrate that Mr. Harason placed the interests of the lien claimants as a whole ahead of Quality Rugs' interests or that anything substantial was accomplished by Mr. Harason that benefitted the lien claimants as a whole.
42The communications demonstrate that after the September 27, 2012 motion which generated the Trust Monies, Mr. Harason sought to become carriage counsel (along with several other counsel for lien claimants) in the lien proceedings or obtain agreement of all lien claimants to pay his legal accounts.
43Starting in late 2012, Mr. Harason attempted to obtain the agreement of all lien claimants to share the legal costs for him to proceed with the lien actions on behalf of all the lien claimants. Mr. Harason was unsuccessful in getting all lien claimants to agree to proceeding in this manner.
44Mr. Harason submits that the communications in 2012 and 2013, demonstrate that he advanced issues for benefit all lien claimants. While I accept that some issues raised by Mr. Harason in his correspondence were of a general nature and potentially beneficial to other lien claimants, it is clear that Mr. Harason was advancing his client’s interests. In my view, where there are multiple lien actions, advancing issues on behalf of a lawyer's client, such as seeking priority over a mortgage, may also indirectly benefit other lien claimants. This indirect benefit does not create any entitlement for contribution for legal services from the other lien claimants.
45Having reviewed the communications produced by Mr. Harason, this court has not identified legal steps taken by Mr. Harason which could be identified as taken specifically for the lien claimants as a whole.
46Turning to legal steps which Mr. Harason sought to take, such as consolidation and appointment of carriage counsel, many of these proposed steps were never taken because Mr. Harason could not obtain the unanimity of all other the lien claimants for him to take steps on their behalf. In one communication dated March 13, 2013, Mr. Harason indicated he would not “proceed further without the order for full indemnity costs.”
47In early 2014, when it became clear that the lien claimants would bring a summary judgment motion, Mr. Harason sought to work jointly with Mr. Kennaley on the proposed motion. Mr. Harason advised Mr. Kennaley on June 18, 2014: “Otherwise, my client will not contribute. In that event, I will simply act as a responding party on your motion and you can serve me with your motion materials in due course. Thanks.”
48Mr. Harason understood that he needed the agreement of all lien claimants for him to be indemnified for legal costs. Some of the communications where Mr. Harason attempted, but failed, to get agreement of all the lien claimants to agree to pay or contribute to his legal costs include:
a) On December 19, 2012, Mr. Harason and Mr. Long (counsel for another lien claimants) wrote to other counsel stating: "Robert Harason and I would like to schedule a 9:30 a.m. attendance before Justice Ricchetti to discuss an Order for Carriage, protection regarding costs and a Timetable for Casimiro's priority claim. We would email all counsel to attend and speak to these issues.... " No order was sought or issued appointing Mr. Harason as carriage counsel. No consolidation took place;
b) Again, on January 22, 2013 Mr. Harason raised with other counsel, the consolidation of all lien actions and appointing his firm (along with Mr. Long's firm and possibly Koskie Minsky) as carriage counsel so that "all lien claimants agreeing to indemnify carriage counsel pro rata in accordance with amounts of their lien claims for any costs award against carriage counsel and/or their clients..."
c) On February 8, 2013 a draft notice of motion was prepared regarding the consolidation of all lien actions and the appointment of carriage counsel. Some lien claimants objected to the proposed cost provisions of the carriage order sought;
d) Discussions regarding the carriage counsel motion continued. Mr. Harason, along with several other counsel, sought to obtain carriage counsel status but only if they received an indemnity with respect to any cost awards made against them or their clients. Some lien claimants agreed. Others agreed not to oppose. Some opposed the order sought;
e) In Mr. Harason's July 4, 2013 email to Salvatore Mannella, Mr. Harason expressed in his communication that he needed an order "that it[Quality Rugs] will be entitled to payments of its reasonable full indemnity costs out of the proceeds of settlement or judgment.." Mr. Harason was concerned that he not "face an argument that all its lawyer's reasonable costs are not paid out of the proceeds of settlement or judgment."
f) Mr. Harason continued to communicate with lien claimant counsel to get agreement of all lien claimants on consolidation and carriage costs. At one point, Mr. Harason suggested an order whereby a 5% of the amount of each claim for lien be contributed by each lien claimant would be paid in advance to cover legal costs. This was not acceptable to all lien claimants;
g) These efforts by Mr. Harason continued well into 2014.
49Reviewing all of the communications, the only reasonable conclusion is that the legal costs claimed by Mr. Harason as salvage costs were predominantly incurred while:
a) taking steps to protect Quality Rugs' interests; and
b) taking steps to get agreement of all lien claimants to a consolidation order and a carriage cost order or other mechanism whereby his legal costs would be protected.
The Affidavits of Lien Claimants' Counsel
50A number of counsel in the various lien proceedings before this court filed affidavits on this motion. The essence of their evidence was that:
a) Mr. Harason was never appointed carriage counsel;
b) No order authorized Mr. Harason to incur salvage costs on behalf of other lien claimants;
c) The lien claimants did not agree to pay Mr. Harason for legal fees incurred by him in advance of taking any steps in the proceedings;
d) in many cases, positions were taken by Mr. Harason without their knowledge or agreement;
e) The vast majority of the steps taken by Mr. Harason were not for the benefit of all lien claimants, taken with the knowledge and approval of all lien claimants or were the usual legal services that any lien claimant's counsel would and should have taken to protect his own client's position;
f) Much of the legal fees claimed by Mr. Harason relate to unsuccessful attempt to get all lien claimants to agree to a consolidation order or the appointment of Mr. Harason as carriage counsel. Neither ever occurred;
g) Mr. Harason asked lien claimants for an indemnity for his fees or an advance deposit, but neither were agreed to by all lien claimants;
h) The eventual agreement under the December 4, 2015 Settlement to pay three lawyers a portion of their fees as salvage costs from the overall monies in court was voluntarily agreed to because the amounts claimed by counsel to the lien claimants were proportional to their lien claims and because they believed steps were taken which benefitted all lien claimants;
i) The lien claimants volunteered to pay a substantial portion of Mr. Harason’s claimed salvage costs but the parties could not agree upon an amount because the lien claimants believed the amount claimed by Mr. Harason was excessive (as it represented approximately 77% of the amount of Quality Rugs' claim for lien) and the court had denied Mr. Harason's costs in September 2012 which he now attempted to recover indirectly; and
j) a number of counsel for the lien claimants also appeared at the various court attendances, made submissions to the court but have not sought or been awarded salvage costs.
51There is no responding affidavit to the affidavits of the lawyers for the lien claimants.
The Issues
52The following issues need to be decided on this motion:
a) Carriage Counsel’s preliminary issue regarding the sufficiency of Quality Rugs’ evidence on this motion;
b) Whether Quality Rugs’ counsel is entitled to reimbursement of certain legal costs as carriage/salvage costs;
c) The validity and quantum of Quality Rugs’ lien claim; and
d) Costs.
Issue #1 - The Preliminary Issue
53Mr. Kennaley submits that Quality Rugs' claim for salvage costs should be dismissed for want of evidence.
54Mr. Kennaley sought sworn evidence from Mr. Harason regarding his claimed salvage costs and, in particular, requested sworn evidence that the legal services were either necessary, approved or incurred for the benefit of the lien claimants as a class. No such evidence was forthcoming from Mr. Harason. No reasonable explanation was given why not.
55Given that the evidentiary record is almost exclusively communications between counsel, this court is prepared to rely on the documentation filed on this motion to determine Mr. Harason's entitlement to salvage costs.
Issue #2 - Mr. Harason's Entitlement to Salvage Costs
56It is important that a court order for payment of salvage costs is different than the situation where all lien claimants voluntarily agree to payment of the legal costs of a counsel from the trust monies. In this case:
a) there was no consolidation of the lien proceedings and Mr. Harason's firm was never appointed carriage counsel;
b) the lien claimants object to paying Mr. Harason's claimed salvage costs from the Trust Monies; and
c) Awarding salvage costs to Quality Rugs would be reducing the amounts recoverable to the other lien claimants in the other proceedings (i.e. non-parties) without their consent.
57The issue here is whether Quality Rugs' counsel, Mr. Harason's firm, is entitled to have some of its legal fees awarded as salvage costs from the Trust Monies which would reduce the Trust Monies available to the other lien claimants for distribution.
The Law on the Jurisdiction to Award Costs
a) The Courts of Justice Act
58Generally, in legal proceedings, awards of costs are authorized by s. 131(1) of The Courts of Justice Act (CJA):
131(1) Subject to the provisions of an Act or rules of court, the costs of and incidental to a proceeding or a step in a proceeding are in the discretion of the court, and the court may determine by whom and to what extent the costs shall be paid.
59While the CJA provides a very broad judicial discretion to award costs, the phrase "by whom . . . the costs shall be paid" has been judicially interpreted to mean "by which of the parties to the proceedings before the court or judge": see Rockwell Developments Ltd. v. Newtonbrook Plaza Ltd., 1972 CanLII 531 (ON CA), [1972] 3 O.R. 199 at p. 207, (C.A.).
60See also Elliott v. Toronto (City) (1999) 1717 D.L.R. (4th) 64 (C.A.) where the Court of Appeal stated that subject to certain exceptions as described in Rockwell (such as the “straw man” party to the proceeding), a court does not have jurisdiction to make a costs order against a non-party in a proceeding. Such an award of costs against a non-party is an “extraordinary” remedy that should only be made in the clearest of cases: Smith v. Canadian Tire Acceptance Ltd., 1995 CanLII 7163 (ON SC), [1995] O.J. No. 327 (Ont. Ct. G.D.) at para 42; aff’d (1995), 26 O.R. (3d) 94 (C.A.).
ii) Carriage Counsel Costs under the Construction Lien Act
61Carriage costs and salvage costs are essentially synonymous. Duncan Glaholt in The Ontario Construction Lien Act, 2011 Annotated, Carswell provides a useful summary of carriage/salvage costs at page 376:
... In order to permit the orderly conduct of such actions the statute creates a kind of class proceeding. This scheme is carried into effect through “consolidation”. The right to conduct of a consolidated action is called “carriage”. The special costs usually payable by the group to the solicitor having carriage are called “salvage costs”.
62The Construction Lien Act provides for the appointment of counsel as carriage counsel where the lien actions have been consolidated:
- (1) The court may at any time make an order awarding carriage of the action to any person who has a perfected lien.
(2) Where more than one action is brought to enforce liens in respect of the same improvement, the court may,
(a) consolidate all the actions into one action; and
(b) award carriage of the action to any person who has a perfected lien.
63Carriage counsel then has the benefit of a cost award for its work on behalf of the lien claimants as a class. The Construction Lien Act provides:
- (1) The court may make all orders necessary for the completion of a sale and for vesting an interest in the premises in the purchaser.
(2) Where an interest in the premises is sold under court order, or by a trustee appointed under Part IX, the proceeds of the sale shall be paid into court to the credit of the action.
(3) The court may add to the claim of the party having carriage of the action the fees and actual disbursements of the party in connection with the sale.
(emphasis added)
64Accordingly, the Construction Lien Act provides that the fees and disbursements of the "party having carriage of the action" may be added to the lien claimant's claim, although the general practice is that carriage costs are payable first from the trust monies recovered and thereafter, the balance of the monies are distributed pari passu to the lien claimants. See The Construction Lien Act, 2011 Annotated, at page 477.
iii) Costs Generally under the Construction Lien Act
65The Construction Lien Act provides for the provision of costs in a lien action:
- (1) Subject to subsection (2), any order as to the costs in an action, application, motion or settlement meeting is in the discretion of the court, and an order as to costs may be made against,
(a) a party to the action or motion; or
(b) [not applicable to the present case]
66In the separate lien proceedings, the wording of s. 86 of the Construction Lien Act limits this court's jurisdiction to a party to the action in much the same way as does the CJA.
iv) The Authorities
67Mr. Harason points to B.A. Robinson Plumbing & Heating Ltd. v. Dunwoodco Ltd. (Trustee) et al, 1968 CanLII 391 (ON SC), [1968] 2 O.R. 826. where, on the approval of the final Report, despite objection by a lien claimant, Master MacRae awarded $4,500 salvage costs to the plaintiff's counsel as the Master was satisfied counsel's efforts expedited and assisted in the lien proceedings for the benefit of all lien holders. No authority was cited for the court's jurisdiction to make such an award against other lien claimant’s objection. However, it is not clear if there had been a consolidation of the lien actions, whether the reference to the Master resulted in all the lien claimants being before the court or details of the circumstances which led one counsel to undertake a review of the validity of the claims for lien of all lien claimants.
68Surprisingly, reference to B.A. Robinson appears regularly cited in subsequent cases as authority to award salvage costs but without any further discussion as to the source of the court’s jurisdiction or setting out the circumstances where the court may or may not award salvage costs.
69Mr. Harason also points to RSG Mechanical Inc. v. 1398796 Ontario Inc. et al, 2013 ONSC 2064. Master Polika ordered carriage costs, to not only carriage counsel, but also to four other lien claimants. See para 27 in RSG Mechanical. It appears there was no objection to the payment of "carriage costs" to several parties. As a result, the issue was not litigated.
Conclusion on authority to award salvage costs
70In this case the Trust Monies are available to all lien claimants with proven valid claims for lien. The lien claimants are entitled to share in the trust monies on a pari passu basis. See the following provisions of the Construction Lien Act:
- (1) Except where it is otherwise provided by this Act,
(a) no person having a lien is entitled to any priority over another member of the same class;
(b) all amounts available to satisfy the liens in respect of an improvement shall be distributed rateably among the members of each class according to their respective rights; and
(c) [not applicable to this case].
- Where an interest in the premises is sold or leased under an order of the court or by a trustee appointed under Part IX, the proceeds received as a result of that disposition, together with any amount paid into court under subsection 65 (2), shall be distributed in accordance with the priorities set out in this Part.
71The provisions of the Construction Lien Act for the appointment of carriage counsel do not apply to Mr. Harason.
72Where all lien claimants agree to a distribution of the Trust Monies, other than rateably, amongst the lien claimants, they are free to do so.
73In this case, granting salvage costs to Mr. Harason would, in essence, be requiring all lien claimants, except for Quality Rugs, to pay the legal fees claimed by Mr. Harason. The other lien claimants are non-parties to the Quality Rugs lien action. It is clear that these other lien claimants were asked to pay Mr. Harason's salvage costs and all did not agreed to pay his claimed salvage costs. In essence, this court would be forcing the other lien claimants to pay Mr. Harason's legal accounts against their wishes.
74This court is also concerned that, if counsel for a specific lien claimant was entitled to salvage costs in priority to payments to lien claimants from trust monies, a number of counsel for other lien claimants could and would no doubt also advance salvage costs claims. There is a real concern this would open the "flood gates" to legal fees having priority over trust monies at the expense of contractors and sub-contractors who provided the work and services and were not paid.
75A lien claimant's ability to control their proceeding would also be imperilled. For example: lien claimants retain specific counsel on a specified rate for service (counsel who claims salvage costs may have different experience and different rates for service); instruct their counsel on positions this specific client wants taken (which may or may not be the same as counsel who claims salvage costs); and balance their legal fees with the amount of the claim for lien (a lien claimant may choose not to proceed to examinations for discovery because of their claim for lien is a small amount but might have to pay salvage costs of the counsel who proceeded with the examinations for discovery).
76If salvage costs were permitted in circumstances such as this, it would require an in-depth assessment of the legal services provided by each counsel who claims salvage costs to review of such matters as:
what work was done for the lawyer's client;
what work incidentally benefitted other lien claimants;
what work prejudiced other lien claimants;
what work was done where the entire lien claimant's interests were put first.
Such an assessment would be time consuming and a difficult after the fact undertaking.
77This court determines that, where the lien proceedings are not consolidated, the court has jurisdiction under s. 86(a) of the Construction Lien Act to award costs only as against a party to the lien action or against a non-party where s. 86(b) of the Construction Lien Act applies. This court cannot award costs (including salvage costs) against a lien claimant in another lien proceeding(s) or award costs (including salvage costs) in priority to the trust monies' entitlement of lien claimant(s) in other lien proceeding(s) unless:
a) all lien claimants in all lien proceedings have agreed to the appointment of carriage counsel, in which case it is express or implicit by the order appointing carriage counsel, that carriage counsel will be acting on behalf of all lien claimants with a corresponding obligation by all the lien claimants to pay carriage counsel's salvage costs, at a minimum, from the trust monies generated in the various lien proceedings; or
b) it is one of the exceptional cases described in Rockwell.
78I reject Mr. Harason's submission that he only need show that he did work for the benefit of lien claimants to be entitled to salvage costs. Even if this court had concluded Mr. Harason's legal services benefited all the lien claimants (which this court does not), simply doing work which benefits other lien claimants in the other lien actions would be an insufficient reason or basis at law to "force" them to pay for another counsel's legal services.
79For the same reasons, I reject Mr. Harason's submission that he performed the legal services believing the legal services were for the benefit of all lien claimants. Even if this court had the jurisdiction to award salvage costs, the threshold level suggested by Mr. Harason is simply not a reasonable one.
Application to this Case
i) Lack of Consolidation
80The numerous lien proceedings were not consolidated.
ii) Carriage Counsel
81Mr. Harason was not appointed as carriage counsel.
iii) Lack of Agreement by all lien claimants
82There was never an agreement by all lien claimants to pay Mr. Harason's claimed salvage costs Mr. Harason was fully aware he did not have the consent or approval of all lien claimants .
83There was never a request by all of the lien claimants that Mr. Harason provide legal services for them or that they would pay Mr. Harason for those legal services.
84In this case, all lien claimants, except Quality Rugs, voluntarily chose to pay three lawyers a certain amount for their salvage costs from the Trust Monies. They were free to do so, provided that Quality Rugs claim for lien and Mr. Harason's claim for salvage costs were not prejudiced. Any such prejudice was overcome by ensuring the Trust Monies continued to have sufficient funds for these claims. In doing so, the other lien claimants took even less in their distributions in the December 4, 2015 Settlement with the possibility of recovering more, if this court ruled in their favour.
85In Mr. Harason's case, there was no agreement on the amount of salvage costs. The difference being approximately $18,000 - the approximate amount of legal fees incurred by Mr. Harason prior to the September 27, 2012 motion.
iv) Were Legal Services rendered by Mr. Harason for the benefit of all lien claimants?
(a) Salvage Costs for the September 27, 2012 motion
86For a portion of the period, Mr. Harason’s legal services prior to October 9, 2012 in connection with the September 27, 2012 motion, this court has already denied Mr. Harason his claim for costs of the motion.
87I agree with Mr. Kennaley's submission that this court's ruling on October 9, 2012 is a bar to Mr. Harason recovering any legal costs, as salvage costs or otherwise, associated with the September 27, 2012 motion as this court determined:
a) Mr. Harason did not ask for costs at the conclusion of the September 27, 2012 motion; and
b) that even if Mr. Harason had asked for costs, costs would have been denied because Mr. Harason's position on the motion was not accepted by this court.
88Quality Rugs did not appeal this ruling. There is no reason to re-visit this ruling.
89This court continues to see no benefit to all the lien claimants for any legal services provided by Mr. Harason in connection with the September 27, 2012 motion. Mr. Reed's client brought the motion. Mr. Reed was counsel who primarily argued the motion. Mr. Reed's submissions were accepted. Mr. Reed's actions resulted in a substantial amount of monies paid into court which would eventually benefit all of the lien claimants.
90Mr. Harason submits that somehow this court's ruling left open the possibility for the recovery of these costs as salvage costs. As set out above, the whole purpose of Mr. Harason's proposed term in the September 27, 2012 order was to leave open the possibility he (and possibly other lien claimant’s counsel) could subsequently seek salvage costs. This court rejected that position.
91Mr. Harason interprets the October 9, 2012 ruling that it would not apply if all lien claimants agreed, "expressly or by implication that those counsel providing services for the benefit of all lien claimants would be entitled to payment of their salvage costs." There are several problems with this submission:
a) First, there is no evidence all lien claimants agreed (explicitly or implicitly) Mr. Harason would be entitled to salvage costs for the September 27, 2012 motion; and
b) more importantly, the unchallenged sworn evidence of a number of counsel to the lien claimants is that they did not agree to pay or request Mr. Harason to provide legal services for the September 27, 2012 motion.
92Mr. Harason's claim for salvage costs relating to the September 27, 2012 motion is dismissed.
93For the reasons set out above, even if this court had come to a different conclusion with regard to the October 9, 2012 ruling or that Mr. Harason provided legal services for the benefit of all lien claimants, this court does not have jurisdiction at this time to award Mr. Harason's claimed salvage costs for the September 27, 2012 motion or prior to October 9, 2012.
(b) Salvage Costs from October 9, 2012 to 2014
94It is clear, from the facts set out above, that much of Mr. Harason’s legal services related to his extensive and continuing efforts to get the lien claimants to agree that he, and other counsel, assume carriage of the numerous lien proceedings or agree to fund his legal services.
95It is also clear that Mr. Harason knew that he needed the consent of all lien claimants and that he was not able to obtain unanimity from the lien claimants.
96When Mr. Harason could not obtain the unanimity of the lien claimants, his role in the legal proceedings diminished to protection of his client’s interests:
a) Mr. Kennaley brought the summary judgment motion where the lien claimant’s priority to the monies in court were determined;
b) Mr. Kennaley was appointed carriage counsel in the numerous legal proceedings; and
c) Mr. Kennaley appeared as counsel at the Divisional court to defend the lien claimant’s priority to the monies in court;
97Mr. Harason has not pointed to a single step which he took that benefitted all the lien claimants. Attempts to become carriage counsel or to get the lien claimants to pay his costs to move the numerous proceedings forward did not actually move the numerous proceedings forward or benefit all lien claimants.
98Mr. Harason states that the affidavits of the lawyers for the lien claimants are not admissible because they do not explain why they did not accept Mr. Harason's claimed salvage costs. I disagree. These affidavits do explain why the lien claimants did not agree to accept the quantum of salvage costs claimed by Mr. Harason. In any event, the most important aspect of these affidavits is confirmation that the lien claimants did not agree to payment of Mr. Harason's claimed salvage costs.
99Even if this court had the jurisdiction to award salvage costs in these circumstances, this court would have declined to do so because Mr. Harason has not established that he provided legal services which benefitted all of the lien claimants.
(c) Is Mr. Harason entitled to the $39,048.21?
100I do not accept that Mr. Harason continues to be entitled to a minimum of $39,048.21 for salvage costs. That was offered to Mr. Harason by all the other lien claimants. He rejected that offer. The other lien claimants have now been required to deal with Mr. Harason's claim for salvage costs.
Conclusion on Mr. Harason's claimed Salvage Costs
101In my view, given that:
a) there was no consolidation of the lien actions;
b) Mr. Harason was not awarded carriage of this proceeding;
c) the other lien claimants oppose payment of Mr. Harason's claimed salvage costs; and
d) the other lien claimants are not party to Quality Rugs' lien proceeding;
this court does not have jurisdiction to award Mr. Harason's claimed salvage costs.
102Even if this court had concluded it had jurisdiction to award the salvage costs claimed by Mr. Harason, I would decline to do so:
a) Mr. Harason’s legal services were not requested expressly or implicitly by all of the lien claimants;
b) I do not find that Mr. Harason believed he would be paid salvage costs as it appears that much of the time spent by Mr. Harason, for which he claims as salvage costs, was to attempt to get agreement for the payment of his legal costs in one manner or another. Mr. Harason understood and knew the importance of getting either the agreement of all lien claimants to protect his entitlement to recover his legal costs and he failed to do so. Mr. Harason has not established that the legal services he provided and now claims were for the general benefit of all lien claimants.; and
c) I am not persuaded that there was much benefit to the lien claimants as a whole to justify "forcing" the other lien claimants to pay Mr. Harason's claimed salvage costs;
103Mr. Harason's claimed salvage costs is dismissed.
THE VALIDITY AND QUANTUM OF QUALITY RUGS' LIEN CLAIM
104The parties, Quality Rugs and Casaco/Casimiro agreed to the determination of these issues based on the record before this court on this motion.
105Quality Rugs filed the Affidavit of J.D. Pacione. Unfortunately, it is clear that Mr. Pacione had little direct involvement in or knowledge of this project save and except for the collection of outstanding monies owed to Quality Rugs.
106However, the contractual arrangements are set forth in a number of documents, which are business records and admissible.
The Facts
107There were two sub-contracts between Sedona Development Group (Lorne Park) Inc. and Quality Rugs (the "Sub-Contract"). One Sub-Contract provided that Quality Rugs would provide carpeting for the 9 homes at a cost of $18,356 plus HST. A second Sub-Contract provided that Quality Rugs would provide hardwood flooring for the 9 homes at a cost of $32,875 plus HST. These Sub-Contracts are dated in July 2011.
108The Sub-Contracts provided for Purchaser's Upgrades to be dealt with as follows:
It is the Trade's responsibility to ensure all upgrades or changes ("Purchaser Upgrade Notice") to the Purchaser's Agreement of Purchase and Sale are completed as per instructions from the Builder's office.....
109The Sub-Contracts provided for Extras and Change Orders as follows:
All extras and/or changes in the Work shall be authorized in writing by Claudio Posocco.
110Eventually, as a result of Changes and Purchaser Upgrades, Quality Rugs invoiced Sedona $18,952 for carpet and $72,444 for hardwood, both plus HST for a total of $103,277.48.
111Quality Rugs was paid $20,998.69. This left a balance of $82,278.79.
112On June 6, 2012, Quality Rugs registered a Claim for Lien in the amount of $71,534.66
113On June 6, 2012, Quality Rugs registered a Claim for Lien in the amount of $10,744.04.
114The two Claims for lien totalled $82,278.70.
115A Statement of Claim was issued by Quality Rugs for the amounts of the two registered claims for liens.
The Issues Raised
116There was no issue regarding the preservation of the Quality Rugs’ claims for lien.
117Subject to the reduction of the amount claimed for the Quality Rug invoice for another project, the only issues raised by Casaco/Casimiro was:
a) The “extras” were not approved by Prosocco as required in the Sub-Contracts and are therefore not lienable;
b) The “extras” were contracts between the purchasers and Quality Rugs, and therefore, Quality Rugs cannot lien Sedona’s interest in the Lands; and
c) Certain files for several lots have not been produced.
i) Extras Not Signed by Prosocco
118It is clear from the dealings between Quality Rugs and Sedona that strict compliance with this term was not required by the parties. What is clear is that instructions were given to Quality Rugs by Sedona to make the changes without Mr. Prosocco’s signature, Quality Rugs made the changes, invoiced Sedona and there was no objection by Sedona to Quality Rugs’ invoices or issue of non-authorization for the extras now raised.
119I accept that Quality Rugs and Sedona varied the Sub-Contracts by waiving strict compliance with the term that Mr. Prosocco personally sign each change.
ii) Whether Purchaser extras were part of Quality Rugs contract with Sedona
120It is clear from the wording of the Sub-Contracts that the Purchaser's dealt with Sedona and that the upgrades were passed through Sedona's “Builder’s Office” which then directed Quality Rugs to provide the materials and labour to install the purchaser extras. The costs of the purchaser extras became a contractual obligation of Quality Rugs to Sedona under the Sub-Contracts and a corresponding contractual obligation of Sedona to pay for the purchaser extras.
121If Quality Rugs failed to properly deal with the purchaser extras, the Sub-Contracts specify that Quality Rugs was exposed to financial risk to Sedona.
122It is clear that Sedona would recover the amounts for the purchaser extras from the purchasers and would pay Quality Rugs for its invoices associated with the purchaser extras.
123I do not accept that when the purchasers requested extras that a separate contract was created between the purchaser and Quality Rugs. There is no doubt the purchaser extras were material and services provided by Quality Rugs at the request of and for the benefit of Sedona, thereby entitling Quality Rugs to a claim for lien for unpaid materials and services.
iii) Lack of Purchaser files
124All Quality Rugs supporting documentation was produced. This included invoices for all the amounts claimed.
125During cross-examination, Quality Rugs was asked to produce the purchaser files which show the purchaser selections (ie colour, quality...). In three lots, these documents were not available.
126However, it is clear from the balance of the documents produced that Quality Rugs did perform the work on these three lots and that invoices were sent to Sedona for these purchaser upgrades on these three lots. There is no evidence of any dispute by Sedona regarding the payment of the invoices for purchaser extras relating to these lots.
Revised Table of Changes and Documents Produced
127The record keeping of Quality Rugs is somewhat lacking. Invoices had to be issued in September 16, 2016. One invoice related to another project. One invoice was sent to another builder but related to this project. One invoice had the wrong amount set out in the invoice.
128Yet, even when the 2016 invoices are excluded and the one erroneous invoice is removed, this court is satisfied that the amount owing to Quality Rugs under the Sub-Contracts was $82,278.69 or more. Of course, the amount of recoverable by Quality Rugs under its claims for liens is limited to the amount registered in the two claims for lien, namely $82,278.70.
Conclusion on Validity and Quantum of Quality Rugs' Claim for Lien
129I am satisfied on a balance of probabilities that Quality Rugs is entitled to recover $82,278.69 under its registered and valid claims for lien.
QUALITY RUGs' ACTION against Sedona
130Should Quality Rugs seek to have a judgment against Sedona for the amount of its liens found herein, interest and costs of the action, Quality Rugs may file very brief written submissions within four weeks setting out the amounts of interest and costs claimed and the basis for these amounts.
COSTS
Costs against Casaco/Casimiro of this action?
131Should Quality Rugs or Casaco/Casimiro seeks costs of this action:
a) Either party seeking costs shall serve and file written submission on entitlement and quantum within four weeks of the release of these reasons. Written submissions shall be limited to 5 pages, plus attached Costs Outline and any authorities relied on.
b) The responding party shall have two weeks thereafter to serve and file responding submissions. Written submissions shall be limited to 5 pages, plus any authorities relied on.
c) There shall be no reply submissions without leave.
Costs of this Motion
132As required, some counsel filed Cost Outlines at the conclusion of the motion. However, while this will assist with the quantum of costs, there remains the issue of offers, further Cost Outlines and submissions.
133Should either Quality Rugs, Casaco/Casimiro or Carriage Counsel seek costs of the motion:
a) Any party seeking costs shall serve and file written submission on entitlement and quantum within four weeks of the release of these reasons. Written submissions shall be limited to 5 pages, plus attached Costs Outline and any authorities relied on.
b) A responding party shall have two weeks thereafter to serve and file responding submissions. Written submissions shall be limited to 5 pages, plus any authorities relied on.
c) There shall be no reply submissions without leave.
Ricchetti, J.
Date: December 21, 2016
CITATION: Quality Rugs v. Sedona Development, 2016 ONSC 7896
COURT FILE NO.: CV-12-2908
DATE: 20161221
SUPERIOR COURT OF JUSTICE – ONTARIO
RE: Quality Rugs of Canada Ltd. v. Sedona Development Group (Lorne Park) Inc. Sedona Development Group Inc. Casaco Developments Inc. Casimiro holdings Inc., The Guarantee Company of North America and Laurentian Bank of Canada
BEFORE: Ricchetti, J.
COUNSEL: R. Harason, Counsel Quality Rugs of Canada Limited ("Quality Rugs")
C. Reed, Counsel for Casaco Developments Inc. and Casimiro Holdings Inc. ("Casaco/Casimiro")
R. Kennaley, Carriage Counsel
REASONS FOR JUDGMENT
Ricchetti, J.
DATE: December 21, 2016