SUPERIOR COURT OF JUSTICE
CITATION: 1587855 Ontario Inc. v. Contract Glaziers Corp, 2016 ONSC 7934
COURT FILE NO.: CV-16-2024-00
DATE: 2016-12-16
BETWEEN:
1587855 Ontario Inc. carrying on business as Bass Installation
Plaintiff
- and -
Contract Glaziers Corp.
Defendant
COUNSEL: I. Latimer, Counsel for the Plaintiff J. Lickers, Counsel for the Defendant
HEARD: November 21, 2016
REASONS FOR JUDGMENT
LEMAY J
[1] The parties are both construction companies. The Defendant, Contract Glaziers Corp., came to an agreement with the Plaintiff, Bass Installation, for the Plaintiff to supply some services and materials for the Pan-Am Athletic Village Project (the “Pan-Am Project”). This project was completed, and the Defendant had no issues with the work that the Plaintiff performed. The Defendant agrees that it owes the Plaintiff $166,063.92 on account of the Pan-Am Project.
[2] The Pan-Am Project is not the only project that these two companies have worked on. They were involved in another project, the Humber River Regional Hospital Project (the “HRRH Project”). The Defendant claims that the Plaintiff did not do the work it agreed to do on the HRRH Project. As a result, in a separate action commenced in Toronto (Court File No. CV-14-512466) the Defendant is claiming approximately $1 million from the Plaintiff.
[3] The Defendant claims that section 12 of the Construction Lien Act, R.S.O. 1990, c. C.30, (the “CLA”) gives them the right to hold monies owing to the Plaintiff for the Pan-Am project to cover the Defendant’s asserted (but not proven) claims for the HRRH Project. The Plaintiff disagrees with that assertion, and has moved for summary judgment seeking payment of the monies that they are owed from the Pan-Am Project.
[4] There is also a cross-motion from the Defendant, asking that this case (the Pan-Am case) be consolidated with the HRRH case, and that both matters be heard together in Toronto as part of the HRRH case. The parties agree that if the Plaintiff’s summary judgment motion is dismissed, then this motion should be granted.
[5] For the reasons that follow, I find that the Plaintiff’s summary judgment motion should be dismissed, and this action should be consolidated with the Toronto action.
The Issues in Dispute
[6] The issues that present themselves in this case are as follows:
a) Can the Defendant rely on section 12 of the CLA to keep the outstanding monies from the Pan-Am Project in trust until the action over the HRRH Project is completed?
b) If the answer to the first question is yes, then is the Defendant estopped from relying on the provisions of the CLA as a result of their communications to the Plaintiff?
[7] I will set out the relevant facts and address each issue in turn. Given that this is, in essence, a determination of a question of law, there are not a lot of relevant facts for me to consider in this case.
Facts
a) The Contracts
[8] As noted above, there were two contracts in this case. The first was for the Pan-Am Project, and was in writing. It contained a provision dealing with set-offs that stated:
With respect to all amounts which may, at any time, be paid or incurred by the Glazing Contractor for or on behalf of the subcontractor and which are the Subcontractor’s responsibility, including amounts paid or incurred under Article 15.00, and the amount of any Direct losses or other claims pursuant to Article 7.00, and any other amounts which may at any time be owing by the Subcontractor to the Glazing Contractor on this Project pursuant to any of the provisions of the Subcontract Documents, the Glazing Contractor shall have the right to set-off the sums so paid or incurred by the Glazing Contractor, against any monies otherwise payable or indebtedness to the Subcontractor. The parties agree that if the Owner and/or its agents exercise any set off right available to it pursuant to the Prime Contract against the Glazing Contractor in respect of any amount relating to or arising from the Subcontract Work after a payment is made by the Glazing Contractor, the Subcontractor shall be obligated to reimburse the Glazing Contractor within 3 Business Days, in an amount equal to the amount set-off by the Construction Manager.
[9] The HRRH Project did not have a written contract. It was an oral agreement between the parties. The basis for the agreement between the parties appears to be a quotation that the Plaintiff provided to the Defendant. The overall cost of this contract was in excess of $3 million.
b) The Litigation
[10] There are two separate claims. The Plaintiff and Defendant are the same parties in both actions.
[11] First, there is the Pan-Am claim, which was commenced in Brampton. There is no dispute between the parties that the Plaintiff completed the work on this project, and there is no dispute that the Defendant owes the sum of $166,063.92 to the Plaintiff.
[12] It is also clear from the Statement of Defence in this action that the Defendant has pled and relied upon section 12 of the CLA. Paragraphs 8 and 9 of the Contract Glaziers Statement of Defence state:
Pending the outcome of the litigation between the parties on the HRRH Project, CGC has retained the Holdback Payment in a segregated interest bearing bank account established for that sole purpose and not co-mingled with other CGC operating funds.
CGC pleads and relies on the provisions of the Construction Lien Act, R.S.O. 1990, c. C.30 and, without limiting the generality of the foregoing, relies specifically on the provisions of section 12 thereof.
[13] This brings me to the second action, which was commenced in Toronto. After the completion of the HRRH Project, the Plaintiff commenced an action for extras that it allegedly incurred in completing the HRRH Project. The Defendant counterclaimed for damages on the basis, inter alia, that the Plaintiff abandoned the work, that the Plaintiff’s lien claimants were not paid by the Plaintiff, and that the work had deficiencies in it. The counterclaim was for approximately $1,200,000.00.
[14] Given this claim, the Defendant refuses to pay the Plaintiff the amounts owing for the Pan-Am Project. This brings me to the issues in this case.
Issue #1- Can the Defendant Rely on Section 12 of the Construction Lien Act?
[15] The Plaintiff advances three reasons why the Defendant cannot rely on section 12 of the Construction Lien Act, as follows:
a) The Plaintiff’s claim is not framed as a breach of trust of a construction lien trust. It is just framed as a breach of contract claim, and therefore the CLA should not apply.
b) The Defendant has not proven the existence of the trust monies as segregated monies and, therefore, is not able to use the trust provisions of the CLA.
c) The Defendant has not proven that it has a clear basis for asserting that it is owed the money it has claimed from the HRRH Project.
[16] I will start by setting out the law, and then analyzing each of these arguments.
a) The Law
[17] This is a motion for summary judgment. The Supreme Court of Canada, in Hryniak v. Mauldin, 2014 SCC 7, [2014] 1 S.C.R. 87, at paragraph 42, stated that, on a motion for summary judgment, the issue to be determined is whether there is a “genuine issue requiring a trial” [Emphasis in original.]
[18] The Court in Hryniak elaborated, at paragraph 49, stating that:
There will be no genuine issue requiring a trial when the judge is able to reach a fair and just determination on the merits on a motion for summary judgment. This will be the case when the process (1) allows the judge to make the necessary findings of fact, (2) allows the judge to apply the law to the facts, and (3) is a proportionate, more expeditious and less expensive means to achieve a just result.
Where it is determined that there is no genuine issue requiring a trial, summary judgment must be granted.
[19] In other words, given that the Plaintiff and Defendant agree that the Plaintiff is owed $166,063.92 on account of the Pan-Am Project, is there a genuine issue requiring a trial over the question of whether the Defendant can rely on section 12 of the CLA?
[20] The relevant sections of the CLA are sections 8 and 12, which state:
- (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.
- Subject to Part IV, a trustee may, without being in breach of trust, retain from trust funds an amount that, as between the trustee and the person the trustee is liable to pay under a contract or subcontract related to the improvement, is equal to the balance in the trustee’s favour of all outstanding debts, claims or damages, whether or not related to the improvement.
[21] There have been a number of cases that consider these provisions. The key decision from the Plaintiff’s perspective is the decision of Grace J. in Architectural Millwork and Door Installations v. Provincial Store Fixtures, 2015 ONSC 4913, 51 C.L.R. (4th) 25. In that case, Architectural (the Plaintiff) claimed that it was owed money under a construction contract. Provincial (the Defendant) resisted the claim on the basis that there were deficiencies in Architectural’s work on other projects. Provincial asserted that it was entitled to claim a set-off under section 12 of the CLA as a result of monies it was owed under other projects that the two parties had done together.
[22] In that decision, Grace J. granted Architectural summary judgment, and stated, at paragraphs. 56-58:
[56] AMDI does not assert a lien. It does not allege the existence, let alone breach, of that statute’s trust provisions. Section 12 of the CLA is not engaged. Nonetheless, I will address Provincial’s set-off defence because legal or equitable set-off can arise independent of the CLA.
[57] Section 111 of the Courts of Justice Act, R.S.O. 1990, c. C.43, codifies principles relating to legal set-off. In an action for the payment of a debt, the defendant may claim a right to set off “a debt owed by the plaintiff” against the plaintiff’s claim.
[58] That section does not assist Provincial. Provincial claims that it suffered damages as a result of AMDI’s abandonment of the Imara Project. Provincial’s claims are unliquidated and, as yet, unproven. Its claims do not constitute a “debt”: Telford v. Holt, 1987 CanLII 18 (SCC), [1987] 2 S.C.R. 193; Marketing Products Inc. v. 1254719 Ontario Ltd. (2011), 2000 CanLII 17001 (ON CA), 11 C.P.C. (5th) 201 (Ont. C.A.); Algoma Steel Inc. v. Union Gas Ltd. (2003), 2003 CanLII 30833 (ON CA), 63 O.R. (3d) 78 (C.A.) at paras. 23-24.
[23] In the case at bar, the only claim that the Defendant is advancing is the section 12 claim. The Defendant abandoned their claims of an independent right of either legal or equitable set-off. I now turn to the question of whether section 12 can apply in this case.
a) The Applicability of Section 12
[24] The Plaintiff advances the decision in Architectural as a complete answer to the Defendant’s claim that section 12 of the CLA applies. The Plaintiff argues that it did not advance a construction lien claim and, therefore, the trust provisions of the CLA do not apply.
[25] The Defendant rejects this argument, in part on the basis of the Court of Appeal’s reasons in Architectural, 2016 ONCA 320, 51 C.L.R. (4th) 42. Although the Court of Appeal upheld Grace J.’s decision to grant Architectural summary judgment, it stated the following, at paragraphs. 10-12:
[10] We agree that, as a general rule, a plaintiff’s framing of its claim does not dictate the defendant’s response. To hold otherwise would be contrary to rule 25.07(4) of the Rules of Civil Procedure, R.R.O. 1990, Reg. 194, which requires a defendant to plead “any matter on which the party intends to rely to defeat the claim of the opposite party and which, if not specifically pleaded, might take the opposite party by surprise or raise an issue that has not been raised in the opposite party’s pleading.” We do not take the motion judge to have held otherwise.
[11] Rather, we read the motion judge’s comment, quoted above, as effectively holding that an ordinary breach of contract claim cannot be met with a claim for set-off of trust funds under s. 12 of the CLA where the plaintiff has not asserted a claim to trust funds in the first place. In other words, in such circumstances the defendant’s purported defence is not responsive to, and cannot “defeat”, the plaintiff’s claim.
[12] We need not decide whether the motion judge was correct on this point, because we agree that, in any event, s. 12 has no application to this case.
[26] The Court of Appeal went on to find that Provincial did not have any section 12 rights because it had not pled the existence and/or breach of a trust fund. There was no evidence the monies were held in trust or retained and there was no evidence of a separate bank account. Since neither side had engaged the provisions of the CLA, section 12 did not apply on the facts in Architectural.
[27] However, the Court of Appeal left the question of whether Grace J. was correct in his conclusion that section 12 cannot apply when the Plaintiff does not assert any trust claims under the CLA. On the facts of this case, I come to the conclusion that section 12 does apply.
[28] First, as the Court of Appeal noted in its reasons in Architectural, the Plaintiff’s framing of its claim does not dictate the Defendant’s response. I find that the Defendants have the procedural right under the Rules of Civil Procedure to advance a claim under the CLA even if the Plaintiff chooses not to proceed under the CLA.
[29] Second, there is the purpose of the CLA. It is legislation that serves a specialized purpose in a narrow field. However, it provides rights to both plaintiffs and defendants. The overall purpose of the CLA is to provide parties with an efficient means of resolving construction disputes, and owners, contractors and sub-contractors all have both rights and obligations under the legislation. The fact that the Plaintiff did not advance a claim under the CLA does not thereby void the rights and protections that the Defendant has under the CLA. In other words, the Defendant may have a substantive right to advance a claim against the Plaintiff can claim a protection under the CLA, as well as a procedural right.
[30] This brings me to my final reason for finding that the section can apply, which is the specific wording of section 12. These words provide that the trustee can retain an amount that as between the trustee and the person the trustee is liable to pay (“the payee”) that is “equal to the balance in the trustee’s favour of all outstanding, debts, claims or damages whether or not related to the improvement”.
[31] When these words are reviewed, it is clear that they create a right for the trustee (in this case the Defendant) to retain amounts that they would otherwise owe the payee (in this case the Plaintiff) on account of debts that the payee owes to the trustee, regardless of whether those debts relate to the specific contract in issue. This clearly creates a separate right for the trustee, over and above the rights of the payee to claim trust funds. In some cases, the trustee will also have a claim over the trust funds.
[32] Finally, I should address the fact that there was no written contract for the HRRH Project. In my view, this does not alter the analysis I have set out above at all. The rights that parties have under the CLA are not dependent on whether a right to set-off is set out in a written contract or not.
[33] The requirements for advancing a successful section 12 claim were set out by the Court of Appeal in Architectural, at paragraph 14, where the Court stated:
The availability of the right of set-off under s. 12 of the CLA requires the party seeking to exercise it to prove the existence of specific circumstances and particular considerations, including the existence of trust funds against which set-off can be applied. If no trust funds are retained or all the monies are spent, the purpose of the trust provisions is defeated and any right of set-off is extinguished: Arborform Countertops Inc., at paras. 39 and 43.
[34] In this case, the Defendant has advanced a claim under section 12 of the CLA. Based on my analysis above, there is certainly a basis in law for such a claim. The second and third arguments advanced by the Plaintiff deal with whether there is a factual basis for such a claim, and I turn to those arguments now.
b) The Defendant’s Segregation of Trust Funds
[35] The Plaintiff argues that the Defendant did not segregate the funds that it received for this project immediately upon receipt. Therefore, the Plaintiff argues that the trust does not exist because the funds cannot be identified.
[36] I reject this assertion for two reasons. First, Courts will impose trusts on funds from time to time. Certainly, in this case, the structure of the CLA makes it clear that the funds received for a particular project are subject to a trust, regardless of whether they are immediately segregated when they are originally received or not.
[37] Second, in this case, the Defendant has shown that it has placed the exact amount of money (exclusive of interest) owing for the Pan-Am Project into a separate bank account. In other words, there are funds that are being held in trust for the Plaintiff on account of the Pan-Am Project.
[38] In other words, the Defendant has demonstrated most of the requirements for advancing a successful section 12 claim. It has segregated the funds and they are identified as separate funds in a separate account.
[39] In order to rely on section 12 of the CLA, the final step that the Defendant must prove is that it has a debt, claim or some damages owing to it from the Plaintiff. I now turn to that question.
c) The HRRH Claim - What does the Defendant Have to Prove?
[40] The Plaintiff argues that the Defendant must prove that it has a clear basis for its claim that it is owed money from the HRRH contract in order to assert a claim under section 12 of the CLA.
[41] I do not agree that the Defendant has to prove that it has a “clear basis” for its HRRH claim. The HRRH action is a separate action, and I have not been asked to determine that action on a summary basis. Instead, the Defendant must prove that there is a genuine issue requiring a trial as it relates to the Pan-Am action. As a result, the Defendant has shown that it can rely on the set-off provision in section 12 of the CLA
[42] It is not up to this Court, on this motion, to determine the strength of the Defendant’s claim for the HRRH Project. The scope of s.12 of the CLA is broad, specifically it states “all outstanding debts, claims or damages”. (On this point, see Datasphere Sales Ltd v. Universal Light and Power Corp. 1991 Carswell Ont 804, para 12.) It is not limited to proven or liquidated debts owed to the trustee. It is sufficient for the Defendants to establish that they are advancing a claim and that they have a legal basis for doing so. If there were no legal or factual basis whatsoever for the Defendant’s claim from the HRRH Project, then it would have been the subject of a motion for summary judgment. No such motion has been brought.
[43] In coming to this conclusion, I also note that it would be difficult for the Defendant to establish at this stage that it has a clear basis for its claim that the Plaintiff owes it money from the HRRH Project, because discoveries in that case are ongoing, and do not have to be completed until the end of December 2016.
[44] Finally, if I were to require proof that there was a clear basis, or a strong basis, for the Defendant’s claim from the HRRH Project, I would be requiring the Defendant to litigate its case on the HRRH Project before affording the Defendant its rights under section 12 of the CLA. The right to claim a set-off under section 12 is a right to make a claim pending proof of that claim. It is not a right to claim the funds once the damages are proven. Concluding that the Defendant had to prove a “clear basis” or a “strong basis” for its claims before it could rely on section 12 would significantly reduce the scope of section 12.
[45] As a result, I conclude that the existence of the HRRH action and the fact that it is moving to trial on a timetable is sufficient for the Defendant to claim the protections of section 12 of the CLA.
d) Conclusion on Issue #1
[46] I reach the following conclusions on issue #1:
a) The Defendant owes the Plaintiff the sum of $166,063.92 on account of the Pan-Am Project.
b) The provisions of section 12 of the CLA permit the Defendant to hold the sum of $166,063.92 in trust pending resolution of the issues relating to the HRRH Project.
c) The Defendant has met the requirements of section 12 of the CLA and is entitled to hold the sum of $166,063.92 in trust pending the outcome of the HRRH action.
d) The monies held by the Defendant in the segregated bank account are imposed with a trust in favour of the Plaintiff, pending the outcome of the HRRH action and may not be used for any other purpose until that action is resolved.
Issue #2- Is the Defendant Estopped from Relying on Section 12?
[47] The Plaintiff argues that the Defendant is estopped from relying on section 12 of the CLA because of communications that passed between the President of the Plaintiff and the Defendant’s accounting clerk. In particular, the Plaintiff points to an e-mail dated March 24th, 2015, which states:
“Hi Stephen,
No bother at all ☺
I have processed the revised HB invoice, and am waiting on the internal sign offs to come my way.
Once I receive that, I just need you to send me the full and final release paper work. (less the $1800 to be paid later).
I’d assume we should be ready for the April 10th cheque run.
I am cutting a cheque this week for the December Pan Am draw.
Thanks,
Deanna”
[48] I reject the estoppel argument on the basis that the Plaintiff cannot establish that it did something (or failed to do something) on account of the promise to pay in this e-mail. As a result, the requirements to establish an estoppel are not met.
Conclusions and Next Steps
[49] The Plaintiff’s motion for summary judgment is dismissed. As I understand it, the parties do not object to this matter being consolidated with the action in Toronto that Master Albert is managing.
[50] The only reason that the Plaintiff’s summary judgment motion is dismissed was because of the section 12 claim flowing from the HRRH Project. As a result, a judgment will issue to the Plaintiff this action in the sum of $166, 063.92 but it may not be enforced until further Order of Master Albert or whomever hears the consolidated action.
[51] I am of the view that this action should be consolidated with the action in Toronto, Court File No. CV-14-512466. The outcome in that case will determine the outcome in this case. There is no justification for separate actions at this stage.
[52] As a result, an Order will issue with the following terms:
a) The Plaintiff’s summary judgment motion is dismissed.
b) This action is to be consolidated together with the action in Court File No. CV-14-512466.
c) The Defendant owes the Plaintiff the sum of $166,063.92 on account of the Pan-Am Project. Judgment will issue in favour of the Plaintiff in Court File CV-16-2024. The timing of when that judgment can be issued and/or enforced is left to the judge or master hearing the consolidated action.
d) The monies held by the Defendant in the segregated bank account are imposed with a trust in favour of the Plaintiff, pending the outcome of the HRRH action and may not be used for any other purpose until that action is resolved.
[53] In terms of costs, I am of the view that the costs of this motion cannot be determined until the outcome of the HRRH Project action is known. As a result, the costs for this motion and for the CV-16-2024 action more generally are to be determined by whoever hears the trial in the HRRH Project action.
LEMAY J
Released: December 16, 2016