CITATION: Petrelli Construction & Renovation Inc. v. Phillips, 2016 ONSC 8159
COURT FILE NO.: 13-58932
DATE: 20161229
SUPERIOR COURT OF JUSTICE - ONTARIO
RE: Petrelli Construction & Renovation Inc., Plaintiff
AND
Mary Alberta Howitt Phillips, Gregory James Moulds and Magenta Mortgage Investment Corporation, Defendant
BEFORE: Justice C. MacLeod
COUNSEL: Martin Diegel, Counsel for the Plaintiff
Ian B. McBride, Counsel for the Defendants
Mark Charron, Counsel for Martin Diegel
HEARD: October 28, 2016
ENDORSEMENT
[1] The defendants are homeowners who contracted with the plaintiff for home renovations. After a breakdown in the relationship, the plaintiff registered a claim for lien against the defendants’ property in the amount of $184,493.87. For reasons that are set out below, the plaintiff has effectively abandoned the claim for lien. It has expired and the action will be dismissed.
[2] The issue before the court is the plaintiff’s liability for costs and whether those costs should be made payable by the owner of the plaintiff (as it is a corporation) and by Mr. Diegel who is the plaintiff’s lawyer. Although there has never been a determination on the merits of the plaintiff’s claim due to the dismissal for noncompliance with the Act, it is the position of the defendants that the lien was always grossly exaggerated. As such, in addition to costs normally available pursuant to the Courts of Justice Act and Rule 57, the defendants rely upon ss. 35 and 86 of the Construction Lien Act. Section 35 permits an owner to claim damages for grossly excessive liens and s. 86 permits an owner to claim costs against a person who knowingly participated in the preservation or perfection of a lien that is without foundation or is grossly excessive.
[3] Mr. Diegel continues to act for the plaintiff and also appears for Mr. Petrelli in his personal capacity. Mr. Charron is representing Mr. Diegel to oppose the claim that costs should be paid by him.
[4] Briefly by way of background, the parties entered into a home renovation contract for $466,490.00. The work was not completed but by the time the relationship broke down, the homeowners had advanced $422,476.00. The plaintiff then liened the property for $184,493.87 which of course would be more than the amount of the original contract had it been fully performed.
[5] Of course the plaintiff contends that the value of the contract had been inflated by “extras” and that all such extras were duly invoiced in advance of the work on the project having ceased. They were not extras manufactured after the fact. The invoice for extras was rendered in July of 2013. The lien was registered in August of 2013.
[6] In March of 2014 the defendants brought a motion for security for costs and they also sought an order vacating the lien as inflated. The latter is akin to a summary judgment motion but apparently Mr. Petrelli’s financial circumstances took a turn for the worse. Mr. Diegel advised counsel for the defendants that Mr. Petrelli would be filing a Consumer Proposal under the Bankruptcy and Insolvency Act. He also advised that he could not post security for costs and that Mr. Diegel advised the defendants he was instructed not to oppose the motion or to pursue the lien. Master Roger granted an order for security for costs and vacated the lien. He also ordered costs of the motion fixed at $4,000.00.
[7] Although the lien was vacated, the order of the court contemplated that the action itself was to proceed. There would otherwise have been no need to post security for costs. In the event however, no security was posted. This had the effect of staying the action pursuant to Rule 56.05 and it could have been dismissed on motion under Rule 56.06. Eventually the two year time period in s. 37 of the Act expired and as it remains a lien action this renders the action subject to dismissal on a motion without notice pursuant to s. 46 (2) of the Act. It is conceded by the plaintiff that under either the Rules or the Act, the action should be dismissed and the plaintiff corporation may be liable for modest costs.
[8] Where a plaintiff abandons an action, the plaintiff will normally be liable for costs. This presumption no longer applies under Rule 23 if the plaintiff takes active steps to discontinue the action but it does apply if the plaintiff takes no steps to do so and forces the defendant to bring a motion to have the action dismissed. In that case, the rule that costs will normally follow the event will apply. The motion to dismiss the action with costs is therefore granted.
[9] The issue is whether costs should also be ordered against Mr. Petrelli and or Mr. Diegel. As noted above, the Act provides for this relief if a lien is registered without foundation or for an amount that the person registering the lien, including a person representing a lien claimant, knows or ought to have known is grossly excessive. The Act provides for this relief and the defendants rely upon a decision of Master Albert that it is appropriate in a situation such as this. That decision is Brian T. Fletcher Construction Co. Ltd. v. 1707583 Ontario Inc., 2009 CanLII 81402 (ON SC). In addition of course, s. 131 of the Courts of Justice Act and Rule 37 provide the court with wide discretion when awarding costs. This includes in an appropriate case costs against a non party such as the governing mind of a corporation. Rule 57.07(1)(c) provides for costs to be awarded against a lawyer.
[10] Mr. Petrelli is the sole owner of the plaintiff. It was Mr. Petrelli who instructed Mr. Diegel and who provided the information for the registration of the lien. Mr. Petrelli decided that rather than attempting to settle the action or instructing Mr. Diegel to seek to discontinue it he would simply let it drift. He did not voluntarily discharge the lien. He did not post the security for costs. He did not provide the disclosure the plaintiff was ordered to produce. He did not instruct Mr. Diegel to set the action down for trial and instead required the defendants to bring the motions to dismiss the action. Even if Mr. Petrelli had grounds to think the lien was valid and not exaggerated he should have recognized long ago that he lacked the capacity to prove it or to bring the matter to trial. I am therefore of the view that the costs to be paid by the plaintiff should also be awarded against Mr. Petrelli in his personal capacity and I so order.
[11] Unfortunately Mr. Petrelli is insolvent. He is in the midst of a consumer proposal which will either be fully completed or will lead to a deemed bankruptcy. In either case, subject to limited exceptions that to do not seem to apply here, his debts will be extinguished. The defendants were apparently listed as potential creditors in the statement of affairs and they filed proofs of claim with the administrator although I am advised the claim was refused. So any order for costs I may make against Mr. Petrelli may well be uncollectible. I should not be taken as ruling on this point because the administration of the proposal is not before me and it would be for Mr. Petrelli and the administrator – or the bankruptcy court - to determine whether or not any order made in this proceeding is part of the proposal or not.
[12] I am not persuaded that the defendants have made out a case for holding Mr. Diegel liable for costs or damages under the Act. There is in any event no proof of damages other than the cost of defending the litigation. That is a question of costs and not damages. Even if Section 86 of the Construction Lien Act imposes a lower bar for ordering costs against a lawyer personally than does Rule 57, (a point I am not deciding) the evidence does not support a finding that Mr. Diegel knew or sought to have known the lien was “without foundation” or for a “grossly excessive amount.” To the contrary, the information he was provided by his client was to the effect that the amount owing had been properly invoiced and could be proven.
[13] Even in Fletcher, in which the situation was more egregious, no liability was found against the lawyer. Master Albert held that evidence of bad faith, malice or negligence is required, and I agree. There is no evidence that Mr. Diegel acted in bad faith or maliciously and more evidence would be required to prove that he fell below the standard of care of a reasonable and prudent lawyer. I am not convinced.
[14] In conclusion the plaintiff corporation will be liable for the costs of this action on a substantial indemnity scale. Mr. Pietrelli will be jointly and severally liable for those costs to the extent that the debt is not extinguished by the proposal or bankruptcy. Mr. Diegel is not liable to the defendants.
[15] I encourage the parties to reach agreement on the quantum of the costs to be paid by the plaintiff failing which the defendants are to file a bill of costs and copies of their invoices for legal fees for my review. Mr. Diegel will be entitled to costs of this motion on a partial indemnity scale. I encourage the parties to agree on those costs but I will otherwise entertain written submissions of no more than 2 pages each
Justice C. MacLeod
December 29, 2016
CITATION: Petrelli Construction & Renovation Inc. v. Phillips, 2016 ONSC 8159
COURT FILE NO.: 13-58932
DATE: 20161229
ONTARIO
SUPERIOR COURT OF JUSTICE
RE: Petrelli Construction & Renovation Inc., Plaintiff
AND
Mary Alberta Howitt Phillips and Gregory James Moulds and Magenta Mortgage Investment Coporation, Defendants
BEFORE: Justice C. MacLeod
COUNSEL: Martin Diegel, Counsel for the Plaintiff
Ian B. McBride, Counsel for the Defencants
Mark Charron, Counsel for Martin Diegel
ENDORSEMENT
C. Macleod, J.
Released: December 29, 2016