Court File and Parties
CITATION: Aqua Mechanical v. Grascan Construction, 2017 ONSC 1028
COURT FILE NO.: CV-15-540876
DATE: 20170317
SUPERIOR COURT OF JUSTICE - ONTARIO
RE: Aqua Mechanical Contracting Ltd., Plaintiff
AND:
Grascan Construction Ltd. and Metrolinx, Defendants
BEFORE: L. A. Pattillo J.
COUNSEL: M. Ross and S. Sam, for the Defendant Grascan Construction Ltd.
S. Costa, for Dew Point Insulations Systems Inc.
HEARD: February 10, 2017
ENDORSEMENT
Introduction
[1] This is a motion by Grascan Construction Ltd. (“Grascan”) for an order striking Aqua Mechanical Contracting Ltd.’s (“Aqua”) claim; granting default judgment against Aqua on its counterclaim; discharging Aqua’s lien and delivering up the lien bond posted by Grascan in relation to Aqua’s lien.
[2] Dew Point Insulations Systems Inc. (“Dew Point”) opposes Grascan’s request for delivery up of the lien bond in relation to Aqua’s lien. It submits that the bond should remain in force to cover any shortfall Dew Point may experience in respect of its lien claim against Aqua.
[3] For the reasons that follow, Grascan’s motion to dismiss Aqua’s claim against it is allowed. Grascan’s counterclaim against Aqua is also allowed in the amount of $209,078.55; the Aqua lien is discharged and the Aqua lien bond shall be delivered up to Grascan for cancellation.
Aqua’s Claim against Grascan
[4] Grascan was hired by the Defendant Metrolinx as the general contractor to carry out improvements to Metrolinx’s Weston Go Station (the “Property”). On December 18, 2012, Grascan entered into a subcontract with Aqua (the “Contract”) in respect of mechanical work.
[5] On September 4, 2015, following a number of defaults under the Contract which, despite notice, Aqua failed to remedy, Grascan terminated the Contract. On September 25, 2015, Aqua registered a lien against the Property in respect of services or materials supplied to Grascan in the amount of $603,329.01 inclusive of HST (the “Aqua Lien”). Pursuant to an order dated October 5, 2015, Grascan vacated Aqua’s lien by posting security with the court to the credit of the action in the amount of $653,329.01 (the amount of the lien plus $50,000 for costs) (the “Aqua Lien Bond”).
[6] On November 19, 2015, Aqua issued a Statement of Claim against the defendants claiming, among other things, a declaration that it was entitled to a lien on the Property and damages in the amount of $603,376.64.
[7] Following its termination of the Contract, Grascan hired a sub-contractor to correct Aqua’s deficiencies and complete the Contract. In February 2016, Grascan filed a Statement of Defence and Counterclaim denying Aqua’s claim and seeking damages to complete deficiencies and the Contract in the amount of $624,684.21 plus costs and interest. Aqua failed to deliver a defence to Grascan’s counterclaim and was subsequently noted in default.
[8] On August 22, 2016, Aqua’s counsel advised Grascan that Aqua was no longer carrying on business and that Aqua was not pursuing its action or the lien. On September 26, 2016, Dunphy J. ordered that Aqua’s counsel be removed as lawyers of record in the action (the “Dunphy Order”). The Dunphy Order was subsequently served on Aqua at its registered office and last known address on October 25, 2016. Aqua has not appointed a new lawyer of record in the action.
The Dew Point Claim
[9] Also on September 25, 2015, Dew Point, an Aqua subcontractor, made a charge upon the holdbacks and registered a lien claim against the Property in the amount of $69,776.09. On September 29, 2015, Dew Point issued a Statement of Claim against Aqua, Grascan and Metrolinx claiming, among other things, payment of $84,174.93.
[10] Pursuant to the order of Master Albert dated October 5, 2015, Grascan vacated Dew Point’s lien by posting security with the court to the credit of the action in the amount of $87,220.11 (the amount of the lien plus $17,444.02 for costs) (the “Dew Point Lien Bond”).
[11] On November 3, 2015, Dew Point discontinued its action against Metrolinx.
[12] On October 26, 2016, Grascan filed its Statement of Defence and Crossclaim in Dew Point’s action.
[13] On August 22, 2016, Dew Point obtained default judgment against Aqua in the amount of $85,706.22 plus $1,500 for costs.
[14] In the fall of 2016, Dew Point’s lien action against Grascan was tried. At the time of the motion, the decision remained under reserve.
Other Lien Claims
[15] On September 29, 2015, Applied Energy Systems Inc. (“Applied Energy”), another Aqua subcontractor, made a charge upon the holdbacks against the Property by delivering to Metrolinx a copy of their claim. The claim for lien was for $63,986.00. On October 26, 2015, Grascan vacated Applied Energy’s lien by posting a bond for the full amount of the lien and costs.
[16] On April 7, 2016, Grascan settled Applied Energy’s lien claim. As part of the settlement, Applied Energy released any claim against the holdback and consented to an order discharging Aqua’s lien. As at the date of the motion, Grascan had not brought a motion for the delivery and cancellation of the Applied Energy bond.
[17] Grascan published a Certificate of Substantial Performance on December 10, 2015. It is not aware of any other lien claimants.
The Issues
[18] As noted at the outset, Grascan seeks the dismissal of Aqua’s action; default judgment on its counterclaim; discharge of the Aqua Lien and the delivery up of the Aqua Lien Bond for cancellation.
[19] Dew Point takes no issue with Grascan’s request for the dismissal of Aqua’s action or its motion for default judgment against Aqua. It submits, however, the Aqua Lien Bond should not be delivered up for cancellation because it has a potential claim against the Bond for costs and pre-judgment interest. Although its lien claim is fully secured by the Dew Point Lien Bond, it submits that the amount of costs secured by the Dew Point Lien Bond is not sufficient to cover the costs which it has incurred arising out of the trial. As a result, it is entitled to collect any shortfall from the Aqua Lien Bond.
Aqua’s Action
[20] Rule 15.04(6) of the Rules of Civil Procedure provides that within 30 days of being served with an order removing a corporation’s lawyer from the record, the corporation must either appoint a new lawyer of record or obtain and serve an order granting it leave to be represented by a non-lawyer. In the absence of one or the other of those steps, the court may dismiss the corporation’s proceeding: r. 15.04(7) (a).
[21] Notwithstanding that Aqua was served with the Dunphy Order on October 25, 2016, Aqua has taken no steps to appoint a new lawyer of record or obtain an order to have a non-lawyer represent it. Aqua’s failure to take any steps to pursue its action corroborates the information from its lawyer on August 22, 2016, that it was not pursuing the action. Nor has Aqua responded to Grascan’s motion before me.
[22] Accordingly, Aqua’s action against Grascan is dismissed and its lien is discharged pursuant to s. 47 of the Construction Lien Act, R.S.O. 1990, c. C.30 (“CLA”). Based on the evidence before me, I am satisfied that Aqua has clearly abandoned the action and therefore there is no genuine issue for trial.
Grascan’s Counterclaim against Aqua
[23] Grascan further seeks default judgment against Aqua on its counterclaim in the total amount of $209,078.55.
[24] In support of its motion for default judgment, Grascan has provided detailed evidence of the costs of both completing the Contract ($423,805.38) and the costs of correcting Aqua’s deficiencies ($115,066.86). Against those costs Grascan has set-off the monies received from Metrolinx for approved extras following Aqua’s breach ($329,793.69). The total damages claimed are $209,078.55.
[25] I am satisfied from the allegations in the counterclaim and the material filed on the motion to support Grascan’s damage claim that Grascan is entitled to judgment against Aqua for damages for breach of contract in the amount of $209,078.55.
Should the Aqua Lien Bond be delivered up for Cancellation?
[26] Dew Point submits that the Aqua Lien Bond should not be delivered up for cancellation as it has a claim against it for costs and interest. In support of its position, Dew Point relies on s. 44(9), rule 3, of the CLA which it submits provides that the Aqua Lien Bond is pooled with the Dew Point Lien Bond resulting in the total amounts of both Bonds ($740,549.12) being available to satisfy any Dew Point claim. The Dew Point Lien Bond covers the full amount of its lien claim ($69,776.09) plus $17,444.02 for costs. Dew Point submits that to the extent that it is entitled to costs in its lien action in excess of the amount provided by the Dew Point Lien Bond for costs on its claim, it is entitled to claim such excess costs as well as any interest awarded against the Aqua Lien Bond.
[27] Dew Point’s costs in its lien action were not fixed by the court at the time of the motion. Dew Point provided its Bill of Costs which it submitted to the trial judge at the conclusion of the trial. Notwithstanding that Dew Points costs have not been finalized, based on its Bill of Costs, I will proceed on the basis that its costs exceed the amount of security for costs covered by the Dew Point Lien Bond.
[28] Sections 44(1) and (2) of the CLA provide for an order vacating a lien upon payment into court or posting security for full amount of the lien claim plus the lesser of $50,000 or 25% of the claim amount as security for costs (s.44(1)) or such amount as the court determines is reasonable (s.44(2)).
[29] Section 44(9) of the CLA provides:
(9) Where an order is made under subsection (1), (2) or (3), the following rules apply:
The lien claimant whose lien was the subject of the order may proceed with an action to enforce the claim against the amount paid into court or security posted in accordance with the procedures set out in Part VIII, but no certificate of action shall be registered against the premises.
The amount paid into court or security posted is subject to the claims of all persons having a lien to the same extent as if the amount paid into court or security posted was realized by the sale of the premises in an action to enforce the lien and shall be distributed among all lien claimants in accordance with the priorities provided for in section 80.
Where any amount is realized in a lien action by the sale of the premises or otherwise, it shall be pooled into a common fund with the amount paid into court or security posted under this section, and shall be distributed among all lien claimants in accordance with the priorities provided for in section 80.
[30] In P&D Holdings Ltd., v. Alta Surety Co. (1996), 1996 CanLII 780 (ON CA), 92 O.A.C. 203; 30 O.R. (3d) 97 (C.A.), the court considered the issues of whether costs in excess of the amount paid into court as security for costs may be claimed from security paid into court with respect to a different lien claim and whether interest is payable out of a lien bond or out of other lien bonds for the same project.
[31] In respect of the first issue, Austin J.A., writing for the panel, held that costs do not form part of the lien. Based on a concession by counsel for Alta Surety that by virtue of the operation of s. 44(9), rules 2 and 3, a pooling takes place of security put up for multiple lien claims, the issue was whether the costs portion of the security was also pooled. In dealing with the issue, Austin J.A. stated at para. 39:
I am not aware of any authority which is of assistance on the point. However, if the parties accept, as they do, that it is consistent with the purposes of the CLA to pool lien security in a particular project, then, as a matter of principle, I see no reason why, at least in the circumstances of this case, security for costs should not be pooled as well.
[32] In the subsequent decision of M. Sullivan & Sons Ltd. v. Roche Ltee, [1998] O.J. No. 2740, 39 C.L.R. (2d) 251 (Ontario Master), the court considered the question of whether the costs portion of lien bonds posted to vacate liens which had been settled should be required to remain in court to stand as additional security for any excess costs that may be awarded to the remaining lien claimants. In concluding that the lien bonds for the settled actions could not stand as additional security for the costs of the remaining lien claimants, Master Sandler carefully analyzed s. 44 of the CLA and particularly subsection (9), rules 2 and 3 as well as the P&D Holdings decision. At paragraph 33 of the decision, the Master noted that there is no express provision in rule 2 for the pooling of the costs portions of the various securities provided. Further, at paragraphs 34 and 35, the Master addressed the provisions of rule 3 which he referred to as the “pooling” section. In particular, he noted that the rule only operated to pool monies from the sale of the premises or otherwise (payments by the owner or contractor) with amounts paid into court or security posted under s. 44 to be distributed among all lien claimants as provided, whether “bonded-off” or not. Where all of the liens were bonded-off, there would be no amounts from the sale of the premises or otherwise and accordingly pooling would not take place.
[33] The learned Master distinguished P&D Holdings on the basis that “it was not one of general application, and does not apply to the facts of this case. It should be restricted to its particular circumstances, including what I think was the erroneous concession of both counsel who argued the appeal as to what is the effect of s. 44(9), Rules 2 and 3.”
[34] For similar reasons, I do not consider the Court of Appeal’s conclusion in P&D Holdings that security for costs can be pooled to be one of general application. In my view, that conclusion was reached on the basis of counsel’s agreement as to the effect of rules 2 and 3 and without any analysis of the wording of those rules.
[35] I agree with Master Sandler that based on the plain wording of rules 2 and 3, it is rule 3 that establishes “pooling” and that it occurs when any amount is realized from the sale of the premises or payments by the owner or contractor. Where all of the liens have been bonded-off (as in this case) pooling cannot take place.
[36] Dew Point submits that the wording of the Aqua Lien Bond supports its submission that pooling is allowed. I disagree. In any event, it is the provisions of the CLA that govern.
[37] As a result, I do not agree that Dew Point is entitled to claim any portion of the Aqua Lien Bond in respect of costs based on s. 44(9), rules 2 and 3. Rule 2 does not provide for the pooling of costs and rule 3 is not applicable because all liens have been bonded-off.
[38] With respect to the issue of whether Dew Point can claim interest on its judgment against the Aqua Lien Bond, in my view, the issue is clearly answered by P&D Holdings. As noted, one of the questions the court addressed in P&D Holdings was whether interest on a lien judgment could be recovered against other lien bonds put up to secure other lien claims on the same project.
[39] In addressing that question, Austin J.A., on behalf of the panel, reviewed the relevant provisions of the CLA dealing with lien bonds, including s. 44 as well as s.14 (2) which provides that no person is entitled to a lien for any interest on the amount owed. The learned judge concluded at paragraphs 19 and 20 of the decision as follows:
As a claim for interest is not a valid lien claim, I fail to see how P&D’s judgment for interest in the amount of $73,354.71 can be enforced against either the premises or against the security which replaced them, namely, Alta’s bond. I would therefore answer question 2 in the negative.
If the interest claim is not enforceable against the bond put up by Alta to secure P&D’s claim, it follows as a matter of logic that P&D’s claim for interest is not enforceable against the bonds that Alta put to secure the claims of Dalma and D-Dixie either. Accordingly, I would answer question 3 in the negative as well.
[40] Dew Point is accordingly not entitled to claim any interest on its judgment against Aqua against the Aqua Lien Bond.
[41] In light of Aqua’s lien claim against Grascan having been dismissed and my conclusion that Dew Point has no claim against the Aqua Lien Bond in respect of either costs or interest, I am satisfied that the Aqua Lien Bond can be delivered up to Grascan for cancellation. There are no other lien claimants. Accordingly, Grascan’s motion in that regard is also allowed.
[42] Grascan is entitled to its costs of the motion against Aqua in respect of the dismissal of Aqua’s action and its success on the counterclaim. Grascan is also entitled to its costs against Dew Point in respect of that part of the motion relating to the cancellation of the Aqua Lien Bond.
[43] With respect to the costs against Aqua, Grascan has filed a bill of costs detailing the time and rates charged as well as the disbursements incurred. In my view, the rates claimed are fair and reasonable. Grascan claims partial indemnity costs for the action and counterclaim in the total amount of $19,363.23. In my view, having regard to the issues raised and the time spent, those costs are fair and reasonable. Accordingly, I fix Grascan’s costs against Aqua at $19,363.23 in total.
[44] In respect of the costs arising from that portion of the motion dealing with the cancellation of the Aqua Lien Bond, both Grascan and Dew Point have filed Cost Outlines. Grascan claims a total of $6,636.60 for partial indemnity costs and Dew Point claims $5,823.35.
[45] Grascan submits, however, that it is entitled to substantial indemnity costs pursuant to rule 49.10 based on a letter it sent to Dew Point’s counsel on January 19, 2017, prior to preparing for the motion but after it had received Dew Point’s factum. In my view, the January 19, 2017 letter is not an offer to settle pursuant to Rule 49 and therefore does not give rise to the cost consequences of that Rule.
[46] Accordingly, Grascan is entitled to its costs of the motion concerning cancellation of the Aqua Lien Bond on a partial indemnity basis which I fix at $6,600 in total. Given the issues between the parties, I consider that amount to be fair and reasonable and clearly within Dew Point’s contemplation.
L. A. Pattillo J.
Date Released: March 17, 2017