Court File and Parties
Court File No.: CV-12-2908 Date: 2017-04-26 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: April 13, 2017
Endorsement
[1] This matter was heard by way of conference call on April 13, 2017.
Background
[2] There is a long history to this proceeding and many related proceedings.
[3] Sedona’s building project failed. Numerous claims for liens were registered. Mortgages were outstanding. Many actions were commenced.
[4] The court directed the completion of the homes in the project and supervised the closing to purchasers of the homes.
[5] The court ordered all the net proceeds of sale remain as security for all lien claimants, mortgagees and other claimants to the monies (such as the owners) (the "Trust Funds").
[6] Eventually, the mortgagees were paid out.
[7] This left a priority dispute to the Trust Funds as a contest between the owners and the lien claimants. After a lengthy motion, the court found in favour of the lien claimants. An appeal was taken. The appeal was dismissed. That settled the issue - the lien claimants had priority to the Trust Funds.
[8] There were insufficient funds to pay all the lien claimants the total amount of their liens. Settlement Meetings took place. At one point, all lien claimants believed they had arrived at a settlement which provided for payment to certain lien claimant's counsel specified amounts for "salvage costs" from the Trust Funds and the balance of the Trust Funds would be divided amongst the lien claimants on a pro-rata basis depending on the tier the lien claimant fell into in the supply chain. The lien claimants would receive less than 100 cents on the dollar.
[9] An issue arose.
[10] Quality Rugs, while content with the pro-rata share of its claim for lien, wanted payment of salvage costs - approximately $57,000. The amount of $57,000 claimed by Quality Rugs for salvage costs was for legal services to November 2015. The other lien claimants were only prepared to agree to pay Quality Rugs approximately $39,000 in salvage costs.
[11] Quality Rugs refused the settlement over the $18,000 difference.
[12] The approximately $2,000,000 settlement was in jeopardy.
[13] A conference call was held on July 27, 2017 to deal with the impasse. In order to allow the other lien claimants (i.e. all but Quality Rugs) (the “Other Lien Claimants”) to receive some of the Trust Funds immediately, this court ordered payment to Other Lien Claimants (albeit at a lesser pro-rata share for their liens) while maintaining the Trust Funds pending the court’s determination as to whether Quality Rugs was entitled to any salvage costs.
[14] Quality Rugs having rejected the settlement offer, the Other Lien Claimants disputed Quality Rugs’ entitlement to any salvage costs.
[15] Casaco/Casimiro took issue with the validity and quantum of Quality Rugs' lien claim.
[16] This set the stage for further motions.
[17] When this court advised counsel it intended to direct that the Trust Fund be disbursed save and except for the amount of Quality Rugs’ claim for lien and $57,000 remain in the trust fund, Quality Rugs' counsel indicated that there were further costs of approximately $32,000 also claimed. Quality Rugs’ counsel did not specify the nature of these additional costs. As a result, pending the motions, this court directed that the amount of $90,558 also remain in the Trust Funds. The July 27, 2016 endorsement states: the "total amount at issue for Quality Rugs is $82,279 for lien claims and $90,558 for its costs".
[18] The motions were scheduled for October 31, 2016.
[19] Difficulties arose implementing the court’s order of July 27, 2016. A further conference call was held on September 8, 2016. The order of July 27, 2016 was settled. This court stated that on October 31, 2016, the court would deal with motions for:
a) Quality Rugs claim for salvage costs; b) Quality Rugs' lien claim; and c) costs of the motion
[20] The September 8, 2016 endorsement states:
The change by me was to make it clear that the monies ($172,837) are for the benefit of Quality Rugs in its claim but only entitled to such amounts as may be found owing to it for its lien and costs, the intention being that Quality Rugs' entitlement will be paid from these funds.
[21] On October 31, 2016 the motions were heard. These motions were only in this specific proceeding.
[22] The first motion dealt with Quality Rugs claim for salvage costs. The Other Lien Claimants restricted their submissions to Quality Rugs’ claim for salvage costs. The Other Lien Claimants opposed the reduction of the Trust Funds for the payment of any salvage costs for Quality Rugs. It is important to note that the Other Lien Claimants did not participate in the motion involving the validity or quantum of Quality Rugs’ lien.
[23] The second motion was Quality Rug's validity and entitlement to the claim. This was a contest solely between Quality Rugs and Casaco/Casimiro – the only remaining parties to this proceeding. Counsel for the Other Lien Claimants didn't remain in the courtroom for this motion.
[24] The court's decision is reported at Quality Rugs v Sedona Development, 2016 ONSC 7896 (“Oct 2016 Motions”). The determined:
a) "Mr. Harason's claimed salvage costs is dismissed"; b) "that Quality Rugs is entitled to recover $82,278.69 under its registered and valid claims for lien"; c) “Should 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." d) "Should Quality Rugs or Casaco/Casimiro seeks costs of this action", these parties were to make written submissions; and e) "Should either Quality Rugs, Casaco/Casimiro or Carriage Counsel seek costs of the motion", these parties were to make written submission.
[25] Written costs submissions were received from all parties.
[26] Quality Rugs sought costs of the motion and action.
[27] Quality Rugs' submission on the costs of the motion stated:
...we write in support of Quality's claim for costs of the motion against Casimiro Holdings Inc. and Casaco Developments Inc. (collectively, "Casimiro") paid out of the sum of $172,837 plus accrued interest thereon posted with the court in order to secure Quality's claim. (emphasis added)
[28] A similar submission was made by Quality Rugs regarding the costs of the action.
[29] There is nothing else in Quality Rugs' submission as to why it would be entitled to be paid from the Trust Funds for the costs of the motion or action. Quality Rugs' action was separate from the other proceedings involving the Other Lien Claimants except for a claim under s. 80 of the Construction Lien Act to a portion of the Trust Funds. No order had been made consolidating these proceedings. No security for costs had been ordered or posted for this proceeding.
[30] Casaco/Casimiro who did seek their costs from the Trust Funds and set out why. Its claim was denied.
[31] Reasons for the cost awards are found at Quality Rugs v Sedona Development, 2017 ONSC 1353 (“Costs Endorsement”). This court ordered:
[55] I fix the costs of the summary judgment motion at $7,500.00 plus HST payable by Casaco/Casimiro.
[61] In my view, the only complexity was the number of lien claimants. As a result, I conclude $10,000.00 plus HST is a reasonable amount for costs of the action on a partial indemnity basis in these circumstances. These costs are payable by Sedona Development Group (Lorne Park) Inc., Sedona Development Group Inc., Casaco Developments Inc. and Casimiro Holdings Inc.
Conclusion
[62] Quality Rugs shall pay costs to Carriage Counsel the sum of $20,125.00 plus HST. This amount may be deducted from amount payable to Quality Rugs from the trust funds and the balance of the trust funds can be disbursed pro-rata to the lien claimants or as the lien claimants may direct.
[63] Quality Rugs shall pay costs to Casaco/Casimiro in the amount of $4,000.00 plus HST for costs of the carriage costs motion. Casaco/Casimiro shall pay costs to Quality Rugs of $7,500.00 plus HST as costs of the summary judgment motion. These costs orders are to be set off against one another.
[64] Sedona Development Group (Lorne Park) Inc., Sedona Development Group Inc., Casaco Developments Inc., and Casimiro Holdings Inc. shall pay costs to Quality Rugs of $10,000.00 plus HST as costs of the action.
The Issue
[32] The court was advised an issue had arisen with respect to the Costs Endorsement. The court convened another conference call on April 13, 2017.
[33] Quality Rugs claimed that the amounts awarded to it for the motion and the action should be paid out of the Trust Funds. The Other Lien Claimants and Casaco/Casimiro opposed such an order.
Analysis
[34] This court declines to order that Quality Rugs’ costs of the motion or action be paid from the Trust Funds. There will be no change from this orders set out in paragraphs 63 and 64 of the Costs Endorsement.
[35] The reasons are as follows:
Previously Decided
[36] While Quality Rugs asked that its costs of the action and motion be paid out of the Trust Funds, no reasons were set out in Quality Rugs’ written submissions as to why such an order should be made.
[37] As a result, this court was very specific as to which party was to pay the costs awards - they were to be paid by Casaco/Casimiro, the parties who defended the action and necessitated the motion in this proceeding regarding the validity and quantum of Quality Rugs' lien.
[38] The issue, which Quality Rugs now raises, has already been decided by this court in its Costs Endorsement.
[39] I add one further important point, having denied Quality Rugs’ salvage costs in the October 2016 Motions, to now allow Quality Rugs’ costs of the action from the Trust Funds undermines this court’s decision on salvage costs. Quality Rugs submitted that its legal costs incurred to November 2015 were for the benefit of all lien claimants and, therefore, claimed such costs as salvage costs to be paid from the Trust Funds. Now, those same legal costs for the same period are sought by Quality Rugs as appropriate legal costs in connection with the Quality Rugs’ action and should be paid from the Trust Funds. This is a blatant attempt to circumvent this court’s decision with respect to salvage costs.
The "Other Lien Claimants" Are Not Parties to This Proceeding
[40] Casaco/Casimiro is a defendant in this proceeding. The Other Lien Claimants are not parties to this proceeding.
[41] Section 86 of the Construction Lien Act, R.S.O. 1990, c. C.30 provides:
- (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) a person who represented a party to the action, application or motion, where the person,
(i) knowingly participated in the preservation or perfection of a lien, or represented a party at the trial of an action, where it is clear that the claim for a lien is without foundation or is for a grossly excessive amount, or that the lien has expired, or
(ii) prejudiced or delayed the conduct of the action,
and the order may be made on a substantial indemnity basis, including where the motion is heard by, or the action has been referred under section 58 to, a master, case management master or commissioner. (emphasis added)
[42] Quality Rugs’ costs of the motion and action only relates to this proceeding. Casaco/Casimiro and the Sedona parties are the only defendants to this proceeding. Casaco/Casimiro and the Sedona parties are the only parties who disputed Quality Rugs’ claim for lien, its validity and quantum.
[43] The Other Lien Claimants had no right to dispute the validity of Quality Rugs’ claim for lien. They are not parties to this proceeding. It is only now, after the motions were argued, that Quality Rugs seeks to have its costs paid from the Trust Funds that the Other Lien Claimants became involved in this matter.
[44] The result of making the order sought by Quality Rugs would be that Quality Rugs' legal costs would be paid by the Other Lien Claimants from monies otherwise available for the shortfall on their claims for lien (and not their legal costs).
[45] Given that the Other Lien Claimants did not oppose the validity or quantum of Quality Rugs’ claim for lien, even if I have discretion, I find no basis for the exercise of the court’s discretion under the Courts of Justice Act or s. 86 of the Construction Lien Act, R.S.O. 1990, c. C.30 to award costs to Quality Rugs out of the Trust Funds.
No Order Posting Security In This Proceeding
[46] The Construction Lien Act, R.S.O. 1990, c. C.30 is a statutory scheme which creates security, by registering a claim for lien in a timely fashion, for a contractor or subcontractor's materials or services.
[47] Section 14(1) of the Construction Lien Act, R.S.O. 1990, c. C.30 provides that the claim for lien only covers the price of the services or materials provided.
[48] The claim for lien expressly does not cover a contractor's entitlement to interest. See s. 14(2) of the Construction Lien Act, R.S.O. 1990, c. C.30. There is no mention of the costs of a lien also being secured by the lien.
[49] The balance of the Construction Lien Act, R.S.O. 1990, c. C.30 deals with entitlement and quantum of the lien.
[50] Costs are first dealt with in the Construction Lien Act, R.S.O. 1990, c. C.30 in s. 44 where security for costs may be ordered to be posted to vacate a lien. If Quality Rugs had wanted security for its claim for lien and costs, Quality Rugs could have brought a motion under s. 44 of the Construction Lien Act, R.S.O. 1990, c. C.30. Quality Rugs did not do so. That does not mean the lien claimant cannot have a personal judgment against its payor for the costs (and interest) but that is between the two contracting parties.
[51] No security for costs was sought by Quality Rugs and none was posted for costs in this proceeding. No security for costs are included in the Trust Funds.
[52] Essentially, Quality Rugs wants this court to interpret its July 27, 2016 order as a posting of security for Quality Rugs’ costs when no such order was requested or made. No such position was taken at the time by Quality Rugs and no such order was made.
[53] The Trust Funds are from the sale of the properties. The Trust Funds must be distributed in accordance with s. 80 of the Construction Lien Act, R.S.O. 1990, c. C.30. Quality Rugs’ position would essentially make the July 27, 2016 order and order for the distribution of the Trust Funds contrary to s. 80 of the Construction Lien Act, R.S.O. 1990, c. C.30.
Payment of Costs from the Trust Funds Would Create a Priority for Quality Rugs' Costs
[54] Sections 9(3), 80(1) and 84 of the Construction Lien Act, R.S.O. 1990, c. C.30 provide:
s. 9(3). 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.
s. 80. (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) the lien of every member of a class has priority over the lien of the payer of that class.
s. 84. 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.
[55] Absent an agreement amongst all the lien claimants, permitting Quality Rugs to access the Trust Funds for its costs would be to give Quality Rugs a priority over the Other Lien Claimants over their claims for lien and over any costs they incurred in their separate legal proceedings. The Other Lien Claimants only received a portion of the principle amounts of their claims for lien. They received nothing for the costs of their actions. Permitting Quality Rugs' to have its costs paid from the Trust Funds would offend the rateable distribution provisions of the Construction Lien Act, R.S.O. 1990, c. C.30.
[56] There is a further issue. Quality Rugs will have a judgment for costs against Casaco/Casimiro. The ability to recover from these parties is unknown. The Other Lien Claimants have no ability to recover any costs from the Casaco/Casimiro.
[57] I conclude that, to allow the remaining Trust Funds to be used to pay Quality Rugs' costs of the action and motion is contrary to the provisions of the Construction Lien Act, R.S.O. 1990, c. C.30, contrary to the July 27, 2016 order and would be inconsistent with the Other Lien Claimants having to pay their own costs of their separate lien actions.
Additional Defence Submission
[58] Mr. Harason submits that, had his client known it would not be entitled to receive its costs of the action or motion from the Trust Funds, it would have accepted the settlement proposed prior to July 27, 2016.
[59] I do not accept Mr. Harason’s speculation. Had he voiced his client’s position at the time, the issue would have been identified and dealt with at the time. He did not.
[60] Had Mr. Harason wanted to have the remaining Trust Funds available as security for Quality Rugs’ costs of the motion and action, he could have and should have specifically raised this on July 27, 2016. He did not do so.
Conclusion
[61] The orders made pursuant to the Costs Endorsement remain.
Miscellaneous Order
[62] Unopposed, an order shall issue changing the Carriage Counsel of record from McLaughlin and Associates to Kennaley Construction Law, First Canadian Place, Suite 5700 - 100 King Street West, Toronto, Ontario M5X 1C7.