Court File and Parties

Court File No.: CV-15-526959 Date: 2017-05-25 Ontario Superior Court of Justice

Between: BERKLEY INSURANCE COMPANY, Applicant And: ROB PIROLI CONSTRUCTION INC., Respondent

Counsel: Sonny Ingram, for the Applicant Myron W. Shulgan, Q.C., for the Respondent

Heard: May 18, 2017

Before: Perell, J.

Reasons for Decision

[1] To obtain construction bonds for a building project, the Respondent, Rob Piroli Construction Inc. (“Piroli Construction”), the general contractor, undertook to the Applicant, Berkley Insurance Company, that it would direct certain funds from the owner of the building to be held in trust to be available to indemnify it if the bonds were triggered. Piroli Construction did not honour its undertaking, and Berkley Insurance brings this application for a mandatory order compelling it to do so.

[2] The factual background to this application is that in late 2012-early 2013, the Town of LaSalle hired Piroli Construction as a general contractor to build a municipal building.

[3] The building was constructed, and between November 2014 and January 2015, Berkley Insurance agreed to post construction lien bonds for Piroli Construction to vacate construction liens claims of $972,876.38 that had been registered by eight subcontractors; namely: (1) D & M Glass and Mirror Ltd., $142,245; (2) Acapulco Pools Ltd., $92,375; (3) Nadalin Custom Floors Ltd., $63,968; (4) Ground Effects Ltd., $71,060; (5) Aztec Electrical Supply Ltd., $347,790; (6) Poirier Electric Ltd., $34,958.71; (7) Rene G. Roy & Sons, $182,912.84; and (8) Franklin Terrazzo Company Ltd., $37,566.83.

[4] To obtain the bonds, Rob Piroli and his wife, Lucy Piroli, agreed to indemnify Berkley Insurance for any losses it suffered from posting the lien bonds. As additional security, should Berkley Insurance be called on to pay on the construction lien bonds, Piroli Construction undertook that it would direct the Town of LaSalle to pay $486,154 to Robert G. Millson Professional Corporation, Piroli Construction’s lawyers, and that it would direct Millson Professional Corporation to forward $191,000 to Berkley Insurance and to retain the balance in trust to be available to indemnify Berkley Insurance should a demand be made for payment of the construction lien bonds.

[5] Piroli Construction, however, breached its undertaking to Berkley Insurance. It received $486,154 from the Town but did not make the directions, and, instead, it used the money to pay subcontractors. Piroli Construction did not direct any funds to be paid pursuant to the undertaking it made to Berkley Insurance, and Mr. Piroli testified that although his company and associated companies have assets, the company does not now have any money to pay Berkley Insurance.

[6] Piroli Construction says that it settled the lien claims of Ground Effects Ltd., Poirier Electric Ltd., and Franklin Terrazzo Company Ltd. However, it has provided no evidence in this regard, and save for one lien bond, the lien bonds have not been returned to Berkley Insurance for cancellation.

[7] To date, no call has been made on the construction lien bonds, but Berkley Insurance seeks to enforce the undertaking. It submitted that there were no material facts in dispute and that it is entitled to a final or permanent mandatory injunction, in effect, an order for specific performance requiring Piroli Construction to honour its undertaking.

[8] In the alternative, Berkley Insurance submits that it is entitled to a mandatory interlocutory injunction compelling Piroli Construction to honour its undertaking. It submits that it has: (1) demonstrated a strong prima facie case, (2) shown that there would be irreparable harm if the mandatory injunction were not granted, and (3) has shown that the balance of convenience favours granting the injunction. If necessary, Berkley Insurance said it would provide the normal undertaking as to damages.

[9] Piroli Construction resists the motion and although it admits that it breached its undertaking to have money paid into trust as security for the lien claims, Piroli Construction submits that Berkley Insurance is not entitled to an order akin to specific performance because damages are an adequate remedy.

[10] Further, Piroli Construction submits that Berkley Insurance has not satisfied the test for a mandatory interlocutory injunction because it cannot show irreparable harm and it has failed to provide an undertaking as to damages. Piroli Construction submitted that Berkley Insurance could not demonstrate irreparable harm, because it could not show that the common law remedy of damages for breach of contract was inadequate to do justice and, therefore, the equitable remedy of a mandatory injunction was not justified and should not be granted.

[11] I agree with the submissions of Berkley Insurance. If this matter is viewed as a claim for specific performance of its contract with Piroli Construction, then damages are indeed an inadequate remedy. The inadequacy of damages in the immediate case can be demonstrated. Visualize: if Berkley Insurance were awarded a judgment for damages, then it would hold them as an unsecured judgment creditor for its claim to be indemnified. A judgment for damages is an unsecured claim. In contrast, if the undertaking is honoured then Berkley Insurance is a secured creditor to the extent that it has a right to be indemnified. It is the beneficiary of a trust. Practically speaking, Berkley Insurance would have priority over the unsecured creditors.

[12] I parenthetically note that this phenomena that specific performance is a secured claim may also be observed where a purchaser of land sues a bankrupt vendor for specific performance and thereby achieves a secured judgment worth the value of the land as opposed to an unsecured judgment for damages. The purchaser pays the purchase price which goes to the estate in bankruptcy but the purchaser, practically speaking, gets full value and not an unsecured debt.

[13] Accordingly, I grant Berkley Insurance the requested order plus costs fixed at $12,000 for this hearing and for the prior hearing in this matter (about the procedure for this application; see Berkley Insurance Company v. Rob Piroli Construction Inc., 2016 ONSC 990, rev’d 2016 ONCA 885).

Perell, J. Released: May 25, 2017