And between Weld-Tech Co. v. Local Décor Designs et. al.,
2017 ONSC 3262
COURT FILE NO.: 12-0491 and 12-1389
DATE: 20170526
ONTARIO
SUPERIOR COURT OF JUSTICE
BETWEEN:
S. G. J. Northland Steel Manufacturing Inc. and 2155339 Ontario Limited Plaintiff
– and –
Local Decor Designs Inc. and Michael Merlino Defendants
Darrell N. Hawreliak, for the Plaintiff
AND BETWEEN:
Weld-Tech Co. Ltd. Plaintiff
– and –
Local Decor Designs Inc. and Michael Merlino Defendants
Darrell N. Hawreliak, for the Plaintiff
HEARD: May 25, 2017
REASONS FOR DECISION
EBERHARD J.
[1] The Plaintiff, S. G. J. Northland Steel Manufacturing Inc. in the first action sues for, inter alia, damages for breach of contract, breach of trust, punitive damages, interest and costs on a substantial indemnity basis. Other claims were not pursued. As S. G. J. Northland Steel Manufacturing Inc. assumed the responsibilities of 2155339 Ontario Limited, the numbered company suffered no damages and its claims are dismissed.
[2] Weld-Tech Co. Ltd. in the second action before me, having been ordered to be heard together, sues for breach of contract, breach of trust, conversion, punitive damages, interest and costs on a substantial indemnity basis.
[3] The Defendants did not appear. In each case they were noted in default.
[4] The Defendants are deemed to admit the allegations of fact in the respective Statements of Claims.
[5] I granted leave under Rule 53.02(1) that the evidence be given by affidavit.
Facts as found:
[6] S. G. J. Northland Steel Manufacturing Inc. and Local Decor Designs Inc. entered into a contract for Local Decor Designs Inc. to build an addition to the Plaintiff’s business premises with Local Decor Designs Inc. as general contractor. There was a fixed price and the scope of the contract was defined. Draws were called for in 3 stages when the work for such stage was certified by AIM Engineering. The Defendants general contractor was paid the deposit and two of the three draws then abandoned the project.
[7] Sub contractors’ liens were perfected in the sum of $128,000 and Weld-Tech Co. Ltd. sued the Defendants without the benefit of a lien for work done for which they had not been paid.
[8] S. G. J. Northland Steel Manufacturing Inc. and the lien claimants had a settlement meeting as required under the Construction Lien Act. S. G. J. Northland Steel Manufacturing Inc. paid the lien claimants the $44,000 holdback. Releases were given.
[9] To complete the project which should have been completed under the contract, the Plaintiff paid $218,386.55 as set out in the attached SCHEDULE OF DAMAGES (tab 45). Based on the affidavit evidence of Om Sirpal, principal of S. G. J. Northland Steel Manufacturing Inc., most of those amounts are fully supported by invoices alone. Others required some explanation of the facts as found hereafter.
[10] The roof supplied under the contract had to be replaced. In a Small Claims Court action between Bert Huisman (roofer) and the Defendants, which binds the Defendants on the basis of res judicata, Huisman obtained judgment against the Defendants. But it was also found that the roof was inadequate such that S. G. J. Northland Steel Manufacturing Inc. sued Huisman and settled that litigation for $12,000. In the Schedule of Damages, the Plaintiff has credited the Defendants with that $12,000 against the $26,640.00 replacement cost for the roof.
[11] The contract also required the Defendant to address grading. In order to achieve storm water management required under the contract grading, a new plan had to be developed to retrofit what the Defendant left behind when the project was abandoned. The affidavit of Clayton Capes demonstrates the need for this new plan.
[12] I am satisfied that neither the roof nor the storm management expenditures are improvements or extras. They merely represent what had to be done to provide what the contract set out.
[13] Accordingly, the Plaintiff spent the $218,386.65 to complete the contract project, having already spent, by paying the Defendants directly $333,734.18, and lien claimants by way of holdback $44,000 for a total of $596,120.83.
[14] The Plaintiff is entitled to be put in the position it would have been had the contract not been breached. The contract price was $491,550. Damages are the difference: $104,570.83. Judgment is to issue for that amount.
[15] Local Decor Designs Inc. was the party to the contract. Local Decor Designs Inc. is liable under the contract.
[16] On the question of the personal liability of Michael Merlino, a corporate search shows he is the sole officer and director of Local Decor Designs Inc. He is the operating mind. He is the person who entered into the contract for his company Local Decor Designs Inc. However, there is little evidence as to what led up to his abandoning the project.
[17] Under s. 8 of the Construction Lien Act, where the contractor was paid (2/3 of the draws on account of the contract), all amounts paid to the contractor are imposed with a trust for the benefit of subcontractors and others who supplied services who have not been paid. Other use is a conversion. We have no evidence (beyond suspicions raised by lifestyle) of other use.
[18] I find that Local Decor Designs Inc.’s obvious non-payment of sub-contractors at the time of abandonment, evidenced by $128,000 in claimed liens, is a breach of trust.
[19] According to Section 13 of the Construction Lien Act, a director or officer who assents to or acquiesces in conduct he knows or ought to know is a breach of trust by the corporation is liable for the breach of trust. Michael Merlino is the director and officer.
[20] Accordingly, I find that damages of $104,570.83 are owed to the Plaintiff, S. G. J. Northland Steel Manufacturing Inc. by the Defendant, Local Decor Designs Inc. and the Defendant, Michael Merlino, jointly and severally.
[21] I do not find this is a proper case for punitive damages. The special qualities of extreme conduct deserving of full condemnation required by case law (Visnjic v. LaSalle (Town) [2017] O.J. No. 2114, at para 127-132) are not demonstrated on the evidence.
[22] As to the claim of Weld-Tech Co. Ltd., I find the breach of contract is made out and Judgment is to issue that Local Decor Designs Inc. owes this sub-contractor for goods and services rendered in the amount of $19,210.00 inclusive of HST.
[23] I do not find Michael Merlino liable as there is no evidence that Weld-Tech Co. Ltd. had provided goods and services at the time of the last draw to impress those monies with a trust for Weld-Tech Co. Ltd.
[24] Pre and post judgment interest are fixed in both actions at the Court of Justices Act rate.
[25] Although both parties seek costs on a substantial indemnity basis, all I can see impacting on the factors is that these Plaintiffs succeeded in their respective law suits. Costs follow that success but I see no grounds for enhanced costs.
[26] The Defendants, Local Decor Designs Inc. and Michael Merlino shall pay the Plaintiff, S. G. J. Northland Steel Manufacturing Inc., costs which I fix at $4,882.60.
[27] The Defendant, Local Decor Designs Inc., shall pay the Plaintiff, Weld-Tech Co. Ltd., costs which I fix at $1,751.86
M.P.EBERHARD
Released: May 26, 2017
SCHEDULE ‘A’