CITATION: Filippi v 315 Pembroke St East, 2017 ONSC 3851
COURT FILE NO.: CV-15-871
DATE: June 22, 2017
ONTARIO
SUPERIOR COURT OF JUSTICE
IN THE MATTER OF THE CONSTRUCTION LIEN ACT,
R.S.O. 1990, c.C.30, AS AMENDED
B E T W E E N:
TONY FILIPPI
Plaintiff
Mark Huckabone for the Plaintiff
- and -
315 PEMBROKE STREET EAST HOLDINGS INC., WEST CHAMPLAIN HEALTH COMMUNITY CORPORATION
Defendants
John Parr Telfer for the Defendant 315 Pembroke Street East Holdings Inc.,
Jean-Pierre Quintal for 771793 Ontario Limited operating as Pembroke Tile Carpet and Drapery
HEARD: June 19, 2017
REASONS FOR DECISION
James, J.
[1] 315 Pembroke Street East Holdings Inc. (“315”) brings this motion for an order discharging several construction liens registered against its property.
[2] 315 is the owner of premises in the City of Pembroke formerly occupied by Algonquin College. 315 bought the property in 2014 for the purpose of installing medical suites in the southerly portion of the building and student housing in the northerly portion. This case involves the claims that arose during the renovations of the southerly portion.
[3] In 2014 315 entered into a lease with a not-for-profit corporation called West Champlain Health Community Corporation (W.C.) which in turn intended to enter into a series of subleases.
[4] Construction work began apparently at the request of W.C. in early 2015 and a partial occupancy permit was issued on or about September 25, 2015. A series of construction liens were registered from July, 2015 to August, 2016. W.C. made an assignment in bankruptcy in July, 2016.
[5] At some point 315 began paying the construction trades who were working on the project, precisely when is not clear, but it was likely during the summer of 2015. That is around the time W.C. encountered financial difficulties, in part due to the discovery of asbestos in the building. According to the proof of claim filed by 315 in W.C.’s bankruptcy, 315 paid $563,886 in “leasehold improvement costs” which it says were the responsibility of W.C.
[6] It is not clear what percentage the payments by 315 represent of the total construction costs.
[7] It appears that neither W.C. nor 315 maintained a holdback account.
[8] Numerous liens have been registered against the interest of 315 which has resulted in this motion because 315 says it is not an owner within the meaning of the Construction Lien Act. In support of its position 315 submits that:
Its tenant, W.C., requested the work;
None of the lien claimants plead a contractual relationship with 315;
Notice under section 19 of the Construction Lien Act was not given to 315 in its capacity as landlord;
Because of these factors, it would be appropriate to grant leave to bring this motion under section 67(2); and,
This motion is in the nature of a summary judgment motion and the claimants have not raised a genuine issue requiring a trial regarding the liability of 315.
[9] For the reasons that follow, I have determined that this motion ought to be dismissed.
[10] 315 and W.C. are connected by the following factors:
a. J. Weatherill is an officer and director of both W.C. and 315
b. Kenneth Gibson was the solicitor for W.C. at the material time. He was also an officer and director of 315. He was also the solicitor for 315.
[11] Turner and Townsend, a construction management firm, provided services to W.C. on this project at a cost of $13,503.50. This invoice was paid by Kenneth Gibson’s law firm, Gibsons LLP.
[12] In addition, Gibsons LLP paid substantial amounts in connection with the renovations, including direct payments to contractors, of approximately $368,503.50. There is no evidence that any holdback was retained on the direct payments to contractors. These payments may have been made on behalf of and as an agent for 315 or at the direction of 315. That Gibson LLP may have submitted a proof of claim for these payments in the bankruptcy of W.C. is inconclusive.
[13] The definition of “owner” for the purposes of the Construction Lien Act is not the ordinary or dictionary meaning of the word. It is a term of art designed to fit into the statutory payment scheme created by the Act and includes anyone having an interest in the premises, who requests that work be done and:
a. Upon whose credit, or
b. On whose behalf, or
c. With whose privity and consent, or
d. For whose direct benefit, an improvement is made to the premises.
[14] As noted by Perrell, J in Industrial Refrigerated Systems Inc. v. Quality Meat Packers Limited et al, 2015 ONSC 4545 at paragraphs 11, 12, 15:
Whether or not a person is an “owner” under the Construction Lien Act is dependent on the factual circumstances of each case… Ownership under the statute is a factually-intensive matter, and it is the substance and not the form of the arrangement between the parties that determines whether a person qualifies to be an owner under the Act… There may be more than one owner.
[15] In the record before me, there are no copies of any construction contracts, design documents, payment certificates, site reports or inspections or job minutes of any sort. There is no evidence with respect to who was involved in the financing of the work, either as financier or as borrower, or the timing and amount of any draws to finance the work. The identity of whoever was providing site superintendence and co-ordination for the project and the identity of the person to whom they reported has not been disclosed.
[16] 315 and W.C. entered into a new lease on October 2, 2015. In the new lease the initial base rent agreed to in August, 2014 was increased from $225,000 per year to $382,500 per year with stepped increases over the 10 year term. At the hearing of the motion, counsel for 315 indicated that the rent increase was intended to recapture the expenditures by 315 in completing the work left unfinished by W.C.’s insolvency. In the Proof of Claim filed by Mr. Gibson as secretary of 315 in the W.C. bankruptcy, Mr. Gibson also characterized the payments by 315 totaling $563,886 as leasehold improvement costs.
[17] Expenditures by landlords for the leasehold improvements of their tenants are a common practice. They are able to recover what they spend making the improvements over time through the collection of rent. It allows the landlord to control the construction process by hiring and paying for the contractor of his choice with a view to ensuring that the work is of high quality and completed on time. Generally speaking, when landlords perform their tenant’s leasehold improvements, it is the landlord who is the owner for construction lien purposes.
[18] Another point: on the facts before me it is difficult to reconcile the Proof of Claim, asserting as it does that $563,886 in leasehold improvements was provable in the bankruptcy as due and owing, with the new lease where these costs would be collected as rent over the term of the lease and were not immediately payable.
[19] When one considers that it is the substance, not the form, of a transaction that ought to bear on the question of who is an owner in any particular situation, the connections between 315 and W.C. through common directors, officers and legal counsel and the lack of basic project documentation on the available record, I am satisfied that there is a genuine issue regarding the status of 315 that requires a trial. Common sense suggests to me that no one acting reasonably would pay out nearly a million dollars without exerting control over what the money was being paid for and taking steps to ensure that they were getting fair value for the amount expended.
[20] The motion of 315 ought to be dismissed.
[21] In its pivotal decision in Hryniak v. Mauldin, 2014 SCC 7, the Supreme Court of Canada directed judges hearing motions like this to take a proactive approach and assess whether the new, enhanced forensic tools of summary judgment can be applied to determine the case at this stage or in a summary trial. This case does not lend itself to summary disposition but would benefit from case management. A settlement meeting under sections 60 and 61 of the Construction Lien Act has not been convened. To my knowledge the quantum and timeliness of the liens have not been considered by a vetting committee. The actions have not been consolidated and no one has applied for or been awarded carriage of the proceeding on behalf of the lien claimants under section 59 of the Act. Accordingly, I direct that the solicitor for 771793 Ontario Limited shall apply for an order for a settlement meeting on a date to be provided by the trial coordinator in conjunction with my availability.
[22] On the issue of costs, I have costs outlines from 315, 771793 Ontario Limited and Oh! Sar Ltd. Any party wishing to make any additional submissions shall do so within 10 days.
Mr. Justice Martin James
DATE RELEASED: June 22, 2017
CITATION: Filippi v 315 Pembroke St East, 2017 ONSC 3851
COURT FILE NO.: CV-15-871
DATE: June 22, 2017
ONTARIO
SUPERIOR COURT OF JUSTICE
B E T W E E N:
TONY FILIPPI
Plaintiff
- and –
315 PEMBROKE STREET EAST HOLDINGS., WEST CHAMPLAIN HEALTH COMMUNITY CORPORATION
Defendants
REASONS FOR DECISION
Mr. Justice Martin James
DATE RELEASED: June 22, 2017