King Road Paving and Landscaping Inc. v. Plati, 2017 ONSC 6319

CITATION: King Road Paving and Landscaping Inc. v. Plati, 2017 ONSC 6319

COURT FILE NOS.: CV-14-118198, CV-12-112441 and CV-12-112028

DATE: 20171023

ONTARIO

SUPERIOR COURT OF JUSTICE

COURT FILE NO.: CV-14-118198

BETWEEN:

King Road Paving and Landscaping Inc., Louis Alaimo and King Road Paving Ltd.

Plaintiffs

– and –

Agostino Plati, Giuseppina Plati and Scotia Mortgage Corporation

Defendants

COUNSEL:

Amanda Pilieci, for the Plaintiffs

Domenic Saverino, for the Defendants, Agostino Plati and Giuseppina Plati

COURT FILE NO.: CV-12-112441

AND BETWEEN:

Great Northern Insulation Services Ltd.

Plaintiff

– and –

King Road Paving and Landscaping Inc. also known as King Road Paving & Landscaping Inc., Louis Alaimo, Agostino Plati, Giuseppina Plati and Scotia Mortgage Corporation

Defendants

AND BETWEEN:

King Road Paving Ltd. and King Road Paving and Landscaping Inc.

Plaintiffs

– and –

Agostino Plati and Giuseppina Plati

Defendants

COUNSEL:

Michael Odumodu, for the Plaintiff

Amanda Pilieci, for the Defendants, King Road Paving and Landscaping Inc. also known as King Road Paving & Landscaping Inc. and Louis Alaimo

Domenic Saverino, for the Defendants, Agostino Plati and Giuseppina Plati

COURT FILE NO.: CV-12-112028

Amanda Pilieci, for the Plaintiffs, King Road Paving Ltd. and King Road Paving and Landscaping Inc.

Domenic Saverino, for the Defendants, Agostino Plati and Giuseppina Plati

HEARD: October 17, 2017

REASONS FOR DECISION

CHARNEY J.:

Introduction

[1] On February 13, 2017 I released my reasons for decision in this contract/construction lien claim.

[2] Following submissions by counsel, the order was settled by endorsement dated March 13, 2017 and judgment was issued and entered on April 18, 2017.

[3] A dispute has arisen among counsel as to the proper interpretation/implementation of the order, and counsel for the defendants, the Platis, has brought this motion under Rule 59.06(c) for direction on carrying the judgment into operation.

Facts

[4] As the reasons in the decision (2017 ONSC 557) fully set out the facts relating to the claims, only a summary of the relevant findings are set out below.

[5] This case was a construction lien matter consolidating three actions, with the plaintiffs Great Northern and Webdensco, subcontractors, registering liens against the property. The plaintiff/defendant King Road was the general contractor and did not register a lien. Webdensco assigned its lien to King Road. The Platis are the owners of the property where the construction work was completed.

[6] The first claim that I dealt with was King Road’s contract claim against the Platis. Although King Road was the general contractor, it did not register a lien, so King Road’s claim was based only in contract.

[7] In my decision I concluded that the contract (including HST) between the Platis and King Road was for $184,624. Of the total contract price the Platis had paid $105,800 to King Road, leaving an outstanding balance of $78,824 owing from the Platis to King Road. Accordingly judgment was granted in favour of King Road against the Platis in the sum of $78,824.

[8] In addition to King Road’s contract claim, two subcontractors, Great Northern Insulation and Webdensco, brought construction lien claims under the Construction Lien Act, R.S.O. 1990, c. C.30. Both were successful.

[9] As explained in paragraphs 192 to 200 of the decision, the holdback under ss. 22 and 24 of the Construction Lien Act is comprised of both the basic holdback (10% of the value of the contract) plus the “notice” or “additional holdback”. The notice holdback applies if the payer receives written notice of the lien before payment is made, and is equal to the amount above the basic holdback that has been retained up to the amount sufficient to satisfy the lien.

[10] Since the total contract price for all work done was $184,624, the basic 10% holdback was calculated as $18,462.

[11] In addition, at the time the Platis received notice of the subcontractor’s lien in November 2012, $78,824 remained to be paid by the Platis to King Road. Pursuant to s. 24(2), that amount became the “notice holdback”. Accordingly, the total holdback in this case equals $97,287 (the basic 10% holdback plus the $78,824 still owing under the contract), to be divided pro rata between the two registered lien claimants.

[12] Great Northern advanced both a contract claim against King Road, and the lien claim against the Platis. Judgment was granted in favour of Great Northern against King Road and its principal Louis Alaimo in the amount of $105,803 (the amount of the contract plus interest).

[13] The Court declared that Great Northern was entitled to a lien on the property in the sum of $51,415 and that Webdensco was entitled to a lien on the property in the sum of $54,387.99. The lien holders were given security against the defendants’ interest in the property to the extent of their lien in the sum of $97,287 (the holdback amount), to be shared pro rata between the two lien claimants.

[14] In addition, the Platis were personally liable to the lien holders for $97,287, ie. the amount of holdback the owners were required to retain.

The Dispute

[15] The Platis take the position that the $78,824 owed to King Road for breach of contract and the $78,824 “notice holdback” to be paid to the subcontractors is the same money, and they only have to pay it once. The notice holdback was calculated on the basis of the contract price retained by the Platis, and that money is held in trust for the subcontractors. Once paid to the subcontractors it should be credited on the judgment owing to King Road.

[16] King Road takes the position that the Platis have to pay the money twice. Once to the subcontractors as holdback money under the Construction Lien Act, and again to King Road as money owed in contract pursuant to the judgment.

Analysis

Procedure

[17] Rule 59.06(2)(c) of the Rules of Civil Procedure provides:

59.06(2) A party who seeks to,

(c) carry an order into operation; or

may make a motion in the proceeding for the relief claimed.

[18] Counsel for King Road takes the position that the terms of the order are clear on its face, and do not need any direction for the parties to carry the order into operation. King Road argues that the moving party is really seeking to appeal my earlier order, and that I should refuse to hear the motion on that ground.

[19] In my view there exists a bona fide disagreement between the parties as to the proper interpretation of the order and how it should be implemented. This is precisely the sort of issue that Rule 59.06(2)(c) was intended to deal with.

[20] While it would have been preferable if the parties had anticipated this issue prior to having the order settled, it is hardly surprising that opposing parties are unable to predict every disagreement or dispute that might arise regarding carrying an order into operation. There must be some means to seek the direction of the court so that such issues can be resolved. That is one of the purposes of Rule 59.06.

Merits

[21] The court order cannot be considered in isolation. It must be interpreted within the legal context of the Construction Lien Act and read harmoniously with the scheme of that legislation: Aiken Bros. Hardware Ltd. v. Sargeant, 2006 CanLII 5298 (ON CA), at para. 10.

[22] The purpose of the holdback under the Construction Lien Act is to create a fund to which the lien claimants may look if they are unable to recover from the person with whom they have a direct contract. The holdback is a trust fund for the subcontractors. Provided the owner retains the proper holdback over the course of the construction and otherwise complies with its statutory obligations, the owner’s liability to a subcontractor lien claimant, with whom the owner has no direct contract, is limited to the amount of the holdback.

[23] Dealing first with the basic holdback, if the owner releases the basic holdback by paying the full contract price to the contractor before the time limit for registration of the lien expires, the owner will still be liable to a successful subcontractor lien holder for the amount of the basic holdback. That means that the owner will have to pay the same amount twice: the first payment made to the contractor before the time limit for registration expired, and the second payment to the successful lien holder under the Act. See: Scepter Industries Ltd. v. MacIntosh, 2006 CanLII 24329 (ON SC) at para. 91:

Section 24 of the Act provides that the owner may “without jeopardy, make payments … up to 90 per cent of the price of the services or materials that have been supplied under that contract …” The jeopardy of course is that set out in s. 23 which imposes personal liability on the owner to lien claimants who have valid liens up to the amount of the holdback the owner was required to retain. In other words the owner who pays in full without holdback may be liable to pay the 10% holdback a second time if a lien is registered.

[24] Counsel for the Platis acknowledges that in this case the owners did not retain the basic holdback. It was part of the $105,800 originally paid to King Road. Accordingly, the Platis acknowledge that they are responsible for the full amount of the basic holdback even though they already paid that amount to King Road.

[25] If, however, the owner complies with the Act and retains the basic holdback until the time limit for registration of the lien expires, the scheme of the Act, and in particular s. 23(2), ensures that the owner will only have to pay the basic holdback once. Following a lien action, the owner will pay the holdback to the successful subcontractor lien holder rather than to the defaulting contractor. The amount that is paid by the owner to a successful lien holder is set-off from the owner’s obligation to pay the contractor. Although the holdback was money that the owner was contractually obliged to pay the contractor, the Act provides that such funds are held in trust to pay the subcontractor if the contractor defaults.

[26] It would be absurd to suggest that an owner that complied with its obligations to retain the holdback and, following a lien action, paid the holdback to the successful subcontractor, should still be responsible for paying that same amount to the defaulting contractor. If that was permitted the defaulting contractor would obtain a windfall, and there would be no advantage to the owner retaining the holdback amount, since the owner would be responsible to pay the same amount twice whether it retained the basic holdback or not. That would be contrary to the statutory scheme, and in particular s. 23(2) of the Act (Aiken Bros. Hardware at para. 10). An owner is liable to pay the holdback twice only if it fails to comply with its obligation to retain the holdback.

[27] The same analysis applies to the “notice holdback”. Once written notice of the lien claim is given the owner must retain any unpaid contract amounts that are sufficient to satisfy the lien.

[28] If an owner were to pay the notice holdback amount to the contractor after the owner was given written notice of the lien, the owner would be liable to pay that same amount to a successful subcontractor lien holder.

[29] If, however, the owner retains the notice holdback amount as required by the Act, and following a lien action pays it to the successful subcontractor lien holder, the amount that is paid by the owner to a successful lien holder is set-off from the owner’s obligation to pay the contractor. As with the basic holdback, these are trust funds held by the owner in the event that the contractor defaults in its payment to the subcontractors. If the owner complies with the Act it pays them only once.

[30] In the present case the owners did retain the notice holdback in accordance with the terms of the Act. They are not, therefore, required to pay that same amount twice. Once the notice holdback is paid to the subcontractors it is to be credited on the judgment owing to King Road.

Conclusion

[31] In all construction lien cases it is necessary to determine the owner’s contractual obligations to the contractor in order to calculate the amount of the holdback. The holdback is always a percentage of the total contract. If the holdback is retained by the owner in accordance with the terms of the Act, the holdback is not a fund in addition to the owner’s contractual obligation to the contractor, it is a subset of that fund held in trust for the subcontractor in the event that the contractor defaults in its payment. To the extent that the fund is used to pay the subcontractor, it is deducted from the amount owing by the owner to the contractor.

[32] For these reasons I accept the position put forward by the Platis. If they pay the holdback to the subcontractors the sum paid is credited to the amount owing in the King Road judgment. Since the notice holdback is equal to the amount owing under the contract with King Road, the balance owing to King Road will be nil (subject to ancillary orders for interest on the judgment and costs). This reading of the order is consistent with the scheme of the Construction Lien Act.

[33] In my view the position put forward by King Road is inconsistent with the scheme of the Act.

[34] Similarly, the payment of $47,670.63 by the Platis to Great Northern is set off against Great Northern’s judgment against King Road and Louis Alaimo. No one gets double recovery.

Costs

[35] The parties agree that the successful party should be awarded costs on a partial indemnity basis in the amount of $5,500. Accordingly, this court orders that King Road Paving and Louis Alaimo must pay costs of $5,500 to the Platis, costs are payable jointly and severally, and may be set-off against any outstanding costs award in favour of King Road and Alaimo against the Platis. There will be no costs award in favour of or against Great Northern Insulation.

Justice R.E. Charney

Released: October 23, 2017

CITATION: King Road Paving and Landscaping Inc. v. Plati, 2017 ONSC 6319

ONTARIO

SUPERIOR COURT OF JUSTICE

BETWEEN:

King Road Paving and Landscaping Inc., Louis Alaimo and King Road Paving Ltd.

Plaintiffs

– and –

Agostino Plati, Giuseppina Plati and Scotia Mortgage Corporation

Defendants

AND BETWEEN:

Great Northern Insulation Services Ltd.

Plaintiff

– and –

King Road Paving and Landscaping Inc. also known as King Road Paving & Landscaping Inc., Louis Alaimo, Agostino Plati, Giuseppina Plati and Scotia Mortgage Corporation

Defendants

AND BETWEEN:

King Road Paving Ltd. and King Road Paving and Landscaping Inc.

Plaintiffs

– and –

Agostino Plati and Giuseppina Plati

Defendants

REASONS FOR DECISION

Justice R.E. Charney

Released: October 23, 2017