COURT FILE NO.: CV-13-477348

DATE: June 7, 2018

SUPERIOR COURT OF JUSTICE - ONTARIO

RE: Direct Equipment Inc. v. Metrolinx, Canadian National Railway Company and Terratechnik Environmental Limited;

BEFORE: MASTER C. WIEBE

COUNSEL: Santiago Costa for Direct Equipment Ltd.; Gregory Hersen and J. Siemon for Metrolinx;

HEARD: June 4, 2018.

REASONS FOR DECISION

INTRODUCTION

[1] The trial of this action commenced on April 4, 2018. Derek Schmuck, counsel for the plaintiff, Direct Equipment Inc. (“Direct”), purported to file a document brief and a factum. Mr. Hersen, counsel for Metrolinx, objected. The Direct evidence brief had also been misfiled by the court.

[2] I adjourned the trial to August 14 and 15, 2018, and gave Mr. Schmuck until April 14, 2018 to serve notice that Direct intended to bring a motion to amend its Statement of Claim to plead the tort of conversion and the claim of restitution unjust enrichment, and to obtain leave to call as a trial witness Barrington Harris, the principal of Terratechnik Environmental Limited (“Terratechnik”). Mr. Schmuck gave this notice on April 6, 2018.

[3] On April 25, 2018, Direct brought this motion seeking five heads of relief. At Mr. Hersen’s request, I convened a conference call on May 7, 2018. I ruled that the fourth head of relief was redundant and unnecessary, and that the second head of relief would be determined at the trial hearing.

[4] Subsequent to the conference call, on May 10, 2018, Mr. Schmuck wrote Mr. Hersen a letter advising that Direct would not be amending the Statement of Claim to plead the tort of conversion. At the commencement of the argument on June 4, 2018, Mr. Costa confirmed that Direct was not pursuing the third head of relief, namely the relief concerning Mr. Harris.

[5] That left only two heads of relief, and two issues, to be determined:

a) Should Direct be granted the leave to amend its pleading that it seeks?

b) Should Direct be granted leave to file its Document Brief at the trial?

ANALYSIS

a) Should Direct be granted leave to amend its pleading that it seeks?

[6] It is well established law that, while the court is obligated under Rule 26.01 to grant leave for pleading amendments unless non-compensable prejudice would result, the court reserves a right and obligation to deny such leave where the amendments are frivolous or do not disclose a reasonable cause of action, namely are not legally tenable; see Farmers Oil and Gas Inc. v. Ontario (Ministry of Natural Resources), 2016 ONSC 6359, 134 O.R. (3d) 390 at paragraph 13. The Court of Appeal in Marks v. Ottawa (City), 2011 ONCA 248, [2011] O.J. No. 1445 at paragraph 19 stated that the amendments must show an issue “worthy of trial and prima facie meritorious.”

[7] Mr. Costa argued that Rule 14.01(4) contained a separate test that is relevant. I do not agree. This rule simply allows parties to plead facts that occur after the commencement of the proceeding and amend their pleading in this regard. It does not affect the underlying test for a pleadings amendment motion as summarized above.

[8] Mr. Hersen’s objection to the Direct pleadings amendment motion was based not on the issue of prejudice, but on the issue of whether amendments, using the words in Marks, are not worthy of a trial and are not prima facie meritorious. Therefore, are the proposed amendments frivolous or legally tenable?

[9] The original Statement of Claim dated April 2, 2013 expressly raised claims of construction lien, breach of contract and, in paragraph 11, the following: “The Plaintiff claims in the alternative on the basis of quantum meruit and unjust enrichment.” The draft Amended Statement of Claim contains 16 new paragraphs. I will not reproduce them word-for-word, but will summarize the essence of what they state as follows:

• Metrolinx has not paid anyone for the $24,758.30 worth of rental equipment Direct supplied to Terratechnik for the three months prior to Metrolinx’s termination of the Unimac general contract on March 9, 2012;

• after March 9, 212 Metrolinx hired Terratechnik directly to continue working, which included the provision of $71,955.69 worth of the Direct rental equipment, and paid Terratechnik for its entire invoiced supply for that period in the amount of $526,540.50 without keeping statutory holdback or notice holdback for the Direct lien;

• Terratechnik supplied different services and materials than did Direct, and Direct’s claim for lien includes both the above $24,758.30 and $71,955.69;

• pursuant to my ruling on December 30, 2016 on a motion heard December 7, 2016, Metrolinx paid $677,896.02 into court for its statutory and notice holdback obligation, and then consented to the distribution of that holdback in my Interim Report No. 3 dated May 9, 2018, which included a payment of $40,664.65 to Terratechnik and $40,664.66 to Direct.

[10] In the middle of the argument, Mr. Costa withdrew new paragraph 14(n) as it is a new cause of action concerning notice holdback that is now out of time. To avoid confusion I formally deny leave to include that paragraph.

[11] The remaining 15 new paragraphs do not expressly plead a cause of action. The original version of the amended pleading contained an expressed claim of conversion, but now that paragraph is removed. This leaves the court with the task of inferring the causes of action to which the new paragraphs pertain.

[12] Having reviewed the original Statement of Claim and the history of this reference, I reach the following conclusions. The new pleadings cannot pertain to the breach of contract claim. Direct already has a consent judgment against its contracting party, Terratechnik, and in its Response to Request to Admit dated January 29, 2018 admitted that it has no direct contractual relationship with Metrolinx. I note that the new paragraphs do not even purport to assert a contract claim.

[13] Concerning the lien claim, the new paragraphs have language pertaining to the Direct lien claim, namely the pleadings that concern the amounts in the Direct claim for lien, the failure by Metrolinx to retain holdback, the Metrolinx holdback obligation and the eventual payment into and out of court of what I determined the Metrolinx holdback obligation to be.

[14] I fail to see how these new allegations are anything but frivolous. It is undisputed that the Direct claim for lien contained both the above noted amounts of $24,758.30 and $71,955.69 that Direct now claims, less the $40,664.66 it received from the distributed holdback. I note that the Direct claim for lien was vacated by my order of December 30, 2016 when Metrolinx posted the ordered $677,896.02 holdback obligation. As a result, by operation of Construction Lien Act, R.S.O. 1990, c. C.30 (“CLA”) section 44(6), the Direct lien ceased to attach to the land and the holdbacks, and became a charge on the posted security. That charge was subsequently dealt with when the posted security was distributed, on consent of all parties including Direct, pursuant to my Interim Report No. 3 dated May 9, 2018. There is no Direct lien for the amounts it alleges are not paid, and these pleadings are frivolous as a result.

[15] Concerning the general pleading of quantum meruit and unjust enrichment in old paragraph 11, the new paragraphs appear to provide particularity. Before I discuss this further, however, I need to delineate the two directions that the authorities have taken on the issue of pleading quantum meruit and unjust enrichment in lien actions.

[16] The first line of authority concerns what I call “contractual unjust enrichment.” CLA section 55(1) states that a plaintiff in an action under Part VIII, which I will call a lien action, may join a breach of contract claim with a lien claim. It is undisputed that this has been interpreted by the courts as prohibiting plaintiffs in lien actions from joining non-contract claims. It is also undisputed that the courts have stretched the allowance of contract claim joinder to embrace claims where the parties have attempted to enter contracts but have failed to do so due to some impediment, such as a failure to agree on price. In Yorkwest Plumbing Supply Inc. v. Nortown Plumbing (1998) Ltd., 2014 ONSC 5655, [2014] O.J. No. 4769 (Div. Crt.) at paragraph 46, the Divisional Court found that, “section 55(1) permits the appellant to include a claim based upon a contract even if it turns out that the appellant is unable ultimately to prove the contract.” This decision was upheld by the Court of Appeal; see Yorkwest Plumbing Supply Inc. v. Nortown Plumbing (1998) Ltd., [2016] O.J. No. 2182 (Ont. C.A.) at paragraph 54; see also Industrial Refrigerated Systems Inc. v. Qualtiy Meat Packers Ltd., [2015] O.J. No. 3743 (SCJ) at paragraphs 86 and 89.

[17] There is nothing in the new paragraphs that even resembles a pleading of contractual unjust enrichment. There is no pleading of a contractual relationship or an attempted contractual relationship between Direct and Metrolinx. In addition, I reiterate that Direct has admitted in its Response to Request to Admit dated January 29, 2018 that, “there is no direct contractual relationship between Metrolinx and Direct in relation to the Contract, or the Project.” I, therefore, find that the new paragraphs do not pertain to contractual unjust enrichment or quantum meruit.

[18] The second line of authority concerns what I call “pure” unjust enrichment and quantum meruit, or “restitution unjust enrichment.” As I stated in MGL Construction Inc. v. Boutet, [2015] O.J. No. 3666 (Ont. Master) at paragraph 19, a claim for restitution unjust enrichment has the following elements: there must be enrichment by the defendant; a corresponding deprivation by the plaintiff; and the absence of a juristic reason for the enrichment.

[19] The Direct new paragraphs have several features of restitution unjust enrichment. There is the pleading that Metrolinx has not paid anyone for the outstanding three month’s rent for using Direct equipment prior to the termination of the main contract. There is the pleading that, while Metrolinx paid Terratechnik in full, Terratechik supplied different services and materials than did Direct, thereby leaving one with the inference that Direct’s outstanding invoices have not been paid by the one who used the equipment, namely Metrolinx. Should these facts be proven, there might be a prima facie case for enrichment and deprivation. For that reason, these new pleadings on the surface do not appear to be frivolous.

[20] However, are they legally tenable or sustainable? Put another way, is there a clear juristic reason for the enrichment and deprivation? I find that there is such a reason, and that these new paragraphs are not tenable. Firstly, in MGL I went on to state in paragraph 20 that such claims of restitution unjust enrichment or quantum meruit cannot be joined in a lien action by virtue of the restrictions in CLA section 55(1). Secondly, at paragraph 21 of the same decision, I stated further that there was a good policy reason for refusing such joinder, as to do so where the statutory scheme does not give full recovery would undermine the CLA. I quoted from the decision in Hussey Seating Co. (Canada) v. Ottawa (City), 1997 CanLII 12116 (ONSC) on page 7 that to allow a restitution unjust enrichment claim from a subcontractor directly against an owner would undermine the construction lien legislation, as “an owner [is] not the guarantor of every debt owed by its contractor.”

[21] Mr. Costa argued that the decision of Master Albert in Juddav Designs Inc. v. Cosgriffe, 2010 CarswellOnt 8955 (Ont. Master) allowed for the claim of restitution unjust enrichment in a lien action. Having reviewed the decision, I do not agree. In this case, a corporate plaintiff did not use its proper name in the construction contract, and Master Albert found that the named plaintiff could not enforce the contract document and did not have a lien as a result. There was a pleading of unjust enrichment. Master Albert found that the doctrine of contractual quantum meruit did not apply as there was no disagreement as to the contract price.

[22] Master Albert then went into what she called restitution unjust enrichment, and found that by virtue of the expansive language in CLA sections 51 and 63, the court in a lien action could grant such a claim. CLA sections 51 and 63 require a court to grant relief on all claims based on the evidence presented. But it is important to read this discussion carefully in the decision. I find that, in essence, Master Albert simply expanded the doctrine of contractual unjust enrichment to include situations where the parties have attempted unsuccessfully to reach an enforceable contract due to the failure to name the proper parties to the contract. In paragraph 29, Master Albert states that CLA section 55(1) “would not preclude advancing a claim for payment based on services performed and acknowledged as received when the contract relied upon is not proven, either as to the agreed upon price or as to the proper naming of the parties.” This is entirely consistent with the doctrine of contractual unjust enrichment as described by Divisional Court and Court of Appeal in Yorkwest.

[23] In writing these reasons, I considered whether this analysis should change on account of the fact that Direct’s lien right has come to an end. I have decided that it does not, as the remaining action remains subject to the CLA and the limitations of section 55(1).

[24] Mr. Costa also asked me to consider the fact that the Construction Lien Amendment Act, 2017, parts of which come into effect on July 1, 2018, does not contain the limitation of section 55(1). I do not do so as a matter of statutory interpretation. This would undermine purpose of the new statute.

[25] For these reasons, I find that the new pleadings concerning restitution unjust enrichment are not legally tenable, and should be denied. I find that the other new pleadings are frivolous. I rule that the requested leave to amend the Statement of Claim, therefore, must be denied.

b) Should Direct be granted leave to file its Document Brief at trial?

[26] At the trial hearing on April 4, 2018, Mr. Schmuck purported to file a Document Brief for Direct. It contains nine documents. There are the two Terratechnik claims for lien, the Terratechnik Statement of Claim, a lengthy schedule of rental rates for construction equipment as published by the Ontario Provincial Standard Specification (“OPSS”), an affidavit sworn by Mr. Costa on November 15, 2017, four certificates of payment issued by Metrolinx to the general contractor, Unimac, for the four months prior to the Unimac termination, and the letter written by Mr. Hersen’s associate, Jonathan Goode, to Joseph Cosentino, counsel for another supplier on this project, Cos Shore Inc., on April 25, 2012.

[27] Mr. Hersen objected to this brief for various reasons. He asserted that the Terratechnik claims for lien and statement of claim are not relevant. I do not agree. These are public documents, and are well known to Metrolinx. As to whether they are irrelevant, I am not prepared to make that finding at this time. Direct has pleaded unjust enrichment and quantum meruit, and there may be relevance to the Terratechnik documents in this regard.

[28] Mr. Hersen objected to the OPSS schedule on the grounds that it was not included in the Direct affidavit of documents and is irrelevant. I do not agree. The delay in the trial hearing should negate any prejudice caused by Direct’s failure to include this document in its affidavit of documents. As to whether this document is relevant, I am not prepared to make that finding at this time given the Direct pleading of unjust enrichment and quantum meruit.

[29] Mr. Hersen objected to the Costa affidavit as he said it is not a “document.” I agree that it is not a document as contemplated by my directions scheduling this trial. However, I note that Mr. Costa is listed as a Direct witness with his evidence in chief to be given by affidavit. The only difficulty is that this affidavit, having been included in the Direct Document Brief, was probably not served by January 31, 2018, as I had directed. However, with the adjournment of the trial, any prejudice resulting from this late service should be mitigated. If Metrolinx requires reply evidence in relation to the Costa affidavit, they have my leave to deliver an affidavit for evidence in chief in this regard by June 30, 2018.

[30] Mr. Hersen objected to the four Metrolinx progress certificates on the grounds of relevance. I am not prepared to make this finding in light of the Direct pleading of unjust enrichment and quantum meruit. The certificates may bear on those issues.

[31] Mr. Hersen objected to the Goode letter dated April 25, 2012. This is a section 39 response letter. The core of the letter contains a description of Metrolinx’s position on the accounting under the Unimac general contract. There is a reference to statutory and notice holdback. Mr. Hersen pointed out that this document was not included in the Direct affidavit of documents and is in any event irrelevant since the lien issues are history. I am prepared to leave this document in the Brief. Some of the letter pertains to the value of the Unimac work, and Direct has pleaded unjust enrichment and quantum meruit. As to the fact that this document was not in the Direct affidavit of documents, any prejudice resulting from this fact should be mitigated by the delay in the trial hearing.

[32] In the end, I rule that Direct is granted leave to file its Document Brief at trial.

CONCLUSION

[33] I, therefore, deny Direct leave for make the requested amendments to the Statement of Claim. I grant Direct leave to file its Document Brief at trial. I grant Metrolinc leave to serve and file a reply affidavit in response to the Costa affidavit, which must be done by June 30, 2018.

[34] As to the costs of this motion, both sides filed costs outlines. The Metrolinx costs outline shows an amount of $15,934.64 in partial indemnity costs and $22,360.15 in substantial indemnity costs. The Direct costs outline shows an amount of $7,329.68 in partial indemnity costs, $9,777.39 in substantial indemnity costs and $10,797.27 in actual costs.

[35] In my view, while there was some divided success on this motion, it is clear that Metrolinx was the successful party on the issue that dominated the motion, namely the pleadings amendments issue. The Document Brief issue took little time. However, the divided success must be recognized in the costs award. I also find that Direct’s conduct requires some sanction. The primary reason for the trial adjournment and this motion was Direct’s attempt to assert a claim in conversion, which it then withdrew. It attempted to claim notice holdback when that was clearly out of time and which it then withdrew in the middle of argument. Furthermore, I find that the amendments were not carefully drafted and not carefully considered in light of what has transpired in this reference and stated in the authorities. I find, however, the quantum of the Metrolinx costs outline excessive, as Metrolinx only filed a two page affidavit and a brief of authorities, and made oral argument. Yet, the amount of time shown in the Metrolinx costs outline is almost twice the amount in the Direct costs outline. As a result, I will use the Direct costs outline as the standard by which to determine what the losing side would reasonably expect to pay in costs.

[36] On balance, I have decided to make an award of costs without further submissions in order to allow the parties to focus on the resumption of the trial hearing in August, 2018. I award Metrolinx $7,500 in costs, to be paid in 30 days.

DATE: June 7, 2018

MASTER C. WIEBE