COURT FILE NO.: CV-15-0075-00
DATE: 2018-09-05
ONTARIO
SUPERIOR COURT OF JUSTICE
B E T W E E N:
MAN-SHIELD CONSTRUCTION INC. and MAN-SHIELD (NWO) CONSTRUCTION INC.
R. Johansen, for the Plaintiffs (Responding Party)
Plaintiffs (Responding Party)
- and -
1876030 ONTARIO INC., T.B. PROPERTIES
D. Chicoine, for the Defendant (Moving Party)1876030 Ontario Inc.
No one appearing, for the Defendant (Moving Party) T.B. Properties
Defendants (Moving Party)
HEARD: August 30, 2018,
at Thunder Bay, Ontario
Mr. Justice F. Bruce Fitzpatrick
Judgment on Motion to Release Security
[1] The defendants move for an order for payment of cash out of court, which they posted as security pursuant to s. 44 of the Construction Lien Act, R.S.O. 1990, c. C. 30, as amended (the “Act”). The plaintiffs take the position that the motion is premature. The matter raises some interesting issues concerning treatment of security for costs posted in respect of the Act.
Background
[2] The facts in this case are somewhat unique. The construction project at issue is in respect of a new hotel on the waterfront in Thunder Bay. The plaintiffs filed a significant lien against the property in January 2015. The defendants had this lien removed from title by posting cash security in the amount of $1,435,610.00, which included $50,000.00 as security for costs as required by s. 44(1)(d). Two other sub-trades also filed liens against the hotel. These claims have been resolved by drawing down against the cash security paid into court by the defendants. The resolution of these sub-trade liens played no part in this motion.
[3] Currently, there is approximately 1.2 million dollars in court as security on account of this action.
[4] The parties to this motion agreed to resolve their lien dispute by way of a private arbitration. The arbitration process has been complex and has gone on longer than originally anticipated as the arbitrator has also been tasked with determining another construction dispute between these parties involving a condominium project that is adjacent to the hotel. I am case managing all matters in the Superior Court at Thunder Bay related to both construction projects.
[5] On April 24, 2018, the arbitrator released his decision on a portion of the matters that were before him. The decision dealt with what the parties have labeled the “Hotel Cycle.” This involved an adjudication of the quantum of the plaintiffs’ construction services and materials supplied to the hotel (the basis for its original lien claim), but not the quantum of the defendants’ counterclaim against the plaintiffs in respect of the hotel. The arbitrator found the plaintiffs were entitled to an award of $136,424.16. The parties have agreed that, with adjustments for holdback transactions, the actual amount owing is $211,110.48.
[6] On April 24, 2018, the arbitrator invited the parties to make their submissions on the issue of interest and costs of that particular phase of the arbitration. A timetable for submissions was put in place. The arbitrator then changed his mind. On June 15, 2018, he sent an e-mail to the parties which, among other things, stated,
Upon reflection, I agree with the Owners that a determination of costs of the Hotel Cycle should be deferred until the conclusion of this arbitration. Unlike the Phase 1 Award, which dealt solely and discretely with the terms of the contract governing the condominiums (and in respect of which it was therefore appropriate to resolve the question of Phase 1 costs immediately following delivery of the Award), the Hotel Cycle Award dealt primarily with the parties’ damages claims and certain counterclaims. Although the Hotel and condominiums are all governed by different contracts, they clearly form part of a single undertaking and there is considerable overlap in the evidence and the parties’ submissions as between each building. Although the Hotel Cycle has been defined by the Parties as a distinct phase of the proceeding, I have not yet addressed the Owner’s outstanding Hotel related counterclaims. The Hotel Cycle is therefore best regarded as a subset of “Phase 2” of this arbitration, which is appropriately understood as the phase which follows the determinations as to the contractual agreements governing each of the three buildings. Phase 2 is ongoing as condominium-related evidence continues to be called, and in my view the determination of costs from the Hotel Cycle should be addressed at the same time as the balance of phase 2 costs, at the conclusion of this arbitration.
Position of the Parties
Position of the Moving Party, the Defendants
[7] The defendants submit that, other than the issue of costs, the plaintiffs can get no more than $211,110.48 from the security posted in respect of their liens. The defendants submit there are no Ontario Superior Court or Court of Appeal decisions directly on point. The best authority they could locate was a decision of Master Sandler in the matter M. Sullivan & Son Ltd v. Roche Ltee, [1998] 39 C.L.R. (2d) 251. That case involved a situation of multiple lien claimants. All liens had been bonded off title by the posting of security. Most sub-trade lien claimants had settled with the general contractor, but four had not. Among other things, the motions before the court involved the general contractor seeking to reduce the amount of security it had posted in respect of the entire action. It sought an order of a partial payout of its security to the extent that 100% of the value of the four dissenting lien claimants’ liens, plus 25% for costs, would be left in court. The four dissenting lien claimants argued that the entire amount of security should be left in court as the costs of their actions might exceed the 25% provided in the statute. They argued that the pooling rules provided in s. 44(9) allowed them to claim against the entire amount of the security posted despite some of the other lien claimants having settled. Master Sandler rejected this argument and found the pooling rules did not apply to security posted for costs. Instead, he found that the policy of the Act limited any security to 25% of the actual lien claim, and if that turned out to be inadequate, that was a burden to the lien claimants that arose by operation of the statute. Master Sandler said at para. 83:
…The opposing lien claimants have the security for their costs that the statute provides for. It may turn out to be inadequate but that is the policy of the Act. In many cases, the statutory security is ample security for the ultimate quantified costs of lien claimants. There are benefits and burdens to lien claimants when all their liens are “bonded-off” with security. The benefit is that they all have 100% security for their lien claims and they do not have to worry about the financial position of their payer, or the person liable for holdback, or the equity in the improvement. The burden is that the security for costs may turn out to be inadequate. But that is the statutory scheme.
[8] Relying on this reasoning, the defendants ask that the court make an order as follows:
Payment out of court to the plaintiffs in the amount of $211,110.48;
Retention in court of the statutory maximum for costs in the amount of $50,000.00 plus any interest that has accrued on the cash security (which is estimated to be approximately $31,000.00);
Balance remaining, $1,007,499.52, to be paid out of court to the defendants forthwith.
[9] The defendants have filed an affidavit of the president of 1876030 Ontario Inc. The affidavit outlines financial circumstances related to the ongoing construction of the hotel, which creates an urgency on the part of the defendants to obtain the funds presently in court.
Position of the Responding Party, the Plaintiffs
[10] The plaintiffs resist the motion on the basis that it is premature.
[11] The plaintiffs argue that the M. Sullivan case is distinguishable. The plaintiffs point out that the issue in M. Sullivan was about pooling the costs portion of multiple liens, whereas in this case, the security at issue was posted for one lien. The plaintiffs note a subsequent decision of Master Sandler from 2005: Carter Tile Contractors Inc. v. Ben-Zvi, [2005] 49 C.L.R. (3d) 61. In that decision, Master Sandler conducted a lien trial (together with a non-lien trial) of the issues between the parties. His accounting for the lien claim portion of the trial appeared at para. 124 of the judgment. Ultimately, he awarded the lien claimant less than the quantum claimed in the lien registered on title. This left a surplus of $2,568.00 in respect of the security posted for the lien. Master Sandler then awarded the lien claimant $5,750.00 for costs, which was in excess of the statutory amount that had been previously posted for costs by $2,458.00. Master Sandler applied the surplus from the lien against the deficiency in the security for the costs award finding it would be unfair to do otherwise.
[12] The plaintiffs point out this approach was approved by Master Albert in the 2012 decision D’Urzo Demolition v. Damaris Developments Inc., 2012 ONSC 3938, 15 C.L.R. (4th) 229 at para. 33. The case was factually similar to Carter Tile as it involved a post-trial contest as to the disposition of the security for costs portion of amounts that had been previously posted to vacate a construction lien. Master Albert permitted the surplus portion of the security for the lien to be applied against a cost award, stating at para. 36:
It would be unfair for the court to permit an owner to vacate a lien using a method that prejudices the lien claimant’s ability to have its adjudicated award satisfied. The interpretation that is just and reasonable in the circumstances is one that renders the award more than a paper judgment
[13] The plaintiffs also submit that the arbitrator’s June 15, 2018, e-mail containing the decision to defer the issue of costs also indicates that the trial of the “Hotel Cycle” is, in fact, not over. The arbitrator’s words, that the projects are “a single undertaking,” the “Hotel Cycle is a subset of Phase 2,” and the owners’ counterclaim on the hotel must still be determined, mean that it would be premature to order the security to be released at this time.
[14] The plaintiffs have filed an affidavit which suggests the hotel is now fully encumbered and that there is otherwise no equity for the plaintiffs to pursue if they ultimately obtain a costs award that is in excess of the $50,000.00 statutory limit plus the amount of accrued interest. The plaintiffs, in their affidavit, provided evidence that, to date, they have paid over $600,000.00 for both legal fees and fees to the arbitrator. As such, they argue they will be prejudiced if anything less than at least $500,000.00 is left in court for security for costs.
Disposition
[15] I am persuaded by the plaintiffs’ arguments that this motion is in fact premature. I agree that the arbitrator’s June 15, 2018, email indicates that the adjudication of the issues of quantum of work and costs of the proceeding related to the hotel are ongoing. Consequently, I find there appears to still be competing claims against the security posted to this action. As such, it would be prejudicial to both parties for an order to be made now to release any of the funds.
[16] The parties agreed to arbitrate their disputes. I give deference to this agreement. I am cautious about unduly interfering with this private process. I am alive to the statutory direction given to courts in respect of private arbitrations by s. 6 of the Arbitration Act, 1991, S.O. 1991, c. 17. I have written about all these considerations in previous decisions not to stay the arbitration proceedings between these very parties (see Man-Shield (NWO) Construction Inc. v Allure Condominiums LP, 2017 ONSC 3479) and a decision not to stay the court proceeding between the plaintiffs and other sub-trades with respect to the projects at issue on the Thunder Bay waterfront (see Steelrite Construction Canada Inc. v. Man-shield (NWO) Construction Inc., 2017 ONSC 2303, 279 A.C.W.S. (3d) 685). I find the process regarding the hotel is still ongoing.
[17] Again, I stress this situation is unique. It is unlike the facts in all the cases that the parties have placed before the court as obviously I am not adjudicating the dispute from which a costs claim has arisen. Arbitrator Banack is doing the job. I have no way to accurately assess the relative positions of the parties as to the costs that may be awarded arising from the partial award that the arbitrator has recently made. In general, based on the evidence placed before me on this motion, I expect the costs portion of the “Hotel Cycle” will exceed the statutory maximum of $50,000.00. However, it is an open question who in fact will be the recipient of costs. It is a question that the arbitrator has now determined will be left to the end of the entire process.
[18] Clearly, the decision to defer costs until the end of the entire arbitration is a decision the arbitrator is well entitled to make. In my view, it is not patently unreasonable or suggestive of unequal or unfair treatment.
[19] I also agree that the decision of Master Sandler in M. Sullivan can be distinguished from the facts in this case. In my view, the decision in M. Sullivan was driven by the fact that the lien claimants were seeking to pool against other security posted for other lien claims. That is not what is going on here.
[20] The facts in Carter Tile and D’Urzo are more akin to the situation I have before me. In this matter, there is a single owner, a single lien claimant, and one global amount of security. The learned masters in Carter Tile and D’Urzo both provided the lien claimants’ access to surplus lien security to pay for deficiencies in the costs portion of the security posted. I agree that this is the fairest way to proceed once an adjudication of all matters between the parties in a lien matter are complete. I find that matters between these parties are not now complete. I therefore find this motion to be premature. I agree with the submission of the plaintiffs that it would be prejudicial to release any portion of the security now while the costs portion is still a live issue.
[21] I appreciate why the defendants have brought this motion at this time. However, for whatever reason, the defendants requested the arbitrator defer the costs award for the hotel portion of the arbitration to a subsequent time. A full interim ruling on the disposition of costs for the “Hotel Cycle” may have more readily clarified the situation here. However, at this point, I am not prepared to speculate on how the costs may be allocated. It is also unclear if the owners’ counterclaim may be in excess of the quantum awarded for the plaintiffs’ work. A determination on that issue may also affect how the proceeds in court are to be ultimately allocated.
[22] I am sympathetic to the defendants’ financial circumstances as set out in the affidavit material filed before me. However, this fact alone is insufficient justification for me to exercise judicial discretion and allow any of the security to be released at this time, at least to the extent that any judicial discretion is really available on this specific issue given the matter is being privately arbitrated.
[23] Correspondingly, I am not prepared to allow any of the security to be released to the plaintiffs except on the express consent of both parties following their consideration of this decision. I do this because I see the arbitrator as ultimately being tasked with determining how the security is be allocated once all the issues of quantum and costs have been determined between the parties.
[24] In my view, as there has been no payout of the security ordered at this time and both parties sought a version of same, neither party has been successful on this motion.
[25] This motion is dismissed. No order as to costs.
_______”original signed by”
The Hon. Mr. Justice F.B. Fitzpatrick
Released: September 5, 2018
COURT FILE NO.: CV-15-0075-00
DATE: 2018-09-05
ONTARIO
SUPERIOR COURT OF JUSTICE
B E T W E E N:
MAN-SHIELD CONSTRUCTION INC. and MAN-SHIELD (NWO) CONSTRUCTION INC.
Plaintiffs (Responding Party)
- and -
1876030 ONTARIO INC., T.B. PROPERTIES
Defendants (Moving Party)
JUDGMENT ON MOTION
TO RELEASE SECURITY
Fitzpatrick J.
Released: September 5, 2018
/sab