Court File and Parties

COURT FILE NO: 13-58932 DATE: November 6, 2018 SUPERIOR COURT OF JUSTICE - ONTARIO

RE: Phillips and Moulds v. Petrelli Construction & Renovation Inc.

BEFORE: Master Fortier

COUNSEL: Martin Diegel for the Plaintiff, Defendant by Counterclaim David Cutler for the Defendants, Plaintiffs by Counterclaim

HEARD: April 12, 2018

Endorsement

[1] The Plaintiffs by counterclaim, Mary Phillips and James Moulds (“Phillips and Moulds”) have brought a motion seeking relief in an effort to recover costs awarded to them by order of MacLeod J. dated December 29, 2016. The Defendant by counterclaim, Petrelli Construction & Renovation Inc. (Petrelli Construction) brought a cross motion for relief outlined below in paragraph 10 below.

Background

[2] Phillips and Moulds are homeowners who contracted with Petrelli Construction for home renovations. Following a breakdown in the relationship, Petrelli Construction registered a claim for lien against Phillips and Moulds’ property. Phillips and Moulds counterclaimed.

[3] The matter proceeded to a cross examination in October 2013. At that time, Mr. Petrelli, the sole owner of Petrelli Construction, gave a number of undertakings that were never answered.

[4] Petrelli Construction effectively abandoned the claim for lien and the lien was vacated in March 2014 pursuant to the Order of Master Roger (as he then was).

[5] The action was eventually dismissed with costs by Order of MacLeod J. on December 29, 2016 (the “December 2016 Order”). Costs in the amount of $20,000 (“the Costs Order”) were awarded against Petrelli Construction and Mr. Petrelli personally (Petrelli Construction & Renovations Inc. v. Phillips, 2016 ONSC 8159, 73 C.L.R. (4th) 275).

[6] To complicate matters, Mr. Petrelli filed a consumer proposal prior to the December 2016 Order. It would appear that at the time of the making of the Costs Order, the status of Mr. Petrelli’s consumer proposal was unclear. In any event, MacLeod J. did not determine whether the December 2016 Order was enforceable against Mr. Petrelli and left that issue open. MacLeod J. wrote at paragraph 11:

Unfortunately Mr. Petrelli is insolvent. He is in the midst of a consumer proposal which will either be fully completed or will lead to a deemed bankruptcy. In either case, subject to limited exceptions that do not seem to apply here, his debts will be extinguished. The defendants were apparently listed as potential creditors in the statement of affairs and the filed proofs of claim with the administrator although I’m advised the claim was refused. So any order for costs I may make against Mr. Petrelli may well be uncollectible. I should not be taken as ruling on this point because the administration of the proposal is not before me and it would be for Mr. Petrelli and the administrator- or the bankruptcy court – to determine whether or not any order made in this proceeding is part of the proposal or not. [Emphasis added].

[7] As it turns out, Mr. Petrelli filed a proposal in bankruptcy on July 29, 2014. Phillips and Moulds had filed a claim in Mr. Petrelli’s bankruptcy process but it was disallowed because it did not provide any documentation substantiating that Mr. Petrelli had any personal liability owed to them. Mr. Petrelli received his Certificate of Full Performance of Consumer Proposal on May 26, 2015.

[8] Phillips and Moulds did not take any steps to prosecute their counterclaim and did not pursue their counterclaim following the dismissal of the action in December 2016. Nevertheless, Petrelli Construction served and filed a defence to the counterclaim in August 2017. According to Mr. Petrelli, the statement of defence to the counterclaim was filed because the Plaintiffs seemed intent on trying to pierce the corporate veil or otherwise hold Petrelli personally liable.

Motion and Cross-Motion

[9] Phillips and Moulds have attempted to recover the costs ordered by MacLeod J. without success. Among other relief, they wish to compel Mr. Petrelli to attend an examination in aid of execution to answer questions in his personal capacity, however, they have been unable to serve Mr. Petrelli personally. Phillips and Moulds therefore bring this motion seeking the following relief:

a) an order striking Petrelli Constructions’ defence to the counterclaim; in the alternative, b) an order compelling Petrelli Construction to answer its undertakings given on the cross-examination of October 2013; and c) an order for substituted service of the notice of examination in aid of execution upon Petrelli Construction and Mr. Petrelli personally by serving the notice upon Martin Diegel, counsel for Petrelli Construction and Mr. Petrelli.

[10] Petrelli Construction brings a cross motion for:

a) a declaration that the Costs Order against Mr. Petrelli is not enforceable due to the completed proposal in bankruptcy and therefore Mr. Petrelli cannot be compelled to attend an examination in aid of execution to answer questions in his personal capacity; in the alternative, b) an order referring the matter to the Bankruptcy Court to make a determination with respect to the enforceability of the costs order against Mr. Petrelli personally. c) an Order dismissing the counterclaim.

[11] The only affidavit filed in support of Phillips and Moulds’ motion is that of James Proulx, process server, outlining his unsuccessful attempts at serving Mr. Petrelli with a notice of examination in August and September 2017. Although I was initially of the view that the moving parties’ request for the relief sought in paragraph 9 above ought to be adjourned so that details of the action could be properly put before the court, I am satisfied upon reviewing the materials, along with Mr. Petrelli’s affidavit sworn March 27, 2018, that all of the required information is before me to dispose of those issues.

Issues

[12] The issues to be determined on the motion and cross motion are the following:

a) Is the counterclaim in this action discontinued pursuant to Rule 24.03? If the answer is yes, are Phillips and Moulds still entitled to the relief sought in paragraphs 9 (a) and (b) above? b) Should the question of the enforceability of the Costs Order of MacLeod J. against Petrelli personally be referred to be heard by a judge or registrar in Bankruptcy Court? c) Should an order for substituted service of the notice of examination upon Petrelli Construction and Mr. Petrelli be granted?

A- Status of the Counterclaim

[13] In my view, the counterclaim in this action is discontinued pursuant to rule 24.03 of the Rules of Civil Procedure, R.R.O. 1990, Reg. 194, for the following reasons:

a) Petrelli Construction effectively abandoned its claim, and the action against Phillips and Moulds was dismissed on December 29, 2016. Pursuant to rule 24.03, when an action is dismissed for delay, the defendant’s counterclaim shall be deemed to be discontinued without costs within 30 days absent a notice of election to proceed. Phillips and Moulds did not elect to proceed with their counterclaim following the dismissal of the action and, therefore, the counterclaim is deemed discontinued 30 days after the dismissal order. d) In my view, the filing of Petrelli Construction’s defence to the counterclaim does not alter the fact that the counterclaim was discontinued by reason of Phillips and Moulds’ failure to file a notice of election to proceed nor does it revive the counterclaim.

[14] As the action was effectively terminated when the counterclaim was discontinued, Phillips and Moulds’ motion for an order dismissing the defence to counterclaim or for an order compelling Petrelli Construction to answer its undertakings is moot and, therefore, dismissed.

B- Should the determination of whether or not any order in this proceeding is part of the proposal be dealt with in bankruptcy court?

[15] Counsel for Mr. Petrelli argues that the determination of whether the Costs Order is enforceable against the owner personally (whether or not the Costs Order is part of the proposal) ought to be referred to Bankruptcy Court. Counsel for Phillips and Moulds argues that I can rule on the matter notwithstanding that it is on the ordinary motions list because I am a registrar in bankruptcy.

[16] The powers of registrars in bankruptcy are outlined in s. 192(1) of the Bankruptcy and Insolvency Act, R.S.C. 1985, c. B-3. Section 192(1) states:

192 (1) The registrars of the courts have power and jurisdiction, without limiting the powers otherwise conferred by this Act or the General Rules,

(a) to hear bankruptcy applications and to make bankruptcy orders if they are not opposed; (b) to hold examinations of bankrupts or other persons; (c) to grant orders of discharge; (d) to approve proposals where they are not opposed; (e) to make interim orders in cases of urgency; (f) to hear and determine any unopposed or ex parte application; (g) to summon and examine the bankrupt or any person known or suspected to have in his possession property of the bankrupt, or to be indebted to him, or capable of giving information respecting the bankrupt, his dealings or property; (h) to hear and determine matters relating to proofs of claims whether or not opposed; (i) to tax or fix costs and to pass accounts; (j) to hear and determine any matter with the consent of all parties; (k) to hear and determine any matter relating to practice and procedure in the courts; (l) to settle and sign all orders and judgments of the courts not settled or signed by a judge and to issue all orders, judgments, warrants or other processes of the courts; (m) to perform all necessary administrative duties relating to the practice and procedure in the courts; and (n) to hear and determine appeals from the decision of a trustee allowing or disallowing a claim.

[17] In my view, the issue of whether or not the Costs Order in the proceeding is part of the proposal, including whether it is enforceable against Mr. Petrelli, should be referred to a judge in bankruptcy court for disposition for the following reasons:

a) The powers of the registrars under s. 192(1) do not include determining the enforceability of orders and/or determining whether a particular order is part of a proposal. The registrar could hear and determine the matter if the parties consent pursuant to s.192 (1) (j), however, there is no such consent in the present case. b) It is clear from MacLeod J.’s endorsement of December 29, 2016, that it would be for the Bankruptcy Court to determine whether or not any order in the proceeding is part of the proposal.

C- Substituted Service of the Notice of Examination upon Petrelli Construction and Mr. Petrelli

[18] Phillips and Moulds wish to compel Mr. Petrelli to attend an examination in aid of execution to answer questions on behalf of Petrelli Construction as well as in his personal capacity. As they have been unable to serve Mr. Petrelli, they now seek an order for substituted service of the notice of examination by serving Mr. Diegel, who is counsel of record.

[19] Mr. Petrelli consents to attend an examination in aid of execution to answer questions on behalf of Petrelli Construction. Mr. Diegel agrees to accept service of the notice of examination on behalf of Petrelli Construction only.

[20] In my view, Mr. Petrelli should not be required to attend an examination in aid of execution to answer questions in his personal capacity until the question regarding the enforceability of the Costs Order against him has been disposed of (see Ferina Construction Ltd. v. Labno Developments Corp., 2017 ONSC 6469, 54 C.B.R. (6th) 95).

Disposition

[21] For the reasons outlined above:

a) Phillips and Moulds’ motion for an order dismissing the defence to counterclaim is dismissed. b) Phillips and Moulds’ motion for an order compelling Petrelli Construction to answer its undertakings given on the cross-examination of October 2013 is dismissed. c) Phillips and Moulds’ motion for an order for substituted service of the notice of examination upon Petrelli Construction by service of the notice upon Martin Diegel by fax is granted. Service shall be effective five days after faxing the notice of examination. d) Phillips and Moulds’ motion for an order for substituted service of the notice of examination upon Mr. Petrelli by serving the notice upon Martin Diegel, counsel for Mr. Petrelli is dismissed. e) The Responding party’s cross-motion for a determination of whether or not the Costs Order in the proceeding is part of Mr. Petrelli’s proposal in bankruptcy is referred to a judge in Bankruptcy Court for disposition. The motion before the Bankruptcy Court shall be brought in the proposal file. Complete materials are to be filed with the Bankruptcy Court, including a record containing supporting affidavits as well as factums and books of authority.

[22] If the parties cannot agree about the matter of costs, they may make brief submissions in writing beginning with Phillips and Moulds within 15 days of the release of this endorsement followed by Petrelli Constructions’ submissions within a further 15 days. Written submissions are to be no more than two pages in length.

Master Fortier