Emco Corporation v. Total Air Solutions Inc., 2019 ONSC 1636

COURT FILE NO.: CV-18-00602226

DATE: 20190313

ONTARIO

SUPERIOR COURT OF JUSTICE

BETWEEN:

EMCO CORPORATION

Plaintiff

– and –

TOTAL AIR SOLUTIONS INC. and WILLIAM TODD NOEL

Defendants

Irwin D. Ozier, for the Plaintiff

No one appearing for the Defendants

HEARD: In Writing

M. D. FAIETA j.

REASONS FOR DECISION

INTRODUCTION

1The Plaintiff, Emco Corporation (“Emco”), brings this motion for judgment, in writing and without notice, against the Defendants Total Air Solutions (“Total Air”) and William Todd Noel (“Noel”). On August 2, 2018, Noel was personally served with the Statement of Claim on his own behalf, as well as on behalf of Total Air. The Defendants were noted in default on August 30, 2018.

2Emco commenced this action on July 26, 2018. It seeks the following relief:

• Damages of $96,569.92 for breach of contract in relation to unpaid plumbing materials supplied to Total Air;
• Payment of $96,569.22 by Noel, who is the sole officer, director and/or employee of Total Air, on the basis of an irrevocable and unconditional personal guarantee that he gave Emco;

3In respect of the above relief sought, the deemed admitted facts in the Statement of Claim entitle Emco to judgment.

4In addition Emco relies on the Construction Lien Act, R.S.O. 1990, c. C-30 and seeks the following relief:

• Payment of $96,569.92 by the defendants for damages for breach of the trust provisions of the Part II of the Act;
• A declaration that the monies received by the defendants on account of the contract price for the improvement to which Emco supplied materials, constitutes a trust fund or trust funds for the benefit of the plaintiff;
• A declaration that Noel is the trustee of the said trust funds for Emco’s benefit and that Noel is liable for any breach of trust committed by the defendants;
• An accounting with respect to trust monies and an Order tracing the funds into the hands of any third parties.

5At issue, is whether Emco is entitled to the above relief.

ANALYSIS

6Rules 19.02, 19.05 and 19.06 of the Rules of Civil Procedure, R.R.O. 1990, Reg. 194 govern a m

7CONSEQUENCES OF NOTING DEFAULT

19.02 (1) A defendant who has been noted in default,

(a) is deemed to admit the truth of all allegations of fact made in the statement of claim; …

BY MOTION FOR JUDGMENT

19.05 (1) Where a defendant has been noted in default, the plaintiff may move before a judge for judgment against the defendant on the statement of claim in respect of any claim for which default judgment has not been signed.

(2) A motion for judgment under subrule (1) shall be supported by evidence given by affidavit if the claim is for unliquidated damages.

(3) On a motion for judgment under subrule (1), the judge may grant judgment, dismiss the action or order that the action proceed to trial and that oral evidence be presented.

(4) Where an action proceeds to trial, a motion for judgment on the statement of claim against a defendant noted in default may be made at the trial.

FACTS MUST ENTITLE PLAINTIFF TO JUDGMENT

19.06 A plaintiff is not entitled to judgment on a motion for judgment or at trial merely because the facts alleged in the statement of claim are deemed to be admitted, unless the facts entitle the plaintiff to judgment.

8Where a claim for unliquidated damages proceeds by way of a motion for judgment, facts going to liability are deemed to be true however the facts going to damages must be proven: Umlauf v. Umlauf, 2001 CanLII 24068 (ON CA), [2001] O.J. No. 1054 (C.A.), para. 8. In such cases, the plaintiff must adduce evidence to prove the measure or value of damages that it has sustained: Family Trust Corp. v. Harrison, [1986] O.J. No. 2555, para. 10.

9The trust provisions of the Act were described as follows by Justice Molloy in Toro Aluminum Ltd. v. Revah, [1999] O.J. No. 5346, para.8:

The trust provisions of the Construction Lien Act provide additional protection for trades and suppliers on construction projects beyond the right to file liens against the property. Essentially, a contractor or subcontractor who receives money on account of its contract, holds that money in trust for those who provided services or materials on the project. The trustee must, subject to certain exemptions, use those monies first to pay those who provided services and materials. Failure to do so constitutes breach of trust. Where the contractor receiving the money is a corporation, a director, officer or person effectively controlling the corporation who assents to or acquiesces in conduct, knowing it amounts to breach of trust by the corporation, will also be personally liable for breach of trust: Construction Lien Act, ss. 8(1)(b), 8(2) and 13(1); St. Mary's Cement Corporation v. Construct Ltd. (1997) 1997 CanLII 12114 (ON SC), 32 O.R. (3d) 595 at 599 to 601 and 615 to 618 and cases referred to therein.

10Paragraph 9 of the Statement of Claim alleges:

The plaintiff states that [Total Air] was paid monies or has received monies for the Materials supplied by plaintiff and has refused or failed to pay the plaintiff. The plaintiff pleads that the amount of its claim as received by [Total Air], or either of the defendants on account of the plaintiff’s supply of plumbing equipment and related materials constitutes a trust fund or trust funds for the benefit of the plaintiff, and the defendants or either of them are in breach of their obligations pursuant to the provisions of the Construction Lien Act.

11A contractor’s or subcontractor’s failure to pay for materials or services does not necessarily mean that there has been a breach of trust under section 8 of the Act.

12First, there is a distinction between a retailer of construction goods and a supplier of construction goods to a construction project. Only the latter has a reasonable expectation of protection under the Act. In Central Supply Co. (1972) Ltd. v. Modern Tile Supply Co. Ltd. 2001 CanLII 5037 (ON CA), [2001] O.J. No. 3575, paras. 19-20, the Ontario Court of Appeal stated:

19 In my view, therefore, the Act requires that a supplier must intend that the material sold be used for the purposes of a known and identified improvement before a lien or trust arises. Where the supplier is selling material or services without any regard to the purpose or site for which the material is destined, it is deemed to be selling on the credit of the buyer alone, without access to the lien or trust remedies under the Act. The trust provisions of the Act, therefore, create a trust only for the benefit of persons who have supplied services or materials to the improvement, not for the benefit generally of persons who supply contractors. (See Kuchar, supra, at p. 31 C.L.R. and McGuinness, supra, at p. 229 C.L.R.)

20 The Act was not intended to apply to retailers who sell to members of the public in general and who have no direct connection to any improvement to any premises. Any other interpretation renders vulnerable to a trust obligation any retail store which supplies materials or services to members of the public, regardless of the ultimate use or destination of the product.

13Similarly, in Sunview Doors Ltd. v. Academy Doors & Windows Ltd., 2010 ONCA 198, para. 23, the Ontario Court of Appeal stated that a supplier must be able to link the material to the improvement for which the subcontractor was owed money or has been paid.

14No such facts have been adduced by Emco.

15Second, there is no evidence that Total Air has appropriated or converted any part of any trust fund(s) to its own use. If Emco had knowledge of an improvement in respect of which its materials had been supplied, then it could have required information under section 39 of the Act that would have informed whether there had been a breach of trust.

16The bald assertion of a breach of trust in the Statement of Claim does not provide a sufficient basis to find that Total Air has, in fact, committed a breach of trust under section 8 of the Act. The views expressed by Justice Matheson in Batista v. Mason’s Masonry Supply Limited, 2014 ONSC 3955, paras. 29-30, are equally applicable in this case:

29 … As set out in Rule 19.06, a plaintiff is not entitled to judgment merely because the facts alleged in the statement of claim are admitted. The admitted facts must entitle the plaintiff to the judgment. Here they do not.

30 The allegations in the statement of claim regarding breach of trust, misappropriation and conversion are very general. Fundamental facts required to prove these allegations were not pleaded and have therefore not been admitted, such as the amount of trust funds Batista allegedly received and the amount he allegedly misappropriated or converted. This is not a criticism of the pleading per se - Mason's likely did not have the necessary information at that stage - but it remains the case that the deemed factual admissions are insufficient. …

17Accordingly, I dismiss Emco’s request for relief under the Act.

18Similarly, I dismiss Emco’s request for relief based on the common law of trusts as such claim was baldly asserted without any material facts to support such claim.

CONCLUSIONS

19Judgment is granted against both Defendants in the amount of $96,569.22 plus post-judgment interest at 24% per annum as it was the contracted rate of interest. I find that it is fair and reasonable to require the Defendants to pay costs of $2,000, all inclusive, to Emco in respect of this action.