Court File and Parties

Court File No.: CV-18-598369 Date: 2019-03-20 Superior Court of Justice - Ontario

Re: Clifford Blundell, Applicant And: Frederick Fortune operating as Home-Works and Complete Exteriors Inc., Respondents

Before: Sossin J.

Counsel: Clifford Blundell, Counsel for the Applicant William F. Kelly, Counsel for the Respondent Complete Exteriors Inc.

Heard: March 6, 2019

Endorsement

OVERVIEW

[1] This motion concerns a payment made in relation to a construction lien, which a lawyer is currently holding in trust. The lawyer, Clifford Blundell (“Blundell”), has brought an application to release those funds to his client, who registered the lien in question.

[2] The impugned payment arose out of the construction of the Emerald City townhome project (the “Emerald City Project”). One of the respondents, Complete Exteriors Inc. (“Complete”), specializes in the installation of exterior siding. Complete was retained by the general contractor for the Emerald City Project. Complete sub-contracted with the other respondent, Frederick Fortune operating as Home-Works (“Fortune”), to complete some work in Spring 2015. This consisted of installing longboard siding and flashing, including metal fascia and soffit work.

[3] Complete expressed concerns about alleged deficiencies in the work performed by Fortune. While Complete made partial payment for Fortune’s work, Fortune asserts that it was still owed $30,143.91 on the Emerald City Project.

[4] On June 15, 2015, Fortune registered a construction lien in the amount of $30,143.91 on the property.

[5] Complete paid $30,143.91 in trust to Fortune’s lawyer, Blundell on June 30, 2015. Blundell also holds an additional $2,000.00 in trust from Complete.

[6] That same day, on June 30, 2015, the construction lien Fortune had taken out was discharged.

[7] On June 30, 2017, the limitation period for Complete to file a claim in relation to Fortune’s work on the Emerald City Project expired.

[8] Blundell now brings this application to release the funds held in trust to Fortune.

Position of the Parties

Fortune’s Position

[9] Fortune argues the $30,143.91 payment in trust was for the benefit of the employees who worked on the townhome project, and as no claim has been filed by Complete within the limitation period, which expired at the latest by August, 2017, the funds should now be released to Fortune.

[10] Fortune submits that by June 10, 2015, all complaints of deficient work by Complete had been rectified.

[11] Fortune asserts that notwithstanding requests in the Summer of 2015, Complete did not detail any additional alleged deficiencies relating to Fortune’s construction services until the allegations in its responding materials on this application.

Complete’s Position

[12] Complete argues the payment in trust was for the purpose of discharging the lien only, and is equivalent to the payment of security into the court pending litigation.

[13] Complete asserts that there were problems with the work done by Fortune which required significant repairs totalling approximately $50,000.00, and the unpaid amounts were set-offs to address these deficiencies. Since no claim was filed within the limitation period, and the construction lien has not been perfected, the funds should now be returned to Complete pursuant to section 45(3) of the Construction Lien Act, R.S.O. 1990, c. C.30 (the “Act”).

[14] Complete submits that it never agreed that the trust payment was for the benefit of Fortune or that the funds held in trust would be released to Fortune if no claim was forthcoming.

LEGISLATION

[15] This application involves a number of provisions of the Construction Lien Act, R.S.O. 1990, c. C.30, including:

Contractor’s and subcontractor’s trust

Amounts received a trust

8 (1) All amounts,

(a) owing to a contractor or subcontractor, whether or not due or payable; or

(b) received by a contractor or subcontractor,

on account of the contract or subcontract price of an improvement constitute a trust fund for the benefit of the subcontractors and other persons who have supplied services or materials to the improvement who are owed amounts by the contractor or subcontractor.

Obligations as trustee

(2) The contractor or subcontractor is the trustee of the trust fund created by subsection (1) and the contractor or subcontractor shall not appropriate or convert any part of the fund to the contractor’s or subcontractor’s own use or to any use inconsistent with the trust until all subcontractors and other persons who supply services or materials to the improvement are paid all amounts related to the improvement owed to them by the contractor or subcontractor.

Expiry of perfected lien

37 (1) A perfected lien expires immediately after the second anniversary of the commencement of the action that perfected the lien, unless one of the following occurs on or before that anniversary:

1. An order is made for the trial of an action in which the lien may be enforced.

2. An action in which the lien may be enforced is set down for trial. 1994, c. 27, s. 42 (1).

Vacating lien by payment into court

Without notice

44 (1) Upon the motion of any person, without notice to any other person, the court shall make an order vacating,

(a) where the lien attaches to the premises, the registration of a claim for lien and any certificate of action in respect of that lien; or

(b) where the lien does not attach to the premises, the claim for lien,

where the person bringing the motion pays into court, or posts security in an amount equal to, the total of,

(c) the full amount claimed as owing in the claim for lien; and

(d) the lesser of $250,000 or 25 per cent of the amount described in clause (c), as security for costs.

On payment in of reasonable amount

(2) Upon the motion of any person, the court may make an order vacating the registration of a claim for lien, and any certificate of action in respect of that lien, upon the payment into court or the posting of security of an amount that the court determines to be reasonable in the circumstances to satisfy the lien.

Declaration by court that preserved lien has expired

45 (1) Where a lien that attaches to the premises is not preserved or is not perfected within the time allowed for doing so under section 31 or 36, the court upon,

(a) the motion of any person without notice to any other person;

(b) proof that the lien has not been preserved or perfected within the time allowed; and

(c) production of,

(i) a certificate of search under the Land Titles Act, or

(ii) a registrar’s abstract under the Registry Act,

together with a certified copy of the claim for lien,

shall declare that the lien has expired and order that the registration of the claim for lien be vacated.

Same

(2) Where the court is satisfied that a lien that does not attach to the premises has not been preserved or perfected within the time allowed for doing so under section 31 or 36, the court upon the motion of any person without notice to any other person shall declare that the lien has expired.

Order returning amount paid into court or cancelling security

(3) Where a declaration is made under subsection (1) or (2), the court shall order that,

(a) any amount that has been paid into court under section 44 in respect of that lien be returned to the person who paid the amount into court; and

(b) any security that has been posted under section 44 in respect of that lien be cancelled.

ANALYSIS

[16] The key issue to be addressed in this application is the nature of the trust payment of $30,143.91 made by Complete to Blundell. Were these funds to be held in trust for the benefit of the sub-contracted workers who had unpaid invoices, as Fortune asserts, or were these funds akin to a payment of security into court in order to discharge the lien, as Complete asserts?

[17] Both parties agree that the limitation period for bringing any claims in relation to the construction work of Fortune in the Spring of 2015 has expired, and that the funds in trust should now be released. The question to be addressed is whether the funds should be released to Fortune or returned to Complete.

Without Prejudice Correspondence

[18] Complete disputes the admissibility of certain evidence included in the motion record. Specifically, Complete takes issue with Blundell’s inclusion of certain “without prejudice” correspondence.

[19] Blundell argues this correspondence is necessary to demonstrate a shared understanding that the trust funds at issue were for the benefit of Fortune, subject to any claims that might have been made relating to the work performed.

[20] Complete argues that any positions taken or not taken in such correspondence, with a view to potential settlement, should play no role in the analysis of these issues on this application.

[21] I agree with Complete that the “without prejudice” correspondence cannot form part of the record on which the issues in this application are addressed. This correspondence does not form a basis for the analysis or findings below.

The Trust Payment

[22] The origin of this dispute lies in the ambiguity of the payment of $30,143.91 by Complete to counsel for Fortune. This payment came with an email from Erin Watson, counsel for Complete, dated June 30, 2015 which read:

Attached please find our firm’s trust cheque and deposit slip in the amount of $30,143.91.

As discussed, please register the Discharge immediately and provide me with a copy. The Owner is selling a property today and the lien must be removed.

I confirm that the funds required to Discharge shall be held in trust by you. Erin

[23] Complete asserts that the trust payment was no different than the payment of money into court pursuant to s. 44 of the Act and not in any way an admission that all or part of these funds are owing to Fortune (see for e.g. Tech-ex Contractors & Associates Inc. v. Pre-Eng Contracting Ltd., [1990] O.J. No. 3145 (Gen. Div.) (Master)).

[24] Complete also relies on section 45(3) of the Act, by which after the expiry of the construction lien period under s. 37 of the Act, any funds paid into court are to be returned (see for e.g. Kasper Land Drainage Inc. v. Spectrum Realty Inc., [1991] O.J. No. 1132 (Gen. Div.)).

[25] Whether funds paid to counsel in trust can be considered equivalent to funds paid into court for security may be determined according to the context and circumstances of the particular case.

[26] The correspondence from Complete enclosing the trust payment does not make it clear that the funds were intended to function as a payment of security, nor does it set out any conditions on the trust.

[27] The agreement by Fortune to discharge the lien after receipt of the payment into trust is more consistent with the expectation that these funds would be released to Fortune satisfy the unpaid invoices unless a claim was brought by Complete.

[28] In affidavit evidence, Frederick Fortune indicates that it was understood that the funds paid in trust would be held only until a claim was brought by Complete.

[29] While the form and context of the trust payment creates some ambiguity, in the circumstances of this case, I find that Complete provided the trust payment for the benefit of Fortune for work on the Emerald City Project, subject to a claim to those funds which Complete was considering.

[30] I find that these funds meet the test for creating a trust for purposes of s. 8 of the Act.

[31] Section 8 of the Act provides,

(1) All amounts,

(a) owing to a contractor or subcontractor, whether or not due or payable; or

(b) received by a contractor or subcontractor,

on account of the contract or subcontract price of an improvement constitute a trust fund for the benefit of the subcontractors and other persons who have supplied services or materials to the improvement who are owed amounts by the contractor or subcontractor. R.S.O. 1990, c. C.30, s. 8 (1); 2017, c. 24, s. 66.

[32] In Sunview Doors Ltd. v. Pappas, 2010 ONCA 198, 101 O.R. (3d) 285, (“Sunview”), Weiler J.A. explained the purpose of s. 8(1) of the Act in the following terms (at para. 99):

[99] The object of the Act is to prevent unjust enrichment of those higher up in the construction pyramid by ensuring that money paid for an improvement flows down to those at the bottom. In seeking to protect persons on the lower rungs from financial hardship and unfair treatment by those above, the Act is clearly remedial in nature. The remedial nature of the Act also supports a liberal construction so as to enable it to serve its purpose. The purpose of s. 8 is to impress money owing to or received by contractors or subcontractors with a statutory trust, a form of security, to ensure payment of suppliers to the construction industry…

[33] In Sunview at para. 83, Weiler J.A. outlined the elements that must be proven to establish a beneficiary of a trust under s. 8(1) of the Act. I am satisfied that these elements are present in this case, including:

1. Complete was a subcontractor on the Emerald City Project;
2. Fortune supplied materials and services to the projects as a sub-contractor to Complete;
3. Complete was paid on account of those contracts; and
4. Complete owed money to Fortune for materials and services.

See also Noble v. Bailey, 2012 ONSC 4278, 23 C.L.R. (4th) 151, and York Sheet Metal Limited v. L. Pupolin Plumbing & Heating, 2003 CanLII 64209 (Ont. S.C.).

[34] In its response to this application, Complete takes the position that Fortune has been overpaid for the “substandard work” provided, and documents the alleged deficiencies and remedial work required.

[35] Based on this material, Complete could have brought a claim against Fortune alleging that deficiencies in Fortune’s work justified a set-off of funds equivalent to the money paid into trust or exceeding those funds; however, they did not do so within the limitation period. Complete also could have attached conditions to its initial payment of funds to Blundell, in trust. Again, it did not do so.

[36] In light of these findings, Fortune is entitled to the proceeds of the $32,143.91 in funds held in trust.

[37] Blundell’s application to release the funds held in trust to Fortune is granted.

COSTS

[38] Costs are fixed at $15,000.00, all inclusive, to be paid by Complete to Blundell within 30 days.

Sossin J.

Released: March 20, 2019