Court File and Parties

COURT FILE NO.: 641/19 DATE: 20190513

ONTARIO SUPERIOR COURT OF JUSTICE

BETWEEN:

RASSAUN SERVICES INC. Plaintiff – and – SLE-CO PLASTICS INC., SLE-CO PROPERTIES INC., 2366608 ONTARIO INC., JEFFREY JOSEPH SLEEGERS, ERIC HOEKSTRA and ANGELA JEAN SLEEGERS Defendants

Counsel: Robert J. Kennaley, for the Plaintiff Eric A. F. Grigg, for the Defendants

HEARD: April 30, 2019

BEFORE: Grace J.

A. Introduction

[1] Rassaun Services Inc. (“RSI”) commenced this action on March 27, 2019 seeking, among other things, a certificate of pending litigation (“CPL”) pursuant to s. 103 of the Courts of Justice Act (“CJA”) in relation to 3831 Elgin Road, Middlesex County (“Elgin Road”).

[2] As permitted by rule 42.01(3) of the Rules of Civil Procedure (“Rules”), RSI brought a motion seeking leave to issue a CPL without notice. Mitchell J.’s short endorsement of April 2, 2019 granted the requested relief. The motion judge ordered that the CPL expire at 11:59 p.m. on May 1, 2019 unless renewed by the court and adjourned the matter to April 30, 2019 to allow time for service of the motion material on the defendants.

[3] This endorsement explains why I declined to renew or extend the CPL. I did, however, adjourn the motion for a CPL, now being pursued on notice, to an August 14, 2019 special appointment. As ordered, the parties filed the required certificate of readiness timetabling all remaining interlocutory steps related to the CPL issue.

[4] While the Elgin Road property will be free from the CPL from the day it is vacated until RSI’s motion is decided, I asked the defendants’ counsel to advise his clients that the court would take a dim view of any extra-judicial step taken that rendered determination of the still pending motion academic. I am confident that he has already done so.

B. Statutory Authority to Issue and to Remove a CPL

[5] I have already mentioned s. 103 of the CJA. As also noted, a motion seeking leave to issue a CPL may be made without notice. While stated to be a low threshold, the onus is on the moving party to introduce sufficient evidence to establish a reasonable claim to an interest in land based on facts upon which the plaintiff could succeed at trial. Where, as here, the motion brought without notice is initially successful, all of the motion material and the resulting order is to be served promptly on all affected parties: rule 42.01(4).

[6] Section 103(6) of the CJA discloses the circumstances in which a CPL may be discharged. They include a situation where the plaintiff does not have a reasonable claim to an interest in the land: s. 103(6)(a)(ii).

C. A Threshold Issue

[7] This motion took an unexpected turn following the attendance before Mitchell J. Rule 37.10.1 of the Rules requires that motions be confirmed in the manner and by the time specified. Counsel for RSI assumed that it was unnecessary for him to confirm the motion since it had been adjourned to a specified date for argument. The Rules do not create such an exception. A failure to serve a timely confirmation has consequences. Unless the court orders otherwise, the motion is not to be heard, is deemed to have been abandoned and an adverse costs award may be made: rules 37.10.1(4) and (5).

[8] The defendants’ counsel argued strenuously that it would be unfair to relieve RSI of any of those ramifications particularly because of RSI’s conduct in relation to an action it commenced against Sle-Co Plastics Inc. (“Plastics”), 2366608 Ontario Inc. (“236”) and another defendant in St. Thomas, Ontario (the “St. Thomas action”). RSI had noted Plastics and 236 in default and declined to consent when asked to agree to an order setting it aside. As well, RSI adopted a circuitous method to deal with its failure to confirm. RSI’s counsel filed a new motion record with an April 30, 2019 return date and then failed to confirm that motion too.

[9] I am not in a position to comment on the St. Thomas proceeding. The failing in this action should have been dealt with directly. Nonetheless, on this one occasion I decided to allow the issue of the renewal/extension of the CPL to be argued. The defendants had filed a responding motion record, factum and book of authorities. RSI’s counsel is from out-of town. Both lawyers were present. Adjourning the matter to another return date or requiring RSI to bring a new motion on an urgent basis would simply have added unnecessary time and expense.

[10] That brings me to the current evidentiary record. I offer the following summaries.

D. RSI’s Evidentiary Record

[11] Two affidavits have been filed on behalf of RSI so far: one sworn by an officer of RSI, Kevin Saunders, on March 26, 2019 and another confined to procedural matters by lawyer Joshua Winter.

[12] According to Mr. Saunders, RSI was retained to remove and relocate mechanical and electrical equipment from 1425 Creamery Road, London (the “London facility”) to 1400 South Edgeware Road, St. Thomas (the “St. Thomas facility”).

[13] Non-payment of $494,708.11 alleged by RSI to be due resulted in the registration of a claim for lien against the St. Thomas facility on October 9, 2018.

[14] Mr. Saunders maintained that Plastic’s Operations Manager, Eric Hoekstra, promised to satisfy the outstanding account soon afterward. RSI relies on an October 12, 2018 e-mail that pre-dated institution of the St. Thomas action. In that e-mail, Mr. Hoekstra advised Mr. Saunders that “we will make a full payment to you as soon as the funds are available.” Mr. Hoekstra represented that would be within twenty-four hours of the sale of the London facility which was scheduled to be completed on October 31, 2018.

[15] Clearly payment was not made within that time frame because the St. Thomas action was commenced pursuant to the provisions of the Construction Act in late November. RSI sought judgment for the full $494,708.11.

[16] Mr. Saunders then described communications initiated by Jeffrey Sleegers, an officer and director of the corporate defendants. He noted that weekly payments of $25,000 each were promised in a December 12, 2018 e-mail. When those terms were not fulfilled, RSI’s lawyers made unsuccessful efforts to put the matter back on track. Two final partial payments of $10,000 each were made in February, 2019. In early March, counsel for 236 and Plastics brought a motion seeking to set aside the noting in default in the St. Thomas action. The motion was argued March 25 and was under reserve at the time the Saunders’ affidavit was sworn.

[17] The affidavit then turned to the Elgin Road property. Based on entries parcel registers for those lands and the London facility contained, the affiant explained that he believed the Elgin Road property had been acquired by Mr. Sleegers using a portion of the proceeds generated upon sale of the London facility.

E. Defendants’ Evidentiary Record

[18] The defendants rely on an affidavit of Mr. Sleegers sworn April 16, 2019. He noted that 236 no longer exists because it amalgamated with other companies to form Sle-Co Properties Inc. (“Properties”).

[19] He then turned his attention to the Elgin Road property. Sleegers acquired same from Denise and Wayne Anderson pursuant to an agreement of purchase and sale dated August 8, 2018. The purchase price was $1,650,000. The transaction closed November 2, 2018. It had been conditional on the sale of a property Mr. Sleegers owned at 31 Caithness Court, London (“Caithness”). The Caithness property was sold to George Vilos. That sale was completed on November 5, 2018.

[20] Mr. Sleegers outlined the sources of the funds used to acquire Elgin Road: two loans from Royal Bank of Canada provided the lion’s share of the money. Slightly half of that was advanced in the form of a bridge loan that was retired from the proceeds of the sale of Caithness. The rest ($220,898.09) came from a personal account Mr. Sleegers maintained with Royal Bank of Canada. Mr. Sleegers deposed that the source of the money in that account was 1142024 Ontario Inc. (“114”) which had promised to loan him $250,000 pursuant to an August 8, 2018 “shareholder loan agreement” he appended as an exhibit.

[21] The factual position of the defendants on the motion is summarized in paragraph 17 of Mr. Sleegers’ affidavit. He said:

[RSI’s] statement of claim alleges…that I used the proceeds of the sale of [the London facility] to purchase Elgin Road. Given my evidence herein, this allegation is demonstrably false and, accordingly, I believe that there is no ‘triable issue’ as to [RSI’s] interest in Elgin Road, which is to say, [RSI] does not have one.

[22] It is clear from the affidavit that the agreement of purchase and sale entered into with the Andersons did not mention the London facility. The acquisition of Elgin Road was conditional on the sale of Caithness only.

[23] The London facility was never owned by 236 or Plastics. 1457020 Ontario Inc. (“145”) acquired the parcel in 2001. 145 was the registered owner at the time of Mr. Hoekstra’s October 12, 2018 e-mail.

[24] Five days later 145, 236 and two other companies amalgamated. Properties was the name the amalgamated entity would be known by. On October 25 notice of the new name was recorded in the parcel register and on November 1, 2018, Properties transferred the London facility to Dancor Creamery Inc. (“Dancor”) for $3,936,000.

F. Analysis and Conclusion

[25] At the outset, I emphasize that nothing contained in this endorsement is intended to make a single dispositive factual finding. This action is in its infancy. Materials have been assembled in short order. The evidentiary record is incomplete. Supplementary materials may be filed. Cross-examinations have not yet been conducted. A more complete record will be before the justice presiding in August.

[26] The legal principles applicable to CPL’s are not in dispute and are well summarized in Todd Family Trust v. Barefoot Science Technologies Inc., [2013] O.J. No. 476 (Div. Ct.) at para. 13. In part, Lederer J. said:

Certificates of pending litigation are designed to protect unregistered interests in land. The registration of a certificate of pending litigation allows a party to protect such an interest by putting others on notice that a claim is being made. The CJA constitutes a complete code for obtaining a certificate of pending litigation, as well as for its subsequent discharge. It provides that a certificate of pending litigation can issue only in circumstances where an interest in land is in question and where the party at whose instance the certificate is issued has a reasonable claim to that interest in land. [Emphasis in original]

[27] According to Mitchell J.’s endorsement, this attendance is for the purpose of determining whether the permission to issue a CPL should be “renewed”. RSI bears the onus of proof.

[28] The question is whether there is, on this record, a triable issue as to the reasonableness of RSI’s claim to an interest in the Elgin Road property. In my view there is not. My reasons for reaching that conclusion at this stage of the proceeding follow.

[29] As mentioned, RSI performed services in relation to the London and St. Thomas facilities: the removal of mechanical and electrical equipment from the former and the installation of that equipment in the latter. No written contract is referred to or included in the record currently before the court.

[30] When the amount claimed to be due ($494,708.11) was not paid, RSI registered a claim for lien under the Construction Act in relation to the St. Thomas facility. That document referenced two entities: 236 and Plastics. Both were said to be “owners”.

[31] A copy of the claim for lien was attached to an e-mail Mr. Saunders sent to Mr. Hoekstra three days later. I have already referred to part of the October 12, 2018 e-mail Mr. Hoekstra sent in response. Some of the actual text bears mention. In part, Mr. Hoekstra wrote:

I understand what you are saying but…we have an issue and we are willing to get this all cleared up on the sale of the Creamery Plant. The Sale [sic] of the London Property will give us the money to pay to [RSI].

As I had said previously we will make a full payment to you as soon as funds are available. The sale closes on October 31, 2018. We will transfer funds with in [sic] the 24 hours following once we have received the deposit from the sale.

I would ask that you reconsider in light of trying to work this out. I am still trying to make payments prior to that date but we are very tight on our cash flow…

We want to continue to have a working relationship. We are doing everything we can to get some thing [sic] to you.

What if we commit to the following to show we are working on this seriously

10/15/18 $20,000 payment

10/22/18 $20,000 payment

10/26/18 $50,000 payment

11/01/18 or about $404,708.11 final payment

Review and let me know.

[32] Mr. Hoekstra’s contact information appeared at the base of the e-mail. He was described as the operations manager of Plastics.

[33] If there was a response to Mr. Hoekstra’s e-mail, it is not contained in the material assembled for this motion. Clearly, however, Plastics did not make any of the payments Mr. Hoekstra proposed because RSI commenced an action in St. Thomas on November 28, 2018 claiming the full amount. 236, Plastics and Royal Bank of Canada as chargee/mortgagee were named as defendants. RSI sought judgment for $494,708.11 and enforcement of its lien against the St. Thomas facility. It is clear from the statement of claim that any judgment awarded against 236 and/or Plastics would be unsecured to the extent of any deficiency remaining after enforcement of a valid lien.

[34] As noted from the evidentiary summary, RSI later communicated with Mr. Sleegers directly and through its solicitors. Those intermittent e-mails commenced on December 12, 2018 and ended on February 16, 2019. Initially, twenty weekly payments of $25,000 was contemplated. Mr. Saunders deposed that none of those instalments was received although Plastics paid $5,000 on December 24 and 28, 2018 and January 7, 2019. [1]

[35] None of the e-mails reference the London facility, let alone the sale that was supposed to have closed months earlier. In a January 18, 2019 e-mail, RSI’s counsel referred to “a payment plan” that “was agreed to with our client (on terms that included weekly payments…of $25,000).” On February 4, 2019 Mr. Sleegers advised RSI’s counsel:

As an update, I am working to finance some unencumbered equipment to address this cost. As you can understand, my bank has put a freeze on my mortgage advancements until can [sic] get this lien addressed.

[36] Mr. Sleegers was described as president of Plastics in the contact information appearing at the base of that message. Two payments of $10,000 each were made that month. The balance remains unpaid.

[37] Given that background, how could RSI assert an interest in the London facility?

[38] I start with the period prior to Mr. Hoekstra’s October 12, 2018 e-mail. I know of no basis on which RSI has a claim of any kind against 145 or the London facility during that time frame. That is why RSI did not register a claim for lien against those lands. When Mr. Hoekstra’s e-mail was sent, they were owned by 145. No communication between the parties even mentioned that entity.

[39] Did Mr. Hoekstra’s e-mail create new rights in favour of RSI? On the evidence before me, the allegation that the communication gave RSI an interest in the London facility and the proceeds generated by its sale does not raise a triable issue even if the acts of the operations manager of Plastics could bind 145. I say that for three reasons.

[40] First, on this record 145 did not mean to grant and RSI did not intend to receive an interest in the London facility or its proceeds. Mr. Hoekstra asked Mr. Saunders to review his e-mail and “let me know”. As mentioned, the motion material does not include a response to his October 12, 2018 e-mail. Consequently, there is nothing in the material that suggests RSI relied on Mr. Hoekstra’s representations. Further, the sale of the London facility was completed on November 1, 2018. If RSI depended on Mr. Hoekstra’s communication why did it do nothing until commencing the St. Thomas action weeks later?

[41] I also note that the parcel registers appended to Mr. Saunders’ affidavit were not obtained until March 15, 2019. That date followed soon after counsel for Plastics and 236 advised RSI’s counsel that those defendants intended to participate in the St. Thomas proceeding. That does not appear to be a coincidence.

[42] Second, even if RSI relied on Mr. Hoekstra’s statements, the argument they became part of a binding contract does not resonate. As in Niedner Ltd. v. Lloyds Bank of Canada (1990), 72 D.L.R. (4th) 147 (Ont. H.C.J.) identification of a source of payment of an outstanding unsecured debt was “[a]t most…a reasonable expectation” of the place from which the creditor would be paid. In that case Ewaschuk J. concluded the communication was insufficient to establish a trust: at para. 18. At this stage, that reasoning applies to Mr. Hoekstra’s e-mail.

[43] Third and as noted, a new repayment plan was proposed by Mr. Sleegers in December, 2018 and accepted by RSI. The proposals made in October and December, 2018 cannot possibly co-exist. Clearly, the latter arrangement superseded anything that existed beforehand, even if a prior binding understanding.

[44] Counsel for RSI made an alternative submission. He argued that the plaintiff is entitled to a statutory trust pursuant to s. 7 of the Construction Act. Subsections 7(1) and (4) are reproduced below:

7 (1) All amounts received by an owner, other than the Crown or a municipality, that are to be used in the financing of the improvement, including any amount that is to be used in the payment of the purchase price of the land and the payment of prior encumbrances, constitute, subject to the payment of the purchase price of the land and prior encumbrances, a trust fund for the benefit of the contractor.

(4) The owner is the trustee of the trust fund created by subsection (1), (2) or (3), and the owner shall not appropriate or convert any part of a fund to the owner’s own use or to any use inconsistent with the trust until the contractor is paid all amounts related to the improvement owed to the contractor by the owner.

[45] RSI relies on Simpson v. Bridgewater Bank, 2012 ONSC 714. The issue in that case was whether funds held back from construction advances by the holder of a mortgage on the lands improved were caught by the statutory provisions to which I have just referred. I do not see how that decision assists the plaintiff. As MacLeod J. wrote in Vision Air Conditioning and Heating Corporation v. Golden Dragon Ho Inc., 2018 ONSC 3520 at para. 11:

The trust established by subsection 1 of s. 7…arises when amounts are received by an owner that are to be used in [the] financing of an improvement. Those funds become impressed with a trust for the benefit of the contractor. The most common example of this is a building mortgage. Where funds are borrowed for the specific purpose of financing construction, each advance under the mortgage is impressed with a trust and must be applied to pay the contractors or suppliers.

[46] Insurance proceeds, funds advanced by landlords, guarantees or inter-company transfers received or receivable by the owner for the purpose of completing the improvement were other examples given by my colleague. However, general revenues of a corporation and general borrowing on a line of credit are not captured by s. 7(1) “even if the owner originally intended to use those funds to pay for the construction.” As MacLeod J. added at para. 15 of his decision:

The section requires that there is a distinct fund which is identifiably for the purpose of completing the improvement.

[47] Those words do not describe the situation that is presently before the court.

[48] RSI also relies on unjust enrichment and seeks, it seems, a constructive trust in relation to the London facility and its proceeds. However, the evidence assembled so far does not support the allegation of an enrichment or a corresponding deprivation. In Boal v. International Capital Management Inc. 2018 ONSC 2275 (S.C.J.), at para. 67, Perell J. noted:

To justify the remedy of a proprietary remedy such as a constructive trust, there must be a close connection between the property over which the constructive trust is sought and the improper benefit bestowed on or wrongfully acquired by the defendant.

[49] Presently this case does not meet that test. As noted, RSI removed equipment from the London facility owned by 145 and installed it in the St. Thomas facility owned by another company. When its accounts were not paid, RSI sought a remedy against 236, Plastics and the St. Thomas facility, not 145 or the London property. In any event, the facts known so far do not breathe any life into this aspect of RSI’s claim. How was 145 enriched? RSI’s work was long completed when Mr. Hoekstra’s e-mail was sent. Where is the corresponding deprivation RSI must prove? The account was already overdue. No remedy was lost. In fact, some interim payments were made.

[50] In any event, the only evidence RSI introduced on its motion to support its claim to an interest in land is the coincidental timing of the sale of the London facility by Properties and the acquisition by Mr. Sleegers of the Elgin Road property.

[51] As noted earlier, the London property was transferred by Properties to Dancor on November 1, 2018 for $3.936 million. At the time his affidavit was sworn, Mr. Saunders knew from the parcel register that Mr. Sleegers had acquired Elgin Road on November 2, 2018 for $1.65 million.

[52] At para. 22 of his affidavit Mr. Saunders deposed:

Based on the timing of the events, and Mr. Hoekstra’s assurance that [RSI] would be paid out of the proceeds of the sale of the London premises, I believe that the Elgin Rd. Premises were purchased, at least in part, with monies that were supposed to be paid to [RSI]. [2]

[53] Mr. Saunders belief is not supported by evidence that raises a triable issue. Standing alone, the timing of two transactions involving different, albeit related, persons does nothing more than generate mild suspicion. A CPL should not be granted or renewed on the faith of bare allegations.

[54] Furthermore, the defendants filed responding material. Mr. Sleegers’ focus was on his acquisition of the Elgin Road property. It is clear from his affidavit that the vast majority of the purchase price was borrowed from the Royal Bank of Canada. Some of the money was advanced as a bridge loan and repaid once Mr. Sleegers completed the sale of Caithness on November 5, 2018.

[55] It is the balance of the purchase price that RSI now challenges. Mr. Sleegers deposed that the remaining amount of $220,898.09 was withdrawn from his personal account. He attached a copy of the bank draft and an e-mail from a private banking associate at Royal Bank of Canada confirming that the draft was debited from his own holdings. This, RSI argues, is insufficient. Bank statements showing the source of the monies used to acquire the draft were not attached to Mr. Sleegers’ affidavit. Evidence that 114 actually advanced any amount to Mr. Sleegers pursuant to the shareholder loan agreement is not in hand. Nor is there anything that explains how the purchase price paid by Dancor to Properties was disbursed.

[56] These are all good points but I have already explained why RSI’s motion seeking leave to issue a CPL lacked an evidentiary foundation. The defendants’ response did not help RSI. RSI’s allegations are unsupported. On its face, the defendants’ response is a complete answer. Cross-examination of Mr. Sleegers may have chipped away at or even refuted his testimony. However, that step has not yet been undertaken. For now, the defendants’ case dwarfs that of RSI. RSI suspects some of the proceeds from the London facility made their way into Mr. Sleegers’ personal account but it has no proof. A CPL is something which, effectively, stops an owner from dealing with their land. Leave to issue such a document should not be given based on mere suspicion. The plaintiff has not established a triable issue that it has an interest in the Elgin Road property. The CPL issued following the April 2, 2019 attendance should not be renewed.

G. Conclusion and Costs

[57] For the reasons given, I decline to renew the CPL. It is to be discharged without prejudice to the right of RSI to argue that leave should again be granted when this matter returns on August 14, 2019.

[58] Mr. Sleegers was successful in resisting RSI’s attempt to continue Mitchell J.’s order. He is presumptively entitled to costs. However, given the fact that the motion has been adjourned until August 14, 2019 for final argument and disposition, costs are reserved to the motion judge then presiding. The parties should be prepared to clearly delineate for that judge the costs attributable to the April 30, 2019 attendance before me. I am not seized of this matter.

“Justice A.D. Grace”

Grace J.

Released: May 13, 2019

Footnotes

[1] That information is drawn from para. 10 of Mr. Saunders’ affidavit. His reference there to January 7, 2018 is clearly in error.

[2] The excerpt is drawn from para. 22 of Mr. Saunders’ affidavit.

COURT FILE NO.: 641/19 DATE: 20190513 ONTARIO SUPERIOR COURT OF JUSTICE BETWEEN: RASSAUN SERVICES INC. Plaintiff -and- SLE-CO PLASTICS INC., SLE-CO PROPERTIES INC., 2366608 ONTARIO INC., JEFFREY JOSEPH SLEEGERS, ERIC HOEKSTRA and ANGELA JEAN SLEEGERS Defendants REASONS FOR JUDGMENT Justice A.D. Grace

Released: May 13, 2019