Court File and Parties

COURT FILE NO.: CV-19-620554

DATE: 2019-11-14

SUPERIOR COURT OF JUSTICE - ONTARIO

RE: 2558701 ONTARIO INC. OPERATING AS RIPPLE PROJECTS, Plaintiff

AND:

DAVID LEE, JENNIFER O’BRIEN and THE TORONTO-DOMINION BANK, Defendants

BEFORE: Schabas J.

COUNSEL: Molly Luu, Counsel, for the Plaintiff

Ryan Hauk, Counsel, for the Defendants Lee and O’Brien

HEARD: November 13, 2019

ENDORSEMENT

[1] This is a matter under the Construction Lien Act, R.S.O 1990 c. C.30 (“CLA”). The plaintiff has brought a motion seeking interim relief on five issues:

a. Leave to bring this motion;

b. An order that the plaintiff’s experts be granted access to the property;

c. An order that the individual defendants (the “owners”) place the holdback amount into a bank account in the joint names of the owners and the plaintiff;

d. A stay of the action pending an arbitration; and

e. Appointment of an arbitrator, or mediator, if necessary.

[2] At the outset of the hearing, plaintiff’s counsel advised that leave to bring the motion was not opposed, that the issue of access to the property had been resolved, that the defendants consented to a stay, and that a mediator had been agreed upon, leaving only the issues of the holdback and the appointment of an arbitrator.

[3] Prior to hearing argument I raised the concern that the relief sought was within the jurisdiction of a Master and that, pursuant to the s. 11 of the Consolidated Practice Direction for Civil Actions Applications, Motions and Procedural Matters in the Toronto Region (effective July 1, 2015), the matter should be heard by a Master. However, the parties still required an order staying the proceedings, which under Rule 21.01 may be granted by a judge, and I was advised that some Masters will not grant stays. Given this information, and that the issues remaining were relatively narrow, I agreed to hear the matter. It seems to me, in retrospect, that Rule 21 does not resolve the issue as it only provides that parties “may” move before a judge for a stay as set out therein, but that does not oust the jurisdiction of Masters who, pursuant to s. 106 of the Courts of Justice Act, R.S.O 1990, c. C.43, also have that jurisdiction.

[4] Turning to the issues on the motion, the case arises from a dispute over construction and renovation work performed by the plaintiff the owners’ house in Toronto. In May 2017 the parties entered into a CCDC 5B Contract (the “Contract”), a standard contract developed by the Canadian Construction Documents Committee. After most of the work was completed, and the owners had moved back into the house, in March 2019 the defendants terminated the contract by preventing the plaintiff from accessing or entering the property. The only remaining steps taken by the plaintiff to complete the contract were the delivery of a door and some light fixtures on May 10, 2019.

[5] Demands for payment were made, and the defendant registered and perfected a lien on the property for outstanding payments. This action was commenced at the end of May 2019. The defendants have counterclaimed, asserting various breaches by the plaintiff and work deficiencies.

[6] Pursuant to the Contract a Consultant determined that the plaintiff had failed to remediate and complete the construction required in the Contract. Based on her evidence, the value of the Contract (including HST) is $1,754,368.52 and that, as of May 16, 2019, the value of work performed and products delivered was $1,653,776.71, or 94% complete. Based on the formula in s. 2 of the CLA, the Consultant has not issued a Certificate of Substantial Performance. The owners are, apparently, addressing the deficiencies themselves and seeking recovery of those expenses in their counterclaim.

[7] Section 5.6.3 of the General Conditions of the Contract provides as follows:

Where the holdback amount required by the applicable lien legislation has not been placed in a separate holdback account, the Owner shall, 10 calendar days prior to the expiry of the holdback period stipulated in the lien legislation applicable to the Place of Work, place the holdback amount in a bank account in the joint names of the Owner and the Construction Manager.

[8] The plaintiff submits that the defendants are in breach of this provision. While the plaintiff and the owners disagree over the statutory holdback amount, for purposes of this motion the plaintiffs are prepared to accept the amount stated by counsel for the owners of $185,091.37. There is no evidence that any amount has been placed in a separate holdback account at any time. Further, having regard to the animosity between the parties, the plaintiff suggests that, rather than placing the funds in a joint account, the funds now be deposited with the Court.

[9] Counsel for the plaintiff also submits that the time for depositing the funds has long since elapsed, and that the defendant is in default of this requirement. She points to the acknowledgement by counsel for the owners that “the lien period in respect of any Holdback to be retained under the Contract expired some time ago.”

[10] Counsel for the owners disagrees. Section 5.6 of the Contract is entitled “Payment of Holdback Upon Substantial Performance of the Work”, and there has not yet been “substantial performance”. This appears to be a prerequisite for applying for payment of the holdback amount. Further, once lien rights have expired or been resolved, the need for a holdback disappears. In this case, due to the termination of the contract, the time for registering liens was triggered and there is no evidence that there are any outstanding liens from any subcontractors. As the Court explained in Man-Shield (Now) Construction Inc. v. Rainy River District School Board, 2012 ONSC 323 at para. 19:

The holdback obligation of the Board is in respect of those who do not have privity of contract with the Board but have direct contracts with Man-Shield and who have provided construction goods and services to the project at issue. When the lien rights of those subcontractors expire, or have been otherwise satisfied, the holdback obligation of the Board expires as well.

[11] Accordingly, counsel argues, there is no need for any holdback to protect subcontractors. The dispute involves only the plaintiff and the owners over outstanding amounts. To grant the order sought is effectively pre-empting the issues by requiring the owners to pay the amount claimed (or close to it) into court pending the outcome of the dispute.

[12] I agree with counsel for the owners. The dispute before the Court, and which is now subject to the mediation and arbitration process in the Contract, is between the plaintiff and the owners. Whether the owners are in breach of s. 5.6.3 is disputed and the facts regarding it will be litigated if the matter is not resolved. The request for payment into court serves no purpose as the plaintiff has a lien on the property as security for what it may be owed by the owners. The parties are following the dispute resolution process in section 8.2 of the Contract and that process should be respected.

[13] The plaintiff complains that this means that the owners have access to the plaintiff’s funds to effectively bankroll the litigation. This may or may not be the case, and any financial hardship the plaintiff may suffer, or be suffering, from the lack of payment will not be alleviated by the payment of money into court. The plaintiff has its remedies in the dispute resolution process.

[14] Further, although I was advised that the owners did not object to me granting leave to bring this motion for interlocutory relief under s. 67(2) of the CLA, in the course of argument counsel for the owners submitted that the test in that section was not met. I agree. The plaintiff has not provided “proof that the steps are necessary or would expedite the resolution of the issues in dispute.” Requiring payment into court may put some pressure on the owners to settle, and thereby give the plaintiff some leverage. Or it may not. But that does not meet the test for interlocutory relief.

[15] I also conclude that the request for the appointment of an arbitrator is premature. A mediator has been agreed upon, but mediation has yet to occur. I am concerned that appointing an arbitrator now will doom the mediation as the plaintiff may seek to go to arbitration immediately. The parties contracted to attempt mediation first and that is what they should do.

[16] In conclusion, on consent I grant the motion to stay this proceeding pending the outcome of the dispute resolution process, including arbitration if necessary, as set out in s. 8.2 of the Contract. However, I dismiss the request for payment of a holdback into court and the request that I appoint an arbitrator.

[17] Should the parties be unable to agree on costs, I will receive brief written submissions, not exceeding 3 pages (not including supporting materials). The defendants shall provide submissions within two weeks of the release of this decision, and the plaintiff shall provide its submissions one week later. If the defendants feel a need to reply, they may do so within one week in a submission no longer than one page in length.

Schabas J.

Date: November 14, 2019