Court File and Parties
NEWMARKET COURT FILE NO.: CV-17-131072-00 DATE: 2019-12-17 SUPERIOR COURT OF JUSTICE - ONTARIO
RE: DOMINUS CONSTRUCTION CORPORATION, Plaintiff/Defendant by Counterclaim AND: H&W DEVELOPMENT CORP., Defendant/Plaintiff by Counterclaim
BEFORE: The Hon. Madam Justice A.A. Casullo COUNSEL: R. Del Vecchio, for the Plaintiff/Defendant by Counterclaim M. Shell, for the Defendant/Plaintiff by Counterclaim
HEARD: October 18, 2019
Endorsement
OVERVIEW
[1] Dominus Construction Corporation (“Dominus”), Plaintiff/Defendant by Counterclaim, brings this motion for summary judgment. H&W Development Corp. (“H&W”), Defendant/Plaintiff by Counterclaim, brings its own motion to discharge the claims for lien of Dominus.
[2] What follows is my endorsement with respect to H&W’s motion to discharge Dominus’ lien claims. Dominus’ motion is returnable February 6, 2020.
[3] I note that the claims for lien were vacated on February 27, 2017 pursuant to the Order of Albert J. In return, H&W posted security for the total sum of $7,603,736.33 with the Accountant of the Superior Court of Justice.
Background
[4] H&W was the owner and developer of a residential condominium complex consisting of approximately 690 residential units within four towers (the “Project”), located in Markham, Ontario.
[5] The Project was undertaken in two phases. Phase 1 consisted of the construction of Buildings A and B, as well as the underground garage for all four buildings. Phase 2 comprised the construction of Buildings C and D. Construction began in June 2012 and was completed in December 2017.
[6] CB Ross and Partners (“CB Ross”) prepared the Project Budget, and calculated the Gross Liveable Area.
[7] CB Ross recommended to MCAP Financial, financier of the Project, that Dominus be selected as the successful bidder on the construction management contract. This was due in part to Dominus’ reputation for having a good relationship with the trade contractors needed to take on a project of this size and nature.
[8] On or about May 18, 2012, Dominus entered into an agreement with H&W whereby Dominus agreed to provide construction management services in respect of the Project (the “Contract”). Dominus’ fee for its services was comprised of the following:
(a) $3,028,400.00;
(b) A share of any cost savings (“Cost Savings) on a 50% / 50% basis with H&W; and
(c) Any extras.
(collectively, the “Contract Price”)
[9] The Contract set out how to determine Cost Savings:
ARTICLE A-15 DISCOUNTS, REBATES AND REFUNDS
The Owner and the Construction Manager will share in any net savings on a 50% / 50% basis. Net savings shall be determined as the difference between the Projected Workable Budget and the actual total costs (Divisions 1 through to 16, inclusive of the construction contingency).
[10] The Contract provided the following definition for the Projected Workable Budget:
Projected Workable Budget: The Projected Workable Budget shall be determined based upon the Gross Liveable Area (“GLA”) of Phase 1 and 2 times a unit rate of $175.00 per square foot. The GLA shall include the above grade parking garage. The GLA is currently estimated at 775,797 sqft. The Projected Workable Budget is currently estimated to be $135,764,475.00 based upon a GLA of 775,797 sqft and a unit rate of $175.00 psf.
[11] Dominus supplied its services as required in the Contract. Pursuant to its calculations, the actual total cost for Divisions 1 through 16 was $122,460,981.49 (“Actual Total Cost”). When the Actual Total Cost is deducted from the Projected Workable Budget of $135,764,475.00, Cost Savings in the amount of $13,303,493.00 were realized (“Total Cost Savings”).
[12] Pursuant to the Contract, Dominus was entitled to 50% of the Total Cost Savings, or $7,516,473.55. Dominus submitted an invoice to H&W in this amount.
[13] H&W takes the position that no Cost Savings were realized on the Project, and thus no monies are owed to Dominus.
ISSUE
[14] The issue to be determined is whether Cost Savings are part of the Contract Price, and therefore properly lienable.
DISCUSSION
Dominus’s Position
[15] Dominus submits that the Courts’ previous treatment of cost savings provisions in construction contracts makes it clear that these provisions are part of the contract ‘price’ in order to allow contracting parties to incentivize their counter-parts to complete their end of the bargain in a manner that will be mutually beneficial to the parties. Given that these provisions are part of the ‘price’, they are properly lienable.
[16] Cost savings arrangements have been held to incentivize construction parties to encourage cost savings on a project and discourage cost overruns, thereby benefitting both parties: Pegah Construction Ltd. v. Panterra Mansions Joint Venture Group, 2013 ONSC 3226, 21 C.L.R. (4th) 175, at para. 28.
[17] In Inducon Development Corp. v. Woodtown Developments Ltd., 1983 CarswellOnt 3545 (S.C.), at para. 8, Justice Blair confirmed that cost savings related to the lien claimant arising out of a construction contract were lienable:
Section 6(1) of the Act provides that the person who does the work “has a lien for the price of the work and materials.” The amount of the lien depends on what may be property held to be included in the “price of the work.”
[18] When determining the quantum of the plaintiff’s lien, Justice Blair specifically included the costs savings realized on the project.
[19] Inducon was the only authority provided to the court in which a cost savings arrangement was considered.
H&W’s Position
[20] H&W submits that pursuant to s. 14 of the Construction Act, R.S.O. 1990, c. C.30, a lien arises as follows:
A person who supplies services or materials to an improvement for an owner, contractor or subcontractor, has a lien upon the interest of the owner in the premises improved for the price of those services or materials.
[21] H&W further submits that the provision of services in and of itself does not give rise to a lien. It is the ‘price’ of the services that is lienable. If there is no ‘price’, there can be no lien.
[22] H&W does not dispute that management services are lienable.
[23] H&W submits that Dominus has been paid in full for all construction management fees, labour, supervisory services and disbursements provided for the Project. These payments represent the ‘price’ for the supply of services or materials to the Project. Cost savings, on the other hand, embody more of a profit-sharing, or ‘bonus’, arrangement, and there can be no lien in respect of cost savings.
[24] H&W relies on a number of decisions in which profit-sharing/bonus arrangements were not lienable. In Dahl v. Phillips, 1960 CarswellBC 101, [1960] B.C.J. No. 25 (B.C.C.C), Swencisky C.C.J., held that a claim for profit sharing was not lienable and did not give rise to lien rights under s. 5 of British Columbia’s Mechanics’ Lien Act, 1956 (akin to s. 14 of the Construction Act).
[25] Two other decisions provide a similar conclusion: Layton v. Suckling, 1998 ABQB 282, 39 C.L.R. (2d) 80, and Bauman v. Evans, 2016 YKSC 6, 52 C.L.R. (4th) 305.
[26] H&W also referenced two Ontario decisions. In the first, Big Creek Construction Ltd. v. York-Trillium Development Group Ltd., (1993), 8 C.L.R. (2d) 138 (Ont. S.C.), Farley J. adopted the ratio in Dahl and held that profit-sharing arrangements did not give rise to lien rights.
[27] In the second Ontario decision, G. Wright & Associates Limited v. Vace Investments Inc. (2003), 29 C.L.R. (3d) 239 (Ont. S.C.), Gordon J. held that a profit-sharing arrangement did not prohibit a lien. However, H&W distinguishes G. Wright because in that case the lien claimant had not been paid for its services, whereas Dominus has been paid in full for all services provided.
[28] H&W’s motion is brought pursuant to s. 47 of the Construction Act:
(1) The court may, on motion, order the discharge of a lien,
(a) on the basis that the claim for the lien is frivolous, vexatious or an abuse of process; or
(b) on any other proper ground. 2017, c. 24, s. 37 (1).
(1.1) The court may, on motion, make any of the following orders, on any proper ground:
An order that the registration of a claim for lien, a certificate of action or both be vacated.
If written notice of a lien has been given, a declaration that the lien has expired or that the written notice of the lien shall no longer bind the person to whom it was given.
An order dismissing an action. 2017, c. 24, s. 37 (1); 2018, c. 17, Sched. 8, s. 15 (1).
(1.2) An order under subsection (1) or (1.1) may include any terms or conditions that the court considers appropriate in the circumstances. 2017, c. 24, s. 37 (1).
[29] In 1246798 Ontario Inc. v. Sterling (2000), 2000 CanLII 29031 (ON SCDC), 194 D.L.R. (4th) 346 (Ont. Div.), the Divisional Court held that a motion to discharge a lien under s. 47 is analogous to a motion for summary judgment: if there are genuine issues of fact, the matter should be left to the trial judge (at para. 32). Hence, a motion to discharge a lien should only be granted in the clearest of cases.
[30] The decisions relied upon by H&W are of limited value. In addition to being from courts of co-ordinating jurisdiction, the issue in each was whether a profit-sharing arrangement was lienable. In the case at bar, the issue is whether a cost savings arrangement is lienable.
[31] I find that cost savings provisions are not analogous to profit-sharing provisions. Cost savings provisions are integrally linked to the ‘service’ provided for in s. 14 of the Construction Act. This ‘service’ is reflected in the contractor’s proficiency in bringing a project to completion under budget, which is no different than the ‘service’ Dominus provided in managing the Project.
[32] On the other hand, profit-sharing is a system in which the interested party receives a direct share of the profits realized. Dominus was not entitled to a share of any of the profits realized by H&W on the sale of its units once the Project was complete.
[33] I prefer to follow the direction of Blair J. in Inducon, and find that the Cost Savings at issue in this matter are lienable to the benefit of Dominus.
CONCLUSION
[34] H&W’s motion to discharge the lien is dismissed.
[35] Costs are reserved to the hearing of Dominus’ motion.
CASULLO, J.
Date: December 17, 2019