Court File and Parties

COURT FILE NO.: CV-13-20004 DATE: 20200228 ONTARIO SUPERIOR COURT OF JUSTICE

BETWEEN: Tremblar Building Supplies Ltd. Plaintiff – and – 1839563 Ontario Limited, The Lighting Boutique Incorporated, Raymond Pittao, 538318 Ontario Ltd., 391568 Ontario Inc. Defendants

COUNSEL: Raymond G. Colautti and Anita Landry, for the Plaintiff (Responding Party) John D. Leslie and Michael J. Brzezinski, for the Defendants (Moving Parties), The Lighting Boutique Incorporated, Raymond Pittao, 538318 Ontario Ltd., and 391568 Ontario Inc.

HEARD: November 27, 2018 with Written Submissions dated January 15 and 30, 2020

Reasons on Summary Judgment Motion

King J.:

Overview

[1] This is another in a series of claims arising out of a commercial construction project in Windsor, Ontario, at an establishment known to the public as “The Lighting Boutique”.

[2] The defendant, The Lighting Boutique Incorporated (“The Lighting Boutique”) operated out of premises at 4072 Walker Road. The principal of the business was the defendant, Raymond Pittao (“Pittao”). The Lighting Boutique was located on two pieces of adjacent property owned by the named defendants 538318 Ontario Ltd. (“538”) and 391568 Ontario Inc. (“391”), both of these companies were controlled by Pittao. Unless the circumstance otherwise requires, I will refer to these four defendants collectively as “The Lighting Boutique” or “The Lighting Boutique Defendants”.

[3] In 2012, The Lighting Boutique contracted with the defendant, 1839563 Ontario Limited, operating as Keystone General Contractors (“Keystone”) to renovate and expand The Lighting Boutique premises. This will be referred to as the “construction project”. More specifically, there were two agreements. The first agreement was for the construction of a new building on the subject properties for $3,000,000. The parties referred to this as the “Exterior Agreement”. The second agreement was for the completion of the interior of the new structure. Predictably, this was known as the “Interior Agreement”. The contracted price for this agreement was $452,000, inclusive of HST.

[4] There are various factual disputes between the parties as to the amounts allegedly paid by The Lighting Boutique Defendants pursuant to the construction agreements. For example, there are various assertions by The Lighting Boutique Defendants that there were numerous construction deficiencies caused by Keystone that would have justified payment of less than the contracted amount.

[5] It is not disputed during the course of the construction project Keystone contracted with Tremblar to provide various construction materials such as metal frames, door hinges, door hardware, mirrors and bathroom fixtures.

[6] Before the construction project was completed, Keystone filed for bankruptcy protection. At that time, Keystone had not paid Tremblar for the materials it had supplied. The value of these goods totalled $30,326.95.

[7] Tremblar claimed that The Lighting Boutique Defendants did not fully pay the amounts owing to Keystone pursuant to the Exterior and Interior agreements.

[8] More specifically, Tremblar claims The Lighting Boutique Defendants did not fully pay Keystone the amounts set out in the exterior and interior agreements out of the total owing on the interior agreement, totalling $452,000. Tremblar asserts that only $200,000 has been paid.

[9] As a result, Tremblar commenced this action for payment from both Keystone and as against The Lighting Boutique Defendants.

[10] Tremblar has obtained a default judgment against Keystone. The Trustee in Bankruptcy has made a claim on behalf of a number of unsecured creditors of Keystone. Tremblar made a claim against The Lighting Boutique Defendants on the basis of (a) breach of trust or (b) unjust enrichment, as follows:

a. A trust pursuant to the provisions of the Construction Act, R.S.O. 1990, c. C.30, as between The Lighting Boutique Defendants and Tremblar; or alternatively b. The Lighting Boutique Defendants were unjustly enriched as against Tremblar.

[11] The defendants in this action (except 1839563 Ontario Limited) have brought this summary judgment motion to dismiss the claim made by the plaintiff, Tremblar, on the basis that the evidence cannot support a finding that a trust was established within the meaning of the Construction Act, or there has been no unjust enrichment.

[12] It is the position of Tremblar that not only should the court dismiss the summary judgment motion application, but the court should also grant the plaintiff summary judgment for the unpaid amount as against The Lighting Boutique Defendants.

[13] In a decision dated December 29, 2017, I earlier ruled that the summary judgment motion could proceed and granted leave pursuant to r. 48.04(1) of the Rules of Civil Procedure, R.R.O. 1990, Reg. 194 (the “Rules”). Leave was required because the matter had previously been set down for trial.

Issues

[14] There are a number of issues to be determined on this summary judgment motion, as follows:

1. Have The Lighting Boutique Defendants satisfied the court that there is no genuine issue for trial pertaining to the following: a) whether there was a trust between The Lighting Boutique Defendants and Tremblar as defined in the Construction Act; or b) whether The Lighting Boutique Defendants were unjustly enriched at law as against Tremblar.
2. In the event the court cannot grant summary judgment dismissing the action based on a determination of the issues referred to in (1) above, should the plaintiff be granted summary judgment as against The Lighting Boutique Defendants?

Legal Considerations

Summary Judgment

[15] I will not fully recite the seminal principles governing summary judgment motions in Hryniak v. Maudlin, 2014 SCC 7, [2014] 1 S.C.R. 87, and its prolific progeny. However, I will start by noting certain principles I have taken into consideration.

[16] Firstly, try as I might, the factual disputes set out in the facta of the parties are such that I cannot make the necessary evidentiary findings to determine whether The Lighting Boutique Defendants paid the full amount prescribed in the respective agreements to Keystone prior to bankruptcy.

[17] Accordingly, for the purposes of determining the summary judgment motion of the moving party, I have assessed whether it should succeed if the plaintiff’s case is taken at its highest, based on the pleadings. That is, I have assumed that the plaintiff will be able to establish that The Lighting Boutique Defendants failed to pay at least $30,326.95 to Keystone.

[18] In that context, the summary judgment motion will only succeed and the court shall grant summary judgment dismissing the action if the moving parties have established that, even on the plaintiff’s best possible evidence, there is no genuine issue requiring a trial.

[19] In this respect, I have followed the general principles set out by the Supreme Court of Canada in Hryniak. As well, I have considered the passage from Sweda Farms Ltd. v. Egg Farmers of Ontario, 2014 ONSC 1200, where Corbett J. stated, at para. 27, that “the court is entitled to assume that the record on a motion for summary judgment contains all the evidence the parties would present at trial.”

[20] In the event the court determines that the summary judgment motion is dismissed, the matter will proceed to trial. Given the evidentiary discrepancies before the court, I will not be able to make the evidentiary findings based on the materials before me to grant summary judgment to the plaintiffs.

Analysis

[21] For the reasons that follow, I have concluded that The Lighting Boutique Defendants should be granted summary judgment dismissing the action on the basis that, even on the best evidence of Tremblar, there is no triable issue on such a claim.

a) Breach of Trust Claim

Position of The Lighting Boutique Defendants

[22] It is the position of the moving party defendants that the plaintiffs cannot succeed with such a claim on the evidence. They rely primarily on the decision of the Ontario Divisional Court in Robert Nicholson Construction Company Limited v. Edgecon Construction Inc., 2016 ONSC 3107 (Ont. Div. Ct.) leave to appeal denied (Ont. C.A.), (“Nicholson 2016”).

[23] Ironically, in that case the Divisional Court overturned a decision I reached in Robert Nicholson Construction Company Limited v. Edgecon Construction Inc., 2015 ONSC 1237, 125 O.R. (3d) 373 (“Nicholson 2015”). The defendants, RLC Stratford LP and Palstratford Group Inc., (“Palstratford”), contracted with Edgecon Contracting Corp, (“Edgecon Contracting”) to build a retirement apartment complex in Stratford, Ontario, for a fixed price of $17,000,000. Edgecon Contracting then utilized a subsidiary, Edgecon Construction Inc. (“Edgecon Construction”) to contract with the plaintiff Nicholson to construct the parking lot. Along the way, the defendant Palstratford paid for goods and services provided by Edgecon Contracting making a payment outside the general construction agreement of over $1,300,000 to another subsidiary of Edgecon Contracting, namely 1809313 Ontario Inc., (“180”).

[24] The plaintiff Nicholson was not paid by Edgecon Contracting, Edgecon Construction, 180 or any of its subsidiaries for the goods and services it provided. The plaintiff then claimed against the defendant, Palstratford, on the basis that the trust provisions of the Construction Act had been violated by virtue of the payment outside the scope of the original contract. I ordered Palstratford to pay the amount in dispute to Edgecon Construction, which would then allow the moneys owed to the plaintiff to be garnished. The Divisional Court disagreed with this conclusion, finding that I erred in concluding that the plaintiff subcontractor, Nicholson, could be a beneficiary of “the trust imposed by the Act in favour of the general contractors.”

[25] Specifically, the Divisional Court concluded as follows:

1. S. 7 – a subcontractor cannot be the beneficiary of the statutory trust fund created under s. 7(1) of the CLA, as the wording of that section clearly states that the owner’s trust fund exists “for the benefit of the contractor”;
2. S. 8 – a separate and distinct trust obligation is imposed solely on contractors, the beneficiaries of which are other subcontractors; and
3. S. 13 – where there is no liability for the owner corporation, there is no basis for finding liability on the part of the officers and directors.

[26] With respect to the issue of Director’s Liability, the court found, in Nicholson 2016 at para. 18:

It would be an absurd reading of the Act to find that someone who makes payments to a corporation has control over one of the payee corporation’s “relevant activities”, for the purpose of meeting the first precondition for liability under s. 13.

[27] Accordingly, based on the decision in Nicholson 2016, The Lighting Boutique Defendants take the position that privity of contract between parties is a precondition to finding a breach of trust.

[28] Pursuant to the Construction Act, they also rely on the decision in 1150402 Ontario Inc. v. Delfino, 2003 ONSC 30581, 62 O.R. (3d) 768 (S.C.), where Stinson J. wrote, at para. 47:

I am aware that s. 8(1) imposes a trust obligation on the contractor in favour of “subcontractors”. I am also aware that the term “subcontractor” is defined in s. 1 of the CLA as “...a person not contracting with or employed directly by the owner...but who supplies services or materials to the improvement under an agreement with the contractor or under the contractor with another subcontractor”. Under that extended definition, a third-tier sub-sub-subcontractor such as the plaintiff falls to be treated as a “subcontractor” for purposes of the statute. Relying on that extended definition, it could be argued that all amounts received by a general contractor constitute a trust fund for the benefit of all suppliers down the contractual chain. I do not accept that argument for the reasons I have articulated above and, in particular, in light of the requirement that, to qualify as a beneficiary, a subcontractor or supplier must be owed amounts by the contractor.

[29] For these reasons, The Lighting Boutique Defendants submit there can be no breach of trust as defined in the Construction Act in these circumstances.

Position of Tremblar

[30] Notwithstanding the decision of the Divisional Court in Nicholson 2016, Tremblar submits that the court should distinguish that decision and find that a trust existed in this matter pursuant to the Construction Act. As such, The Lighting Boutique Defendants can be held liable to satisfy the terms and conditions of the agreement made between Tremblar and Keystone.

[31] Tremblar takes the position that the evidence discloses a breach of the trust provisions set out in ss. 7, 8 and 13 of the Construction Act. Specifically, the purpose of s. 8 is to create a statutory trust with respect to money owing to or received by contractors, or subcontractors, to ensure payment for suppliers in the construction industry: see Sunview Doors Ltd. v. Academy Doors & Windows Ltd., 2010 ONCA 198, 101 O.R. (3d) 285, at para. 99. Section 8 trusts provide preference and a security interest to those down the contractual claim: see Rudco Insulation Ltd. v. Toronto Sanitary Inc., 1998 ONCA 5529, 42 O.R. (3d) 292, 167 D.L.R. (4th) 121, (C.A.), at para. 28.

Great Northern Insulation Services Ltd. v. King Road Paving and Landscaping Inc.

[32] Following the completion of the oral submissions but before I had issued my decision in this matter, Tremblar provided the court with a copy of the decision in Great Northern Insulation Services Ltd. v. King Road Paving and Landscaping Inc., 2019 ONSC 3671 (Div. Ct.), 71 C.B.R. (6th) 187, (“Great Northern”).

[33] Over the objection of counsel for The Lighting Boutique Defendants, I requested and received written submissions regarding the application of that decision to the case before the court. I decided it was necessary to consider all potentially relevant jurisprudence on determining this matter.

[34] Great Northern involved a dispute between two subcontractors of the general contractor and whether a solicitor’s lien of the solicitor for the contractor would take precedence over the claims of the subcontractors.

[35] D.L. Corbett J. determined that the subcontractors (Great Northern and Webdensco) were in priority of contract with the contractor King Road Paving. The trial judge had granted counsel for the contractor a charging order in priority to the claims of subcontractor Great Northern.

[36] In its written brief, counsel for Tremblar referenced, inter alia, paras. 25, 28, 34, 35 and 39 of the decision to support its position as follows:

[25] Then the trial judge found that Webdensco’s pro rata share of owners’ holdback “cannot be deemed trust monies for the benefit of Great Northern” because “[t]hey are expressly trust funds for the benefit of Webdensco.” With respect, and as explained below, the trial judge erred in this conclusion. All monies paid to contractor by owner “on account of the contract price” are trust funds “for the benefit of the subcontractors.” The language of CLA, s. 8(1) is clear: there is one “trust fund” arising from a contract between owner and contractor, and it is “for the benefit of the subcontractors”. This language is reinforced in s. 8(2), which speaks of “the” trustee of “the” trust held for the benefit of “all subcontractors”.

[28] If costs are not “amounts received... on account of the contract price” then interest on costs is likewise not “amounts received... on account of the contract price.” Again, this is clear on a plain reading of the CLA and I am aware of no jurisprudence to the contrary.

[34] Sutherland Law argues that Great Northern’s position is inconsistent with the parity accorded lien claimants on the same tier of the construction pyramid, and the requirement of “privity of trust”. This is not so. Great Northern’s lien claim ranks in parity with the lien claim of Webdensco. If the Webdensco lien had not been assigned to contractor, then the money would have been paid to Webdensco, thereby discharging (to the extent of the payment) contractor’s trust obligation to Webdensco. In this event, Great Northern could not have claimed “laterally” against the funds payable to Webdensco. Great Northern has “privity of trust” with contractor, and thus can enforce its trust claim against proceeds paid to contractor. And this example makes the point about the distinction between the trust and lien regimes: if it were otherwise, a contractor could settle some subcontractor lien claims for less than 100%, and shield the discount from the trust obligations of the CLA. Subsection 11(1) of the CLA makes it clear that the contractor cannot do this: it may retain only amounts it has paid to settle liens to the extent that it proves that it did so with non-trust funds.

[35] Sutherland Law restates its argument as follows:

It is clear from the express wording of section 8 of the CLA that there are in fact separate trusts with separate and distinct beneficiaries. In order to make a claim against trust funds, one must demonstrate that they are in fact a beneficiary of a specific trust.

This argument is wrong. Section 8 creates one trust fund for a contractor under its contract with owner in respect to all of its subcontractors under that contract. There is one trust, and all of the unpaid subcontractors and suppliers in “privity of trust” with the contractor are beneficiaries of that trust. All are entitled to assert their trust claims against the entirety of trust proceeds until their trust claims have been paid in full or until trust funds are exhausted.

[39] Funds payable to contractor by owners on account of the assignment of the Webdensco lien are CLA trust funds. Great Northern is a trust beneficiary entitled to payment from those funds. The trial judge’s conclusion to the contrary was in error.

[Footnotes omitted]

[37] The Divisional Court makes it clear that all funds owed to the contractor, by the owner, under a contract for work, is impressed with a trust for all the beneficiaries of that trust and are connected by privity of contract, which does not extinguish until satisfied.

[38] Accordingly, as Tremblar asserts The Lighting Boutique Defendants did not fully pay Keystone (a fact The Lighting Boutique Defendants deny), there is a single trust that permits the court to order The Lighting Boutique to satisfy the debt of Tremblar.

[39] With respect, I disagree with the interpretation and scope of the court’s finding in Great Northern as the case is distinguishable from this matter.

[40] In particular, at para. 25, the Divisional Court states that “all monies paid to contractor by owner ‘on account of the contract price’ are trust funds ‘for the benefit of the subcontractors’.” And, at para. 29, this is explained as follows:

CLA s. 8(2), quoted above, requires contractor to use funds it receives from owners on account of the contract price to pay all its subcontractors before using those funds for other purposes.

[41] On my reading of Great Northern, monies paid to the contractor are impressed with a trust for the benefit of subcontractors to the exclusion of others until the subcontractors are fully satisfied. Nowhere in the Great Northern case does the Divisional Court indicate that the tentacles of those trust provisions extend back to an owner. In that respect, I find the case is not distinguishable from the Divisional Court ruling in Nicholson 2016. That is, there can be no trust finding between an owner and subcontractors with whom there is no privity of contract. When carefully analyzed, the Great Northern decision reinforces the conclusion in Nicholson 2016.

[42] Counsel for The Lighting Boutique Defendants submits that I am bound to follow the decision of the Divisional Court that overturned my finding that a trust existed between the owner and subcontractor in Nicholson 2015 on the basis that there can be no such trust in the absence of privity of contract. I agree.

The Principle of Stare Decisis

[43] One of the hallmarks of our judicial system is the principle of stare decisis. At its most simple, our common law judicial system requires lower courts to follow the decisions made by higher courts, in similar/identical situations.

[44] The importance of this principle to our legal system cannot be overstated. In a society such as we have in Canada and Ontario, stare decisis provides some measure of assistance to parties to legal disputes and their counsel. It is a mechanism to permit such persons or entities to determine legal steps and strategy with some measure of certainty. That is, parties can assess better their respective legal decisions and strategies and “predict” likely outcomes based on legal determinations made by higher courts in like matters.

[45] Notwithstanding my summary judgment decision in Nicholson 2015, that decision was overturned by a three judge Divisional Court panel. That is as far as any narrative can go. That is the decision of our Divisional Court and it is binding on me as I decide the summary judgment motion in this instance. In accordance with the principle of stare decisis, Nicholson 2016 is the state of the law. It would be improper and inappropriate for me to now reach a similar conclusion as I did in Nicholson 2015 in the face of the Divisional Court finding.

[46] If this matter went to trial and the plaintiff was able to establish on the evidence that The Lighting Boutique Defendants did not pay Keystone at least $30,326.95, there is no possibility the court could find a trust pursuant to the Construction Act.

[47] The claim of Tremblar for breach of trust is accordingly dismissed.

b) Unjust Enrichment

[48] Tremblar also claimed that, in the alternative, it is entitled to be paid by The Lighting Boutique Defendants on the basis of unjust enrichment.

[49] Tremblar claims that The Lighting Boutique Defendants have been unjustly enriched by interior supplies provided to The Lighting Boutique.

[50] This claim is also based on the assertion that The Lighting Boutique Defendants did not pay the balance of the interior contract and have benefitted from that failure to pay. If the evidence discloses that The Lighting Boutique Defendants fully paid Keystone pursuant to the construction agreement, there can be no claim for unjust enrichment.

[51] As set out above, in paragraph 16, I am unable to determine what amount, if any, The Lighting Boutique Defendants failed to pay to Keystone.

[52] Accordingly, this analysis is based on the assumption that Tremblar will be able to establish at trial that such a payment shortfall existed.

[53] In order to succeed, the moving parties will have to satisfy the court that even on the best evidence of Tremblar, there is no triable issue of a claim of unjust enrichment.

[54] As set out at para. 94 of the plaintiff’s factum, the general principles of unjust enrichment in Canada are well established. Such a cause of action has three elements, as follows:

(1) an enrichment of the defendant; (2) a corresponding deprivation of the plaintiff; and (3) an absence of juristic reason for the enrichment.

See: Garland v. Consumers’ Gas Co., 2004 SCC 23, at para. 30.

[55] Among other positions, the moving parties’ counsel submits the plaintiff cannot establish there was no juristic reason for the supply of goods by Tremblar in two respects, under contract and the Construction Act. I agree with this submission.

(i) Contract

[56] The existence of a contract is considered a juristic reason. In particular, a contract between an owner and a general contractor is considered a juristic reason.

[57] In J. Lepera Contracting Inc. v. Royal Timbers Inc., 2016 ONSC 2909 (Div. Ct.), Pattillo J. determined that a contract between an owner and a contractor precludes a subcontractor from making a claim for unjust enrichment. Such a contract constitutes a juristic reason.

[58] Tremblar had a contract with Keystone. As in Lepera, that arrangement constitutes a juristic reason. The bankruptcy of Keystone does not negate that conclusion. It is sufficient that pursuant to that juristic arrangement, Tremblar obtained a default judgment against Keystone.

[59] The failure of Keystone to satisfy its contractual debt to Tremblar does not eliminate or negate the fact that a juristic reason existed. In other words, that development does not have the effect of eliminating the juristic reason.

(ii) Construction Act

[60] Alternatively, I have determined that the existence of a valid statute is also a juristic reason that precludes recovery in a claim for unjust enrichments. See: Garland, at para. 46.

[61] I have also relied on the rationale employed in MGL Construction Inc. v. Boutet and Folk, 2015 ONSC 4477, at para. 21, where Master Wiebe states:

[T]here is consistent authority for the proposition that claims in restitutionary quantum meruit by subcontractors against owners should not be allowed because to do so would circumvent and undermine the scheme established by the construction lien legislation. The existence of the CLA is in effect the juristic reason for any unjust enrichment by the owner that a subcontractor may otherwise be able to establish. The CLA provides subcontractors with specific in personam remedies against owners which turn on the concepts of lien and holdback. To give subcontractors the added non-statutory remedy of restitutionary quantum meruit when the statutory remedies fail would undermine the statute.

[62] Accordingly, even on the best case of Tremblar, I have concluded that there is no triable issue with respect to unjust enrichment.

Conclusion

[63] For all of these reasons, The Lighting Boutique Defendants are granted summary judgment dismissing the claim of the plaintiff.

Costs

[64] The parties have provided written submissions on costs which I have not opened pending release of this decision. If the parties are unable to agree on the costs of this matter within 30 days, they can so advise and I will review their respective submissions and make a determination in that regard.

“original signed by King J. ” George W. King Justice Released: February 28, 2020