Desco Plumbing and Heating Supply Inc. v. AVN Plumbing Limited et al., 2020 ONSC 6728

Court File No.: C-106/18 Date: 2020-11-09 Superior Court of Justice – Ontario

Re: Desco Plumbing and Heating Supply Inc./Les Grossistes Enplomberie et Chauffage Desco Inc., Plaintiff And: AVN Plumbing Limited, 690 King Street Corporation and Angelo Saltarelli, Defendants

Before: Mr. Justice D.A. Broad

Counsel: Jill S. Snelgrove, Counsel for the Plaintiff R. Christopher Balsito, Counsel for the Defendants AVN Plumbing Limited and Angelo Saltarelli Kenneth W. Movat and David Farace, Counsel for the Defendant 690 King Street Corporation

Heard: October 5, 2020

Reasons for Decision

Background

The Project and the Parties

[1] This proceeding was commenced by the plaintiff Desco Plumbing and Heating Supply Inc. (“Desco”) as an action under the Construction Lien Act, R.S.O. 1990, c. C.30 (now the Construction Act) in respect of an improvement comprising a midrise 138 unit condominium construction project at 690 King Street West, Kitchener Ontario (the “Property”) known as Midtown Lofts (the “Project”). The defendant 690 King Street Corporation (“690 King”) was at all material times the owner of the Project.

[2] The defendant AVN was the plumbing and mechanical contractor for the Project pursuant to a CCDC 17 Stipulated Price Contract between it and 690 King dated November 8, 2016 (the “AVN Contract”). The contract price was $2,818,505.89 inclusive of HST.

[3] Desco supplied plumbing and heating supplies and materials to AVN on credit for incorporation into the Project pursuant to a credit application submitted by AVN and approved by Desco on October 17, 2013 (the “AVN Credit Application”). The defendant Angelo Saltarelli (“Saltarelli”) is the principal of AVN and provided a written personal guarantee of the indebtedness of AVN to Desco (the “Guarantee”).

[4] 690 King engaged GUPM Construction Managers (A Division of Gary Ulias & Associates Inc.) (“GUPM”) as its construction manager to tender, award and oversee the contracts, including the AVN Contract, and to manage the construction of the Project.

Termination of the AVN Contract and Desco’s Account

[5] In or about October 2017 AVN determined that it could not continue to provide plumbing and mechanical contracting services to the Project and advised 690 King accordingly. AVN says that its inability to continue was due to mismanagement of the Project by 690 King and its agents, jobsite theft, unwarranted payment certification cutbacks by 690 King’s quantity surveyors, mechanical/plumbing engineering issues and ultimately a breakdown in the relationship between itself and 690 King. AVN says that due to these problems it was unable to pay its subtrades and suppliers on a timely basis and was forced to repudiate the AVN Contract and withdraw from the Project.

[6] 690 King denies that it or its agents mismanaged the Project and that any cutbacks or delays in payment of AVN’s submitted invoices resulted from AVN requesting payment for work it had not completed at the time of billing and/or failing to submit invoices on time.

[7] In early November, 2017 AVN demobilized from the site and removed uninstalled plumbing materials with a view to seeking to return them to Desco for credit against its outstanding account.

[8] Discussions ensued between GUPM, 690 King and AVN respecting the arrangements to be implemented as a result of AVN’s withdrawal from the Project. AVN and 690 King are not in agreement respecting the content of these discussions.

[9] Saltarelli deposed in his affidavit that Gary Ulias of GUPM advised him that, if AVN returned the material to the site and released any other needed material, 690 King would use the monies that it owed to AVN from the September/October draws, which AVN claimed was in excess of $900,000, to pay various suppliers and trades who were owed money by AVN.

[10] In contrast, Jeffrey Willick, the Secretary and Treasurer of 690 King, deposed that AVN had submitted Statutory Declarations throughout the Project confirming that it had paid all of its subcontractors and suppliers in full, save for the statutory holdback, and that, in reliance on these Statutory Declarations, it believed that AVN had been paying its subcontractors and suppliers in full.

[11] On November 15, 2017 Karen Hyland of GUPM e-mailed to AVN a draft form of “termination letter” intended to be placed on AVN’s letterhead, signed on its behalf and sent by it to 690 King (c/o GUPM). The e-mail stated “Please attached (sic) drafted termination letter for your use. Add your letterhead, review content and sign. Please send signed copy to GUPM and Jeff Willick as soon as possible. Please call Gary with any questions.”

[12] The draft “termination letter” prepared by Ms. Hyland stated that “this is a Notice in Writing of Termination of Contract with AVN Plumbing Ltd. as of 4pm on November 15, 2017.” It went on to state that “the contract is being terminated due to AVN Plumbing Ltd. becoming insolvent and unable to complete the job.”

[13] The second paragraph of the draft “termination letter” stated as follows:

“As per agreement of this termination, all materials and equipment removed from the site, over the last week, will be returned to site, by 12 noon on Friday, November 17, 2017. Once this is complete, the Owner (690 King St. Corp.) will arrange payment for outstanding accounts as they pertain to Midtown Lofts, 690 King St. Corporation, direct to the suppliers and sub consultants engaged by AVN Plumbing. This is limited to Engineered Air, Enerzone (Jess Don), Desco, Mummary Mechanical, C & S. Insulation and Cool Houle. Any other invoices or charges not disclosed by AVN Plumbing as outstanding by November 17, 2017 in a statement of account, are the responsibility of AVN Plumbing, for example rental companies and union due [sic] or fines.”

[14] AVN prepared the termination letter on its letterhead following the draft provided by Karen Hyland with the exception that the final sentence of the draft was replaced with the following:

“Any other invoices or charges that may be sent to AVN Plumbing Ltd., is not the responsibility of AVN Plumbing and will need to be redirected to 690 King St. Corp.”

[15] Saltarelli signed the revised termination letter (the “Termination Letter”) on behalf of AVN and delivered it to 690 King c/o GUPM on November 16, 2017. AVN also forwarded a copy of the Termination Letter to Desco on the same date.

[16] Jeffrey Willick deposed in his affidavit that the Termination Letter from AVN “came as a shock” to him and was “not at all anticipated.” This is difficult to accept given that the initial draft of the termination letter had been prepared by 690 King’s agent and project manager GUPM and was forwarded to AVN to be placed on its letterhead.

[17] On November 16, 2017 690 King delivered a letter dated November 15, 2017 to AVN to Saltarelli’s attention, bearing the subject line “Acknowledgement of Notice in Writing to Terminate Contract” (the “Termination Agreement”) which stated as follows:

“This is an acknowledgement of your Notice in Writing of Termination of the mechanical contract between AVN Plumbing Ltd. and 690 King St. Corporation dated November 15, 2017. The Contract is detailed in the CCDC17 dated November 8, 2016, signed and sealed for the Mechanical scope of work. As mentioned in your letter of November 15, 2017, we cannot accept the termination of this contract if we are to be responsible for all of AVN Plumbing Invoices. In case there are invoices in the future which we may agree to pay, we have amended the third bullet below. If you are in agreement with this, please sign at the bottom and return this acknowledgement to us.

We accept the termination of this contract with the following terms.

• All materials and equipment removed from the site, over the last week, will be returned to site, by 12noon on Friday, November 17, 2017.

• Once material is returned to site, 690 King St. Corp. will arrange payment for outstanding obligations as they pertain to Midtown Lofts, 690 King St. Corporation, direct to suppliers and sub consultants engaged by AVN Plumbing. This is limited to Engineered Air, Enerzone (Jess Don), Desco, Mummary Mechanical, C & S. Insulation and Cool Houle. Any other invoices or charges not disclosed by AVN Plumbing as outstanding by November 17, 2017 in a statement of account, are the responsibility of AVN Plumbing, unless 690 King Street Corporation expressly agrees to arrange for payment.”

[18] The Termination Agreement was executed by Jeff Willick on behalf of 690 King and the following was endorsed and signed by Saltarelli:

“Agreed November 16, 2017 AVN Plumbing Ltd. Angelo Saltarelli”

[19] AVN then sent a letter dated November 16, 2017 to Desco as follows:

“We wish to confirm our recent discussions concerning the supply contract and the outstanding invoices as follows:

1. It has been agreed by Desco and the owner of 690 King Street West, being 690 King Street Corp., that the attached invoices will be paid by 690 King St. Corp. directly;

2. Desco has agreed to release the personal guarantee provided by Angelo Saltarelli in relation to the attached invoices and any future supply of materials to the project.

Please confirm your understanding of the above by signing below.”

[20] The following was endorsed and signed by Mike Moccia, Credit Manager of Desco at the bottom of AVN’s letter, with confirmation that he had the authority to bind Desco:

“Confirmed by Desco Plumbing & Heating Supply Inc.”

[21] Parenthetically it is noted that, in his affidavit, Mike Moccia deposed that paragraph 1 of AVN’s letter contained an error in stating that an agreement had been reached between Desco and 690 King. He stated that Desco and 690 King had no direct dealings and he only learned of the Termination Agreement after the fact.

[22] By email dated November 16, 2017 Karen Hyland wrote to Mike Moccia attaching a current statement of AVN’s account with Desco that she had received from AVN, asking that he confirm that it was complete and accurate as of the end of October. She stated that “going forward you will receive a letter from 690 King” which will be “assuming this account and sending the needed documentation to do so.”

[23] On November 17, 2017, 690 King wrote to Desco advising that AVN had terminated its contract with it pertaining to the Project effective November 16, 2017 and stated as follows with respect to Desco’s past invoices in respect of the Project:

“The intent of 690 is to audit the status of supplier accounts and enter into new contracts to resolve outstanding invoices up to October 31, 2017 and continue the relationship. We will try to make the transition as seamless as possible. Payments agreed to for periods in the past will be arranged directly with Jeff Willick, one of the principals of 690.”

[24] Identical letters were sent by 690 King on November 17, 2017 to two suppliers to one of AVN’s subtrades Cool Houles, namely Engineered Air and Jess Don Dunford Ltd.

[25] AVN completed delivery of the materials that it had earlier removed back to the site on November 17, 2017 and gave notice of such delivery by email to 690 King on that date.

[26] By letter dated November 22, 2017 under the subject line “New Contract” 690 King wrote again to Desco, following up on its letter of November 17, stating, in part:

“We understand that you had a contract, account or relationship with [AVN] for supplying materials or services for Midtown Lofts…We would like to quickly take the proper steps so that supply and install are not interrupted.

We are currently reviewing the AVN account and trying to determine if there are amounts outstanding to suppliers and sub-trades. If you feel that you are owed money for this job, we would ask that you provide us with a full account of those monies outstanding supported by invoices you have provided to AVN, identifying the products, supplies and or services, and the net amounts owing plus the appropriate H.S.T. …We realize that this may be a duplicate request, if these have already been submitted to AVN or GUMP, but it is important that 690 receive this information directly in our office.

…We look forward to working with your firm. We hope to have all this reconciled in the next few days.”

[27] On November 30, 2017 Jeffrey Willick forwarded by email to Mike Moccia a copy of a letter written to 690 King by its legal counsel Mr. Movat advising, inter alia, that 690 King’s obligation to the subcontractors and suppliers of AVN is limited to the holdback arising from AVN’s contract, being 10% of the value of the work performed by AVN up to the time of AVN’s termination of the contract. This letter did not address or comment upon the effect of Termination Agreement.

[28] 690 King made no payment to Desco in respect of any of its outstanding invoices to AVN.

[29] In an exchange of emails on January 17, 2017 with Joanne Saltarelli of AVN, Mike Moccia took the position that AVN remained responsible for payment of Desco’s outstanding invoices issued to AVN and that Desco’s release of Saltarelli’s personal guarantee was contingent upon Desco being paid by 690 King.

Desco’s Claim for Lien

[30] Desco registered a Claim for Lien against the title to the Property on December 12, 2017 in the amount of $619,259.30. By Order dated December 1, 2017 the Claim for Lien was vacated upon 690 King by posting a lien bond with the court in the sum of $669,259.30, representing the amount of the Claim for Lien plus $50,000 in respect of costs.

The Proceeding

[31] Desco commenced the within action to perfect its lien, naming AVN, 690 King and Salatrelli as defendants. AVN and Saltarelli were noted in default and default judgment was obtained against them on May 1, 2018 in the sum of $694,852.62 plus $1,905.08 for costs. On May 3, 2018 a Writ of Seizure and Sale was filed in relation to the Judgment.

[32] AVN and Saltarelli moved to set aside the Judgment. On September 20, 2018 Sloan, J. ordered that the Judgment against Saltarelli be set aside strictly upon the following terms:

(a) Saltarelli is only permitted to raise the issue of whether Desco gave him a valid release from the guarantee but is not entitled to assert that no guarantee existed;

(b) On consent, the amount owed to Desco is the principal sum of $575,572, plus interest and costs, which amount shall not be at issue going forward; and

(c) Saltarelli is permitted to raise the issue of whether 690 King is liable to pay Desco directly or to indemnify him for any amounts which may be found to be owed by him to Desco, by reason of 690 King having agreed to pay Desco directly in full pursuant to an agreement made between AVN and/or Saltarelli and 690 King.

[33] Justice Sloan also ordered the noting in default of AVN to be set aside for the sole purpose of permitting it to deliver a crossclaim against 690 King and to raise the issue of whether 690 King is liable to pay Desco directly or to indemnify it in respect of Desco’s claim against it. He further ordered that the Writ of Seizure and Sale remain in place pending the final determination of the action or further Order of the Court, provided that, on consent, the amount of the writ be reduced to $643,974.80 plus costs of $1,905.08 and post-judgment interest.

Motions

[34] AVN and Saltarelli has brought a Motion for the following relief:

(a) Summary determination pursuant to Rule 20 of the Rules of Civil Procedure of the issues set forth in the Order of Sloan, J. namely: 1) whether Desco gave Saltarelli a valid release from his personal guarantee; and 2) whether 690 King is liable to pay Desco directly or to indemnify Saltarelli for any amounts found to be owing by him to Desco;

(b) An order that the security posted in court by 690 King to vacate Desco’s Claim for Lien be paid out to Desco in the sum of $575,572 plus interest and costs;

(c) Summary judgment in favour of AVN against 690 King in the sum of $1,710,807 as damages for breach of contract and loss of future business profits pursuant to AVN’s crossclaim against 690 King;

(d) An order setting aside the Writ of Execution and any enforcement proceedings undertaken against AVN and Saltarelli.

[35] Counsel for AVN advised in submissions that the claim set forth at para. (c) above for summary judgment on AVN’s crossclaim against 690 King for loss of business profits was not being pursued at this time and requested that it be adjourned sine die. This was not opposed by 690 King.

[36] Desco has brought a motion for the following relief:

(a) Summary Judgment against Saltarelli and 690 King, jointly and severally, in the principal sum of $575,572, plus interest at the rate of 24% per year on each invoice from the 30^th day of the month following the date of the invoice; and

(b) In default of payment of $575,572 plus interest and costs by 690 King, that the said sum be paid out of the security posted by 690 King in court.

Issues

[37] The following are the issues to be determined on the motions:

(a) Is 690 King liable to pay Desco directly or to indemnify AVN and Saltarelli, or either of them, for any amounts which may be found to be owing by either of them to Desco, by reason of 690 King having agreed to pay Desco directly in full?

(b) Did Desco release Saltarelli from his guarantee of AVN’s account with Desco and, if not, should summary judgment be granted against Saltarelli in favour of Desco?

(c) If 690 King is liable to pay Desco directly in respect of its accounts to AVN totalling $575,572 plus interest, should that amount be ordered to be paid to Desco from the security posted by 690 King in court in default of payment?

(d) Should the Writ of Seizure and Sale against AVN and/or Saltarelli be set aside?

[38] The parties are agreed that the foregoing issues are capable of determination on a summary basis.

[39] I am satisfied that I am able to make the necessary findings of fact and apply the relevant law to the facts based upon the motion materials filed and that the summary judgment process is a proportionate, more expeditious and less expensive means to achieve a just result in respect of the foregoing issues. There are therefore no genuine issues requiring a trial and it is appropriate to decide the issues on the motions for summary judgment (see Hryniak v. Mauldin, 2014 SCC 7).

[40] I am also satisfied that AVN’s crossclaim for damages for breach of contract and loss of future business profits is discrete from the issues relating to whether 690 King agreed to pay Desco’s account directly and whether Desco effectively released Saltarelli from his personal guarantee to justify resolving those issues by summary judgment, as agreed to by the parties, while adjourning AVN’s motion for summary judgment on its crossclaim.

Issue One - Is 690 King Liable to Desco Directly or Liable to Indemnify AVN and Saltarelli?

Positions of the Parties

[41] AVN and Saltarelli rely on the doctrine of promissory estoppel, arguing that 690 King, through the exchange of documents and correspondence, and in particular the Termination Agreement, gave assurances to AVN with the intention of affecting its legal relations with both Desco and 690 King. AVN was lulled into a false sense of security and acted on 690 King’s assurance that it would pay the amount owed to Desco in respect of the Project by returning the material to the site. AVN is unable to regain its original position by returning the material to Desco instead of to the site.

[42] Desco relies upon the principled exception to the privity rule, arguing that AVN and 690 King, as parties to the Termination Agreement, intended to extend to it the benefit of 690 King’s promise to AVN to pay the amount owing by AVN to Desco.

[43] 690 King submits that its obligations to subcontractors and suppliers of AVN was limited to payment of the holdback required to be maintained by it under the Construction Lien Act. It says that the use of the phrase “arrange payment of outstanding obligations as they pertain to Midtown Lofts, 690 King St. Corporation” in the Termination Agreement clearly dictates that it never agreed to “sign a blank cheque” to pay the outstanding debts of AVN to its subcontractors. 690 King only agreed to pay its outstanding obligations with respect to holdback as a result of the operation of the Construction Lien Act.

[44] 690 King submits that the quid pro quo of the Termination Agreement was that 690 King agreed to permit AVN to terminate the AVN Contract so long as it returned all materials and equipment it had removed from the site. There was no additional consideration in the Termination Agreement involving 690 King agreeing to pay anything more to AVN’s subcontractors beyond the statutory holdback.

[45] In the alternative, 690 King submits that if the court concludes that the wording of the Termination Agreement is unclear with respect to the phrase “outstanding obligations,” the necessary degree of certainty respecting the essential terms of the contract is missing, rendering the Termination Agreement unenforceable. If this is the case, 690 King’s obligations to AVN and to Desco are limited to payment of the statutory holdback and nothing more.

Analysis

(i) Did 690 King Make a Binding Agreement to Assume Liability for Desco’s Invoices to AVN?

[46] Resolution of this issue depends upon a consideration of the meaning and effect of the Termination Agreement and, in particular, the phrase “690 King St. Corp. will arrange payment for outstanding obligations as they pertain to Midtown Lofts, 690 King St. Corporation, direct to suppliers and sub consultants engaged by AVN Plumbing” limited those specifically named, including Desco.

[47] As indicated above, AVN’s position is that “outstanding obligations” was intended to mean its outstanding obligations to pay the named suppliers, whereas 690 King’s position is that the phrase referred to its own obligation under the Construction Lien Act to maintain a holdback equal to 10% of the price of the services and materials supplied by AVN to the Project.

[48] In determining whether the parties have entered into a legal contract, the court starts first with the alleged contract. In the case of a written contract, where the wording fails to disclose a plain and unambiguous intention, the court may take into consideration evidence beyond the language of the document itself.

[49] In the case of Buchau v. Rogers Communications Inc., 2004 BCCA 142 (B.C.C.A.) leave to appeal refused 2004 CarswellBC 2246, Newbury, J.A., writing for the panel, stated at para. 23:

It is trite law that in deciding whether a contract was intended (by both parties), one considers the words actually used in the written document (if any) or oral discussions, and the "factual matrix" (in the sense of objective facts) in existence at the time. (See Waddams, The Law of Contracts (4th ed., 1999) at paras. 141-48; Fridman, The Law of Contract (3rd ed., 1994) at 15-22, esp. at fn. 7.).

[50] In Sattva Capital Corp. v. Creston Moly Corp., 2014 SCC 53, [2014] 2 S.C.R. 633, Rothstein, J. stated as follows at para. 47,

the interpretation of contracts has evolved towards a practical, common-sense approach not dominated by technical rules of construction. The overriding concern is to determine "the intent of the parties and the scope of their understanding" (Jesuit Fathers of Upper Canada v. Guardian Insurance Co. of Canada, 2006 SCC 21, [2006] 1 S.C.R. 744 (S.C.C.), at para. 27 per LeBel J.; see also Tercon Contractors Ltd. v. British Columbia (Minister of Transportation & Highways), 2010 SCC 4, [2010] 1 S.C.R. 69 (S.C.C.), at paras. 64-65 per Cromwell J.). To do so, a decision-maker must read the contract as a whole, giving the words used their ordinary and grammatical meaning, consistent with the surrounding circumstances known to the parties at the time of formation of the contract. Consideration of the surrounding circumstances recognizes that ascertaining contractual intention can be difficult when looking at words on their own, because words alone do not have an immutable or absolute meaning.

[51] The court may have regard to the conduct of the parties, not only during the making of the alleged contract but also subsequently, to determine whether they entered into a binding contract, and if so, what the terms of the contract were (see Beechinor v. Beechinor, 2004 ABQB 7 (Alta Q,B.) at para. 85).

[52] In the case of Ring Contracting Ltd. v. PCL Constructors Canada Inc., 2003 BCCA 684 (B.C.S.C.) leave to appeal refused 2004 CarswellBC 1304, Lowry J.A. stated as follows at para.13 in reference to a dispute between the parties respecting the terms of an oral contract:

There can be no real question that, whatever Mr. Herringa may have been thinking, his conduct at the meeting was consistent only with an agreement to compromise Ring's claim. The trial judge invoked the longstanding principle of law stated in Smith v. Hughes (1871), L.R. 6 Q.B. 597 (Eng. Q.B.), at 607:

If, whatever a man's real intention may be, he so conducts himself that a reasonable man would believe that he was assenting to the terms proposed by the other party, and that other party upon that belief enters into the contract with him, the man thus conducting himself would be equally bound as if he had intended to agree to the other party's terms.

[53] In my view, from a review of the words used by the parties in the Termination Agreement when read as a whole, “outstanding obligations” was intended to refer to AVN’s outstanding obligations to the listed suppliers, including Desco.

[54] The preamble to the Termination Agreement (drafted by 690 King in the form of a letter) acknowledged AVN’s Notice of Termination of the AVN Contract and stipulated “we cannot accept the termination of this contract if we are to be responsible for all of AVN Plumbing Invoices. In case there are invoices in the future which we may agree to pay, we have amended the third bullet below.”

[55] It is apparent that the reference to a “third bullet” was made in error as there were only two bullet points set forth in the document. From the context of the document, the “amendment” was intended by 690 King to make it clear that it was not agreeing to pay “all” of “AVN Plumbing Invoices,” but only the invoices of the named suppliers, that is Engineered Air, Enerzone (Jess Don), Desco, Mummary Mechanical, C & S. Insulation and Cool Houle and only those disclosed by AVN Plumbing by November 17, 2017. All other invoices were stated to remain AVN’s responsibility, unless 690 King Street Corporation should expressly agree to pay them.

[56] The fact that the phrase “outstanding obligations” was intended by the parties to mean outstanding “invoices or charges” of the specified AVN suppliers is confirmed by the presence of the word “other” in reference to “invoices or charges” of suppliers which were to remain AVN’s responsibility. The phrase “invoices or charges” was not used previously but rather the phrase “outstanding obligations” was used. The equivalency of the phrases “outstanding obligations” and “invoices or charges” is confirmed by the linking word “other.”

[57] Upon a review of the “Termination Agreement” as a whole, the phrase “[690 King] will arrange payment for outstanding obligations” is not, in my view, capable of referring to the obligation of 690 King to retain the statutory holdback provided for by the Construction Lien Act (the “Act”), for the reasons that follow.

[58] S. 22(1) of the Act provides:

22 (1) Each payer upon a contract or subcontract under which a lien may arise shall retain a holdback equal to 10 per cent of the price of the services or materials as they are actually supplied under the contract or subcontract until all liens that may be claimed against the holdback have expired or been satisfied, discharged or otherwise provided for under this Act.

[59] It is noted that, in reference to the holdback required to be retained under the Act, 690 King had a single obligation as the “payer” on the AVN Contract, namely to retain “a holdback” equal to 10 per cent of the price of the services or materials actually supplied under the AVN Contract. 690 King did not have multiple “obligations” to suppliers of AVN under the Act as 690 King submits.

[60] Moreover, s. 22 the Act does not contemplate a payer unilaterally determining that its obligation to maintain a holdback is restricted to responding to claims of certain suppliers and subcontractors and not to others and only in reference to invoices issued by a specific date. Rather, the section provides that the holdback must be retained “until all liens that may be claimed against the holdback have expired or been satisfied, discharged or otherwise provided for under this Act” (emphasis added). Pursuant to subsection 14(1) of the Act “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” regardless of when the lien claimant submitted its invoices. The Act provides a detailed scheme for the expiry, preservation and perfection of liens (see Part V of the Act).

[61] The timing for release of a payor’s holdback is governed by s. 22 of the Act which specifies that it must be retained until all liens that may be claimed against it have expired, satisfied or discharged. In the Termination Agreement 690 King undertook to arrange payment for “outstanding obligations” to the named suppliers and sub-consultants “once material is returned to site” by the specified time on November 17, 2018. To suggest that 690 King simply agreed to pay the holdback in respect of the AVN Contract to certain suppliers “once materials is returned to site” is inconsistent with 690 King’s holdback obligation under the Act.

[62] Subsection 23(1) of the Act defines the persons to whom an owner has personal liability for holdbacks that it is required to retain, limiting such personal liability to “those lien claimants who have valid liens against the owner’s interest in the premises.”

[63] Subsection 23(4) of the Act provides that “the personal liability of an owner under this section may only be determined by an action under this Act.” Thus, an owner only has personal liability for a holdback it is required to retain to claimants who have valid liens preserved and perfected under Act, not just to certain selected suppliers and subcontractors of a contractor.

[64] The phrase “outstanding obligations” in the Termination Agreement cannot therefore be interpreted to refer to 690 King’s statutory holdback obligation under the Act.

[65] In the event that I am wrong in finding that the words of the Termination Agreement disclose plainly and unambiguously that “outstanding obligations” was intended by the parties to refer to AVN’s outstanding obligations to the named suppliers, including Desco, I find that this conclusion is supported by a consideration of the factual matrix surrounding the formation of the Termination Agreement including communications among AVN, 690 King and Desco both during the making of the Termination Agreement and subsequently.

[66] At the time of delivery by AVN to 690 King of the “Termination Notice” on November 16, 2017, AVN was claiming that 690 King owed it in excess of $900,000 for services and materials supplied to the Project. Due to what it perceived to be 690 King’s default in payment, AVN had determined that it was unable to continue with the Project, had demobilized from the site and had removed unused and unpaid-for materials with a view to seeking their return to Desco for credit to its account with it.

[67] Saltarelli was concerned that AVN’s suppliers and subtrades be paid for the work and materials they supplied to the Project. He was particularly concerned to see to it that Desco was paid, due to the existence of his personal guarantee of AVN’s account with Desco. AVN and Saltarelli were content that 690 King use the funds which they believed 690 King owed to AVN (in excess of $900,000) to pay AVN’s suppliers directly.

[68] When 690 King learned that AVN was intending to terminate the AVN Contract and had demobilized and removed material from the site, it was concerned about 1) finding, retaining and transitioning to an alternate plumbing and mechanical contractor to finish the mechanical scope of work, 2) securing the materials that AVN had removed from the site in order to minimize delay, 3) the possibility that AVN’s subcontractors and suppliers might register construction liens against the title to the Project and 4) securing continued and timely supply of plumbing and mechanical materials for completion of that scope of work. 690 King decided to suspend any further payments to AVN, to take steps to secure the return of the removed materials and to retain a new mechanical contractor.

[69] It was in this context that GUPM prepared the initial draft of the Termination Notice and sent it to AVN to be placed on its letterhead, signed on its behalf and returned. I find that in doing this GUPM was acting as agent for 690 King. This fact is confirmed by the AVN Contract at the definition of “Project Manager” and para. GC 2.2.1. which provided that GUPM had been “engaged” by 690 King to provide “administration of the Contract as described in the Contract Documents.”

[70] The draft of the Termination Notice prepared by GUPM provided that, once the materials were returned by AVN to the site, “the Owner (690 King St. Corp.) will arrange payment for outstanding accounts as they pertain to Midtown Lofts, 690 King St. Corporation, direct to the suppliers and sub consultants engaged by AVN Plumbing. This is limited to Engineered Air, Enerzone (Jess Don), Desco, Mummary Mechanical, C & S. Insulation and Cool Houle.” This provision remained unchanged in the final version of the Termination Notice delivered by AVN to 690 King.

[71] In response to the Termination Notice, Jeffrey Willick sent the Termination Agreement, signed by him on behalf of 690 King, to AVN. In the preamble to the Agreement 690 King specifically acknowledged receipt of the Termination Notice and stated that its terms had been amended to clarify that 690 King would not accept AVN’s termination of the AVN Contract if it was to be responsible for all of AVN’s invoices (emphasis added). It is noted that the Termination Agreement did not seek to modify or amend the content of the Termination Notice to make it clear that 690 King would accept responsibility for payment of none of the invoices of AVN’s suppliers.

[72] I find that, in the context of the prevailing circumstances at the time of the preparation and completion of the Termination Agreement, it would have been incongruous and superfluous for 690 King to insert into the document a promise, as 690 King now argues, to simply adhere to its existing statutory obligation to retain a 10% holdback.

[73] The conclusion that AVN and 690 King both understood and intended the Termination Agreement to provide for 690 King to pay the outstanding accounts of specified suppliers of AVN, including Desco, is also supported by their conduct, and that of GUPM, 690 King’s agent, following execution of the document.

[74] As stated previously, AVN wrote to Desco on November 16, 2017 stating inter alia, “it has been agreed by Desco and the owner of 690 King Street West, being 690 King Street Corp., that the attached invoices will be paid by 690 King St. Corp. directly”

[75] On the same day Karen Hyland of GUPM wrote to Mike Moccia of Desco requesting that he confirm that the attached statement of AVN’s account with Desco was complete and accurate as of the end of October and stating, “going forward you will receive a letter from 690 King, which will be assuming this account.”

[76] 690 King followed up on Ms. Hyland’s email with its letter of November 22, 2017 referred to above under the reference line “New Contract.”

[77] In my view, Karen Hyland’s email of November 16, 2017 and 690 King’s follow-up letter to Desco of November 22, 2017, viewed together, are consistent with 690 King having agreed with AVN to pay Desco’s outstanding account.

[78] Moreover, I do not find that Termination Agreement lacked sufficient certainty as to be legally binding as suggested by 690 King in its alternative submission.

[79] In Canada Square Corp. v. Versafood Services Ltd., 1981 1893 (ON CA), 34 O.R. (2d) 250 (C.A.) Morden, J.A., writing for the panel, quoted Lord Wright from the case of G. Scammell & Nephew Ltd. v. Ouston [1941] A.C. 251, at para. 34 as follows:

The object of the court is to do justice between the parties, and the court will do its best, if satisfied that there was an ascertainable and determinate intention to contract, to give effect to that intention, looking at substance and not mere form. It will not be deterred by mere difficulties of interpretation. Difficulty is not synonymous with ambiguity so long as any definite meaning can be extracted.

[80] At paras. 35-37 Morden J.A. went on to state as follows:

In G. Scammell & Nephew Ltd. v. Ouston, supra, Viscount Maugham said at p. 255:

In commercial documents connected with dealings in a trade with which the parties are perfectly familiar the court is very willing, if satisfied that the parties thought that they made a binding contract, to imply terms and in particular terms as to the method of carrying out the contract which it would be impossible to supply in other kinds of contract: see Hillas & Co. v. Arcos, Ltd.

Trietel, The Law of Contract, [op, cit.], at p. 41 says:

But the courts do not expect commercial documents to be drafted with strict precision, and will do their best to make sense of them. This is particularly the case if the parties have acted on the agreement.

In this case there is no doubt that the document of October 14, 1969, as an agreement to lease, is crudely expressed and contains some very loose language. Further, a more sophisticated document would probably have covered several other matters in addition to those dealt with in it. Nonetheless, accepting that the parties intended to create a binding relationship and were represented by experienced businessmen who had full authority to represent their respective companies, a court should not be too astute to hold that there is not that degree of certainty in any of its essential terms which is the requirement of a binding contract.

[81] In my view, these observations are applicable to the case at bar. Although the Termination Agreement, if it had been expressed in a more sophisticated document, could have addressed other matters, the parties clearly intended to implement a binding arrangement for the termination of the AVN Contract and the transition of the plumbing and mechanical work on the Project to a new contractor. 690 King was represented by Jeffrey Willick and GUPM and AVN by Saltarelli, all of whom were experienced in the construction industry. In the circumstances, the court should not be too ready to find that the agreement lacked sufficient certainty to constitute a binding contract.

[82] 690 King asserts in its Factum that it never agreed to “sign a blank cheque” to pay the outstanding debts of AVN to its subcontractors.

[83] In my view, it is not for the court to relieve a commercial party from a contractual obligation on the basis that, viewed with the benefit of hindsight, the assumption of the obligation turned out to have been ill-advised or disadvantageous.

[84] From the factual matrix surrounding the Termination Agreement, 690 King was faced with a key contractor on the Project having discontinued performance. It was concerned to find and transition as expeditiously and as smoothly as possible to a new plumbing and mechanical contractor. In order to do this, it sought to have AVN return the materials it removed to the site and to secure new supply arrangements with certain of AVN’s suppliers. In order to accomplish these objectives, as demonstrated by the terms of the Termination Agreement it drafted, 690 King was prepared to agree to pay the outstanding accounts of selected suppliers directly, to be offset against the amount, albeit in dispute, due to AVN. As it maintained in the preamble to the Termination Agreement, 690 King was not prepared to pay “all of AVN’s invoices” but only the invoices of the suppliers specifically identified.

(ii) Is Decso Entitled to Enforce the Termination Agreement Directly Against 690 King?

[85] As indicated above, Desco submits in its Factum that it is entitled to enforce the terms of the Termination Agreement against 690 King as a third-party beneficiary to the contract pursuant to the principled exception to the privity rule, citing the case of Brown v. Belleville (City), 2013 ONCA 148 (C.A.).

[86] 690 King did not take a position in its Factum or in submissions on the question of whether Desco may enforce the Termination Agreement directly against it.

[87] In Brown v. Belleville at paras. 97-100 Cronk, J.A. commented on the principled exception to the rule of privity of contract, as follows:

As this court stated in Madison Developments Ltd. v. Plan Electric Co. (1997), 1997 1277 (ON CA), 36 O.R. (3d) 80 (Ont. C.A.), at para. 30, leave to appeal to S.C.C. refused, (1998), [1997] S.C.C.A. No. 659 (S.C.C.), the Supreme Court in London Drugs not only distinguished and declined to follow Greenwood, it also applied new reasoning to create an incremental change in the law of privity and set forth a test for the application of this change.

More specifically, the majority of the Supreme Court held in London Drugs, at p. 448, that while none of the traditionally-recognized exceptions to the privity of contract doctrine applied to assist the employees, the privity rule should be relaxed where the following requirements were satisfied:

1. the limitation of liability clause must, either expressly or impliedly, extend its benefits to the employees (or employee) seeking to rely on it; and

2. the employees (or employee) seeking the benefit of the limitation of liability clause must have been acting in the course of their employment and must have been performing the very services provided for in the contract between their employer and the plaintiff (customer) when the loss occurred.

The principled exception to the privity rule introduced in London Drugs was again considered and applied, this time unanimously, by the Supreme Court in Fraser River. In that case, at paras. 28-29 and 32, the court clarified that satisfaction of the first branch of the London Drugs test is a threshold requirement: to invoke the exception, there must be a showing that the contracting parties intended to extend the benefit in question to the third party seeking to rely on the contractual provision. Further, under the second branch of the test, the intention to extend the benefit of the contractual provision to the actions of a third-party beneficiary is irrelevant unless the actions of the third party come within the scope of the contract in general, or the provision in particular, between the initial contracting parties.

[88] The question of whether the principled exception to the privity rule may be invoked by a non-party to a contract seeking to enforce a contractual obligation of a contracting party was considered by Strathy J, (as he then was) in Coast-to-Coast Industrial Development Co. v. 1657483 Ontario Inc., 2010 ONSC 2011 (S.C.J.). At para.44 he observed,

While the principled exception to privity of contract is not restricted to defensive provisions, it seems to me that it would take very clear language to find that a contracting party has assumed a liability to a third party, particularly where that liability is potentially unlimited.

[89] Coast-to-Coast was considered in the case of Moss v. BMO Nesbitt Burns Inc., 2013 MBQB 127 (Man Q.B.), aff’d 2013 MBCA 86 (Man C.A.), leave to appeal refused 2014 CarswellMan 48. Bryk J. stated as follows at para. 49:

The doctrine of privity of contract can be relaxed but only in certain situations. The first is where it is clear that, at the relevant time, the parties clearly intended to extend the benefit in question to the third party seeking to rely on the contractual provision. Secondly, the doctrine of privity of contract can be relaxed where the activities performed by the third party seeking to rely on the contractual provisions are the very activities contemplated as coming within the scope of the contract in general or the provision in particular, as determined by reference to the intentions of the parties. Nesbitt points out that the aforementioned factors originate from cases where privity extension is being sought as a defence to a claim by one of the contracting parties and not where the third party seeks to invoke a contractual benefit. In the latter case, the contract must contain explicit language providing for the contracting party to assume liability to the third party (Fraser River Pile & Dredge Ltd. v. Can-Dive Services Ltd., 1999 654 (SCC), [1999] 3 S.C.R. 108 (S.C.C.), at para. 32, and Coast-to-Coast Industrial Development Co. v. 1657483 Ontario Inc., 2010 ONSC 2011, 93 R.P.R. (4th) 44 (Ont. S.C.J.), at para 44).

[90] In my view, for the reasons stated previously, the Termination Agreement does contain explicit language providing for the 690 King to assume liability for Desco’s accounts to AVN for materials supplied to the Project.

[91] As observed by Bryk, J. in Moss, the second factor of the test for application of the principled exception to the privity rule as laid out in London Drugs Ltd. v. Kuehne & Nagel International Ltd. 1992 41 (SCC), [1992] 3 S.C.R. 299 and Fraser River Pile & Dredge Ltd. v. Can-Dive Services Ltd., 1999 654 (SCC), [1999] 3 S.C.R. 108 (S.C.C.), emanated from cases where the exception was being relied upon as a defence to a claim by one of the contracting parties. It does not necessarily have application to a case like the present in which the non-party seeks to enforce a contractual covenant of a party to the contract.

[92] Desco is therefore entitled to enforce directly 690 King’s promise to pay its account for materials supplied to AVN for incorporation into the Project.

[93] The question of whether 690 King’s liability to Desco should extend to the amount claimed by Desco for interest pursuant to the terms of the contract between it and AVN was not addressed in submissions. I see no reason in principle why it should not. As set forth in GUPM’s e-mail communication to Desco of November 16, 2017, 690 King advised that it intended to “assume” Desco’s account with AVN and it did so by virtue of the Termination Agreement. 690 King subsequently renounced any responsibility to pay any part of Desco’s account.

[94] I find that 690 King is liable to Desco in the sum of $575,572, plus interest as claimed by Desco. Pursuant to the Credit Application between AVN and Desco, each invoice issued by Desco was due on the 30^th day of the month following the date of the invoice. The outstanding invoices were subject to interest at the rate of 24% per annum until payment. Pre-judgment interest to October 11, 2019 is calculated in the sum of $264,822.66. Pre-judgment interest continued to accrue on the sum of $575,572 at the rate of 24% per annum until the date of release of these Reasons for Decision.

[95] I also find that 690 King is liable to indemnify AVN and Saltarelli for any amount for which they are liable to Desco for material supplied by Desco to the Project.

Issue Two: Did Desco release Saltarelli from his guarantee of AVN’s account with Desco and, if not, should summary judgment be granted against Saltarelli in favour of Desco?

Positions of the Parties

[96] Saltarelli takes the position that Desco is estopped from asserting that his release from his personal guarantee was contingent upon Desco receiving payment from 690 King of its outstanding invoices. He says that he relied upon Desco’s promise to release him from his guarantee by returning the materials which had been removed from the site. He relies in support of this position upon the case of Capital Trust Corporation v. Gordon, 1945 78 (ON SC), [1945] O.R. 277 (H.C.J.).

[97] Desco submits that its agreement to release Saltarelli from his personal guarantee in the document prepared by Saltarelli dated November 16, 2017 was tied to and contingent upon performance of the other provision of the release document upon which Saltarelli relies, namely that 690 King had agreed to pay Desco’s outstanding invoices.

[98] Desco submits further that any promise on its part to release Saltarelli from his personal guarantee lacked consideration and is therefore unenforceable.

Analysis

[99] This issue can be readily disposed of.

[100] In Capital Trust Urquhart J. summarized the law of estoppel as follows at para. 44:

If A by words or conduct induces B to believe that a certain state of things exists, and B in that belief acts in a way in which he would not have acted unless he so believed and is thereby prejudiced, then A cannot in any subsequent proceeding between himself and B or anyone claiming under B be heard to deny that that state of things existed.

[101] The document upon which Saltarelli relies set forth two “understandings,” namely that 1) Desco’s invoices will be paid by 690 King St. directly, and 2) Desco has agreed to release the personal guarantee of Saltarelli in relation to Desco’s invoices and any future supply of materials to the Project.

[102] The document did not state that the two “understandings” were independent or severable.

[103] In my view, the document is to be read in its entirety and can only be reasonably interpreted to mean that Saltarelli’s guarantee will be released upon payment by 690 King of Desco’s outstanding invoices. The words of paragraph 2 of the document are not capable of reasonably inducing Saltarelli to believe that he was released from his guarantee without reference to the words of paragraph 1.

[104] Moreover, I am not satisfied that Saltarelli took any prejudicial action in reliance on any inducement by Desco. Saltarelli did not return any materials to the Project site – AVN did. The materials were supplied by Decso to AVN and invoiced to it. There is no evidence that Saltarelli had any personal beneficial interest in the materials that AVN returned.

[105] In submissions Mr. Belsito for Saltarelli acknowledged that no consideration flowed from Saltarelli to Desco for the release of his guarantee.

[106] I find that Saltarelli was not effectively released from his personal guarantee of AVN’s indebtedness to Desco.

[107] As indicated above, the default judgment against Saltarelli was set aside by Sloan, J. only to permit him to raise the issue of whether Desco gave him a valid release from the guarantee. Having found that there was no valid release of the guarantee it is appropriate that summary judgment be granted against Saltarelli in favour of Desco in the sum of $575,572 plus pre-judgment interest as set forth above.

Issue Three: Should $575,572 plus interest and costs be ordered to be paid to Desco from the security posted by 690 King in court, in default of payment?

[108] 690 King did not take the position in its Factum or in submissions that, in the event that it was found liable to pay Desco’s account directly, the security which it posted in court to vacate Desco’s lien should not be paid out of court to Desco failing direct payment by it.

[109] Subsection 44(6) of the Act provides that where a claim for lien is vacated upon payment into court or the posting of security pursuant to clause 44(1)(a) the lien ceases to attach to the premises and to the holdbacks and attaches to the security in court.

[110] Subsection 14(2) of the Act provides as follows:

(2) No person is entitled to a lien for any interest on the amount owed to the person in respect of the services or materials that have been supplied by the person, but nothing in this subsection affects any right that the person may otherwise have to recover that interest.

[111] By virtue of these provisions, the principal amount of Desco’s lien in the sum of $575,572 attaches to the security posted in court by 690 King. It is therefore appropriate that this amount be paid from the security in court in default of payment by 690 King within 30 days of the release of these Reasons for Decision.

[112] The balance of the lien bond shall remain in court pending final disposition by the court on the question of costs or further order of the court.

Issue Four: Should the Writ of Seizure and Sale against AVN and/or Saltarelli be set aside?

[113] As indicated above, the noting in default of AVN was set aside only for the purpose of permitting it to bring a cross-claim against 690 King. The default judgment against it was not set aside. Summary judgment has now been granted against Saltarelli.

[114] There is no reason that the Writ of Seizure and Sale against AVN and Saltarelli should be set aside.

Disposition

[115] In accordance with the foregoing, it is ordered and adjudged as follows:

(a) The defendants 690 King Street Corporation and Angelo Saltarelli shall jointly and severally pay to the plaintiff the sum of $575,572 plus pre-judgment interest thereon at the rate of 24% per cent per annum calculated on the amount of each invoice issued by the plaintiff from and after the 30th day of the month following the date of each invoice, comprising the sum of $264,822.66 to October 11, 2019, plus pre-judgment interest thereafter calculated at the said rate on the said sum of $575,572 until the date hereof;

(b) The defendant 690 King Street Corporation shall indemnity the defendant Angelo Saltarelli in respect of his liability to the plaintiff pursuant to paragraph (a) above and shall indemnify the defendant AVN Plumbing Limited in respect of its liability to the plaintiff pursuant to the default judgment against it dated May 1, 2018;

(c) In default of payment by the defendant 690 King Street Corporation of the sum of $575,572 to the plaintiff within 30 days hereof, the said amount shall be paid to the plaintiff from the security in court posted by the said defendant pursuant to the Order dated December 1, 2017;

(d) The balance of the security posted pursuant to the Order dated December 1, 2017 shall remain in court pending final disposition by the court on the question of costs of this proceeding and these motions or further order of the court;

(e) The motion of the defendants AVN Plumbing Limited and Angelo Saltarelli for summary judgment against the defendant 690 King Street Corporation pursuant to subparagraph (b)(ii) of its Notice of Motion dated September 24, 2019 shall be adjourned sine die returnable on seven (7) days’ notice; and

(f) The judgment in favour of the plaintiff pursuant to paragraph (a) above shall bear post-judgment interest at the rate of 24% per annum to the date of payment.

Costs

[116] The parties are strongly urged to settle the issue of costs among themselves.

[117] If the parties are unable to do so, any party seeking an award of costs against any other party may make written submissions as to costs within 14 days of the release of these Reasons for Decision. Any party from whom an award of costs is sought shall have 10 days after receipt of the submissions of the party seeking an award of costs against it to respond. A party seeking an award of costs shall have 5 days thereafter to reply. The initial written submissions shall not exceed 4 double-spaced pages exclusive of Bills of Costs or Costs Outlines, offers to settle and authorities. Reply submissions shall no exceed 3 double-spaced pages. All such written submissions are to be forwarded electronically to the Dropbox where the motion materials were delivered.

[118] If no submissions are received within this timeframe, the parties will be deemed to have settled the issue of costs as between themselves. If the parties are able to settle the issue of costs, counsel are directed to inform the court promptly.

D.A. Broad, J.

Date: November 9, 2020