Court File and Parties

COURT FILE NO.: CV-99/19 DATE: 20201116

SUPERIOR COURT OF JUSTICE – ONTARIO FAMILY COURT

RE: Jack Van Geel Plumbing and Heating Ltd., Plaintiff AND: Joao “John” Pennha and Pamela Woodhurst, aka Pam Pennha, Defendants

BEFORE: ASTON J.

COUNSEL: David Sanders for the plaintiff Lianne J. Armstrong for the defendants

HEARD: at St. Thomas (virtual hearing) October 26, 2020

ENDORSEMENT

[1] The defendants bring this motion to set aside the ex parte order obtained by the plaintiff on December 16, 2019, and to discharge the Certificate of Pending Litigation (“CPL”) registered against the title to their current residence.

Factual Background

[2] The plaintiff is a contractor. It performed certain renovations at the defendants’ cottage property. The work was done between March 6, 2017 and April 26, 2017, or “June 2017” according to the plaintiff. A dispute then arose between the parties, the particulars of which are controversial. What is not in dispute is that no further work was done.

[3] The plaintiff did not avail itself of the provisions of the Construction Lien Act. It did not even invoice the defendants for many months. Its invoice for $58,266.19 is dated January 2018, but was apparently not received until February or March, long after the last work was done. The defendants had moved into the cottage in June 2017 but also maintained a home in Sarnia. The cottage was listed for sale briefly in the Fall of 2018, then ultimately sold June 28, 2019. At least some of the proceeds of that sale went into the purchase of their present residence in Camlachie, Ontario.

[4] In December 2019, the plaintiff commenced this action. The Statement of Claim asserts an entitlement to an interest in the Camlachie home based on constructive trust principles or an “equitable mortgage”. In its ex parte motion for a Certificate of Pending Litigation, the plaintiff claimed that “the $60,000 in goods and services” it had provided in the Spring of 2017 transformed the cottage property from “a shack” to “a masterpiece”.

[5] The defendants had purchased the cottage property in 2014 for $170,000 and sold it in June 2019 for $475,000. The plaintiff’s affidavit material on the motion for the Certificate of Pending Litigation claimed that “the only reason why [the cottage] could go for such a high price, and thus (in all likelihood) the only reason why the defendants were thus able to afford [their new home in Camlachie]” was “thanks to the work done by the plaintiff”.

[6] The defendants admit that the money for the purchase of their present residence was obtained at least in part from the proceeds of sale of their cottage. They also admit that, except for a claimed $5,000 deposit, they have refused further payment to the plaintiff. They dispute the quality of the workmanship and assert the work contracted for was not completed.

The Issues

[7] The defendants assert two grounds for the relief sought on this motion: (i) the CPL is an impermissible attempt to revive expired lien rights under the Construction Lien Act, and (ii) the plaintiff made material misrepresentations, including omissions, in the evidence tendered on the ex parte motion of December 16, 2019.

The Legal Framework

[8] Section 103(6) of the Courts of Justice Act provides that the court “may make an order discharging a certificate of pending litigation…where the party at whose instance it was issued…does not have a reasonable claim to the interest in the land claimed…or any other ground that is considered just”. There are other grounds in s.103(6) but the defendants do not raise them on this motion.

[9] The discharge motion is not an adjudication of the plaintiff’s alleged interest in the land. Counsel for the plaintiff submits that the plaintiff only needs to show there is a “triable issue” regarding its claim. Though it may seem to be a distinction without much of a difference, the actual test under s. 103(6)(a)(2) of the Courts of Justice Act is whether the plaintiff has established “a reasonable claim” to the interest in land that it claims.

[10] To some extent, the defendants’ position on this motion conflates the questions of (i) whether the plaintiff has a reasonable claim to an interest in the defendants’ current residence and (ii) whether the CPL ought to be discharged “on any other ground that is considered just”, namely that it subverts the Construction Lien Act. There is an overlap, but I will address the questions separately.

[11] The decision of Sprout J. in Rafat General Contractor Inc. v. 1015734 Ontario Ltd., 2005 CarswellOnt 7519 held that a contractor who has failed to preserve or perfect a construction lien respecting unpaid work cannot assert an interest in land and obtain a CPL based upon a trust claim as an alternative. In this case, counsel for the plaintiff acknowledges that the plaintiff had no right to claim a CPL respecting the cottage property and would not have that right even if the defendants still owned it today. The theory of the plaintiff’s claim is that the use of some sale proceeds from the cottage for the purchase of the defendants’ present residence constitutes a “misappropriation” of the value of the plaintiff’s work on the cottage, giving rise to an equitable ownership interest in the second property.

[12] The plaintiff cites Ambassador Electric Inc. v. Fernwood Builders (London) Ltd., [2014] O.J. No. 3259 (SCJ) in support of the proposition. That case, and others, do establish that a certificate of pending litigation may be available respecting a different property into which funds were wrongly appropriated where there has been fraud or a breach of the trust provisions found in the Construction Lien Act. Those cases are also limited to misappropriation of money, not the value of work provided.

Analysis

Did the plaintiff’s material in support of the Certificate of Pending Litigation breach the duty of full and fair disclosure of all material facts, and if so, should the Certificate of Pending Litigation be set aside on that basis?

[13] Rule 39(6) provides that the failure to make full and fair disclosure of all material facts is, by itself, sufficient reason to set aside an order made without notice.

[14] The affidavit in support of the ex parte order of December 16, 2019 was not direct evidence from Jack Van Geel, the principal of the plaintiff, even though Mr. Van Geel conducted all the relevant dealings with the defendants in relation to this work. Instead the evidence comes from a sub-contractor.

[15] The deponent, Chad McConnell, states “I have knowledge of the matters to which I depose herein” but he does not reveal that much of his evidence is not first hand or personal knowledge. The defendants depose they never had any relevant conversation with him. It is not necessary to accept their evidence on that point. It is obvious that McConnell’s affidavit is mainly hearsay and unqualified opinion evidence.

[16] Mr. McConnell makes serious allegations of deceit and fraudulent misrepresentation by the defendants, which the plaintiff now withdraws. He recites particulars of conversations between the litigants to which he was not party, including conversations about the extent of the work done and the price of the contract. He deposes that the defendants “had no complaints about any work done or the price thereof, during the time that the work was done, or after completion”. His evidence fails to acknowledge complaints the defendants made to Mr. Van Geel.

[17] Mr. McConnell asserts that “the plaintiff completed its obligation under the renovation contract including amendments, done in accordance with the instruction and input of the defendants throughout the project, and was completed to their satisfaction in or around June of 2017.” This is inconsistent with Mr. Van Geel’s letters to the defendants in early 2019. Moreover, Mr. McConnell simply cannot know what conversations there might have been between the plaintiff’s principal and the defendants. In fact, his evidence on this point is blatantly untrue. There were complaints about the work done. There was certainly a dispute over what, if anything, was owing.

[18] The plaintiff’s factum on the December 2019 motion states “the plaintiff supplied the labour and materials to complete the renovation contract and has completed its obligations thereunder. The work was done in accordance with the instructions and input of the defendants throughout the project and was completed to their satisfaction in or around June of 2017”. However, Mr. McConnell had no firsthand knowledge of those facts. They are not identified as hearsay in his affidavit or in the factum filed on the ex parte motion.

[19] Paragrah 29 of the McConnell affidavit states “the renovation work done by the plaintiff was the direct and proximate (or alternatively, greatly contributory) reason for that large increase in value [referring to the appreciation of the defendant’s cottage over the five years they owned it]”. This evidence is unqualified opinion. It is questionable on its face given the fact the defendants owned the property for 5 years and did other improvements during that time.

[20] The overall tenor of McConnell’s evidence is seriously undermined by his misrepresentation of his personal knowledge and his obvious bias in favour of the plaintiff. His opinions about the value of the work done are not only inadmissible opinion but also argumentative rhetoric, not fact.

[21] In this case, the affidavit in support of the Certificate of Pending Litigation alleged that the defendants had “misappropriated” the value of the plaintiff’s work. The allegation that the defendants misled the plaintiff about their intention to improve the cottage just so they could sell it for more money has been withdrawn but it may well have been germane to the conclusion of the motion judge that a Certificate of Pending Litigation ought to be granted. The alleged fraudulent misrepresentations by the defendants (now withdrawn) gave colour to the plaintiff’s claim for equitable relief. These allegations were not revealed as hearsay and were relied upon in the plaintiff’s factum on the ex parte motion.

[22] This is not an appeal of the December 2019 order. However, when the inadmissible evidence is stripped away from the McConnell affidavit it is difficult to ascertain the foundation for the order. The affidavit evidence in support of the ex parte order was misleading because if did not reveal the second hand nature of certain facts and did not make full and fair disclosure of all the material facts. Had the defendants been given an opportunity to file responding material, it is at least doubtful the order would have been granted.

[23] There is nothing in the plaintiff’s factum on the motion to draw to the attention of the motion judge that she would be creating a significant legal precedent by granting the ex parte order sought. More on that to follow. However, the CPL ought to be set aside on the basis of Rule 39(6) alone.

Has the plaintiff established a “reasonable claim” to an interest in the defendants’ Camlachie home?

[24] The evidence in this case falls far short of establishing any fraud on the part of the defendants and there is no allegation of any misappropriation of money.

[25] The plaintiff relies on Ambassador Electric v. Fernwood Builders (London) Ltd., [2014] O.J.No. 3259; ONSC 3738, for the proposition that the “misappropriation” of the value of its work can be traced to the subsequently acquired property to create an equitable interest in that second property. The Ambassador Electric case is distinguishable. The defendant Fernwood was a general contractor on 2 properties and the owner of a third. Amounts paid to Fernwood in its capacity as a general contractor were used to improve the property it owned, a clear breach of the trust provisions in the Construction Lien Act. The plaintiff was allowed to claim an interest in the land Fernwood owned because of the wrongful misappropriation of trust money it held, in part, for the plaintiff. The misappropriation of trust funds under the Construction Lien Act is quite different from the circumstances in this case. The CPL in that case did not undermine the Construction Lien Act. Quite the opposite.

[26] The plaintiff’s entitlement is contractual. It is entitled to be paid for the value of the work it performed. Period. There was never any expectation by the plaintiff that the work it did would give rise to an interest in the cottage, except of course for its ability to register and perfect a lien under the Construction Lien Act. The expectation of payment for the value of its work in a commercial transaction is the juristic reason for denying the plaintiff an equitable interest in the property. If the plaintiff ever had a property claim for the value of its work, that claim was only for a security interest under the Construction Lien Act not an equitable ownership interest. The plaintiff, on these facts, cannot possibly assert an interest in the equity of the Camlachie property based upon a constructive trust. At its highest, the plaintiff could only establish a security interest for the value of its work.

[27] Assuming, without deciding, that the plaintiff’s claim for an “equitable mortgage” meets the “triable issue” test, the remaining question is whether the CPL ought to be discharged “on any other ground that is considered just”. This engages a consideration of the defendants’ submission that the CPL subverts the Construction Lien Act.

Is the Certificate of Pending Litigation an improper attempt to revive expired lien rights?

[28] There is no explanation for the plaintiff’s failure to register and perfect a lien against the cottage property where the work was done.

[29] As noted, the plaintiff concedes that it could not claim a CPL respecting the cottage property even if the defendants still owned it. This is consistent with the determination by Sprout J. in Rafat General Contractor Inc. v. 1015734 Ontario Ltd. 2005 CarswellOnt 7519 at para. 3, that it would “subvert the statutory requirements of the Construction Lien Act to allow a contractor to claim an interest, whether by way of equitable mortgage or constructive trust, as a substitute for its lien rights under the Construction Lien Act.” I note in passing that Sprout J. did not limit his conclusion to constructive trust claims but also included the protection of a security interest by means of an equitable mortgage. That decision held that the security interest of a contractor for a lien under the Construction Lien Act expires when the lien is not perfected, and it cannot be revived.

[30] Counsel for the plaintiff could not discover any case in which the court has recognized the theory he puts forward in this case. It is not only a novel theory, but it would set an undesirable precedent. Any contractor having failed to perfect its security under the Construction Lien Act, could tie up title to any subsequently purchased property simply on the strength of the ability to trace some part of the proceeds of sale of the original property to that second property. The contractor would not be limited to the misappropriation of money but could characterize the value of the work done as a “misappropriation”.

[31] On the facts of this case, it would be even more subversive of the statutory scheme than in Rafat to allow the plaintiff to transmogrify its unperfected statutory lien under the Construction Lien Act into an interest in the defendant’s subsequently acquired property.

[32] On the theory of the plaintiff’s case for a constructive trust claim or equitable mortgage the plaintiff’s entitlement springs into life by the sale of the cottage and the use of some proceeds therefrom towards the purchase of their new residence. That occurred June 28, 2019, two years after the last work on the cottage in 2017.

[33] In the mean time the plaintiff in this case did not pursue its claim for the value of the work on the cottage with much diligence. The Statement of Claim not issued until December 2019, more than two years after the last work.

[34] The equitable considerations on this motion tilt clearly in the defendants’ favour. On the facts of this case I doubt the plaintiff has even met the “triable issue” threshold for its claim to an interest in the Camlachie property. Even if it does, it is inequitable in all the other circumstances to permit the CPL to stand.

Conclusion

[35] The Certificate of Pending Litigation dated December 16, 2019 registered as Instrument No. LA231658 is discharged. The plaintiff is to pay the defendants’ costs of this motion fixed at $4,500 all inclusive.

Justice D.R. Aston

Date: November 15, 2020