COURT FILE NOS.: CV-18-600077 & CV-18-610596
DATE: 2020 11 16
SUPERIOR COURT OF JUSTICE - ONTARIO
IN THE MATTER OF the Construction Act, RSO 1990, c. C.30, as amended
RE: EAGLE CONSTRUCTION SERVICES, INC., Plaintiff
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ROYAL ONE 2225 MARKHAM ROAD MED CENTRE LTD. and MORRISON FINANCIAL MORTGAGE CORPORATION, Defendants
AND RE: EAGLE CONSTRUCTION SERVICES, INC., Plaintiff
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ROYAL ONE 2225 MARKHAM ROAD MED CENTRE LTD., MORRISON FINANCIAL MORTGAGE CORPORATION, FOREMOST MORTGAGE HOLDING CORPORATION and ONTARIO WEALTH MANAGEMENT CORPORATION, Defendants
BEFORE: Master Todd Robinson
COUNSEL: C. Kellowan, for the plaintiff, Eagle Construction Services, Inc.
F. Soccol, for the defendant, Royal One 2225 Markham Road Med Centre Ltd.
HEARD: November 12, 2020
REASONS FOR DECISION
[1] Eagle Construction Services, Inc. (“Eagle”) seeks leave to bring an interlocutory motion to compel answers to three refusals from the cross-examination of Ravi Thirun on his affidavits sworn in support of the pending motion brought by Royal One 2225 Markham Road Med Centre Ltd. (“Royal One”), primarily for security for costs. Royal One’s motion is currently returnable before me on December 15, 2020.
[2] These lien actions proceed under the Construction Act, RSO 1990, c C.30. By operation of s. 87.3 of the Construction Act, the provisions of the former Construction Lien Act (the “CLA”) continue to apply to both actions. Unlike in non-lien actions governed by the Rules of Civil Procedure, RRO 1990, Reg 194, leave is required in lien actions for interlocutory steps not contemplated by the CLA. The leave requirement is set out in s. 67(2) of the CLA, as follows:
Interlocutory steps, other than those provided for in this Act, shall not be taken without the consent of the court obtained upon proof that the steps are necessary or would expedite the resolution of the issues in dispute.
[3] A moving party must meet only one of the two statutory requirements. Accordingly, Eagle must demonstrate that its proposed refusals motion is either necessary or will expedite the resolution of the issues in dispute on Royal One’s pending motion.
[4] Each of the three refusals deals with costs and expenses purportedly incurred by Royal One in relation to completing construction and sale of the subject premises, which are outlined in Exhibit E to Mr. Thirun’s affidavit sworn January 15, 2020. Royal One takes the position that all proceeds of sale were applied against payout of encumbrances, expenses regarding the sale, and construction costs for the subject improvement, such that Royal One ultimately retained none of the proceeds. Mr. Thirun’s sworn evidence, on which he was cross-examined, is that “Royal One had borrowed substantial monies to pay for the cost of construction and practically all of the net sale proceeds [were] applied directly to repay monies borrowed.” Exhibit E to Mr. Thirun’s affidavit is described as a “preliminary accounting of the sale of the subject property”, tendered in support of his statements and Royal One’s position that Royal One has retained none of the sale proceeds.
[5] The three refusals at issue deal generally with requests for confirmation on how the costs claimed were incurred and proof of payment by Royal One. One refusal deals specifically with loan details and copies of loan agreements regarding which repayment is claimed.
[6] One argument being advanced by Eagle in opposition to Royal One’s request for security for costs is that Eagle should be entitled to rely on the unpaid amounts certified for payment by Royal One’s payment certifier. Eagle argues that the certified payment amounts represent a debt owing to Eagle and constitute trust funds pursuant to s. 7(2) of the CLA against which Royal One is only entitled to set-off in accordance with s. 12. Eagle submits the vendor’s trust under s. 9 is also relevant. Answers to the refused questions are argued to be directly relevant to the court’s ability to assess if the $1.6 million in funds certified for payment ought properly to have been retained in trust. If so, then Eagle argues they are funds to which Royal One could look to satisfy an adverse costs award against Eagle. Eagle submits that answers to the refused questions are necessary in determining whether Royal One succeeds on its motion, since the quantum required to be retained pursuant to ss. 7(2) and 9 of the CLA is significant and, unless there are valid set-offs pursuant to s. 12, there is accordingly no need for security in favour of Royal One. Eagle submits that an adverse inference regarding validity of the claimed set-offs could be drawn from the refusals, but cannot be guaranteed, so the answers are required.
[7] In support of its argument, Eagle relies on the decision in Yuanda Canada Enterprises Ltd. v Pier 27 Toronto Inc., 2017 ONSC 1892 (Master), in which Master Wiebe held as follows at paras. 26-27:
[26] Because of the payment certification by the Pier 27 Defendants (not by a third party professional) and the absence of evidence of retention of the certified basic holdback by the Pier 27 Defendants, I draw a close parallel between this case and those cases where security for costs was denied because the defendant admitted owing the plaintiff money. In Cortes v. Lipton Bldg. Ltd., 1963 CarswellOnt 279 (Ont. Master), the plaintiff sued on a mortgage debt owed by the defendant company. The court dismissed the defendant’s motion for security for costs in light of its admitted debt to the plaintiff. In Engebretson Grupe Company v. Grossman, 1937 CarswellOnt (HCJ), the defendant admitted to obtaining oranges from the plaintiff and not paying for them, with the explanation for the non-payment being a claimed set-off for losses allegedly suffered because of defective oranges. The set-off did not eliminate the entire debt, and the court dismissed the defendant’s motion for security for costs as a result. In Clark v. Tiger Brand Knitting Co., 1986 CarswellOnt 385 (HCJ), the court made the following statement in dismissing a motion for security for costs: “Because the defendant is admittedly indebted to the plaintiff in an amount greater than its anticipated costs in the defending the action, it cannot be in need of protection for its costs of defence.”
[27] I make the same statement in relation to the Defendants in these motions. The Defendants have failed to show that they are in need of protection as they have failed to show for the purpose of these motions that the Pier 27 Defendants do not owe Yuanda the basic holdback they have certified and not paid, with the said holdback being in an amount that exceeds the claimed security for costs.
[8] Royal One argues that the decision in Yuanda is distinguishable on several grounds, including (i) all payment certificates are disputed by Royal One and were never acted upon, (ii) the nature and terms of the contract are disputed by the parties, as well as the extent and value of Eagle’s work actually performed, and (iii) Eagle’s liens have already been vacated with full security posted into court. Royal One submits that, since this is not a breach of trust action, whether or not Royal One breached any trust obligations is irrelevant to the issues in Eagle’s lien actions. Royal One also submits that Master Wiebe’s assessment of ss. 7(2) and 12 in Yuanda was acknowledged to have been made without submissions from the parties. Master Wiebe commented that he felt there were enough other grounds for his decision that the trust issue would not necessarily have determined the outcome. Royal One further submits that, in any event, the trust argument will not be a driver in determining the security for costs relief.
[9] At this stage, I am not in a position to determine what bearing, if any, the trust argument will have in my determination of the security for costs relief. The merits of Eagle’s arguments and the application of Yuanda are matters to be argued at the pending motion. It is sufficient for this leave motion that Eagle is advancing the trust argument in reliance on the decision in Yuanda, and that there is a dispute regarding its application on the facts of this case.
[10] I agree with Royal One that the proposed motion, if brought and successful, will not expedite the resolution of the issues in dispute. Argument of the motion would result in adjournment of the scheduled long motion. Regardless of whether the motion is successful and answers to the refusals are ordered or Royal One voluntarily answers the questions without the need for motion argument, answers will result in production of evidence to substantiate at least $5 million in payments and expenses identified in the accounting chart for construction costs, construction financing, and third party loan amounts, and perhaps evidence for the full $7.99 million in costs and expenses outlined in the chart. There will also be additional complexity of analysis and argument on whether the amounts and payments are properly set-off against alleged trust funds pursuant to s. 12 of the CLA.
[11] Eagle’s submissions were more focussed on necessity. In the circumstances of this case, though, assuming I were to find that the questions were improperly refused, I am not convinced by Eagle’s arguments that the requested evidence is necessary for full and fair argument and disposition of Royal One’s pending motion. It is not clear that an analysis regarding the extent of any trust, including the extent to which Royal One is legally entitled to set-off pursuant to s. 12 of the CLA, will be necessary to determine the security for costs relief. This is not a breach of trust action and Royal One’s pending motion is not a motion for summary judgment.
[12] In a lien action, the court is to apply procedures that are, as far as possible, of a summary character taking into account the amount and nature of the liens in question: s. 67(1) of the CLA. For the refused evidence to become potentially relevant on the pending motion, I must first accept Eagle’s position on Royal One’s trust obligations and their bearing on security for costs. Rather than proceed with a further interlocutory motion that has contingent relevance to the pending long motion, I prefer to first hear argument and decide the trust argument. If I do ultimately accept Eagle’s position, but am unable to fairly resolve the motion on the existing record without further submissions or evidence, I have discretion to require either or both. In my view, that is a more timely, cost-effective, and proportionate way to proceed in all the circumstances, and is consistent with the summary process required by the CLA.
[13] For the foregoing reasons, I deny leave for the refusals motion. By agreement of the parties, costs of this leave motion are reserved to determination with costs of Royal One’s motion.
MASTER TODD ROBINSON
DATE: November 16, 2020