Court File and Parties

Court File No.: CV-628334-00A1 (Toronto) Date: 2021-03-15 Ontario Superior Court of Justice

Between: EARTH BORING COMPANY LIMITED, Plaintiff -and- GROUPE CRH CANADA INC./CRH CANADA GROUP INC., formerly DUFFERIN CONSTRUCTION COMPANY, A DIVISION OF HOLCIM (CANADA) INC., Defendant -and- THE CORPORATION OF THE CITY OF MISSISSAUGA, Third Party

City of Mississauga Motion to Strike Third Party Claim or Strike certain paragraphs of the Third Party Claim and/or Dufferin Statement of Defence and Counterclaim

Motion

[1] The Corporation of the City of Mississauga (“City”) seeks to strike the Dufferin Construction Company, a division of CRH Canada Group Inc.’s (“Dufferin”) Third Party Claim or, alternatively, to strike certain paragraphs in Dufferin’s Third Party Claim and to strike certain paragraphs in Dufferin’s Statement of Claim and Defence.

The Background

[2] The City and Dufferin entered into a written contract dated October 2, 2014 known as Contract 17 111 06104 Procurement FA.49.468-13 Torbram Road Grade Separation (“Contract”), to perform the described work on City lands ("Project").

[3] Pursuant to the Contract, Dufferin was to supply and deliver all labour, materials, equipment and services necessary to complete the Project, including all required roadworks and appurtenances, storm sewers and appurtenances, structures, rail, pumping station, channel diversion, roadway electrical, and Region of Peel works.

[4] Dufferin retained subcontractors to perform some of the work and services under the Contract.

[5] The work on the Project commenced.

[6] During the work on the Project, there were delays in completing the Project – reasons, responsibilities and liabilities will have to be sorted out. There are disputes regarding site conditions, design issues and other obligations - reasons, responsibilities and liabilities will have to be sorted out. There are disputed extras – the amount and liability will have to be sorted out.

[7] These and other issues caused financial issues and legal disputes between the City and Dufferin and, consequently, financial issues and legal disputes between Dufferin and some of its subcontractors.

[8] As a result, legal proceedings were commenced before the Project was completed.

[9] The Project was certified as “substantially performed” on July 10, 2020.

[10] The Project is not “complete”. Finishing and warranty work continues. Both the City and Dufferin allege continuing damages against the other.

Dufferin v. City (CV-19-3245) (“Dufferin Action”)

[11] On August 2, 2019, Dufferin commenced the Dufferin Action against the City.

[12] Dufferin claims against the City for breach of Contract, breach of collateral warranties, negligence, negligent misrepresentation and/or breaches of the duties of honest performance, good faith and fair dealing. The damages are estimated to be $45,000,000.00 at the time of the claim and Dufferin also seeks additional damages and losses to be incurred to complete the Project.

[13] On or about November 15, 2019, the City delivered its Statement of Defence and Counterclaim in the Dufferin Action. The City denies liability to Dufferin. The City Counterclaims against Dufferin for damages in the amount of $10,000,000.00 which includes liquidated damages, contract administration fees, engineering fees, flagging costs, and temporary storm water pumping costs. The City claims that the liquated damages payable under the Contract are in addition to any other remedy, action, or other alternative available to the City. The City also claims continuing damages.

[14] On May 25, 2020, Dufferin delivered a Reply and Defence to Counterclaim. In its Reply and Defence to Counterclaim, Dufferin denies the City’s damages, denies the City is entitled to assert a claim for liquidated damages, and that the City’s claim for liquidated damages is unenforceable and contrary to public policy.

[15] On or about September 29, 2020, Dufferin delivered an Amended Statement of Claim. In its amended pleading, Dufferin added grounds of relief and claims (such as errors or omissions by the City in the design) and for additional damages and losses that Dufferin had allegedly continued to accrue to complete the Project.

[16] On January 15, 2021, the City delivered its Amended Statement of Defence and Counterclaim in the Dufferin Action.

Earth Boring Action (CV-19-628334) (“Earth Boring Action”)

[17] Earth Boring Company Limited (“Earth Boring”) is a subcontractor of Dufferin. Earth Boring provided grade separation work for Dufferin on the Project.

[18] On October 1, 2019, Earth Boring commenced the Earth Boring action against Dufferin seeking $3,160,428.97 in damages. Earth Boring advances claims in contract, negligence and unjust enrichment against Dufferin. Earth Boring alleges that it encountered unexpected subsurface conditions (for which it claims it is not responsible) when attempting to perform certain tunneling work pursuant to the subcontract (the “Subcontract”) resulting in additional costs, expenses and delays.

[19] On September 20, 2020, Dufferin delivered an Amended Statement of Defence and Counterclaim.

[20] On October 5, 2020, Dufferin commenced a Third Party claim against the City (“Third Party Action”). In the Third Party Action, Dufferin claims against the City for contribution and indemnity under the Negligence Act, at common law and in equity for any amounts which Dufferin may be found to be responsible to Earth Boring and/or in the alternative, damages for breach of contract equal to any amounts found to be owing from Dufferin to Earth Boring plus markups.

[21] On November 20, 2020, the City defended Dufferin’s Third Party Action by delivering its Third Party Defence. The City did not defend the “main action”. The City refers to the Dufferin Action in its Third Party Defence and pleads that the allegations made in the Third Party Claim are duplicative, and in most cases, identical to those alleged against the City in the Dufferin Action. In addition, the City pleads that Dufferin seeks the same relief against the City as it seeks in the Dufferin Action, to which the City has fully responded.

[22] The Earth Boring Action was brought in Toronto, however, this court ordered that the Earth Boring Action be transferred to Brampton and be case managed with the other actions relating to this Project.

Dufferin Application (CV-20-4446) (“Dufferin Application”)

[23] On November 30, 2020, Dufferin issued an Application seeking judgment for breach of contract in the amount of $7,067,853.00, inclusive of H.S.T. In its Application, Dufferin pleads that the sum of $8,845,853.01, inclusive of H.S.T., are holdback monies now due under the Contract and that the City’s liquidated damages set-off is limited to a maximum of $1,778,000.00.

[24] The Dufferin Application recognizes that, in the Dufferin Action, the City has claimed a set-off and “counterclaimed for delay damages. Dufferin recognizes that “a component of the set off and counterclaim asserted by Mississauga” in the Dufferin Action includes the liquidated damages.

[25] The City delivered its Notice of Appearance in the Application on January 15, 2021.

Other Procedural Matters

[26] On July 28, 2020, A & B Rail Services Ltd. (“A&B”), also a subcontractor to Dufferin on the Project, commenced a Construction Lien action in against Dufferin and the City regarding the work it performed on the Project.

[27] On November 9, 2020, this court ordered that all the various Brampton actions, relating to the Project be case managed.

[28] To date, no party has brought a motion to consolidate or have the above mentioned proceedings tried together.

The Subcontractor’s First Clause

[29] The Contract (between the City and Dufferin) contains what has been referred to as the “Subcontractor’s First Clause”.

[30] Both the City and Earth Boring each independently seek to rely on the Subcontractor’s First Clause. Both submit that the Subcontractor’s First Clause prevents Dufferin from seeking contribution and indemnity from the City until Dufferin has either paid those subcontractor’s claims or they have obtained a judgment against Dufferin for Earth Boring’s claim.

[31] Very simply, from Earth Boring’s perspective, it does not wish to be drawn into the much larger dispute between Dufferin and the City. From the City’s perspective it wishes Dufferin to have to deal with Earth Boring’s claim first.

[32] The Subcontractor’s First Clause is described in the following way by the City in its Defence to the Third Party Action (para 7(h)) and its Statement of Defence and Counterclaim (9(uu)) in the Dufferin Action:

… to the extent that Dufferin is otherwise entitled to any adjustment to the Contract Price, or any payment in respect of any Change Order, Change Directive, Concealed or Unknown Conditions, or any claim relating to costs or impact arising from Delay, its claim shall be restricted to any costs that Dufferin has directly incurred or, with respect to accounts from its Subcontractors or Suppliers, amounts that it has actually paid or unconditionally acknowledged as payable, or for which it has been found to be liable through litigation or binding arbitration. For greater certainty, Dufferin shall not submit, as part of any claim under any of the aforementioned categories, any amount where Dufferin’s obligation to pay that amount is in any way conditional or contingent on Dufferin’s ability to recover that amount from the City;

Position of the Parties

The City

[35] The City points to the virtually identical paragraphs in the two proceedings commenced by Dufferin. The City submits that the Third Party Action is an abuse of the process as:

i. Dufferin has initiated a multiplicity of duplicative proceedings; ii. It would be inefficient, expensive and not expeditious for both actions to proceed; iii. Permitting the Third Party Action to proceed would cause prejudice or injustice to the City; and iv. Allowing the Third Party Action to proceed would expose the parties to the risk of inconsistent findings of fact and judgments.

Dufferin

[36] Dufferin submits that the Third Party Action:

i. Is not an abuse of process; ii. Is expressly permitted by section 113 of the Courts of Justice Act; and iii. If not allowed to proceed, will prejudice Dufferin if struck.

[37] Dufferin submits that, since the City did not defend Earth Boring’s claim, it has no standing to attack the paragraphs in Dufferin’s Statement of Defence and Counterclaim.

[38] Dufferin submits that it is entitled to seek contribution and indemnity against the City in the Third Party Action.

The Law

[39] The law regarding abuse of process and multiplicity of proceedings is not seriously in dispute. Motions to strike Third Party Claims, such as the one before this court, turn on the specific facts of each case and the weighing of the countervailing factors. The authorities do not assist much except to set out very general broad principles.

[40] Section 138 of the Courts of Justice Act provides that multiplicity of proceedings should be avoided “as far as possible”. This prohibition against multiple actions is not absolute. The exercise of this court’s jurisdiction depends on an assessment of such matters as the similarities of the two or more multiple proceedings, the circumstances and claims between the parties, whether some of the claims involve third parties, whether either party is prejudiced and the legal and practical circumstances surrounding each of the proceedings.

[41] Rule 21 of the Rules of Civil Procedure embodies this court’s jurisdiction to stay or dismiss an action. Again, the prohibition is not absolute and requires the exercise of the court’s discretion upon a consideration of all the relevant circumstances and equities applicable to the parties and multiple proceedings.

[42] Rule 25.11 of the Rules of Civil Procedure provides that the Court may strike out or expunge all or part of a pleading or other document, with or without leave to amend, on the ground that the pleading or other document:

(a) may prejudice or delay the fair trial of the action; (b) is scandalous, frivolous or vexatious; or (c) is an abuse of the process of the court.

[43] In Abdi Jama (Litigation Guardian of) v. McDonald’s Restaurants of Canada Ltd. 2001 CarswellOnt 939 (SCJ) the court state that: “motions under rule 25.11 should only be granted in the "clearest of cases"”.

[44] Section 113 of the Courts of Justice Act provides:

113 Rules of court permitting a defendant to make a third party claim or crossclaim apply despite any agreement that provides that no action may be brought until after judgment against the defendant.

[45] The Rules of Civil Procedure provide:

29.01 A defendant may commence a third party claim against any person who is not a party to the action and who,

(a) is or may be liable to the defendant for all or part of the plaintiff’s claim; (b) is or may be liable to the defendant for an independent claim for damages or other relief arising out of, (i) a transaction or occurrence or series of transactions or occurrences involved in the main action, or (ii) a related transaction or occurrence or series of transactions or occurrences; or (c) should be bound by the determination of an issue arising between the plaintiff and the defendant.

Analysis

Strike Dufferin’s Third Party Action

[46] The only serious attack on the Third Party Action by the City is that it submits the Third Party Action constitutes a multiplicity of proceedings of essentially identical claims by Dufferin, which multiplicity of proceedings amounts to an abuse of process.

[47] At the heart of the City’s submissions is that the Third Party Action advances the same claims and issues advanced in the Dufferin Action.

[48] I agree that there is some overlap between the Dufferin Action and the Third Party Action. Essentially, Dufferin’s claim against the City for any amounts payable to Earth Boring are included in Dufferin’s claim against the City in the Dufferin Action and that amounts payable to Earth Boring is also the subject of Dufferin’s claim in the Third Party Action.

[49] Nevertheless, I disagree with the City’s submission that these two proceedings are “in respect of the same matter” or “arise from the same factual matrix” or are “virtually identical”.

[50] In my view, the City’s description is a misdescription. The relief sought by Dufferin is very different in the two proceedings. The facts at issue in the Dufferin Action, are markedly different, broader and have a different focus than the allegations made by Earth Boring in the Earth Boring Action for which Dufferin seeks contribution and indemnity. In the Dufferin Action, the entire contractual relationship between Dufferin and the City and Project work is at issue. However, in the Third Party Action, Dufferin only raises those issues regarding Earth Boring’s very specific work on the Project and claims that arise therefrom.

[51] The City’s submission entirely ignores that the central and only claim by Dufferin in the Third Party Action is for contribution and indemnity for Earth Boring’s claims in the Main Action.

[52] Accordingly, the Third Party Action does NOT make the same or identical Dufferin claims in the Dufferin Action.

[53] There is a very significant factual and legal relationship and connection between the Third Party Action and Earth Boring’s claim against Dufferin. This factual and legal relationship is only a small part of the Dufferin Action.

[54] The Third Party Action makes the City bound by the determination made in the Main Action. For example, paragraph 5 of the Earth Boring Statement of Claim states: “The Dufferin Contract [the Contract between the City and Dufferin] contains certain terms and conditions relevant to this action” which terms Earth Boring claims it is entitled to rely on. Or at paragraph 6 where “Earth Boring further states that it was a term and condition of the Dufferin Contract that Dufferin was obliged to perform subsurface” investigations…..”.

[55] Earth Boring is not a party to the Dufferin Action. If these issues are dealt with in the Dufferin Action, the interpretation of these terms would be decided without Earth Boring being bound by the decision in the Dufferin Action. Without the Third Party Action involving the City, the City would not be bound by the interpretation of these terms in the Earth Boring Action. It appears to me that the most efficient way, and least likely to result in inconsistent determinations, is to have these contractual issues (and other issues relating to Earth Borings work) be dealt with in a proceeding where all three parties are present. That occurs in the Earth Boring Action where all three parties are bound by the court’s determinations.

[56] Then there is the nature and consequences of the Third Party Action which is a claim for contribution and indemnity. For example, if $1,000,000 was determined payable to Earth Boring by Dufferin in the Earth Boring Action, there is uncertainty as to whether another judicial determination in the Dufferin Action could or would conclude that Dufferin is entitled to that same amount from the City. Perhaps a difference could be explained by the different contractual arrangements but such a difference is difficult to rationalize for Earth Boring’s non-contractual claims such as unjust enrichment. This could lead to serious financial consequences making one party (either Dufferin or Earth Boring) a financial loser and winner, without regard to what is rational, consistent and equitable between all these parties.

[57] Equitable claims, such as unjust enrichment, are in play. Without all three parties involved in the same proceeding, the court will not be able to fully assess and grant appropriate equitable remedies to all the parties. For example, Earth Boring has claimed an unjust enrichment in the Earth Boring Action. Whether Dufferin is unjustly enriched will depend on whether and the amount Dufferin recovers in the Dufferin Action for Earth Boring’s claim. The Third Party Action provides fairness by establishing the proper flow of monies, if any, relating to these related equitable claims and to assess appropriate liability. O'Neil v. Van Horne, 2002 O.A.C. 188, at para. 5:

42. The right to contribution and indemnity between tortfeasors is in the nature of a restitutionary claim to prevent unjust enrichment. The right to contribution and indemnity provides for fairness between the tortfeasors by allowing them to spread the damages in according with their share of liability.

[58] Accordingly, the Earth Boring unjust enrichment claim is inextricably tied to the issues between Dufferin and the City and can only and should be decided in a forum where Dufferin, the City and Earth Boring are all bound by the judicial determination and respective liability which can be determined.

[59] I am satisfied, from a practical and equitable approach, Earth Boring’s claim against Dufferin should be determined at the same time as Dufferin’s Third Party Action for contribution and indemnity.

[60] The City submits that striking the Third Party Action will not cause an injustice or prejudice to Dufferin. I disagree. Dufferin could be found liable to Earth Boring in the Earth Boring Action but Dufferin would thereafter have to litigate separately whether it should in law or equity to recover those monies from the City under the Contract. There is serious potential prejudice to Dufferin.

[61] On the other hand, any prejudice to the City can be dealt with, or at least substantially dealt with, by costs, by consolidation, trial together or directions.

[62] The City does not expressly rely on the Subcontractor’s First Clause as a basis for striking the Third Party Action. The Subcontractor’s First Clause is between the City and Dufferin. There is a relevant practical implication to this motion. One can easily imagine a scenario that the Third Party Action is struck and then the City moves to strike the portion of Dufferin’s Action for amounts claimed by subcontractors. Dufferin will be left to deal with the Earth Boring Action and any other subcontractor first in separate actions. Dufferin’s Action would and could not include the subcontractor’s claims. After the subcontractor’s claims are determined, Dufferin would have to bring another action against the City for the amounts paid to the subcontractors. Again, there is a risk of inconsistent determinations and, potentially, res judicata or issue estoppel issues. This increased multiplicity of proceedings could easily expand the number of proceedings and delay the final resolution of the disposition of all disputes relating to this Project.

[63] Section 113 of the Courts of Justice Act specifically permits a third party claim as a substantive right, despite any agreement to the contrary, to advance a claim for contribution and indemnity. Clearly, the legislators determined that claims for contribution and indemnity should be dealt with at the same time as claims in the main action to permit a proper assessment between multiple parties their degree of liability and contribution. The legislators considered it that important. Despite submissions to the contrary, I am not persuaded that this provision only applies to insurance claims.

[64] In my view, the wording in s. 113 of the Courts of Justice Act is consistent with the concept that there may be good reason to permit related proceedings to continue simultaneously for claims where issues of contribution and indemnity arise.

[65] This is very far from the clearest of cases where the court should intervene to exercise its discretion to prevent a party from using the rights that the Courts of Justice Act and the Rules of Civil Procedure give a party to bring a claim for contribution and indemnity to ensure fairness to it for any liability which may be the responsibility of a third party.

[66] There are a few additional City submissions that can be disposed of quickly.

[67] The City submits:

Permitting the Third Party Claim to continue will result in a multiplicity of proceedings between the same parties in respect of the same subject matter, will encourage the improper use of the Rules and the court process, and bring the administration of justice into disrepute. In addition, the Court will continue to expend significant and unnecessary duplication of time and scarce judicial resources as a result of hearing and ruling upon multiple interlocutory proceedings and duplicative trials on substantially the same law, facts, and issues. This will give rise to the possibility of inconsistent findings and double recovery.

[68] As stated above, any prejudice to the City can be easily be dealt with by consolidation or trial one after the other. The City has sought neither. The additional cost of dealing with two proceedings can be substantially ameliorated through judicial directions. The City has not sought any.

[69] Judicial economy is a significant factor to determine whether there is an abuse of process, however, ensuring justice and equity to all parties is paramount. Failure to make this the paramount consideration would bring the administration of justice into disrepute.

[70] The City suggests there is a possibility of inconsistent findings. In my view, there is a greater risk of material inconsistent findings if the Third Party Action were struck.

[71] The City submits this could result in double recovery. I see none. If Dufferin obtained any judgment in the Third Party Action against the City, Dufferin would suffer less damages it could recover in the Dufferin Action against the City.

[72] The City’s submission that, by allowing the Third Party Action to proceed, could result in the improper use of the Rules or bring the administration of justice into disrepute is speculative.

[73] Considering all of the above, I am not persuaded that Dufferin’s Third Party Action is unnecessarily duplicitous of Dufferin’s claim in the Dufferin Action or creates an unnecessary or inappropriate multiplicity of proceedings. It does not amount to an abuse of process.

[74] The City’s motion to Strike the Third Party Action is dismissed.

City’s Motion to strike certain paragraphs of Dufferin’s Statement of Defence and Counterclaim

[75] I agree that, since the City has not defended the Main Action, as it could have, it has no standing to strike paragraphs in Dufferin’s Statement of Defence and Counterclaim. The wording in Dufferin’s Statement of Defence and Counterclaim is an issue between Earth Boring and Dufferin.

[76] This portion of the City’s motion is dismissed.

Motion to strike certain paragraph of Dufferin’s Third Party Claim

[77] The City seeks to strike paragraphs 1(a), 1(b), 1(c), 6, 7, 8, 9, 10 and 11 of Dufferin’s Third Party Claim.

[78] Essentially, the paragraphs sought to be struck are claims for contribution and indemnity against the City. For the reasons set out above, these paragraphs are reasonable and appropriate in Dufferin’s Third Party Action for contribution and indemnity.

[79] This portion of the City’s motion is dismissed.

Conclusion

[80] The City’s motion is dismissed.

Costs

[33] Cost Outlines were filed at the conclusion of the hearing.

[34] Any party seeking costs shall serve and file written submission on entitlement and quantum within two weeks of the release of these reasons. Written submissions shall be limited to 3 pages, with attached Costs Outline and any authorities.

[35] Any responding party shall have one week thereafter to serve and file responding submissions. Written submissions shall be limited to 3 pages with any authorities relied on attached.

[36] There shall be no reply submissions without leave.

Ricchetti, RSJ Date: March 15, 2021