COURT FILE NO.: 3065/20

DATE: 20210401

ONTARIO

SUPERIOR COURT OF JUSTICE

BETWEEN:

FELTZ DESIGN BUILD LTD.

Plaintiff

– and –

KEVIN GARY LARSON, a.k.a. KEVIN LARSON, LARSON PROPERTIES PARTNERSHIP CORP., BENNINGTON FINANCIAL CORP., COSMAN MORTGAGE CAPITAL CORPORATION and OLYMPIA TRUST COMPANY

Defendants

M. A. Cook, for the Plaintiff/Moving party

E. Kerson, for the Defendants Kevin Gary Larson and Larson Properties Partnership Corp.

HEARD: January 19, 2021

grace j.

A. Introduction

[1] 25-33 Market Place, Stratford, Ontario (the “premises”) is a commercial property owned by the defendant Larson Properties Partnership Corp. (“LPPC”). Co-defendant Kevin Gary Larson (“Larson”) is an officer, director and the majority shareholder of the company.

[2] LPPC retained Feltz Design Build Ltd. (“Feltz” or the “plaintiff”) to redevelop the premises. The plaintiff claims that a significant sum remains owing despite the fact Feltz completed work on the project in October 2019.[^1] Feltz seeks summary judgment against LPPC and Larson. Its claim against LPPC is made pursuant to (i) a CCDC Construction Management Contract for Services and Construction Feltz and LPPC entered into dated February 7, 2019 (the “CCDC Contract”) and (ii) certain trust provisions found in the Construction Act.[^2] The foundation for the claim against Larson is s. 13 of that statute.

B. The Contract, the Work, Payment Certification and the Certificate of Substantial Completion

[3] The project was a significant one. Once completed, the premises were to contain a pub/restaurant, butcher shop, food market and commercial offices.

[4] The CCDC contract price was based on time and materials. LPPC maintains that Feltz agreed to a fixed price as set forth in a document I will soon describe.

[5] As a practical matter, Feltz delivered invoices from time to time. Partial payments were received. Arrears began to accumulate in April 2019. Nonetheless, Feltz continued its work on the premises while simultaneously attempting to resolve the payment issue. Suffice to say, the parties did not find common ground and the amount Feltz claimed was outstanding continued to grow.

[6] According to the CCDC contract, the role of administering the agreement, reviewing and approving the plaintiff’s work and determining when it was substantially performed was entrusted to R. Ritz Architects (“Consultant”). Although the Consultant had some involvement in the project throughout, for reasons that are not clear from the record, it was unaware of the extent of the tasks assigned under the parties’ agreement until September 2019. Its involvement in the payment issue commenced in that month.

[7] By September 2019 the relationship had soured. Feltz points to the fact cheques delivered by LPPC in June and August 2019 in significant amounts were dishonoured. LPPC claims there were issues with respect to the timeliness and quality of the work Feltz performed.

[8] On September 26, 2019 Feltz registered a claim for lien as against the premises.[^3]

[9] Thereafter, the Consultant took on a more a significant role. On October 10, 2019, it certified that $659,784.17, inclusive of H.S.T. was due to Feltz as of September 30, 2019. That amount did not account for partial payments LPPC had made.

[10] Soon afterward, the Consultant certified that the work on the project was substantially completed on October 17, 2019. The certificate of substantial completion was published on October 28, 2019.

[11] The amount claimed by Feltz has been somewhat of a moving target. The notice of motion set forth one amount. The plaintiff’s factum sought payment of a much higher sum. During argument, the court was told that Feltz claims that $530,764.88 was owing as of October 17, 2019, inclusive of statutory holdbacks, H.S.T. and interest charges.[^4]

C. The Breach of Trust Claim

[12] Feltz takes the position that monies received by LPPC after the date of substantial completion were impressed with a statutory trust, regardless of their source.

[13] LPPC’s business interests are not limited to the premises. During his cross-examination, Mr. Larson said that LPPC “owns a variety of commercial rental as well as residential construction and development properties” as well as “holdings in a variety of other businesses and…other partnerships through Southwestern Ontario.”[^5] Revenue has been generated by some, if not all, of them.

[14] Counsel for Feltz obtained copies of the parcel registers for several pieces of real estate LPPC owns. They allowed her to determine that LPPC sold a property municipally described as 114 Erie Street, Stratford in mid-March 2020 for the sum of $925,000. Mr. Larson was not sure how the proceeds had been used but thought they had satisfied obligations secured by one or more charges/mortgages of land.

[15] The solicitor for Feltz also learned that LPPC had listed three other pieces of real estate for sale. By the time Mr. Larson was cross-examined, one of the properties had been sold conditionally.[^6]

[16] During the cross-examination of Mr. Larson, counsel for Feltz asked for details of the revenue and payments LPPC had received since the date of certification of substantial performance. The requested information was not provided.

D. The Position of the Defendants

[17] The solicitor for LPPC did not dispute the fact some amount is owing to Feltz. The issue is quantum.

[18] LPPC takes the position that the plaintiff failed to perform its work properly or within the agreed upon time period, that Feltz has delivered invoices for work it did not perform or for goods it did not deliver and for amounts exceeding an “estimate” that represented the agreed upon “all in” price. According to Larson, no more than about $227,000 is notionally owing “before taking into account the numerous deficiencies and uncompleted work at the Property.”[^7]

E. Analysis and Decision

[19] This is a motion for summary judgment. The applicable legal principles are well-established.

[20] Rule 20.04(1) of the Rules of Civil Procedure requires the court to grant summary judgment in a plaintiff’s favour if the court is satisfied the defendant under consideration has not raised a genuine issue requiring a trial.

[21] The moving party bears the onus of proof. However, it is incumbent on the responding party to put its best foot forward.

[22] If the record assembled by the parties allows the motion judge to make necessary findings of fact, apply the law and reach a fair and just determination on the merits, there will be no need for a trial. In those circumstances, a fair and just result is secured through the more expeditious and less expensive summary judgment process and a final order may be granted.[^8] As Karakatsanis J. explained in Hryniak v. Mauldin, 2014 SCC 7 at para. 50:

…the standard for fairness is not whether the procedure is as exhaustive as a trial, but whether it gives the judge confidence that she can find the necessary facts and apply the relevant legal principles so as to resolve the dispute.

[23] A substantial evidentiary record was compiled by the parties for the purposes of this motion. The affidavits of Hainsley Bailey, the project manager of Feltz and of Mr. Larson conflicted in various respects. When faced with allegations of delay, substandard work and unjustified billings, it is difficult to avoid an initial impression that the matter is unlikely to be ripe for a summary determination.

[24] However, the record did not end with the initial exchange of affidavit material. The plaintiff filed a supplementary motion record that contained an affidavit of the Consultant’s representative, Robert Ritz. That affidavit provided important context for the payment certificates and the certificate of substantial completion.

[25] Cross-examinations were conducted. A transcript of the lengthy cross-examination of Mr. Larson was filed.[^9] The plaintiff’s solicitor filed a helpful factum. That was the only one the court received.

[26] Based on the totality of the record, I am of the view this case can be decided justly at this interlocutory stage.

[27] LPPC’s submission that Feltz had provided and then charged more than an “all in” quote may be dealt with in short order. During argument, the defendants’ counsel conceded this is not a well-supported point. Indeed, it is not.

[28] The CCDC contract does not specify a price, let alone a fixed one. Notably, it contains the hourly rates of the employees of Feltz. That would have been unnecessary if a fixed price had been contemplated.

[29] After execution of the CCDC contract, Feltz delivered the document on which LPPC relies.[^10] It bears the title “Estimate”, not quotation or any other word that suggests a definitive price. The estimate does not purport to amend, let alone supersede, the terms of the agreement the parties had negotiated and signed. It is clear from the evidentiary record that the nature and extent of the work was the subject of ongoing discussion, review and revision.

[30] An early example is disclosed in the affidavit of Mr. Ritz. He mentioned a significant structural issue that was identified and addressed. Once a path was chosen, supplementary site instructions and a site review report were issued.

[31] It is also telling that the allegation concerning a set price was not raised by the defendants until Feltz began pushing more aggressively for payment.

[32] With respect to the issue of delay, I start by noting that the CCDC contract went no further than saying “Anticipated completion to be June 2019.”[^11] It did not establish a definitive date. Given the comments I have already made, that is unsurprising.

[33] Mr. Ritz addressed the time it took to complete the project in his affidavit. In relation to the structural component he said:

The work was extensive and took some time and expense to complete. The work was required, and as a result, it caused some delay to the Project schedule.[^12]

[34] Further, an architecture technologist was regularly on-site and, according to Mr. Ritz, “had no issues with how the Project was progressing.”[^13] Once again, delay is not a genuine issue requiring a trial.

[35] With respect to the allegation of substandard work, Mr. Ritz began the payment certification process soon after learning of the terms of the CCDC contract. He had already spoken to Mr. Larson “about deficiencies and delay that he attributed to Feltz workers taking long and/or too many breaks.”[^14]

[36] With respect to the payment certificates issued on October 16, 2019, Mr. Ritz deposed:

In signing the Certificates of Payment as LPPC’s Consultant, I certified to both LPPC and to Feltz that the amounts set out in the certificates were due and payable to Feltz in accordance with the Contract. I had reviewed Feltz’s paper work (sic). Even though there were minor deficiencies in Feltz’s work, the majority of the Project was complete and to a good construction standard.

[37] According to the CCDC contract, the Consultant was to “determine the amounts owing” to Feltz and was to “issue certificates for payment”.[^15] Pursuant to article 9.1.3, LPPC was to make payment in the amount(s) certified by the Consultant. Minor deficiencies did not relieve LPPC of its contractual obligation to pay. Nor did a payment certificate excuse Feltz from its obligation to attend to complete remedial work.

[38] As noted earlier, a certificate of substantial performance was issued by Mr. Ritz soon afterward. He declared that the work contemplated by the CCDC contract was substantially complete on October 17, 2019. That was another responsibility the parties contractually agreed the Consultant would bear.[^16] Substantial performance obligated LPPC to remit to Feltz the unpaid balance of the holdback(s).[^17]

[39] Along the way, LPPC has attempted to support its failure to pay with allegations that its “bankers” have expressed concern with the work Feltz performed and the certificates the Consultant issued. During cross-examination of Mr. Larson, it became clear that no third -party financier had said any such thing. That does not reflect well on the defendants. In fact, it reinforces what the rest of the record establishes. LPPC owes Feltz the unpaid balance but is simply unwilling or unable to pay.

[40] In the circumstances, Feltz shall have judgment against LPPC for the balance owing being $530,764.88.

[41] I turn to the breach of trust claim. As noted, the Consultant issued payment certificates and a certificate of substantial performance. Consequently, ss. 7(2) through (4) of the Construction Act[^18] are engaged. They create a trust for the benefit of persons in the position of Feltz. The subsections are reproduced below:

Amounts certified as payable

7 (2) Where amounts become payable under a contract to a contractor by the owner on a certificate of a payment certifier, an amount that is equal to an amount so certified that is in the owner’s hands or received by the owner at any time thereafter constitutes a trust fund for the benefit of the contractor.

Where substantial performance certified

7 (3) Where the substantial performance of a contract has been certified, or has been declared by the court, an amount that is equal to the unpaid price of the substantially performed portion of the contract that is in the owner’s hands or is received by the owner at any time thereafter constitutes a trust fund for the benefit of the contractor.

Obligations as trustee

(4) The owner is the trustee of the trust fund created by subsection (1), (2) or (3), and the owner shall not appropriate or convert any part of a fund to the owner’s own use or to any use inconsistent with the trust until the contractor is paid all amounts related to the improvement owed to the contractor by the owner.

[42] These provisions: (i) are remedial in nature and therefore are to be liberally interpreted[^19]; and (ii) are to be strictly applied.[^20]

[43] The extent of the trust’s reach is well illustrated by Structural Contracting Ltd. v. Westcola Holdings Inc. (2000), 2000 CanLII 5740 (ON CA), 48 O.R. (3d) 417 (C.A.).

[44] In that case, Westcola Holdings Inc. (“Westcola”) owned and rented units in a commercial building. It hired Structural Contracting Ltd. (“Structural”) to renovate the development’s parking garage. As here, Westcola used its general revenue to partially pay for the work Structural performed. A balance remained owing. A certificate of substantial performance was issued.

[45] Thereafter, Westcola continued to receive rental payments from its tenants. None of the money was remitted to Structural. The revenue was used, instead, to pay expenses relating to the maintenance and operation of the development. The amount received and spent in that fashion exceeded the balance owed to Structural.

[46] Despite the nature and importance of the payments Westcola had made, the Court of Appeal concluded that the owner had breached the subsections of the Construction Act to which I have referred. Writing on behalf of the Court at para. 19, Austin J.A. said:

The strictures of a trust apply to any and all money coming into the hands of the owner, up to the amount owing to the contractor. As a practical matter, the limitation on the application of s. 7(3) proposed by counsel for the defendants, namely, restricting the trust to profits in the hands of the owner, would turn actions to enforce the trust sections of the Act into accounting exercises. Nothing in the Act suggests that was the intention of the Legislature in passing s. 7(3).[^21]

[47] In this case, it is undisputed that LPPC’s operations have continued.[^22] When cross-examined, Mr. Larson confirmed that LPPC was financing the project through its own cash flow.[^23]

[48] As noted, LPPC owns commercial and residential properties. It participates in partnerships that own other businesses too. Clearly, the statutory trust attached to monies coming into its hands.

[49] However, the record contains very little particularity. The reason is simple. Mr. Larson declined to provide information concerning the revenue attributable to the premises or to the other parts of its business operations.

[50] As noted, counsel for Feltz was able to obtain information concerning the sale of another piece of real estate owned by LPPC. The purchase price exceeded the amount owing to Feltz. During cross-examination, Mr. Larson said he thought the proceeds had been used to satisfy amounts owing on account of mortgages registered against that parcel.[^24] The request for a trust statement was taken under advisement. The record provided to me contained no such thing.

[51] Once the existence of the trust is established, the onus shifts to LPPC to show how trust funds were used: Emco Corporation v. Ontario Trenchless Construction Ltd. et al. (2007), 65 C.L.R. (3d) 33. (Ont. S.C.J.) at para. 9.[^25] Bluntly, the defendants have failed to take that legal principle into consideration. They declined the opportunity to provide an explanation if there is one.

[52] The clear inference is this: LPPC has received funds that are impressed with a trust for the benefit of Feltz and has failed both to account for and to remit them despite the payment certificates and certificate of substantial completion. As Molloy J. said in St. Mary’s Cement Corporation v. Construc Ltd. (1997), 1997 CanLII 12114 (ON SC), 32 O.R. (3d) 595 (Gen. Div.) at p. 610:

[a trustee] who deposits trust funds into a general business bank account and intermingles them with other funds from other sources does so at [its] peril.[^26]

[53] Consequently, on this record, LPPC breached the trust established by the Construction Act. Counsel for the defendant conceded that the trusts established by ss. 7(2) extend to all amounts received by the owner after the stipulated event has occurred, even if from sources entirely unrelated to the property that has been improved. Even based on a limited evidentiary record, it is clear LPPC received amounts in excess of the balance owed to Feltz and failed to use any part of them for the required purpose. LPPC is liable for breach of trust to the full extent of the outstanding indebtedness.

[54] What about Mr. Larson? Section 13(1) of the Construction Act sets forth the circumstances in which personal liability will be imposed. The relevant portions read:

13(1) In addition to the persons who are otherwise liable in an action for breach of trust under this Part,

(a) every director or officer of a corporation; and

(b) any person…who has effective control of a corporation…

who assents to, or acquiesces in, conduct that he…knows or reasonably ought to know amounts to a breach of trust by the corporation is liable for the breach of trust.

[55] Mr. Larson is a person identified in those subsections. As mentioned earlier, he is an officer and director of LPPC. When cross-examined on the affidavit he swore, the witness agreed that he owned and operated the company.[^27] Consequently, Mr. Larson also had effective control of it.

[56] The balance of the subsection uses language that is disjunctive. Liability will be imposed if Mr. Larson assented to or acquiesced in conduct that he knew or reasonably ought to have known amounted to a breach of trust by LPPC. Only one of the tests needs to be satisfied.[^28]

[57] LPPC is involved in residential and commercial real estate. Its business operations are extensive.

[58] During cross-examination, Mr. Larson mentioned other projects LPPC had been involved in that were the subject of contracts based on the CCDC template.

[59] Larson also told counsel for Feltz that LPPC maintained “a variety of holdbacks on lots of projects”[^29] although he did not know if they were held in segregated accounts.

[60] Mr. Larson is an experienced businessperson who has participated in many construction projects. It is clear that Mr. Larson knew or ought to have known that after the Consultant issued certificates, monies received by LPPC from whatever source were impressed with a trust and that their use for any other purpose was contrary to the legislative requirements.[^30]

[61] In the circumstances, Mr. Larson is jointly liable with LPPC for breach of trust to the full extent of the $530,764.88 that remains owing to Feltz.

F. Conclusion

[62] For the reasons given, the motion for summary judgment is granted. Feltz shall have judgment against LPPC for breach of contract and breach of trust in the amount of $530,764.88 plus interest at the rate specified in the CCDC contract from October 17, 2019 onward.

[63] Feltz shall also have judgment against Mr. Larson for breach of trust in the amount of $530,764.88 plus interest in accordance with the Courts of Justice Act from October 17, 2019 onward.

[64] If the parties are unable to resolve the issue of costs, written submissions not exceeding seven (7) pages each may be provided to me by the plaintiff and the defendants by the close of business on April 16 and 30, 2021 respectively.

“Justice A.D. Grace”

Justice A.D. Grace

Released: April 1, 2021

COURT FILE NO.: 3065/20

DATE: 20210401

ONTARIO

SUPERIOR COURT OF JUSTICE

BETWEEN:

FELTZ DESIGN BUILD LTD.

– and –

KEVIN GARY LARSON et. al.

REASONS FOR DECISION

Grace J.

Released: April 1, 2021

[^1]: $527,042.06 was the amount claimed in the notice of motion. $596,105.53 appeared in the plaintiff’s factum. The amount specified was provided and explained during argument. A partial payment had been missed.

[^2]: R.S.O. 1990, c. C-30 as amended, ss. 7(2), (3) and (4).

[^3]: The amount set forth in the claim for lien and notice of motion was $527,042.06. $596,105.53 was the amount that appeared in Feltz’ factum. As I understand it, the lowered amount reflects a partial payment that had not been credited.

[^4]: The interest charges were calculated as of September 30, 2019.

[^5]: Transcript of the cross-examination of Kevin Larson conducted December 14, 2020, Q. 51 (the “Larson transcript”). See, too, Q. 249.

[^6]: 277 St. David Street, Stratford.

[^7]: The excerpt is drawn from para. 32 of Mr. Larson’s affidavit sworn December 11, 2020.

[^8]: Hryniak v. Mauldin, 2014 SCC 7 at paras. 49-50, 66 and 68.

[^9]: It appears Messrs. Bailey and Ritz were cross-examined too but counsel for the defendants made no reference to those cross-examinations. Transcripts of them were not filed.

[^10]: It is not clear whether the estimate is dated March 5 or May 3, 2019.

[^11]: Article 3.1.

[^12]: This excerpt is drawn from para. 10 of Mr. Ritz’ affidavit sworn December 12, 2020.

[^13]: This excerpt is drawn from para. 13 of Mr. Ritz’ affidavit.

[^14]: See para. 16 of the affidavit of Mr. Ritz.

[^15]: Article GC 2.3.5.

[^16]: Article GC 2.3.16.

[^17]: Article 9.1.4.

[^18]: R.S.O. 1990, c. C.30.

[^19]: Zurich Indemnity Company of Canada v. Matthews, 2005 ONCA 1629 at paras. 39.

[^20]: Home Depot Inc. v. Fieder Painting Inc., 1995 CarswellOnt 4514 (Gen. Div.) at para. 12.

[^21]: Leave to appeal to the S.C.C. refused, 147 O.A.C. 399 (8 March 2001). See, too, the obiter comments of MacLeod J. in Vision Air Conditioning and Heating Corporation v. Golden Dragon Ho Inc., 2018 ONSC 3520 (S.C.J.) at para. 10.

[^22]: During his cross-examination, Mr. Larson said that LPPC “owns a variety of commercial rental as well as residential construction and development properties” as well as “holdings in a variety of other businesses and…other partnerships through Southwestern Ontario.” Transcript of the cross-examination of Kevin Larson undertaken on December 14, 2020, Q. and A. 51 (the “Larson transcript”). By way of example, see, too, Q. and A. 249.

[^23]: Larson transcript, Q. and A. 232.

[^24]: Larson transcript, Q. and A. 283. A request for the trust statement on closing was taken under advisement. Seemingly, the document was not provided.

[^25]: And see Colautti Construction Ltd. v. Ashcroft Development Inc., 2011 ONCA 359 at para. 83 and St. Mary’s Cement Corporation v. Construc Ltd. (1997), 1997 CanLII 12114 (ON SC), 32 O.R. (3d) 595 (Gen. Div.) at pp. 600-601.

[^26]: Cited with approval in Colautti Construction Ltd. v. Ashcroft Development Inc., supra at para. 85.

[^27]: Larson transcript, Q. and A. 26. He later clarified that he held the majority of the shares of the company but was not the sole shareholder.

[^28]: Structural Contracting Ltd. v. Westcola Holdings Inc., supra at para. 28.

[^29]: Larson transcript, Q. and A. 305.

[^30]: Structural Contracting Ltd. v. Westcola Holdings Inc., supra at para. 28; Tam-Kal v. Stock Mechanical Inc. (1998), 43 C.L.R. (2d) 94 (Ont. Gen. Div.) at p. 116 aff’d [1999] O.J. No. 4371 (C.A.) at para. 16; G.V.B.S. Inc. v. Hydro Guard Inc. (1998) 40 C.L.R. (2d) 272 (Ont. Gen. Div.) at para. 58; St. Mary’s Cement Corporation v. Construc Ltd., supra at pp. 616-617.