COURT FILE NO.: CV-17-00568437-0000
DATE: 20210406
ONTARIO
SUPERIOR COURT OF JUSTICE
BETWEEN:
CITY STAR ROOFERS INC.
Plaintiff
– and –
2169462 ONTARIO LIMITED and ORMONT HOLDINGS INC.
Defendants
Amandeep Sidhu, for the Plaintiff/ Defendant by Counterclaim
John Lo Faso, for the Defendant, 2169462 Ontario Limited/Plaintiff by Counterclaim
HEARD: February 18, 2021
STEWART J.
Nature of the Motions
[1] The Defendant/Plaintiff by Counterclaim 2169462 (“216”) has brought a motion for summary judgment based upon Minutes of Settlement entered into between the parties on February 28, 2020.
[2] 216 takes the position that the Plaintiff/Defendant by Counterclaim City Star Roofers Inc. (“City Star”) has failed to discharge its obligations as agreed to in the Minutes of Settlement and therefore seeks enforcement of the provision in the Minutes of Settlement that provides that, as a consequence of the default, the amount of $133,366.24 paid into court by 216 by order of Master Albert dated February 24, 2017 is to be released to its solicitors, and that the City Star action and the counterclaim brought by 216 should be dismissed without costs.
[3] City Star Roofers Inc. resists the granting of summary judgment and has brought a cross-motion seeking relief from the forfeiture that would result from enforcement of the Minutes of Settlement.
Facts
[4] 216 is the owner of a commercial building at 1880 Ormont Drive in Toronto. Ormont Holdings Inc. is a business name under which 216 leases parts of the building to tenants and is therefore not a legal entity capable of suing or being sued.
[5] In May of 2016, 216 entered into a contract with City Star to repair and replace the roof of its building. The total amount of the payment to be made under the contract was approximately $215,000.00. 216 paid approximately $193,000.00 to City Star over the duration of the contract, leaving a balance of approximately $22,000.00.
[6] 216 withheld payment of the $22,000.00 balance of the total amount to be paid pursuant to the contract on the basis of its claim that City Star had failed to fully complete the work contracted for in a proper way and had failed or refused to remedy the deficiencies in its performance of the contract.
[7] In November 2016 City Star stopped all work at the building site, left the premises and refused to return to correct any of the claimed deficiencies.
[8] In December 2016, City Star registered a construction lien against the property in the amount of $106,692.99. On January 26, 2017 a Certificate of Action was obtained.
[9] By order of Master Albert dated February 24, 2017 the lien and Certificate of Action were vacated. In order to obtain the order, 216 was required to pay $133,366.24 into court as security for City Star’s claim and its potential costs.
[10] 216 has defended City Star’s claim and asserted its own claim for damages against City Star.
[11] The parties ultimately agreed to attempt to resolve their dispute by a mediation conducted on February 28, 2020. At the mediation the parties had the benefit of a report dated February 10, 2017 prepared by Thermaco Engineering Services (1986) Ltd. (“Thermaco”). Thermaco had been hired by 216 to inspect the roof at the property and prepare a report. The Thermaco report contained a detailed list of 35 specific items which it considered to be deficiencies in City Star’s work on the property.
[12] With the assistance of their respective counsel and the mediator, Jonathan Speigel, the parties negotiated a compromise designed to settle the dispute. The basic terms of this negotiated settlement were agreed upon and incorporated into Minutes of Settlement which stated:
a) That City Star shall rectify the deficiencies outlined in the 2017 Report, save and except for paragraphs 9, 11, 20, 23, 24, 30, 31, 32, 33, 34, and 35 on or before April 30, 2020;
b) That upon completion of rectifying the deficiencies, 216 shall retain the services of Thermaco to inspect the deficiencies;
c) That if and when Thermaco approves of the rectification of the deficiencies, the funds paid into court pursuant to the Order of Master Albert, dated February 24, 2017 shall be paid out as follows:
(i) $30,000.00 to Keyser Mason Ball LLP, in trust; and
(ii) the balance to John Lo Faso Professional Corporation, in trust.
d) That in the event that City star does not attend to fixing the deficiencies on or before April 30, 2020, the action and the counterclaim shall be dismissed in their entirety on a without costs basis and the funds paid into court shall be released to John Lo Faso Professional Corporation, in trust;
e) That the parties hereby acknowledge and agree that they have carefully read these Minutes of Settlement, have had opportunity to seek legal advice as to the nature and effect of these Minutes of Settlement, understand all of the terms therein, and have executed these Minutes of Settlement voluntarily and with knowledge of the consequences thereof.
[13] Accordingly, the negotiated settlement was concluded on the basis that some, but not all, of the deficiencies claimed by 216 would be remedied by City Star by the end of April, 2020. Thermaco was to inspect the work done and to be the sole determiner of whether the deficiencies had been corrected to its satisfaction. If Thermaco was so satisfied, the preponderance of the funds held in court would be paid out to the solicitors for 216 except for the sum of $30,000.00 which would be paid to the solicitors for City Star. If Thermaco was not satisfied, the full amount of the funds being held in court would be paid to the solicitors for 216.
[14] In mid-April of 2020, the parties agreed to extend the April 30deadline to May 31, 2020 due to the COVID-19 pandemic.
[15] City Star attempted to rectify the noted deficiencies identified in the Thermaco report that had been incorporated into the Minutes of Settlement as noted above.
[16] Thermaco conducted a series of inspections of the work done on the roof and delivered reports dated April 25, July 11 and 31, 2020. The July reports indicated that nine items on the list of deficiencies had not been corrected by the May 31, 2020 deadline as required by the Minutes of Settlement. Thermaco also advised 216 that it would cost at least several thousands of dollars to fully address and correct the outstanding deficiencies.
Issues and Discussion
[17] 216 now moves for summary judgment in its favour on the basis of the alleged failure by City Star to do what was necessary under the Minutes of Settlement to receive payment of $30,000.00 out of the funds paid into court. Essentially, 216 is seeking enforcement of what it considers to be the strict terms of the Minutes of Settlement agreed to at mediation and executed by the parties.
[18] City Star takes the position that the Minutes of Settlement required it only to “attend to fixing the deficiencies”. It maintains that it did so and has thereby complied with its obligations pursuant to the Minutes of Settlement.
[19] City Star also seeks relief as against forfeiture which, in practical terms, amounts to a claim by it for some degree of offset of the consequences of its failure to satisfactorily correct all of the deficiencies per the Minutes of Settlement and for partial payment for work done on those deficiencies which it did address to the satisfaction of Thermaco.
[20] 216 relies on Rule 20.04 (2) and Rule 49.09 of the Rules of Civil Procedure in its submission that the Minutes of Settlement ought to be enforced by releasing the funds held in court to it and dismissing all claims. In my view, the proper approach to be taken under either Rule requires a determination of (a) whether an agreement to settle was reached, and (b) whether, on all of the evidence, the agreement should be enforced (see: McGee-Maguire v. Dr. Christopher Tang Dentistry Professional Corp., 2013 ONSC 7688).
[21] The Minutes of Settlement reflect a considered and voluntary agreement by the parties to adopt a practical solution to resolving their dispute. This agreement was arrived at using mediated negotiation with the assistance of counsel. By express terms contained in their Minutes of Settlement, the parties acknowledged that they fully understood the nature and effect of their settlement.
[22] It is very clear from the circumstances under which the Minutes of Settlement were negotiated and executed that the parties intended it to be a binding and final settlement. The consequences of any default by City Star do not include any additional process for discussion, review, argument or arbitration. Rather, the Minutes of Settlement provided City Star with an opportunity to correct the agreed-upon deficiencies and methods of achieving termination of the proceedings both if they did so, and if they did not do so. The Minutes of Settlement also identify Thermaco as the professional arbiter of whether the work done by City Star satisfactorily corrected each agreed-upon deficiency.
[23] To the extent that City Star objects to the admission of the Thermaco reports for the purposes of these motions, I reject its submission that such evidence should have been put into formal opinion reports served pursuant to the Rules and made the subject of cross-examination of the author(s) by counsel for City Star.
[24] First, City Star does not take serious issue with the authenticity of the reports or that their contents are a true reflection of Thermaco’s assessment of the adequacy of City Star’s work.
[25] Further, any requirement for cross-examination of Thermaco on its assessment would only serve to thwart the underlying objective of the process adopted by the parties in their Minutes of Settlement: to achieve a cost-effective and speedy means of resolving dispute and put an end to the litigation.
[26] Similarly, any criticisms City Star may have of the selection of Thermaco as arbiter of the quality or adequacy of its work are dispelled by its express agreement to Thermaco’s role and the consequences of its assessment as provided for in the Minutes of Settlement it negotiated and executed.
[27] Section 98 of the Courts of Justice Act, R.S.O. c. C. 43 provides that a court may grant relief against penalties and forfeitures, on such terms as to compensation or otherwise as are considered just. In its cross-motion City Star seeks such relief against the financial consequences of its default.
[28] The appropriate analysis for considering whether a particular clause in a contract is a penalty clause or a forfeiture clause is set out in Chilikoff v. West Placer Inc., 2016 ONSC 6354, as follows:
(a) A penalty is a payment of a sum as a consequence of a breach;
(b) A forfeiture is the loss, by reason of some specified conduct, of a right property or money, often held as security or part payment of the obligation being enforced under the threat of forfeiture;
(c) A stipulated remedy clause is evaluated at the time of contract formation; if it represents a genuine attempt to estimate damages at breach, it will be enforced. It will be a penalty if the stipulated sum is extravagant and unconscionable in amount in comparison with the greatest loss that could be conceivably be proceed to have followed from the breach;
(d) Equity considers enforceability at the time of breach, and considers whether it is unconscionable for the innocent party to retain the right, property or money forfeited;
(e) The equitable doctrine of relief from forfeiture enforces penalty clauses when they are in the form of forfeiture, when it is not unconscionable to do so; and
(f) The courts should, if at all possible, avoid classifying contractual clauses as penalties and, when faced with a choice between considering stipulated remedies as penalties or forfeitures, favour the latter.
[29] Courts should favour this analysis with reference to equitable principles and unconscionability over strict common law rules relating to penalty clauses. However, there is a rising recognition of the advantages of allowing parties to define for themselves the consequences of breach and in enabling parties to set their own value on performance (see: Chilikoff, para 12).
[30] In this case, as in Chilikoff, the parties were represented by counsel and signed a settlement agreement wherein the parties compromised claims they could otherwise pursue in civil litigation to achieve certainty of a resolution without the requirement for prosecuting a claim and all the risks and costs associated with doing so. If the consequences of breach by City Star must be characterized, I would describe it as an agreed-upon forfeiture, and not a penalty.
[31] Parties are generally required to honour their settlements, and are not permitted to resile from the terms of their settlement absent the demonstration of vitiating factors such as duress or unconscionability. A finding of unconscionability usually would require a party to establish an inequality of bargaining power and terms, in the context of a settlement, that are substantially unfair.
[32] As noted earlier, both 216 and City Star engaged in extensive negotiations with the assistance of counsel. Accordingly, both parties after careful consideration in conjunction with the legal advice provided by their respective counsel designed and agreed to the terms contained in the Minutes of Settlement.
[33] In my view, there has been no unconscionability demonstrated by City Star or other inequity that would justify relieving it of the consequences of its breach that have been expressly agreed to by it.
[34] Accordingly, no persuasive basis for relief against forfeiture has been shown by City Star and its cross-motion is hereby dismissed.
Conclusion
[35] For these reasons, I conclude that there is no genuine issue for trial and that this is a proper case for granting summary judgment on this motion brought by 216. Summary judgement shall issue in favour of 216 enforcing the consequences of City Star’s failure to remedy all noted deficiencies as provided for in the Minutes of Settlement.
[36] An order shall go that all funds paid into court by 216 pursuant to the Order of Master Albert dated February 24, 2017 shall be paid out to the solicitors for 216, John LoFaso Professional Corporation, in trust.
[37] This action and the counterclaim are dismissed in accordance with the parties’ Minutes of Settlement.
Costs
[38] If the parties cannot agree on the subject of costs, which I urge them to do, written submissions may be delivered to me by 216 within 20 days of the date of release of this decision and by City Star within 10 days thereafter.
Released: April 6, 2021
COURT FILE NO.: CV-17-00568437-0000
DATE: 20210406
ONTARIO
SUPERIOR COURT OF JUSTICE
BETWEEN:
CITY STAR ROOFERS INC.
Plaintiff
– and –
2169462 ONTARIO LIMITED and ORMONT HOLDINGS INC.
Defendants
REASONS FOR JUDGMENT
Stewart J.
Released: April 6, 2021