COURT FILE NR. CV-19-80626R
SUPERIOR COURT OF JUSTICE – ONTARIO
RE: Ziebarth Electrical Contractors Ltd., Plaintiff
AND:
2461476 Ontario Inc. o/a Junction Construction, Naanini Inc. o/a Fat Rabbit, Amaya Trademark Ltd o/a Fat Rabbit and Viking Rideau Corporation, Defendants
BEFORE: Master Kaufman
COUNSEL: Nadia J. Authier, counsel for the plaintiff, Ziebarth Electrical Contractors Ltd.
Stéphane P. Bond, counsel for the defendant 2461476 Ontario Inc. o/a Junction Construction
Pathik Baxi, counsel for the defendants Naanini Inc. o/a Fat Rabbit and Amaya Trademark Ltd o/a Fat Rabbit
Ronald Petersen, counsel for the lien claimant TL Mechanical
Crystal Li, counsel for the lien claimants 8176850 Canada Inc. o/a Presto Construction and Soublière Interiors Ltd.
Michael S. Hebert, counsel for the defendant S & R Mechanical
HEARD: February 22 and 23, 2021
REASONS FOR JUDGMENT
[1] Hemant Bhagwani (“Bhagwani”), Arshad Merali (“Merali”) and Trevor Lui (“Lui”) poorly planned the construction of their restaurant, the “Fat Rabbit” in Ottawa’s Rideau Centre. Bhagwani signed a lease in April 2018 through his corporations Naanini Inc. and Amaya Trademark Ltd. (collectively referred to as “Amaya”). Unable to find a suitable contractor to build the restaurant to their specifications, Merali agreed to act as general contractor through his corporation, Junction Construction (“Junction”). Without budgets or schedules, the construction costs piled up, the project ran into financial problems, the relationship between the partners soured, and subcontractors were unpaid. Four subcontractors registered liens.
[2] Ziebarth Electrical Construction (“Ziebarth”) is the only subcontractor with a subsisting lien, the validity of which is not disputed. Ziebarth seeks an Order directing that it be paid for its services out of the holdback funds Amaya was required to retain. The first of two issues in this reference trial is to determine the amount of holdback Amaya was required to retain. The answer to this question turns on 1) whether the contract between Junction and Amaya was for a fixed price or whether it was a “costs plus” contract, and 2) whether Amaya has a further “notice holdback” obligation because it paid two subcontractors after liens were registered.
[3] In addition to Ziebarth, three other subcontractors registered liens because of non-payment: Soublière Interiors Ltd. (“Soublière”), 8176850 Canada Inc. o/a Presto Construction (“Presto”) and TL Mechanical. All three have discharged their liens pursuant to agreements with Amaya that the amount of their liens, plus 25%, be placed into a trust account for their benefit. The agreements also provided that the funds would be released to them either on consent or pursuant to a court order. Their respective actions in Court File Nrs. 19-80933, 19-80934 and 19-80873, have also been referred for determination with Ziebarth’s lien action and Junction’s lien action in Court File Nr. CV-19-80869. The second issue in this reference is whether these three subcontractors who discharged their liens are entitled to be paid out, in whole or in part, from the trust funds.
Issue 1 – The Owner’s holdback obligation
[4] Pursuant to s. 22 of the Construction Act[^1] (the “Act”), each payer has an obligation to retain a basic holdback equal to 10% of the price of the services and materials actually supplied under a construction contract, until all liens have expired or have been satisfied, discharged or otherwise provided for under the Act.
[5] Amaya alleges that it signed a fixed price contract with Junction for the construction of the Fat Rabbit restaurant, and that its 10% holdback must be calculated as a percentage of this fixed price, regardless of what Junction actually paid for services and materials on this project. Junction, on the other hand, argues that the contract with Amaya was drafted for the sole purpose of obtaining financing, but it had no relationship whatsoever with the construction project. Junction says that the parties never intended to create a legally binding fixed price contract. I conclude without hesitation that Junction and Amaya did not enter into a legally binding fixed price contract.
Events leading up to the contract
[6] Through Amaya, Bhagwani signed a lease in April 2018 for 2000 square feet of restaurant space at the Rideau Centre.
[7] Initially, Bhagwani, Merali and Lui planned to be 1/3 partners in the business. A draft shareholder agreement was circulated but never signed. Bhagwani would have been responsible for finding the location and the financing, Lui would have overseen the marketing and day-to-day operations and Merali would have been responsible for retaining a contractor and working with the trades.
[8] The partners obtained quotes from two general contractors: Steric Design and Jordash. Bhagwani signed a contract with Jordash on August 29, 2018. The contract price was $361,800 including tax, but Bhagwani acknowledged that this contract did not include all the work required to open the restaurant, and that the specifications for the restaurant changed over time.
[9] In October 2018, Merali attended a kickoff meeting with representatives of Jordash and the Rideau Centre. At that meeting, it became apparent that Jordash could not work on the project because its workers were not unionized. Jordash and Amaya agreed to release each other from their obligations under the contract.
[10] The lease provided for a rent free “fixture period” within which a new tenant could complete its leasehold improvements. As this period was about to expire and time was of the essence, Merali agreed to act as general contractor for the project through Junction.
The contract
[11] On September 27, 2018, Bhagwani’s wife, Fatima Bhagwani, sent Merali a “sample contract”. The contract listed general categories of construction work and prices associated with that work.
[12] On October 2, 2018, Bhagwani and Merali exchanged texts messages regarding this contract. These are the relevant exchanges:
Merali: Fatima sent me a contract. We need that one?
Bhagwani: Yes. Bank will need an executed agreement outlining scope of work and costs along with corresponding invoice.
Merali: So how much do we want to make the contract out for?
Bhagwani: Fatima sent so you can put it in your letterhead and send me.
Contract for 245k.
Merali: Contract for 245k or invoice for 245k?
Bhagwani: Contract
Invoice for 1/3
Merali: Contract is for Rideau?
Bhagwani: Yes. Company name Amaya trading Ltd.
Merali: 245 k is very low for Rideau
Bhagwani: Do 450
Merali: Okay, Then invoice for 150?
[13] The following day, Merali’s assistant, Ola, sent Fatima Bhagwani that contract on Junction’s letterhead. The contract was made out to “Amaya Group”. That contract assigned various prices to the general categories of work found in the sample contract. The contract total was $450,000 + $58,500 for HST, as Bhagwani had requested.
[14] On October 22, 2018, Ms. Bhagwani requested “corrections” to the contract and invoice. Ola sent a corrected contract, but the only correction was that “Amaya Group” was changed to “Amaya Trademark Ltd”. Merali testified that he never received a signed copy of this contract.
The construction project
[15] The evidence presented in this trial, and the documentary evidence filed, persuades me that the project unfolded as if the parties were partners. They consulted with each other, kept track of their own expenses, and informed each other of developments.
[16] Merali testified that he travelled to Ottawa every week to oversee the construction. As the project progressed, Bhagwani requested invoices from Junction for amounts that he determined. Bhagwani sent these invoices to the bank. Between November 12, 2018 and January 22, 2019, Junction issued four invoices to Amaya.
[17] Junction issued a second invoice on January 22, 2019 to 1063369 Ontario Inc., a company under the control of Lui. Merali testified that by January 22, 2019 Amaya’s borrowing limit had been exhausted. He issued the invoice to Lui’s company, who could borrow funds under a different project to pay for work done on the Fat Rabbit restaurant.
[18] Merali paid subcontractors with the funds Amaya borrowed from the bank. In January 2019, Bhagwani asked him to pay one month’s rent from the funds received as payment for Junction’s invoices. Merali accommodated the request and paid $34,000 to the Rideau Centre.
[19] On January 24, 2019, Merali sent Bhagwani and Lui a spreadsheet that indicated “where the money has gone to date” in round numbers. The total spent by that date was $279,530 which included $28,000 for Merali’s “weekly travel and accommodation”.
[20] On February 10, 2019, Merali sent another e-mail to Bhagwani and Lui entitled “Why Rideau costs so much”. Merali wrote that the project was not adequately capitalized and that a minimum of $600,000 should have been budgeted for a 2000 square foot restaurant. He outlined some of the factors that drove prices up, such as issues not accounted for in the engineering drawings.
[21] On March 17, 2019, Bhagwani, Merali and Lui met at Bhagwani’s home to review all the invoices and understand the state of the project’s finances. Lui entered the information on his laptop and created a spreadsheet. Merali testified that the purpose of the meeting was to set out all the costs that remained to be paid. On March 18, 2019, Lui sent Bhagwani and Merali and e-mail attaching the spreadsheet he had created at that meeting. Mr. Lui wrote: “Important numbers are the three boxed charts that outline what we have paid and owe. I’ve highlighted them and added the box that outlined what we believe we need to spend to open up”.
[22] By March of 2019, some subcontractors refused to work until they were paid, including Albatross, Uniform Custom Countertops and Mobiflex. As their work was required to open the restaurant, Bhagwani paid these subcontractors directly. On March 24, 2019, Bhagwani, Lui and Merali undertook to pay Albatross in three equal installments of $8,181.60, spread roughly two weeks apart.
[23] The Fat Rabbit restaurant opened on April 26, 2019.
This was not a fixed price contract
[24] Amaya argues that it entered into a fixed price contract with Junction, the terms of which were that that the Fat Rabbit restaurant would be constructed for the price of $450,000 + HST. It further alleges that Junction failed to complete all the work on time, and that Amaya was forced to pay some of Junction’s subcontractors directly to open the restaurant. Junction, for its part, argues that it entered into a “costs plus” contract, whereby Amaya agreed to reimburse it for the costs it incurred plus 15% for administration and profit. I completely reject Amaya’s version of events and I accept Junction’s for the most part.
[25] I accept Merali’s evidence that the contract was drafted for the sole purpose of obtaining financing and that the parties never intended to be bound by it.
[26] First, before the contract was signed, Bhagwani was overseeing and directing the award of subcontracts. On July 31, 2018, Mobiflex provided a quote for the installation of a rolling door. Merali sought Bhagwani’s permission to give Mobiflex a purchase order. Bhagwani agreed. On September 29, 2018, Bhagwani forwarded Ziebarth’s quote for electrical work and asked Merali to “award a contract to this guy”. This kind of involvement by the owner is inconsistent with a fixed price contract in which the contractor would be responsible for the selection and budgeting of trades.
[27] Secondly, the text messages dated October 2, 2018 show that Bhagwani sent a draft contract to Merali. When asked why it was needed, Bhagwani answered that the bank would need it along with invoices. Merali then asked “how much do we want to make the contract out for”? This wording is consistent with Merali’s evidence that the contract would be used for financing as opposed to a negotiation between two parties. Bhagwani first suggested a contract price of $245,000. When Merali responded that this amount was “very low for Rideau”, Bhagwani immediately suggested $450,000. It is evident that Bhagwani dictated the terms of the contract, and that this text message exchange had none of the characteristics of a contract negotiation.
[28] Thirdly, the contract had none of the usual terms of a construction contract. It contained general categories of work with assigned prices and nothing else. It made no reference to plans and specifications, engineering drawings, equipment brands and models, completion dates, payment terms, or provisions for changes or extras.
[29] Fourthly, Merali was in no position to provide a fixed price for the work on October 2, 2018. On that date, he had only obtained quotes from 5 of the 80 contractors who ended up working on the project. I reject Bhagwani’s argument that Merali had sufficient knowledge of the estimated costs “to provide an accurate contract”. To the contrary, I find that to enter into a fixed price contract at that point in time would have constituted an enormous gamble for a project of this size.
[30] Fifthly, Merali informed Bhagwani of the costs that he incurred to manage the project. He testified that there were constant oral communications about construction costs. He sent Bhagwani and Lui a spreadsheet on January 24, 2019 outlining the costs incurred to date which included his own expenses. There would have been no reason for Merali to inform Bhagwani of his expenses if he had entered into a fixed price contract. To the contrary, I accept Mr. Bond’s argument that general contractors with a fixed price contract would not typically disclose their costs, which would inferentially reveal their profit.
[31] Finally, I accept Junction’s evidence that its invoices had no relationship with the work that was being done on the project when they were submitted. This was evident from the fact that Bhagwani forwarded Ziebarth’s quote to Merali on September 29, 2018 with instructions to “award the contract to this guy”. Merali issued two purchase orders to Ziebarth on October 2, 2018 for the sums of $43,885 + HST and $6,800 + HST. Yet on day later, Junction invoiced $40,000 for “electrical and power”. Ziebarth could not have completed its work in one day, and Junction would not have charged Amaya less than it was paying Ziebarth.
[32] I am satisfied that the contract Amaya relies upon to argue that there was a fixed-price contract was used for the sole purpose of financing the restaurant’s construction.
There was no agreement to pay Junction its costs plus 15%
[33] I am also not persuaded that Amaya agreed to pay Junction an additional 15% of the cost of the work. Based on the evidence presented, I find on the balance of probabilities that the agreement between Merali and Bhagwani provided that Junction would be reimbursed for its costs of managing the construction, which included, among other things, Merali’s weekly trips to Ottawa.
[34] I find that the parties acted as if they were equal partners on this project, and that they would share the costs and the eventual rewards. As discussed above, a draft shareholders’ agreement was circulated but never executed. A 15% markup, if it had been agreed, would have compensated Junction for its administration of the construction project and would have provided it with a certain amount of profit. It is implausible that Bhagwani and Lui would have agreed to grant Junction additional profit from the management of the construction.
[35] My conclusion is strengthened by the fact that there is no mention of a 15% markup in any communications between the parties. To the contrary, on January 24, 2019, Merali forwarded a spreadsheet that explained how the money had been spent to date. The last item on the list was $28,000 for his weekly travel and accommodation. There would have been no reason for Merali to list this item separately if his costs were subsumed in a 15% administration and profit fee. In my view, this evidences the parties’ agreement that Merali would be compensated for the costs he incurred in managing the project.
[36] Further support for my conclusion is in Lui’s e-mail of March 18, 2021. Lui tracks what “we paid and owe”. This language is consistent with a partnership. There is no mention in the document of any 15% markup owed to Junction. To the contrary, Merali is listed as one of the three persons having contributed funds towards the project.
[37] Finally, Junction provided a spreadsheet that lists the total costs incurred under the project. It includes two amounts owed to Merali : $2,063.65 + HST and $33,291.49 + HST. Merali testified that the first amount relates to supplies and materials and the second amount was for his travel and accommodation costs. To add a 15% fee to the costs itemized in the spreadsheet would compensate Merali twice for his costs of administering the project.
[38] Junction may well have a claim against Amaya for additional compensation. I accept Merali’s evidence that he worked on the project with the expectation that he would be Bhagwani and Lui’s partner and the partnership never materialised. There was insufficient evidence for me to quantify the value of Merali’s work and I did not have the benefit of argument on this issue. That issue may have to be decided another day.
Quantification of holdback
a) The basic holdback
[39] Once lien claimants have proven their liens, the onus is on the owner to prove that its holdback obligation is less than the total quantum of valid and subsisting subcontractor liens.[^2] Amaya argues that its basic holdback should be calculated by applying 10% of the amount of the “fixed price” contract. Amaya also argues that the amount of holdback should be further reduced by 30% because it alleges that Junction only completed 70% of the work under the fixed price contract. It relies on the payments it made to subcontractors, which total $86,672.29 as evidence of Junction’s failure to complete the work.
[40] Because I rejected Amaya’s fixed price contract theory, it follows that Amaya’s holdback obligation cannot be reduced by any alleged failure to complete a portion of the work under this alleged fixed price contract.
[41] Pursuant to s. 22 of the Act, the holdback is equal to 10% of the price of the services and materials as they are actually supplied. Amaya did not question the value of the subcontractors’ services and materials, and never alleged any deficiencies. Its sole argument was that Junction was responsible for any costs it incurred above the fixed price contract, and that its liability was limited to 10% of the value of its contract with Junction.
[42] Junction provided a spreadsheet of all the expenses incurred under the project by payee. The total amount incurred, including HST, is $806,720. Junction added 15% to this amount which represents a “standard markup” for a construction manager’s fee. Merali testified that the agreement he had with Bhagwani was that he would source the various trades, get the best price, and pass on all the costs plus a 15% markup. He testified that this 15% charge would cover Junction’s expenses as he cannot be expected to work for free.
[43] As explained above, I am not persuaded that there was an agreement to pay Junction a 15% standard markup, but I am satisfied that the parties agreed to compensate Junction for the costs it incurred ($2,063.65 + HST and $33,291.49 + HST).
[44] Based on the foregoing, I conclude that the total value of the services and materials actually supplied is, at a minimum, $806,720.00 including HST. Amaya is accordingly liable to all subcontractors with a valid and subsisting lien for a basic holdback of $80,672.
b) The Notice Holdback
[45] Ziebarth argues that, in addition to the basic holdback, Amaya was required to retain a further holdback pursuant to s. 24 of the Construction Act. Section 24 allows a payer to pay up to 90% of the price of a contract or subcontract before receiving written notice of a lien. If a payor pays the contractor or subcontractor after receiving written notice of a lien, the payor’s holdback obligation is increased by the amount of the payment.[^3]
[46] It is not disputed that two of Junction’s contractors had registered liens on May 7, 2019 (Soublière Interiors Ltd) and May 15, 2019 (Ziebarth). It is also admitted that Amaya paid Mobiflex $9,676.19 on May 10, 2019 and paid Albatross $4,080.80 on May 21, 2019, after liens had been registered
[47] Bhagwani testified that he never received written notice of any liens. By April of 2019, Merali warned him that liens would be forthcoming, but he never checked the title.
[48] Ziebarth argues that it is incumbent on a payor to check the title and that registration of the lien constitutes the “written notice” referred to in s. 24 of the Act. I do not accept this submission.
[49] In Belmar Sheet Metal Co. v. 849539 Ontario Inc.,[^4] this Court held that mere registration does not satisfy the requirement of written notice to an owner. Master Clark reached the same conclusion in Hal Mann Tiles Inc. v. Palmer[^5]. He held that the operative part of written notice is that it be “received”, and that constructive notice arising from the registration of a lien does not satisfy this receipt requirement.[^6]
[50] Furthermore, when the new Act came into force, the words “written notice of a lien” have been amended to mean “written notice of a lien in the prescribed form, given by a person having a lien”.[^7] Ontario Regulation 303/18 entitled “Forms” provides that a written notice of a lien shall be in Form 1.
[51] There is no evidence that Amaya received a written notice of lien in the requisite form. I conclude that Amaya is accordingly not caught by the further holdback obligation set out in section 24 of the Act.
Issue 2 - Subcontractors’ claim for trust funds
[52] Three subcontractors who provided labour and materials on the project discharged their liens pursuant to a trust agreement entered into with Amaya. The second issue in this trial is the interpretation of these trust agreements. The subcontractors argue that the entire amount placed in trust should be released to them. Amaya takes the position that its liability to the subcontractors is limited to the basic 10% holdback it was required to retain. It asks that the remainder of these trust funds be returned to it.
Subcontractors’ liens and the trust agreement
[53] Presto installed tiles on this project, and Soublière installed drywall, ceiling, millwork and rockboard. Presto and Soubliere were retained by Junction. The total price of Presto’s work on the project was $31,277.27. It received one payment of $9,073.34, leaving a balance owing of $22,203.93. Soublière invoiced the sum of $44,700 and received $15,865.20. It is owed $34,645.80 for its work.
[54] TL Mechanical installed mechanical ductwork, diffusers, dampers and an ecology unit. It was subcontracted by S&R Mechanical, which was retained by Junction. TL Mechanical is owed $31,532.46.
[55] It is not disputed that these subcontractors’ respective liens were preserved and perfected in time pursuant to the Act.
The Presto and Soublière trust agreement
[56] Presto and Soublière are represented by the same counsel. On June 25, 2019, these subcontractors proposed the following agreement:
The proposed agreement would operate as follows. In consideration of Soubliere Interiors and Classic Tile and Marble foregoing preservation of their respective claims for lien pursuant to the Construction Act, the two lien claimants and your client would agree as follows:
before noon EST July 5, 2019, you will arrange to pay our firm in trust, the face value of each lien claim plus 25% of each respective lien claim amount (trust funds);
the trust funds will be kept in an interest-bearing account which interest is to be added and credited to the trust funds;
the sole and exclusive beneficiary of the trust funds will be Soublière Interiors and Classic Tile and Marble to the extent of their respective claims as agreed to between your client and each of them or as may be proven in court or by arbitral order;
the trust funds may only be released by written consent of your client and each lien claimant or by court order or by arbitration order or judgement directing their release;
upon confirmation that we have the trust funds in our trust account for the values expressed above, we will arrange to register a release of lien for each lien claim.
[57] Amaya accepted the terms of this agreement on July 4, 2019, and wired $71,062.16 to Presto and Soublière’s counsel on July 5, 2019. That amount includes Presto and Soublière lien amounts ($22,203.93 and $34,645.80, respectively) plus 25%.
The TL Mechanical Trust Agreement
[58] Following a telephone conversation with counsel for TL Mechanical, counsel for Amaya confirmed that he held $39,415.57 in his trust account and undertook “to hold these funds in trust, as a perfected lien, pending written agreement of the parties or further Court Order”. Counsel for Amaya asked that TL Mechanical’s lien be discharged and that a Notice of Discontinuance be served and filed as against the landlord.
Effect of the trust agreements
[59] All three subcontractors registered discharges of their liens after entering into these trust agreements with Amaya. The effect of the registered discharges, which fall within section 41 of the Act, is that each of these subcontractors’ lien rights under the Act have been extinguished. Pursuant to s. 48 of the Act, a discharge is irrevocable, and the discharged lien cannot be revived.[^8] Accordingly, the Act has no application to these subcontractors’ entitlement except to the extent that its provisions are expressly or impliedly incorporated into the trust agreements. Even if provisions of the Act are incorporated into the agreements, these subcontractors are not lien claimants pursuant to the Act, so no longer have the right to share equally in the statutory holdback with lien claimants having valid and substituting liens.
[60] The trust agreements are contracts between the subcontractors and Amaya. In interpreting a contract, the Court must read the contract as a whole, giving the words used their ordinary and grammatical meaning, consistent with the surrounding circumstances known to the parties at the time of formation of the contract.[^9] The three subcontractors have entered into agreements that contain different wording and, as I will explain below, have different effect.
a) Presto and Soublière
[61] Counsel for Presto and Soublière drafted the terms of the trust agreement and Amaya agreed to these terms. Pursuant to this agreement, Amaya would pay the face value of these subcontractors’ liens plus 25% in trust, and Soublière Interiors and Classic Tile and Marble became “the sole and exclusive beneficiary of the trust funds” […] “to the extent of their respective claims as agreed to between your client and each of them or as may be proven in court…”.
[62] Amaya argues that the effect of the trust agreement was to create a situation akin to paying the funds into court. Because there is no privity of contract between it and the subcontractor, it argues that its liability to all subcontractors is limited to the 10% holdback it was required to retain under the Act. However, this interpretation contradicts the express terms of the agreement, which provides that the subcontractors are “the sole and exclusive beneficiaries of the trust funds […] to the extent of their respective claims” as agreed or proven in court. Presto and Soublière’s claims are for the entire value of their supply of services and materials. Nothing in the terms of the trust agreement or Amaya’s acceptance of them supports a mutual intention that Amaya’s maximum liability would be limited to holdback. The language used has no such limitation. By this agreement, Amaya agreed to substitute the statutory framework of the Act with an agreement that contractually increased its liability from what it may otherwise have been under the Act.
[63] Amaya points out that the trust agreement provides that the trust funds’ beneficiaries are “Soublière Interiors and Classic Tile and Marble” and there is no mention of Presto. Ms. Li, counsel for Presto, explained that Classic Tile and Marble was a trade name that referred to Presto. In any event, Amaya’s counsel confirmed that the trust funds corresponded to Presto and Soublière’s respective liens plus 25%, and Presto is a tiling subcontractor. I accept that Classic Tile and Marble refers to Presto.
[64] In this trial, Presto, Soublière and TL Mechanical called off their witnesses because all parties agreed that these subcontractors had completed their work in a workmanlike manner and that there were no deficiencies or chargebacks. I conclude that their claims have therefore been admitted and proven. According to the terms of Presto and Soublière’s agreement with Amaya, they are the sole beneficiaries of the trust funds to the extent of their respective claims as proven in Court. I conclude that they are entitled to the entire principal amount of their claims.
b) TL Mechanical
[65] The agreement between Amaya and TL Mechanical was reduced to a single line in an e-mail, in which counsel for Amaya undertook to “hold these funds in trust, as a perfected lien, pending written agreement of the parties or further Court Order”. By using the language of “perfected liens”, Amaya incorporated terms of the Act into the agreement. Amaya agreed that the trust funds would secure its liability to TL Mechanical to what it would otherwise be under the Act. Amaya’s liability to TL Mechanical, contractually, is the amount that would have been owed to TL Mechanical under the Act as a perfected lien claimant.
[66] Without the trust agreements, each of TL Mechanical, Presto, Soublière and Ziebarth would have been entitled to share the holdback rateably. The minimum holdback of $80,672 would have been distributed among the members of each class according to their respective rights.[^10] In such a situation, all four lien claimants would have received less than the full amount of their liens because the holdback does not satisfy them all.
[67] That said, Ziebarth is the only lien claimant with a valid and subsisting lien. The $80,672 holdback satisfies its lien claim in full. Amaya cannot, by entering into contracts with other subcontractors without liens, reduce Ziebarth’s statutory entitlement to holdback under the Act.
[68] I conclude that under the terms of the trust agreement, TL Mechanical is entitled to be paid from the trust funds the share of the holdback funds it otherwise would have been entitled to receive under the Act. On August 23, 2019, when TL Mechanical and Amaya concluded their trust agreement, the liens of Presto and Soublière had already been discharged. Since the only lien is that of Ziebarth, which is not a payer to TL Mechanical and would thereby share rateably with TL Mechanical if both had valid and subsisting liens, I calculate that TL Mechanical’s share of the holdback pursuant to s. 80(1) of the Act would have been 28.56%.[^11] Accordingly, TL Mechanical would have been entitled to 28.56% of $80,642, or $23,031.35. It is entitled to payment in that amount, from the trust funds, pursuant to the terms of the trust agreement.
Disposition
[69] For these reasons, the Court:
a. Declares that the minimum amount of holdback Amaya was required to retain is $80,642.
b. Declares that Ziebarth is entitled to a lien in the amount of $78,850.78, which is a charge under s. 21 of the Act upon the holdback amount for which Amaya is liable, and grants judgment to Ziebarth against Amaya and Junction in the amount of $78,850.78, which shall be paid from Amaya’s statutory holdback.
c. Grants judgment to Presto in the amount of $22,209.93 against Amaya and Junction, which shall be paid from the trust funds held by Norton Rose Fulbright for Presto’s benefit.
d. Grants judgment to Soublière in the amount of $34,645.80 against Amaya and Junction, which shall be paid from the trust funds held by Norton Rose Fulbright for Soublière’s benefit.
e. Grants judgment declaring the quantum of TL Mechanical’s claim valid in the amount of $31,532.46, with judgment against Amaya in the amount of $23,031.35 which shall be paid from the funds Amaya’s counsel holds in trust for TL Mechanical’s benefit, and final judgment against S&R Mechanical subject to determination of its pay when paid defence.
Interest and Costs
[70] I encourage counsel to agree on the quantum of pre-judgment interest, who is liable to pay it, and the appropriate costs disposition, but if they are unable to agree and any party seeks costs, they are to contact my office for further direction within the next 30 days.
Master Kaufman
Date: May 5, 2021
[^1]: Construction Act, R.S.O. 1990 c. C.30. [^2]: Urbacon Building Groups Corp. v. Guelph (City) (2009), 91 C.L.R. (3d) 145, at para. 48. [^3]: Construction Act, R.S.O. 1990, c. C. 30, s. 24. [^4]: (1995) 24 C.L.R. (2d) 28. [^5]: (1995) 1995 CanLII 7093 (ON SC), 24 O.R. (3d) 93. [^6]: Ibid, at paras 14-15. [^7]: Construction Act, R.S.O. 1990, c. C.30, s. 1(1). [^8]: 9585800 Canada Inc. v. JP Gravel Construction Inc., 2019 ONSC 7022, 3 C.L.R. (5th) 38. [^9]: Sattva Capital Corp. v. Creston Moly Corp., 2014 SCC 53, [2014] 2 S.C.R. 633, at para. 47. [^10]: Construction Act, R.S.O. 1990, c. C.30, s. 80(1)(b). [^11]: Ziebarth and TL Mechanical’s total liens = $110,383.24. TL Mechanical’s lien ($31,532.46) represents 28.56% of that amount.