COURT FILE NO.: CV-21-670303

DATE: December 20, 2021

SUPERIOR COURT OF JUSTICE - ONTARIO

RE: Damasio Drywall Inc. v. 2444825 Ontario Limited and Reza Mali carrying on business as McCourt Construction Inc.;

BEFORE: ASSOCIATE JUSTICE C. WIEBE

COUNSEL: Andrew Ostrom for Damasio Drywall Inc. (“Damasio”);

HEARD: December 20, 2021.

ENDORSEMENT

[1] Damasio brought this motion for an order granting it leave to amend its statement of claim by adding a corporate party and its principal as defendants, and by adding allegations of breach of the statutory trust under the Construction Act, R.S.O. 1990, c. C.30 (‘CA”) as against those added parties. Both the existing defendants and the proposed defendants were served with the motion material and no one appeared other than Mr. Ostrom, the lawyer for Damasio.

[2] There appears to be no issue that the new provisions of the CA apply to this case. Damasio contracted with Mr. Mali on May 5, 2021. The filed affidavit of the principal of Damasio, Nathaniel Damasio, refers to an email Mr. Ostrom received from the lawyer for the owner, 2444825 Ontario Limited, confirming that the owner’s contract with the general contractor was dated in the summer of 2021. I will, therefore, assume for the purpose of these comments that the new provisions of the CA apply.

[3] I advised Mr. Ostrom that I had two concerns about his motion. First, there was an issue of the tenability of the amendments. Damasio was a subcontractor. It wants to rely on the trust provisions of CA section 8, the “contractor’s trust.” That means that it must establish that one of the proposed new defendants was a contractor with a subcontract with Damasio. It is well established that the trust provisions of the CA section 8 run parallel with the contractual pyramid. The proposed amendments have no pleading that either of the proposed new defendants had a contract with Damasio. The only reference in the amended pleading to a contractual relationship is that of a contract Damasio had with Mr. Mali, which is the old pleading. That pleading does not implicate the proposed new defendants.

[4] Second, there was the issue of O. Reg. 302/18, section 3(2). Ontario Regulation 302/18 is a regulation under the CA. O. Reg. 302/18, section 3(2) is the old CA section 55(1) which allowed the joinder of only “claims for breach of contract or subcontract” to a lien claim. Section 55(1) was interpreted for some time as prohibiting the joinder of claims that were not breach of contract claims to lien claims. That would certainly apply to breach of trust claims.

[5] Mr. Ostrom argued that the old CA contained an explicit prohibition against joining a breach of trust claim to a lien claim. That was the old section 50(2). He pointed out correctly that that prohibition was not carried forward into the new CA. He, therefore, argued that the new CA should be interpreted as allowing for the joinder of trust claims with lien claims.

[6] I stated that I am inclined to disagree. Neither the prohibition in old section 50(2) nor that the joinder limitation in old section 55(1) were carried forward into the initial version of new CA. However, I note that in the spring of 2019 the Legislature reintroduced the joinder limitation of old section 55(1) by adding section 3(2) to O. Reg. 302/18. The wording was the same. That means, in my view, that the Legislation appears to have had a change of mind and decided to resurrect the joinder limitation of the old section 55(1). Therefore, trust claims may again be prohibited from being joined with lien claims.

[7] I agree that the old explicit prohibition against the joinder of trust claims with lien claims (old section 50(2)) was not returned to the statute. But, in my view, this makes no difference to the result. A trust claim cannot pass the test of O. Reg. 302/18 section 3(2) as that section has been historically interpreted. A trust claim is an entirely different cause of action than a breach of contract claim. While a trust claim derives from a breach of contract claim, it concerns trust rights in project funds. It involves tracing and potential collateral remedies against officers and directors of a corporate trustee. It is a potentially complex claim.

[8] The new CA maintains the mandate in section 50(3) of the new CA that the procedure of a lien action must be “as far as possible of a summary character.” If the Legislature intended to allow trust claims to be joined with lien claims, it should have stated so explicitly, given this mandate and the nature and complexity of a trust claim. It did not.

[9] After this discussion, Mr. Ostrom chose to withdraw his motion. I, therefore, make this endorsement as an obiter dicta statement for the benefit of the public.

DATE: December 20, 2021

ASSOCIATE JUSTICE C. WIEBE