COURT FILE NO.: CV-21-659856

DATE: December 13, 2022

SUPERIOR COURT OF JUSTICE - ONTARIO

RE: Zagros Homes Development Inc. cob Zagros Homes Development v. Hans Steel Canada Corp. and 2458313 Ontario Inc.;

BEFORE: ASSOCIATE JUSTICE C. WIEBE

COUNSEL: Robert N. Kostyniuk for Zagros Homes Development Inc. cob Zagros Homes Development (“Zagros”);

Michael C. Ly for 2458313 Ontario Inc. (“245”).

HEARD: December 12, 2022.

REASONS FOR DECISION

[1] There were two motions to be determined in this civil, non-lien action. First, there was the motion by Zagros for an order granting it leave to amend its statement of claim to add a paragraph that contains Zagros claims of unjust enrichment and quantum meruit as against the owner, 245. This motion was opposed by 245. Second, there was the motion by 245 for an order striking the statement of claim as against 245 under Rule 21 on the grounds that, having failed to preserve and perfect a construction lien, Zagros is legally precluded from pursuing any other claims against the owner. The two motions were related, and therefore I will deal with both in these reasons.

[2] 245 developed eight townhouses on its property in 2018 and 2019. On November 10, 2018 245 hired Hans Steel Canada Corp. (“Hans Steel”) as a contractor to supply and install wood and steel framing. Hans Steel subcontracted with Zagros to have Zagros supply the carpentry and wood framing. Zagros subcontracted its entire scope to a firm called Med Carpentry Inc. (“Med”).

[3] 245 terminated the Hans Steel contract before its work was done in February, 2019. Hans Steel registered a claim for lien on February 8, 2019. This contract termination caused Zagros to stop working. Med continued to work directly for 245. It registered a claim for lien on July 9, 2019. Both of the Hans Steel and Med claims for lien led to two lien actions that are referred to me.

[4] Zagros never preserved or perfected a claim for lien. On April 1, 2021 it commenced a civil action against Hans Steel and 245 claiming damages in the amount of $175,000. That action has now been referred to me by consent order of Justice Dunphy dated July 28, 2022. It is the within action.

[5] Having read the motion material and heard argument, I decided on December 12, 2022 to dismiss the Zagros motion and grant the 245 motion. Here are my reasons:

• Rule 26 makes an amendment to pleadings mandatory unless prejudice would result that cannot be compensated by costs or an adjournment. An amendment, however, must be legally tenable. It must be capable of surviving a Rule 21 motion; see Spar Roofing & Metal Supplies Limited v. Glynn, 2016 ONCA 296 at paragraph 43.

• The proposed amendment was not legally tenable. It is well established law that, where a subcontractor such as Zagros fails to preserve and perfect its lien rights, it has no recourse against the owner, including recourse for a claim against the owner for unjust enrichment and quantum meruit. The Construction Act, R.S.O. 1990, c. C.30 (“CA”) is a complete code concerning the rights of parties supplying services and materials to construction projects. For subcontractors, these rights provided by the CA are in contract, statutory trust and construction lien. A subcontractor’s contract and trust claims are against its contracting party, the contractor. The lien right is the only one a subcontractor has against the owner, and it is limited to the owner’s holdback obligation; see Tremblar Building Supplies Ltd. v. 1839563 Ontario Limited, 2020 ONSC 6302 paragraphs 13 and 14. Allowing its lien rights to expire means that Zagros lost its recourse against the owner, 245.

• To establish a claim in equity for unjust enrichment, the subcontractor must show three things, namely an enrichment by the defendant, a corresponding deprivation by the plaintiff, and an absence of juristic reason for the enrichment; see Garland v. Consumers' Gas Co., 2004 SCC 25, [2004] 1 SCR 629 at paragraph 30. The existence of the CA has been found to be such a juristic reason for enrichment by the owner on a claim by a subcontractor; see Tremblar, op. cit., paragraph 60. The existence of the contract between the owner and the contractor has been found to be such a juristic reason for enrichment on a claim by a subcontractor; see Tremblar, op. cit., paragraph 56. Therefore, the proposed Zagros amendment is not legally tenable. It cannot possibly succeed.

• The proposed claim in quantum meruit in this case is essentially the same as the proposed equitable claim of unjust enrichment, as the claim in quantum meruit is not tied, and cannot be tied, to any contract claim asserted by Zagros as against the owner, as the Zagros contract was with Hans Steel.

• Mr. Kostyniuk’s argument on the amendment motion was difficult to make out. I believe he argued that this case is somehow unique. According to Mr. Kostyniuk, Zagros was “unable” to preserve its own lien claim as it did not have the details of Med’s supply with which to create its accounting to Hans Steel in a timely way. I believe he argued that this unfairness “might” give rise to a claim of unjust enrichment against the owner.

• I do not accept this argument, if that is what it was. First, there was no evidence of this alleged “inability” to preserve the Zagros lien. The Zagros motion record contains an affidavit of Mr. Kostyniuk’s legal assistant who did not state the source of her evidence on this point. Second, even if this “inability” existed, which I find hard to believe, it does not implicate the owner, 245. Mr. Kostyniuk admitted that Zagros does not blame 245 for Zagros’ failure to lien. How then can there be in any way an equitable claim by Zagros against the owner on these facts? Third, this all does not detract from the overriding principle that the CA is, and must be, a complete code. The statute’s limitations are indeed rigid as the lien is an impingement on the owner’s property rights. This no doubt creates unfairness at times. It requires lien claimants to be vigilant in preserving their lien rights. But to allow a claim of unjust enrichment on Mr. Kostyniuk’s alleged facts for a party such as Zagros who does not preserve its lien rights would operate to undermine the CA. As the Court of Appeal stated recently in Urban Mechanical Contracting Ltd. v. Zurich, 2022 ONCA 589 at paragraph 46, quoting Tremblar, “augmenting the scope of claims available would undercut the balance established by the Construction Act.” I note that Mr. Kostyniuk provided no authority that supported his argument.

• Without the proposed amendment, the Zagros Action as against 245 must fail as there is no substantive pleading against 245 in that action. It is a breach of contract action as against Hans Steel. Mr. Kostyniuk agreed with that conclusion.

[6] I, therefore, denied the Zagros amendment motion, and granted the 245 motion striking the Zagros claim against 245.

[7] Concerning costs, counsel addressed the issue verbally. No costs outlines were filed. Mr. Ly said he had prepared three costs outlines, one for the amendment motion, one for the motion to strike and a third for the contested adjournment of the motion. Mr. Kostyniuk conceded that he had not prepared any costs outlines.

[8] Mr. Kostyniuk originally scheduled his motion for November 17, 2022, a date Mr. Ly did not agree with and was not available on. As a result, Mr. Ly had to prepare an affidavit to address a contested adjournment request. Because Mr. Kostyniuk did not confirm the motion, it was adjourned to December 12, 2022, which is when I heard the motion.

[9] Given the limited time I had available to deal with the issue, I had Mr. Ly advise me verbally as to the partial indemnity totals in his costs outlines. He said they were $1,900.10 for the amendment motion, $3,236.22 for the motion to strike, and $2,313.68 for the contested adjournment. Mr. Ly wanted me to order those costs.

[10] Mr. Kostyniuk argued that I should award 245 a total of no more than $4,500 “in the cause” for the amendment motion and the motion to strike, and that I should award no costs on the contested adjournment. He argued that he had to insist on the motion being heard on November 17, 2022 since the parties did not want to proceed with discoveries before the motions were determined. He also argued that his client was “impecunious,” and could not afford to pay costs at this time.

[11] I decided in the end that 245 should be awarded costs on all three matters in the total of $7,000. Zagros’ amendment was essentially without merit given the well-established law in this area. That motion should not have been brought. The 245 motion in turn was not seriously resisted. As to the contested adjournment, I note that a moving party should try to work with the opposing party in scheduling a motion. That was not done here. Also, the urgency that Mr. Kostyniuk said justified his conduct was created by Zagros’ own conduct. Mr. Kostyniuk conceded that it was his own oversight that explained Zagros’ failure to plead at the outset as against 245, an oversight that allegedly caused the sudden need for the amendment motion in the fall of 2022 before discoveries.

[12] As to Zagros’ alleged impecuniousness, there was no evidence in this regard. In any event, Zagros should have thought of that before bringing the motion, given the serious risks that were attached to its motion.

[13] I decided to award 245 $7,000 in costs. I ordered that Zagros pay this to 245 in 60 days from December 12, 2022.

DATE: December 13, 2022 ________________________________

ASSOCIATE JUSTICE C. WIEBE