COURT FILE NO.: CV-18-610660
DATE: 2022 12 20
SUPERIOR COURT OF JUSTICE - ONTARIO
IN THE MATTER OF the Construction Act, RSO 1990, c C.30, as amended
RE: GH ASSET MANAGEMENT SERVICES INC., assignee of J&J PROPERTY SERVICES INC., Plaintiff
- and -
JAN JU LO in her personal capacity and in her capacity as Estate Trustee of the Estate of RENG SONG LO, deceased, GH ASSET MANAGEMENT SERVICES INC. and GREG GOODALE, Defendants
BEFORE: Associate Justice Todd Robinson
COUNSEL: M. Singhla, for the defendants, Jan Ju Lo in her personal capacity and in her capacity as Estate Trustee of the Estate of Reng Song Lo, deceased
S. Dewart and B. Hughes, agents for counsel for the plaintiff
P. Hancock, for J&J Property Management Services Inc. (observing)
HEARD: August 19, 2022 (by videoconference)
REASONS FOR DECISION (Motion to dismiss or stay action and discharge lien)
[1] In a series of decisions over the course of this year, the Court of Appeal has revisited the issue of immediate disclosure of settlement agreements between litigants to other non-settling parties. On this motion, the defendants, Jan Ju Lo in her personal capacity and in her capacity as Estate Trustee of the Estate of Reng Song Lo, deceased (the “Lo Defendants”), seek to rely on that case law to have the plaintiff’s action dismissed or permanently stayed, with the lien discharged and lien security paid out of court.
[2] I find that the settlement and lien assignment between the original plaintiff, J&J Property Management Services Inc. (“J&J Property”), and GH Asset Management Services Inc. (“GH Asset”) is not a settlement that triggered the immediate disclosure requirement. I am accordingly dismissing the Lo Defendants’ motion.
BACKGROUND & PROCEDURAL HISTORY
[3] My decision turns on the on the particular factual circumstances between the parties and the procedural history in this action. I think it important to set out the parties’ relationship and the history of this action in some detail prior to going through my analysis.
[4] The underlying dispute arises from work allegedly performed by J&J Property at a four storey, 29-unit residential apartment building owned by Jan Ju Lo and Reng Song Lo. The Los contracted with GH Asset to act as their property manager for the apartment building. GH Asset, in turn, engaged J&J Property by verbal agreement to perform maintenance and renovation services at the property. There is no dispute that the Los had no direct dealings with J&J Property.
[5] J&J Property is said to have performed maintenance and renovation services between January 2017 and September 2018, as well as supplying cleaning, seasonal exterior landscaping, and snow removal services. Various invoices issued by J&J Property were tendered into evidence on this motion. It appears that GH Asset initially paid J&J Property out of rent collected by GH Asset from tenants of the apartment building, but that the Los ultimately began collecting the tenants’ rent themselves.
[6] In September 2018, J&J Property’s operations manager requested payment from GH Asset for stair installation work and other services. There is no direct evidence before me from GH Asset’s principal, Greg Goodale. However, the lawyer’s affidavit tendered by GH Asset includes correspondence indicating that Mr. Goodale advised J&J Property that a request for payment had been made to the Los, but that it was unclear if Ms. Lo would pay. It is undisputed that no payment was made.
[7] In October 2018, J&J Property registered a claim for lien against title to the property for alleged unpaid services that it performed. J&J Property perfected its lien by commencing this action against the Los, GH Asset, and Greg Goodale.
[8] In February 2019, the Los delivered a statement of defence, counterclaim, and crossclaim. In it, they admit that GH Asset engaged J&J Property to perform certain work, but deny having known about it until making inquiries following tenant complaints. They further deny any direct contractual relationship or dealings with J&J Property and assert that GH Asset acted without their authority in engaging J&J Property. Deficiencies in J&J Property’s work are also alleged. The Lo Defendants take the position that GH Asset is solely liable for any damages proven by J&J Property.
[9] In March 2019, GH Asset and J&J Property settled J&J Property’s claim. Their settlement agreement was executed on March 25, 2019, in a document entitled, “Deed of Assignment of Lien and Lien Action and Undertaking to Produce Documents”. J&J Property agreed to assign to GH Asset its claims and liabilities related to the property and release its claims against GH Asset and Greg Goodale in return for a payment. In addition, J&J Property agreed to provide evidence to GH Asset to support the assigned claims, including relevant documents and an affidavit sworn by J&J Property’s principal. The Los were not advised of the settlement or its terms.
[10] On April 30, 2019, GH Asset submitted a requisition for an order to continue from the registrar of this court. The materials filed in support of the requisition included the settlement and assignment agreement between GH Asset and J&J Property.
[11] On May 23, 2019, the registrar issued the order to continue, which was subsequently entered on May 29, 2019. GH Asset thereafter served the order on May 31, 2019, the same day that its counsel received the order from the court. This was the first notice given to the Los of the assignment of J&J Property’s claim. The materials filed by GH Asset in support of its requisition for the order to continue were not served.
[12] On June 30, 2019, the Los obtained an order vacating the lien upon posting into court the sum of $47,753.06 for both the lien and security for costs.
[13] In September 2019, Reng Song Lo passed away.
[14] On October 18, 2019, GH Asset discontinued the action against Greg Goodale, served a statement of defence and crossclaim against the Los, and served a defence to the Los crossclaim. In its statement of defence and crossclaim, GH Asset take the position that the Los are liable to pay all of the plaintiff’s damages for breach of contract and the plaintiff’s lien. At this point, GH Asset was both plaintiff by assignment and a defendant.
[15] On December 18, 2019, the Los issued a separate, non-lien action against GH Asset, Greg Goodale, and J&J Property. That claim was not immediately served.
[16] In December 2019, GH Asset and the Los consented to a reference of this action under s. 58 of the Construction Act, RSO 1990, c C.30 as it read on June 29, 2019 (i.e., the former Construction Lien Act) (the “CLA”), which continues to apply in this lien action. On December 23, 2019, Nishikawa J. issued the consent order referring this lien action to be determined by a master (as we were then titled).
[17] Nothing further occurred until October 8, 2020, approximately one year after GH Asset had pleaded as defendant in this action (with the COVID-19 pandemic interceding). At that point, GH Asset served its motion record for an order fixing the date, time, and place for trial of this action. That motion record included a complete copy of the settlement and assignment agreement between J&J Property and GH Asset. This appears to be the first time that the agreement was disclosed to the Lo Defendants.
[18] In early December 2020, prior to the first hearing for trial directions before me, the Lo Defendants served their new claim on GH Asset, Greg Goodale, and J&J Property. Pleadings in that action were subsequently closed in early 2021.
[19] On December 21, 2020, this lien action came before me for a first hearing for trial directions. At that hearing, various procedural issues were discussed, including whether it was procedurally proper for GH Asset, as assignee, to maintain an action against itself as defendant, the need for an order to continue given Mr. Lo’s passing, whether GH Asset’s crossclaim complied with s. 55(2)(b) of the CLA, and potential reference of the non-lien action. No challenge to the assignment between J&J Property and GH Asset was raised.
[20] On October 14, 2021, GH Asset’s counsel was advised by the Lo Defendants’ counsel that he had instructions to bring this motion to permanently stay the lien action on the basis of inadequate disclosure of the litigation agreement between GH Asset and J&J Property. I was advised of those instructions and the intention to bring this motion at the third hearing for trial directions before me on October 18, 2021.
[21] On November 29, 2021, I heard argument on whether leave to bring this this motion should be granted to the Lo Defendants. For reasons for decision released on January 1, 2022, I granted leave: GH Asset Management Services Inc. v. Lo, 2022 ONSC 506.
Analysis
[22] The sole issue on this motion is whether the settlement and assignment agreement between J&J Property and GH Asset was subject to the immediate disclosure obligation set out in Handley Estate v. DTE Industries Limited, 2018 ONCA 324 and, if so, whether disclosure in this case was timely.
[23] In Handley Estate, the Court of Appeal clearly articulated a rule, previously discussed in Aecon Buildings v. Stephenson Engineering Limited, 2010 ONCA 898, that parties entering into agreements that change entirely the adversarial landscape of the litigation are obliged to immediately disclose those agreements to the non-contracting parties. Failure to disclose such an agreement constitutes an abuse of process for which the “only remedy” is a permanent stay of proceedings: Handley Estate, supra at para. 45.
[24] The rule set out in Handley Estate has been the subject of seven separate decisions of the Court of Appeal this year: Tallman Truck Centre Limited v. KSP Holdings Inc., 2022 ONCA 66; Waxman v. Waxman, 2022 ONCA 311; Poirier v. Logan, 2022 ONCA 350; CHU de Québec-Université Laval v. Tree of Knowledge International Corp., 2022 ONCA 467; Hamilton-Wentworth District School Board v. Zizek, 2022 ONCA 638; Performance Analytics v. McNeely, 2022 ONCA 731; and Crestwood Preparatory College Inc. v. Smith, 2022 ONCA 743. The last three of those decisions were released after this motion was argued. I requested and the parties provided supplementary written submissions following release of Hamilton-Wentworth.
[25] There is a consistent thread running through all of these cases. Settlement agreements that undermine the adversarial nature of our civil litigation system pose a direct challenge the very root of fairness and justness that underpins it. Notwithstanding the importance of settlement privilege, it must give way when parties substantively change their positions or essentially switch sides as part of a settlement agreement.
[26] Importantly for this case, the obligation to disclose does not arise in every settlement. It also does not arise in every case where a settlement between parties changes the litigation landscape. The threshold is higher than that. The mandatory disclosure obligation arises when the settlement “changes entirely the landscape of the litigation in a way that significantly alters the adversarial relationship among the parties to the litigation or the ‘dynamics of the litigation’”: Poirier, supra at para. 47.
[27] As set out in Handley Estate, maintaining fairness in the litigation process requires the court to know the “reality of the adversity between the parties” and whether an agreement changes either “the dynamics of the litigation” or the “adversarial orientation”, such as changing the relationship between two parties from an adversarial one into a co-operative one: Handley Estate, supra at paras. 39-41.
[28] In Tree of Knowledge, supra at para. 55, the Court of Appeal outlined the following principles applicable to cases dealing with abuse of process arising from a failure to immediately disclose an agreement that changes the litigation landscape:
(a) There is a “clear and unequivocal” obligation of immediate disclosure of agreements that “change entirely the landscape of the litigation”. They must be produced immediately upon their completion;
(b) The disclosure obligation is not limited to pure Mary Carter or Pierringer agreements. The obligation extends to any agreement between or amongst the parties “that has the effect of changing the adversarial position of the parties into a co-operative one” and thus changes the litigation landscape;
(c) The obligation is to immediately disclose information about the agreement, not simply to provide notice of the agreement, or “functional disclosure”;
(d) Both the existence of the settlement and the terms of the settlement that change the adversarial orientation of the proceeding must be disclosed;
(e) Confidentiality clauses in the agreements in no way derogate from the requirement of immediate disclosure;
(f) The standard is “immediate”, not “eventually” or “when it is convenient”;
(g) The absence of prejudice does not excuse a breach of the obligation of immediate disclosure; and
(h) Any failure to comply with the obligation of immediate disclosure amounts to an abuse of process and must result in serious consequences. The only remedy to redress the abuse of process is to stay the claim brought by the defaulting, non-disclosing party. This remedy is necessary to ensure the court is able to enforce and control its own processes and ensure justice is done between the parties.
[29] The relationship of the parties in this lien action is significant in assessing whether the settlement and assignment between J&J Property and GH Asset is the kind of settlement agreement for which non-disclosure amounts to the abuse of process that the Court of Appeal has directed courts to guard against.
[30] Also, the context of the settlement and assignment is somewhat different in this case than in those before the Court of Appeal and in other case law put before me. Here, there is statutory authority for assignment of a lien in s. 73 of the CLA. That section provides that “[t]he rights of a person having a lien may be assigned by an instrument in writing”. Validity of the assignment is not disputed. However, the impact of the settlement and assignment and the nature of cooperation between J&J Property and GH Asset is a disputed issue on this motion, notably the agreement by J&J Property to provide GH Asset with evidence and an affidavit in support of the claim.
[31] Both sides have tendered lawyers’ affidavits. The lawyer affiant for GH Asset has sworn that the clause in the settlement agreement dealing with J&J Property’s agreement to provide evidence and an affidavit was adapted from a form of deed of assignment taken from a leading construction law text, Scott and Reynolds on Surety Bonds. The form from that text, which is appended as an exhibit to the affidavit, is an assignment of claim between a lien claimant and a labour and material payment bond surety. The lawyer states that the provision was necessary for GH Asset to prove the claims assigned to it, since the settlement occurred prior to J&J Property serving its affidavit of documents or providing other documentary disclosure.
[32] In my view, the assignment of J&J Property’s claim to GH Asset, whereby GH Asset assumed the role of plaintiff and J&J Property agreed to provide GH Asset with documents and an affidavit, has not actually altered the adversarial orientation of the parties in any material way. I say this for several reasons.
[33] First, the fact that J&J Property sued GH Asset, making them formally adverse in the litigation, is not itself dispositive of the “reality of the adversity” between them. As stated by Ricchetti RSJ, “The litigation circumstances of each case, the terms of the settlement and actions taken by the settling parties are highly relevant to assess whether and the degree of changes to the adversarial landscape and, in particular, whether there has been an entire change in the adversarial landscape amounting to an abuse of process”: Caroti v. Vuletic, 2021 ONSC 2778 at para. 57.
[34] GH Asset did not plead before the settlement, so this is not a case where GH Asset had denied any part of J&J Property’s claim or aligned itself with the Lo Defendants and is now resiling from those positions. There is, in fact, no evidence before me supporting that GH Asset ever disputed J&J Property’s entitlement to payment for the liened supply of services and materials. To the contrary, the record before me suggests that GH Asset was aligned in interest with J&J Property, at least prior to the lien being registered and this action being commenced. Pre-litigation correspondence before me supports that GH Asset had been paying J&J Property’s invoices from collected rent. It also supports that, after the Los started collecting rent directly from tenants, GH Asset had requested payment of J&J Property’s invoices from the Los.
[35] Second, prior to the settlement, GH Asset and the Lo Defendants were already adverse in interest. The Lo Defendants had taken the position in their statement of defence, counterclaim, and crossclaim that GH Asset had breached the property management agreement, had engaged J&J Property without authorization, and was solely liable for J&J Property’s claim.
[36] Third, I do not agree with the Lo Defendants that J&J Property “reversed its pleaded position and joined cause with GH Asset against Mrs. Lo”. In my view, GH Asset correctly submits that the nature of the claims against the Lo Defendants, as well as the documents and evidence necessary to prove those claims, have not changed.
[37] J&J Property agreed to produce documents supporting its claim and to provide an affidavit supporting the quantum, timeliness, and validity of the lien. I accept that GH Asset, as assignee, requires documents and evidence from J&J Property in order to advance and prove the assigned claims. Providing documents and evidence to support J&J Property’s claim is not, in my view, any reversal of J&J Property’s position or its adversarial role. For example, the settlement and assignment agreement does not contemplate producing documents or evidence specifically tailored to support a claim against the Lo Defendants. It will be open to both GH Asset and the Lo Defendants to argue how J&J Property’s documents and evidence should be treated in deciding which of them is liable, much the same as if J&J Property was still the plaintiff.
[38] In my view, J&J Property’s production obligations under the settlement agreement are also substantively the same as its documentary production obligations as plaintiff in this lien action and as a defendant in the Lo Defendants’ non-lien action. Cooperation under the settlement agreement may involve producing witnesses from J&J Property for trial, but witnesses from J&J Property would have been required if the action had proceeded to trial with J&J Property at the helm. GH Asset, as assignee, must still prove J&J Property’s claim. As noted, there is nothing in the agreement suggesting that any particular evidence adverse to the Lo Defendants must be provided.
[39] Fourth, nothing before me indicates that GH Asset had any role in preparing the affidavit sworn by J&J Property’s principal, Dejan Jankovic. Unlike some cases put before me, there is nothing in the settlement agreement suggesting that GH Asset’s approval of the affidavit was necessary.
[40] Fifth, in my view, the Lo Defendants position in this litigation is unchanged by GH Asset pursing the assigned claim only as against the Lo Defendants. Whether GH Asset was acting as agent for the Los when engaging J&J Property, as well as whether GH Asset was acting within the scope of its authority, is central to the Lo Defendants’ liability for J&J Property’s claim. In my view, the Lo Defendants’ positions and defences are neither altered nor compromised by discontinuance of the action against GH Asset or Greg Goodale.
[41] In the statement of claim, J&J Property pleads a contract with all defendants. In his affidavit, Mr. Jankovic states that J&J Property was retained by GH Asset “as agent for Reng Song Lo and Jan Ju Lo”. That sworn statement is consistent with the facts as put before me on this motion by both sides, and the Lo Defendants’ pleaded position, which collectively support that J&J Property’s dealings were with GH Asset. Contrary to the Lo Defendants’ submissions, the statement is not inconsistent with J&J Property’s pleaded position. In the context of GH Asset acting as the Los’ property manager, the admission by the Lo Defendants that GH Asset is the one who engaged J&J Property, and there being no dispute that the Los had no direct dealings with J&J Property, agency is required to establish that J&J Property’s contract was with the Los.
[42] In their statement of defence, the Lo Defendants deny any contract or dealings with J&J Property, deny that GH Asset was acting as agent with any actual or ostensible authority, deny the alleged services and materials were supplied by J&J Property, and deny timeliness and lienability of J&J Property’s lien. No convincing argument was made for how any of those defences have been compromised or impacted by the settlement and assignment. Ultimately, even if the defences are unsuccessful, the Lo Defendants are not precluded from pursuing their position that GH Asset is liable for some or all of J&J Property’s unpaid invoices. If appropriate, allocation of liability between the Lo Defendants and GH Asset is still readily performed and any judgment against the Lo Defendants adjusted accordingly.
[43] Settlement agreements by their nature will have an impact on the litigation landscape. However, cooperation between litigants does not necessarily fundamentally alter that litigation landscape or the adversarial orientation of litigation: Poirier v. Logan, 2021 ONSC 1633 at para. 57 (aff’d 2022 ONCA 350). Lien assignments are common and specifically contemplated by the CLA. Assignment of a lien may, in some cases, amount to a fundamental change in the litigation landscape. However, each case turns on its own facts. In my view, the adversarial orientation of the parties in this lien action have not changed by J&J Property’s settlement with GH Asset and the assignment of its claims.
[44] For these reasons, I find that nothing in the settlement agreement between GH Asset and J&J Property genuinely or materially changed the adversarial orientation of the parties. Since the agreement did not “change entirely the litigation landscape”, GH Asset was not subject to any obligation of immediate disclosure. I thereby find no abuse of process warranting a stay of this proceeding. I am accordingly dismissing the Lo Defendants’ motion.
Costs
[45] Both sides made costs submissions at the hearing. GH Asset has been successful in opposing the motion and is entitled to its costs. It seeks its partial indemnity costs in the amount of $13,500, including HST and disbursements. The partial indemnity costs sought by the Lo Defendants are much higher, so the amount sought is clearly within reasonable expectations. In my view, it is also proportionate to the importance of the issue in dispute. I see no reason to discount it.
Disposition
[46] For the above reasons, the Lo Defendants’ motion is dismissed. I fix costs of the motion in the amount of $13,500, including HST and disbursements, payable by the Lo Defendants to GH Asset within thirty (30) days. Order accordingly.
ASSOCIATE JUSTICE TODD ROBINSON
DATE: December 20, 2022