McLaughlin v. 2495048 Ontario Inc., 2023 ONSC 4866

REASONS FOR DECISION ON MOTION

COURT FILE NO.: CV-20- 83701 DATE: 2023/08/25

ONTARIO SUPERIOR COURT OF JUSTICE

BETWEEN:

Robert McLaughlin c.o.b. as Centretown Construction, Plaintiff

– and –

2495048 Ontario Inc., 1995636 Ontario Inc. c.o.b. 2 B Developments, Lindsay Blair, Lisa A. Bailey, and Ashley Jillian Davis-Annett, Defendants

COUNSEL: Brendan Bowles and Kate McGuirk, for the Plaintiff Jonathan P.M. Collings, for the Defendants 1995636 Ontario Inc. and Lisa Bailey (Moving Parties) Filipe Mendes, for 2495048 Ontario Inc. and Ashley Jillian Davis-Annett Lindsay Blair, Self-Represented

HEARD: August 8, 2023

CARTER J.

Overview

1This is a motion brought by the Defendants Lisa Bailey and 1995636 Ontario Inc. (“2B”) for a stay of proceedings in this matter, arising from multiple settlement agreements reached between the Plaintiff, Centretown Construction, and one of the other Defendants, 2495048 Ontario Inc. (“249”), which were not disclosed in a timely manner.

2In the alternative, the moving parties seek severance of certain claims against them as they say the issues and allegations involving them are discrete and separate from the remainder of the claims.

3For the purposes of this decision a brief summary of the evidence will suffice.

42B provides project management services within the construction industry in Ottawa and the surrounding area. Lisa Bailey is the director and sole officer of the corporation. Lindsay Blair is the daughter of Ms. Bailey and an employee of 2B. She was also an unpaid Officer of 249 until 2020.

5Ms. Blair engaged the Plaintiff Centretown to supply construction supervision, labour, materials and services to several locations in Ottawa, namely:

1. 56 Renfrew Avenue, Ottawa;
2. 82 Eccles Street, Ottawa;
3. 1549-1551 Clementine Boulevard, Ottawa; and
4. 160 Bayswater Avenue, Ottawa.

6249 is the owner of the Bayswater and Eccles properties. It also owned the Clementine property until it was sold in November 2022. 2B is the owner of the Renfrew property, which is the personal residence of Ms. Blair.

7The claim in which this motion is brought makes allegations of non-payment and breach of trust against the Defendants for work done on the properties.

8In addition, Centretown registered a claim for lien on title to the Eccles property in 2020 and had a Statement of Claim issued to perfect the claim for lien. Centretown also registered claims for lien on title to the Bayswater and Clementine properties later that year and had a Statement of Claim issued to perfect both claims for lien.

9Ms. Blair engaged Centretown to work on all four projects. In correspondence with Centretown for all projects, her email signature contained links to 2B’s website. 2B issued every cheque paid to Centretown for the Clementine, Eccles and Bayswater projects. Ms. Bailey states that Centretown’s invoicing to 2B for Clementine, Eccles and Bayswater was an accounting error and that Centretown knew the properties were owned and funded by 249. According to Ms. Bailey the sole extent of 2Bs involvement in these projects was to assist 249 to cover certain payments of its construction costs as 249 struggled to pay its invoices.

10There are no written construction contracts for any of the projects. However, 249 and Centretown entered into a Joint Venture Agreement dated December 7, 2018. The JV Agreement provided that Centretown would advance $140,000 to 249 to finance the improvement to the Eccles property in exchange for Centretown getting a 50% ownership share in Eccles. Ms. Blair executed the JV Agreement on 249’s behalf.

11On September 24, 2021, 249 paid Centretown $21,162.08, in full satisfaction of the amounts owing on the Bayswater project. Centretown agrees that the Statement of Claim should be amended to reduce the amount of the claim.

12On November 8, 2021, Centretown agreed to discharge its lien on the Clementine property, so that 249 could sell the property to an arms-length third-party purchaser. In exchange, 249 agreed to replace Centretown’s security by giving Centretown a mortgage on 115 Spadina Ave, Ottawa, another property 249 owned, for $110,408.02. Centretown transferred its security to the Spadina property because the Clementine property was scheduled to be sold under power of sale proceedings and there would not have been sufficient sale proceeds to satisfy Centretown’s claim for lien.

Position of the Parties

13The moving parties allege that Centretown and 249 have entered into at least six agreements amongst themselves that drastically alter the adversarial landscape of the litigation. They can be summarized as follows:

a. The agreement to settle and discharge the Clementine property lien on September 8, 2021; b. The provision of a second mortgage to the Plaintiff by 249 on the Spadina property at that same time; c. The settlement of the Bayswater claim (and that entire action) on September 24, 2021; d. An agreement that the Plaintiff provide property management services to 249 as of January 18, 2021; e. An agreement that the Plaintiff continue to provide construction services to 249; and f. The Plaintiff and 249 continue to operate under an equity partnership agreement dated December 7, 2018 that is ongoing.

14The failure to disclose these agreements should result in a stay of the entire proceedings.

15In the alternative, the moving parties submit that the claim with respect to the Renfrew property can be easily severed. They had no involvement in the other projects and there are no overlapping facts or documents with respect to them. If severance were not ordered, they would be obliged to take part in extensive examinations and documentary production with respect to projects they weren’t involved in and to disclose sensitive financial information.

16The Plaintiff argues that none of the alleged litigation agreements “entirely alter the litigation landscape.” There has been no change to the adversarial landscape of the litigation because the moving parties were adverse in interest to 249 at the commence of the action and remain adverse in interest to 249 and because Centretown remains adverse in interest to 249.

17The motion for severance should fail because all claims arose from the same series of contracts, and there are common questions of fact and law between the claims, given that 2B admits it assisted in funding Centretown’s work at three of the properties.

Issue #1: Stay of Proceedings for Failure to Disclose the Litigation Agreements

18The Court has inherent jurisdiction and residual discretion to grant a stay of proceedings at common law. This discretion has been codified in section 106 of the Courts of Justice Act, R.S.O. 1990, c.C.43, as am. and Rule 21.01(3)(d) of the Rules of Civil Procedure, R.R.O. 1990, Reg. 194.

19In a series of decisions over the last several years, the Ontario Court of Appeal has held that where a settlement agreement is reached between certain parties that alters the adversarial litigation context significantly, that agreement must be immediately and fully disclosed to the non-settling parties. If that does not take place, then the sole appropriate remedy is a stay of proceedings. The applicable principles can be summarized as follows:

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 control its own processes and ensure justice is done between the parties.

(CHU de Québec–Université Laval v. Tree of Knowledge International Corp., 2022 ONCA 467 at para. 55)

20The key issue on this motion is whether the litigation agreements “change entirely the landscape of the litigation”.

21In Bennington Financial Corp v Medcap Real Estate Holdings Inc, 2023 ONSC 2742 at par. 46 the court provided a list of factors relevant to an analysis of that issue:

a. the configuration of the litigation; b. the claims between the parties; c. the relationship between the parties and their orientation in the litigation; d. the terms of the agreement; e. whether the agreement is inconsistent with the pleadings or with the position taken during litigation; f. whether the terms of the agreement alter the apparent relationships between the parties to the litigation that would otherwise be assumed from the pleadings or expected in the conduct of the litigation; g. whether the agreement changes the adversarial position of the parties into a cooperative one whereby the party is incentivized to cooperate with a former adversary; h. whether the agreement impacts litigation strategy of the non-settling party; and i. the values the rule is meant to advance.

22In applying these factors, I conclude that the moving parties’ application cannot succeed.

23I would begin by noting that the JV agreement cannot be characterized as a settlement agreement as it predated the litigation. The remaining five alleged agreements can be grouped into three categories:

a. The Spadina Mortgage and discharge of the Clementine lien are linked in the sense that Centretown is switching the security it holds with respect to 249; b. The provision of property management and construction services; and c. The Bayswater payment.

24The combination of these alleged agreements has not changed the litigation landscape “entirely”. At best, the landscape is minimally altered. A portion of the claim has been resolved but all the parties remain involved in the litigation in more or less the same the position as they were before the agreements.

25The evidence falls far short of establishing that any of the agreements change the adversarial position of the parties into a cooperative one whereby the party is incentivized to cooperate with a former adversary. 2B has paid Centretown with respect to the Bayswater portion of the claim but the parties remain adverse in interest with respect to all other aspects of the claim. By entering into a mortgage agreement with 249 and discharging the Clementine lien, Centretown has simply replaced the security it previously held. Importantly, the Plaintiff continues to pursue payment from 249.

26There is no evidence that the Defendant 249 has altered its position and is now cooperating with the Plaintiff in the litigation. At its highest, the evidence suggests that 249 and Centretown continue to do business together. What is missing is evidence of any connection between a settlement agreement and this business relationship. In any event, the continued business arrangements have not affected the adversarial orientation of the lawsuit itself which, as noted above, is the same as it was before the agreements.

27Although the settlement of the Bayswater claim is inconsistent with 249’s pleaded position, the landscape of the litigation is not drastically changed. All that has occurred is that the total amount that the Plaintiff is seeking has been reduced. Presumably this is to the benefit of the moving parties.

28Finally, the moving parties have not pointed to any impact the agreements have had on their litigation strategy.

29The motion for a complete stay of proceedings is dismissed.

Issue #2: Should the claims against 2B and Lisa Bailey be severed from the other Defendants?

30Rule 5.05 of the Rules of Civil Procedure empowers the Court to order separate hearings where the joinder of multiple claims or parties may unduly complicate or delay the hearing or cause undue prejudice to a party.

31In 3414493 Canada Inc. v. 505896 Ontario Ltd., 2007 CarswellOnt 6697 at para. 85, Master Glustein (as he was then) held that the court should first look at the pleadings and evidence on the motion to determine whether the test for joinder has been met, and then consider whether, on the pleadings and evidence on the motion, joinder would lead to the most just, expeditious, and least expensive resolution of the dispute between the parties, while ensuring that there is no risk of inconsistent judgments if the trials are severed.

32In this case, it is joinder pursuant to Rule 5.02(2) that is at issue. The Rule reads: Two or more persons may be joined as defendants or respondents where,

(a) there are asserted against them, whether jointly, severally or in the alternative, any claims to relief arising out of the same transaction or occurrence, or series of transactions or occurrences; (b) a common question of law or fact may arise in the proceeding; (c) there is doubt as to the person or persons from whom the plaintiff or applicant is entitled to relief; (d) damage or loss has been caused to the same plaintiff or applicant by more than one person, whether or not there is any factual connection between the several claims apart from the involvement of the plaintiff or applicant, and there is doubt as to the person or persons from whom the plaintiff or applicant is entitled to relief or the respective amounts for which each may be liable; or (e) it appears that their being joined in the same proceeding may promote the convenient administration of justice.

33I find that the test for joinder is met in this case.

34Context is important. This is not a case, such as Nguyen v Rare Elm Home Corp et al, 2006 CarswellOnt 7982, where the moving parties were in no way connected to certain of the claims. In the Statement of Claim, the Plaintiff alleges that the two corporate Defendants and the Defendant Linda Blair received funds to finance the improvements to the premises to which the materials supplied and the services rendered by the Plaintiff for the four projects the Defendants were involved in. These funds were advances made to finance the improvements to the premises and are trust funds pursuant to the provisions of Part II of the Construction Act, R.S.O. 1990 c. C.30, as am. and the Plaintiff is a beneficiary of those respective funds.

35The moving parties submit that 2B and Ms. Bailey have had no involvement whatsoever in Centretown’s work on the projects other than 56 Renfrew, either as owner or project manager.

36However, that is an issue that is in dispute between the parties. There is evidence of a connection between Ms. Blair’s work on all the projects and 2B. Centretown asserts that Ms. Blair, as a representative of 2B Developments, was acting as a project manager on the Eccles, Clementine, and Bayswater properties. In all correspondence, her email signature contained reference to "2B Developments”. It is further alleged that the Plaintiff was instructed by Ms. Blair to invoice "Lindsay Blair / 2B Developments." Cheques received from Ms. Blair for these payments was issued by 2B Developments and signed by Lisa Bailey.

37There is a connection between the moving parties and Ms. Blair as it relates to claims with respect to all of the properties. Where that connection ultimately leads is impossible to say at this stage. Nevertheless, there are common questions of fact and law that are likely to arise and some uncertainty from whom the Plaintiff is entitled to relief.

38Given this interconnectedness, denying severance would not unduly complicate or delay the hearing. Rather, it would promote efficiency. Furthermore, the moving parties’ assertions of prejudice (undue cost and obligations to disclose sensitive financial information) would only have force if there were no allegations against them with respect to all of the properties.

39The application to order separate hearings is dismissed.

Delays in the Litigation

40Although I have ruled against them with respect to the relief that has been sought, it is of note that the moving parties complain that “the agreements appear to provide more benefit to the Plaintiff than proceeding with this litigation, with the result that the litigation has effectively stalled for three years.” Whatever the reason for it, it is certainly accurate to say that this litigation has been at a standstill for some time. It needs to get back on track. As a result, I am directing that a case management conference be set for the purpose of ordering a timeline. The parties can arrange the conference through the case management office.

Costs

41If the parties are unable to agree on the quantum of costs for this motion by September 29, 2023, written submissions of no more than three pages, along with bills of costs and offers to settle, may be provided to me at 10 day intervals and I will make a decision.

Carter J.