Court File and Parties
COURT FILE NO’s.: CV-20-00644248-0000, CV-20-00635783-0000, CV-20-636493-0000, CV-20-00642405-0000
DATE: 20240618
SUPERIOR COURT OF JUSTICE – ONTARIO (COMMERCIAL LIST)
RE: OAKDALE DRYWALL & ACOUSTICS LTD., Plaintiff
AND:
PROVIDENCE ST. JOSEPH’S and ST. MICHAEL’S HEALTHCARE, UNITY HEALTH TORONTO, formerly known as PROVIDENCE ST. JOSEPH’S and ST. MICHAEL’S HEALTHCARE, 2442931 ONTARIO INC., BONDFIELD CONSTRUCTION COMPANY LIMITED and ZURICH INSURANCE COMPANY LTD., Defendants
OZZ ELECTRIC INC., Plaintiff
AND:
ZURICH INSURANCE COMPANY LTD., BONDFIELD CONSTRUCTION COMPANY LIMITED, UNITY HEALTH TORONTO formerly known as PROVIDENCE ST. JOSEPH’S and ST. MICHAEL’S HEALTHCARE, and 244931 ONTARIO INC., Defendants
URBAN MECHANICAL CONTRACTING LTD., Plaintiff
AND:
PROVIDENCE ST. JOSEPH’S and ST. MICHAEL’S HEALTHCARE, UNITY HEALTH TORONTO, formerly known as PROVIDENCE ST. JOSEPH’S and ST. MICHAEL’S HEALTHCARE, 2442931 ONTARIO INC., BONDFIELD CONSTRUCTION COMPANY LIMITED, and ZURICH INSURANCE COMPANYLTD., Defendants
NORAM BUILDING SYSTEMS INC., Plaintiff
AND:
ZURICH INSURANCE COMPANY LTD., PROVIDENCE ST. JOSEPH’S and ST. MICHAEL’S HEALTHCARE, and UNITY HEALTH TORONTO, formerly known as PROVIDENCE ST. JOSEPH’S AND ST. MICHAEL’S HEALTHCARE, Defendants
BEFORE: KIMMEL J.
COUNSEL: Julie Parla & Ruofan Cui, for Unity Health et al, Moving Parties
Aleks Jovanovic, for Ozz Electric Inc., Responding Party
Fernando Souza, for Urban Mechanical Contracting Ltd. and Oakdale Drywall & Acoustics Ltd., Responding Parties
Dan Block & Brittni Tee, for Noram Building Systems Inc., Responding Party
HEARD: April 9, 2024
ENDORSEMENT (Unity Health motionS for summary judgment/tO stay ACTIONS)
The Motions
[1] Providence St. Joseph’s and St. Michael’s Healthcare, Unity Health Toronto, formerly known as Providence St. Joseph’s and St. Michael’s Healthcare (“Unity Health”) moves for summary judgment and the dismissal of these four Bond Actions as against it as a result of a settlement that the plaintiffs (responding parties) entered into with one of the other defendants, Zurich Insurance Co. Ltd. (“Zurich”) in late 2023 (the “Zurich Settlement”).
[2] According to Unity Health, when the plaintiffs settled with Zurich they made an election that forecloses them from pursuing their alternative claims for breach of contract and fiduciary duty and conspiracy against Unity Health. Unity Health also contends that the remaining claims for unjust enrichment are legally untenable.
[3] In the alternative, Unity Health asks that the actions by Ozz and Urban be permanently stayed because the Zurich Settlement was not disclosed to Unity Health in a timely manner and it contains a co-operation provision between Zurich and Ozz and Urban that changed the litigation landscape in the ongoing claims against Unity Health.
[4] For the reasons that follow, these motions are dismissed with costs to the responding parties in accordance with the agreement on costs reached by the parties. The Zurich Settlement did not constitute an election by the Subcontractor Plaintiffs to affirm the Bonds that is inconsistent with the continuation of Zurich’s action for rescission of the Bonds. Further, the Zurich Settlement was disclosed in a timely manner once all parties had confirmed that they were prepared to sign it.
The Claims in these Bond Actions
[5] These four actions arise out of the St. Michael’s Hospital Redevelopment Project (the “Project”). Unity Health is the owner. It entered into a Project Agreement with 244931 Ontario Inc. (“ProjectCo”), a wholly owned subsidiary of Bondfield Construction Company Limited (“Bondfield”), to design, build and finance the Project (“Project Agreement”). ProjectCo in turn entered into a construction contract with Bondfield (“Construction Contract”).
[6] Bondfield entered into subcontracts with various subtrades to supply materials and services for the Project (the “Subcontractors”). These included the subcontractor plaintiffs in these four actions:
a. Oakdale Drywall & Acoustics Ltd. — the drywall and acoustics subcontractor;
b. Noram Building Systems Inc. — the interior and exterior glass, glazing and curtain wall subcontractor;
c. Ozz Electric Inc. — the electrical subcontractor; and
d. Urban Contracting & Mechanical Ltd. — the mechanical systems and fire protection equipment subcontractor.
Collectively, the “Subcontractor Plaintiffs”.
[7] The Project went into distress and eventually went into receivership. Bondfield became unable to make payments on its subcontracts and a number of Subcontractors registered construction liens (“Lien Claims”) and started lien actions (the “Lien Actions”).
[8] The Lien Actions were case managed as a consolidated lien proceeding by Associate Justice Wiebe. Unity Health was named as a defendant, but its liability was limited to its statutory holdback obligation under s. 22(1) of the Construction Act, R.S.O. 1990 c. C.30 in respect of the Lien Claims. After Unity Health paid the sum of $23,888,200 (the “Holdback Funds”) into court the Lien Actions were dismissed against Unity Health.
[9] Two of these Subcontractor Plaintiffs (Oakdale and Noram) filed Lien Claims. The other two did not. All four of the Subcontractor Plaintiffs in these Bond Actions provided services and materials for the Project. These Bond Actions are being case managed by me together with other proceedings arising out of the Bondfield receivership.
[10] Zurich was Bondfield’s surety on the Project. In its capacity as surety, Zurich issued two bonds (the “Bonds”): (i) a performance bond; and (ii) a Labour and Material Payment Bond (the “L&M Bond” or “Payment Bond”). Unity Health was named as an additional “obligee” under both Bonds.
[11] The primary claims advanced in the Bond Actions were against Zurich for payment under the Payment Bond. The Payment Bond permits any subcontractor who had not been paid pursuant to their subcontract with Bondfield to claim for payment against that Bond. The alternative claims against Unity Health in the Bond Actions included a claim for unjust enrichment in respect of unpaid services and materials supplied to the Project by the Subcontractor Plaintiffs (in the case of Ozz Electric, this was added later as an alternative claim).
[12] Zurich commenced an action against Unity Health and others on April 16, 2020 seeking recission of the Bonds and a declaration that the Bonds were void ab initio because of misconduct it alleged against Bondfield, Unity Health and others (the “Rescission Action”).
[13] In addition, Zurich asserted counterclaims against Ozz and Urban in their Bond Actions for repayment of any amounts it had paid under the Payment Bond before the Rescission Action was commenced on the basis of their alleged participation in Bondfield’s fraudulent misconduct. Threats of similar counterclaims were made in other Bond Actions.
[14] Zurich moved, and was granted leave, to intervene in the consolidated lien proceeding. Zurich claimed to be entitled to $6,480,461.56 of the Holdback Funds on the basis that payments it previously made under the Payment Bond were pre-payments of statutory holdback which had been assigned to it. Zurich sought repayment of all amounts it previously paid to certain Subcontractors and claimed set-off against their portion of the Holdback Funds. Zurich’s intervention in the consolidated lien proceedings and claim to the Holdback Funds was holding up the distribution of the Holdback Funds to the lien claimants.
[15] After the Rescission Action was commenced, the Subcontractor Plaintiffs who were already suing Unity Health for unjust enrichment amended their claims in these Bond Actions to add further claims against Unity Health. In the case of Ozz, its statement of claim against Zurich was amended to add Unity Health after the Rescission Action was commenced. The new claims asserted against Unity Health after Zurich’s Rescission Action had been commenced, for conspiracy, breach of contract and breach of fiduciary duty (having regard to Unity Health’s status as an obligee and trustee under the Bonds), were all pleaded as claims in the alternative (to each other, to the claims against Unity Health for unjust enrichment and to the Subcontractor Plaintiffs' claims against Zurich under the Payment Bond).[^1]
[16] Like the claims for unjust enrichment, these new alternative claims asserted by the Subcontractor Plaintiffs against Unity Health were all contingent upon the success of Zurich’s Rescission Action. The Subcontractor Plaintiffs each claim from Unity Health for any resulting damages they suffer if Zurich is found not liable or obligated to make payments to them under the Payment Bond if the Payment Bond is rescinded or based on the facts alleged in the Recission Action.
The Settlement with Zurich
[17] The Zurich Settlement is recorded in Minutes of Settlement dated as of the 6th day of November, 2023, and signed by the nineteen signatories between the dates of November 6, 2023 and December 1, 2023 when the last party (Noram) signed. The Settlement includes any claims asserted by the participating Subcontractors (including the Subcontractor Plaintiffs) in the Lien Actions (“Lien Claims”) and in actions against the Bonds (“Bond Claims”) as against Zurich.
[18] The Zurich Settlement was funded from the Holdback Funds of $23,888,200 paid into court by Unity Health on October 21, 2022 and the accrued interest on those funds. The Zurich Settlement dealt with the competing priorities of claims against the Holdback Funds by the Subcontractors with Lien Claims and by the participating Subcontractors for the work they did on the Project that remained unpaid (on the one hand) and the claims by Zurich to a portion of the Holdback Funds and for repayment of funds advanced under the Payment Bond if it was rescinded (on the other hand).
[19] Pursuant to the Zurich Settlement, the agreed upon Payment of the Lien Claims was made to each Subcontractor that only had a Lien Claim. Oakdale and Noram (who did not have valid Lien Claims[^2] but had Bond Claims) each received an agreed amount representing a portion of the amount of their claim that is described in the Minutes of Settlement as a “Payment of the Bond Claims”. In the case of Ozz and Urban (who had both recognized Lien Claims and Bond Claims), they were each paid an equal share of the funds remaining from the settlement pool under the heading Payment of the Bond Claims, after all of the specified amounts for the Payments of the Lien Claims and the Payments of the Bond Claims had been paid and after the agreed upon sum of $2 million had been paid to Zurich.
[20] As a term of the Zurich Settlement, the Bond Claimants released all claims they had against the Payment Bond. Each also agreed to the without costs dismissal of their Bond Actions against Zurich and, in the case of Ozz and Urban, the without costs dismissal of Zurich’s multi-million-dollar counterclaims against them. The dismissal of the Bond Actions and Lien Actions (as against Zurich) was a condition precedent to the Zurich Settlement.
[21] The Zurich Settlement requires Ozz and Urban to co-operate with Zurich in its Rescission Action against Unity Health, including by making documents not otherwise produced and personnel available to Zurich as may be reasonably required.
[22] Urban and Ozz each signed mutual releases with Zurich in respect of, among other things, claims under the Bonds and their respective Bond Actions. The releases expressly carved out and preserved the ability of the parties to pursue claims against third parties, including the Bond Actions and the Rescission Action that the parties stated they intended to continue to pursue against Unity Health. The releases (and the Zurich Settlement) were expressly stated not to be an admission of liability by any party.
[23] Noram negotiated a similar form of mutual release for itself as part of the Zurich Settlement even though a counterclaim had not yet been asserted by Zurich against it.
[24] The release signed by Oakdale covered the same breadth of claims to be released and carved out the claims that Oakdale continued to pursue against Unity Health, but Oakdale’s release was not mutual.
[25] The Zurich Settlement was the product of without prejudice discussions that began in November 2022 and were subject to all the parties agreeing to and executing written Minutes of Settlement. An execution copy of the Minutes of Settlement was sent for circulation to the subtrades on November 6, 2024.
[26] Unity Health was first advised through its counsel on November 17, 2023 that all of the Bond and Lien Claimants were settling with Zurich. At that time, most of the participants in the Minutes of Settlement had signed off and signatures were being collected to be held in escrow pending final sign off by all settling parties.
[27] However, Noram did not initially agree to the terms of the Minutes of Settlement circulated on November 6, 2023. In particular, it did not agree to the terms of a release which formed part of the settlement. The final wording of the release was settled between the lawyers for Noram and Zurich on November 27, 2023 (subject to client instructions).
[28] The next day, on November 28, 2023, Associate Justice Wiebe was advised by Zurich’s counsel “that Zurich and the lien claimants are in the process of finalizing a settlement on all remaining lien actions. The settlement is conditional upon the issuance of certain orders, both in the lien reference and as part of the related payment bond actions”.
[29] Noram was the last settling party to execute the Minutes of Settlement and did so on December 1, 2023, with a caveat under its signature reflecting the negotiated changes to its mutual release with Zurich. Unity Health was provided with a full copy of the Minutes of Settlement that day, after the final signature was received from Noram.
The Issues to Be Decided
[30] These motions require consideration of whether Unity Health has met its burden to demonstrate that there is no genuine issue requiring a trial and that summary judgment should be granted for the dismissal of all, or some, of the claims against it in the Bond Actions.
[31] The Subcontractor Plaintiffs wish to continue their Bond Actions against Unity Health to recover the remaining unpaid amounts for the work they did on the Project if the Payment Bond is rescinded as a result of the wrongdoing Zurich alleges against Unity Health in the Rescission Action. If the litigation risk created by the wrongdoing that Zurich alleges against Unity Health (and that the Subcontractor Plaintiffs contributed to their decision to settle with Zurich) is ultimately resolved by the court against Unity Health, the Subcontractor Plaintiffs wish to hold Unity Health accountable. Unity Health must establish that these contingent alternative claims of the Subcontractor Plaintiffs do not raise genuine issues requiring a trial as a result of the Zurich Settlement and that their claims for unjust enrichment are legally untenable.
[32] These motions also raise, in the alternative, the question of whether the actions by Ozz and Urban must be stayed because the Zurich Settlement (containing their agreement to co-operate with Zurich in its Rescission Action) was not disclosed to Unity Health in a timely manner.
[33] The broader issues and sub-issues are broken down as follows:
a. Has Unity Health met its burden to demonstrate that there is no genuine issue requiring a trial of the alternative contingent claims against it in the Bond Actions, because the Subcontractor Plaintiffs entered into the Zurich Settlement,
i. pursuant to which they received payments from the Holdback Funds in respect of their Bond Claims and released Zurich from any remaining claims under the Bonds,
ii. thereby affirming the Payment Bond and electing to recover their losses through their claims under the Bonds in a manner inconsistent with them pursuing their alternative claims that are dependent upon the rescission of the Bonds?
b. Has Unity Health met its burden to demonstrate that there is no genuine issue requiring a trial of the claims for unjust enrichment asserted against it in the Bond Actions?
c. Must Ozz and Urban’s Bond Actions be stayed for failing to immediately disclose their settlement with Zurich?
i. Was the Zurich Settlement disclosed in a timely manner?
ii. Did the Zurich Settlement change the litigation landscape between Unity Health and Ozz and Urban, the co-operating parties?
Analysis
A. Summary Judgment and the Doctrine of Inconsistent Election
[34] Rule 20.04(1) provides that the “the court shall grant summary judgment if ... the court is satisfied that there is no genuine issue requiring a trial with respect to a claim.” For the court to make that determination, the record must permit the court to make the necessary findings of fact, allow the judge to apply the law to the facts, and the summary judgment should be a proportionate, more expeditious and a less expensive means to achieve a just result. See Hrynick v. Mauldin, 2014 SCC 7, [2014] 1 S.C.R. 87, at paras. 48-49.
[35] The doctrine of inconsistent election is the sole basis on which Unity Health claims to be entitled to summary judgment on the claims for breaches of contract and fiduciary duty and conspiracy that have been variously alleged by the Subcontractor Plaintiffs. The doctrine of election exists to prevent a person from “exercising a right that is inconsistent with another right if he has consciously and unequivocally exercised the latter.” See Charter Building Company, a Division of Ladson Properties Limited v. 1540957 Ontario Inc. c.o.b. as Mademoiselle Women’s Fitness & Day Spa, et al., 2011 ONCA 487, 107 O.R. (3d) 133, at para. 15.
(i) Did the Zurich Settlement involve a Payment under the Bonds?
[36] The right that Unity Health alleges that the Subcontractor Plaintiffs have consciously and unequivocally exercised by virtue of the Zurich Settlement is the right to be paid under the Bonds for their work on the Project.
[37] The Plaintiff Subcontractors assert as part of their response to Unity Health’s motions that the money that was used to fund the payments they received under the Zurich Settlement came from the Holdback Funds sourced from Unity Health in respect of the Liens, not from Zurich. This implies that the Zurich Settlement did not involve any payment under the Bonds or in respect of their Bond Claims. They ask the court to view the Zurich Settlement as a mutual release and dismissal of claims in relation to the Payment Bond that did not involve any payment under the Bonds, and left the Subcontractors and Zurich to pursue their claims in relation to the Payment Bond from Unity Health rather than from each other.
[38] The Holdback Funds were monies that any Subcontractors with Lien Claims (including Oakdale and Noram) were otherwise entitled to be paid for the work they did on the Project. They were held back by Unity Health pursuant to the Construction Act, R.S.O. 1990, c. C.30 and placed in an interest-bearing trust account. The Plaintiff Subcontractors contend that the other two Subcontractor Plaintiffs (who did not have Lien Claims) received monies from the Holdback Funds as part of the Zurich Settlement at the discretion and benevolence of the other Subcontractors who did have Lien Claims.
[39] Zurich did not participate in these motions. If it has a position on this point of whether the Zurich Settlement included payments under the Bonds, the court was not made aware of that position.
[40] A finding that there was no payment under or in respect of the Bond Claims because the funds to pay the agreed upon amounts came from the Holdback Funds would have been a convenient way to entirely avoid the doctrine of election that Unity Health relies upon, but it is overly simplistic and fails to account for the full factual context.
[41] The theory that Zurich did not provide the funds for the Zurich Settlement fails to account for the fact that Zurich gave up claims that it asserted to the Holdback Funds (with leave of the court), and then agreed to settle and compromise for less than what it was claiming to be entitled to.
[42] This theory also, more broadly, does not accord with the express wording of the Minutes of Settlement. The Minutes of Settlement provide that the Holdback Funds are to be used first to make the agreed upon "Payment of the Lien Claims" to the Subcontractors that had only Lien Claims (that did not include any of the Subcontractor Plaintiffs). The remainder of the Holdback Funds (the “Remaining Funds”) are then used to make “Payment of the Bond Claims” (under a heading with this title), that includes payments to each of the four Subcontractor Plaintiffs (two of which had Lien Claims and Bond Claims and two of which only had Bond Claims).
[43] Under the Zurich Settlement, the Subcontractor Plaintiffs each agreed to a consent order for the dismissal of their Bond Actions as against Zurich and signed releases in favour of Zurich releasing, among other things, their Bond Claims.
[44] Those against whom counterclaims had been made or threatened by Zurich also received a release from Zurich in respect of its claims, which included claims for damages arising from their alleged involvement in the wrongdoing of Bondfield, Unity Health and others, and claims for the repayment of amounts they had already been paid under the Bonds.
[45] The amounts received by the Bond Claimants (including the Subcontractor Plaintiffs) under the Zurich Settlement were significant (in the millions of dollars), although less than the full value of their claims. In addition to the monetary payments and release of claims for damages and for repayment of amounts already received under the Bonds, the benefits received by the Bond Claimants under the Zurich Settlement included early payment and resolution of their Bond Claims. But for the Zurich Settlement, all of the Bond Claimants could have been waiting a number of years (pending the outcome of the trial of the case managed actions) to be paid on their claims and there was the risk that some might never be paid.
[46] A settlement is by definition a compromise of claims and the Zurich Settlement was no exception. While Zurich made no further direct payment under the Bonds, it agreed to the release of funds that it was claiming entitlement to and to the foregoing of its claims for repayment and damages. Consideration flowed from Zurich to the Bond Claimants under the Settlement, in exchange for which the Bond Claims (and other claims) were released.
[47] The Zurich Settlement, when viewed objectively and in context, appears to have involved a payment or benefit flowing to the Subcontractor Plaintiffs in respect of their Bond Claims. However, this point need not be definitely determined because the remaining issues (discussed below) require a trial in any event so this will not be dispositive of the motions.
(ii) Does the Zurich Settlement Invoke the Doctrine of Inconsistent Election and Preclude any Continuing Claims Against Unity Health?
[48] Unity Health’s primary argument is that, having accepted a payment under or in respect of their Bond Claims and having agreed to release Zurich from those claims and to the dismissal of the Bond Actions as against Zurich under the Zurich Settlement, the Subcontractor Plaintiffs irrevocably elected to affirm the validity of the Bonds. Having done so, the Subcontractor Plaintiffs cannot any longer pursue their alternative claims in the Bond Actions against Unity Health that are dependent upon the inconsistent premise of the rescission (invalidity) of the Bonds (e.g. the success of Zurich’s Rescission Action). According to Unity Health, the Bond Claimants were only entitled either to recover claims against the Payment Bond or damages for the rescission of the Payment Bond.
[49] The doctrine of inconsistent election prevents a party from benefitting from a contract or portions of that contract (by seeking specific performance for example) that they simultaneously claim is void (by seeking to disaffirm the contract and rescind it): having elected the latter, they are unable to maintain their claim for the former. As the court has explained, in matters where a plaintiff attempts to make an inconsistent election, such plaintiffs “cannot have their contractual cake and eat it too.” See Kim v. Trump, 2014 ONSC 2129, 26 B.L.R. (5th) 314, at para. 133. This was a case in which the plaintiff disaffirmed a contract by refusing to close the purchase and bringing an action for rescission and then sought to affirm the contract by bringing a motion for specific performance of certain terms of the repudiated contract. The court held that the plaintiff’s claim for rescission of the contract was inconsistent with a claim for specific performance.
[50] The prohibition against inconsistent elections was described by the Court of Appeal for Ontario in the earlier case of Charter Building, at para. 15: “The essence of the doctrine of election is that a person is precluded from exercising a right that is inconsistent with another right if he has consciously and unequivocally exercised the latter.” The court held that the plaintiff’s choice of obtaining default judgment was inconsistent with its proceeding to seek the enforcement of the settlement.
[51] The Court of Appeal explains in Charter Building (at para. 30) that: “Once a party accepts repudiation of a contract by pursuing a course of action that is inconsistent with the existence of the contract, that party is no longer entitled to assert its rights under the contract. The court has no discretion to rule otherwise.” In choosing to proceed with the action, through obtaining default judgment, the respondent was held to have “unequivocally treated the settlement agreement as at an end” and was held to that election. Charter Building, at para. 26.
[52] As was observed in Charter Building (at para. 25), quoting Motor Oil Hellas (Corinth) Refineries S.A. v. Shipping Corporation of India, [1990] 1 Lloyd’s Rep. 391 (H.L.) at p. 398, the election may not always be made as a matter of obligation, but the law may eventually hold a party to “have elected not to exercise the right which has become available to him, or sometimes by holding him to have elected to exercise it”. Precisely when a party will be deemed to have made that election is fact dependent.
[53] Unity Health contends that this doctrine of inconsistent election applies to the Subcontractor Plaintiffs because they have benefitted, under the Zurich Settlement, from their claims on the Payment Bond, which presupposes the validity of the Payment Bond. Having done so, they should not be permitted to simultaneously claim that the Payment Bond is void by continuing to pursue their claims against Unity Health predicated on the rescission (invalidity) of the Payment Bond.
[54] There are two requirements for the doctrine of inconsistent election: First, the Subcontractor Plaintiffs must be shown to have “consciously and unequivocally exercised” their right to claim under the Payment Bond (Charter Building, at para. 15), or be deemed to have irrevocably affirmed the validity of the Payment Bond; while, second, simultaneously claiming that the Payment Bond is invalid. Arguably, neither of these requirements have been satisfied in this case.[^3]
[55] On the first requirement, I am not satisfied that there is no genuine issue for trial about whether there has been a conscious and unequivocal election by the Subcontractor Plaintiffs to irrevocably affirm the Payment Bond, whether express or implied:
a. The Minutes of Settlement under which payment is said to be made on the Bond Claims simultaneously expressly reserve the right of Zurich and the Bond Claimants to pursue their claims against Unity Health.
b. The Subcontractor Plaintiffs say that their decision to settle the claims with Zurich and be partially compensated by Zurich does not presuppose the validity of the Payment Bond. They say they settled because payment from the bonds was put at risk given the allegations in the Rescission Action. It is for this reason that they are pursuing damages from Unity Health if Zurich’s allegations of wrongdoing are established.
c. The alleged affirmation of the Payment Bond arises as part of a settlement and release of claims under that contract (the Payment Bond), which was in the context of broader claims to the Holdback Funds that were not dependent upon the Payment Bond. But funds available under the Payment Bond were being tied up by claims asserted against the Holdback Funds by Zurich, and these claims were, in turn, tied to Zurich’s claim for rescission of the Payment Bond. The multitude of settled claims makes it difficult to conclude on the basis of a less than complete factual record whether the Zurich Settlement is consistent only with the Subcontractors having a valid claim under the Bonds. These are not straightforward circumstances that lead to an obvious deemed election affirming the Payment Bond.
d. Although the authorities relied upon by Unity Health establish that an election to disaffirm a contract, once made, cannot be resiled from because the contract will, upon the election, be at an end, the inverse is not necessarily so. The affirmation of a contract in the course of litigation does not necessarily mean that the contract cannot later be declared to be at an end. This is a logical, although there is no case directly on point.
e. The case, that is not directly on point that the Subcontractor Plaintiffs point to demonstrate the permissibility of the inverse situation is Deltaport Constructors Ltd. v. Vancouver Fraser Port Authority, 2013 BCSC 1705, 25 C.L.R. (4th) 197. This case is not directly analogous because it involved two different contracts (with oppositional liability triggers, depending on whether the loss was caused by the normal flow of waters in rivers and seas, or not). It did not involve the affirmation and avoidance of the same contract.
f. Unlike the situation of an election to disaffirm a contract where the court retains no discretion to permit the contracting party to later assert rights under that same contract (Charter Building, at para. 30), there may be circumstances in which the election to affirm a contract is not inconsistent with a subsequent finding that the same contract is invalid or rescinded. Cases involving fraud can involve more nuanced application of rights that may seem inconsistent but are not. For example, a party who has been defrauded when it acquired a property, but then takes steps to mitigate losses by disposing of the property (thereby affirming the contract pursuant to which the property was first acquired), can still claim damages against the fraudster. There is no inconsistent election that precludes such a claim. SFC Litigation Trust v. Chan, 2019 ONCA 525, 147 O.R. (3d) 145, at paras. 151–52.
g. Here, the Subcontractor Plaintiffs have mitigated their losses by settling their claims against Zurich under the Payment Bond, the validity of which remains subject to challenge in another proceeding and dependent upon the court’s future decision in that case. If the Rescission Action is decided in Zurich’s favour then they will have a claim for damages over and above what they have received from Zurich to claim against Unity Health as a result of the rescission of the Payment Bond insofar as Unity Health is implicated in that; if the Rescission Action is not decided in Zurich’s favour then the Subcontractor Plaintiffs will not have suffered damages as a result of the rescission of the Payment Bond and will have nothing to claim from Unity Health.
[56] These factual complexities raise a genuine issue for trial regarding the existence of a conscious and unequivocal election to irrevocably affirm the Payment Bond. There is also a lack of precision around the second element of the doctrine of inconsistent election, namely whether there is a direct “simultaneous claim” by the Subcontractor Plaintiffs that the Payment Bond is void.
[57] The Subcontractor Plaintiffs are not alleging that the Payment Bond is void. They have simply asserted that if the Payment Bond is declared to be void in the Rescission Action then their alternative claims against Unity Health for breach of contract[^4], breach of fiduciary duty and conspiracy would come into play. These alternative claims are factually complex and not conducive to determination by summary judgment. They are dependent upon the same allegations in Zurich’s Rescission Action and will fail or succeed based on the failure or success of that action.
[58] On the facts of this case, where the Payment Bond is alleged to have been affirmed by the Subcontractor Plaintiffs under the Zurich Settlement (not repudiated as in the cases relied upon by Unity Health) and the Subcontractor Plaintiffs are not taking an active position in the Rescission Action but are simply awaiting its outcome and preserving their claims in the meantime, Unity Health has not met its onus of demonstrating that there is no genuine issue requiring a trial regarding the applicability and effect of the doctrine of inconsistent election. I am not prepared to grant summary judgment now to dismiss the alternative claims against Unity Health in the Bond Actions that are predicated upon the outcome of the Rescission Action.
B. (Partial) Summary Judgment and the Residual Claim for Unjust Enrichment Against Unity Health
[59] Irrespective of whether or not the doctrine of inconsistent election applies, Unity Health maintains that the unjust enrichment claims asserted (by Urban, Oakdale and Noram) against it are standalone claims that should be dismissed based on the prevailing jurisprudence, even if the other claims are continuing. Unity Health contends that a subcontractor cannot ever claim unjust enrichment against an owner.
[60] To succeed on an unjust enrichment claim, the plaintiff must establish “an enrichment of or benefit to the defendant, a corresponding deprivation of the plaintiff, and the absence of a juristic reason for the enrichment”. See Kerr v. Baranow, 2011 SCC 10, [2011] 1 S.C.R. 269, at para. 32.
[61] In the leading case on unjust enrichment, Moore v. Sweet, 2018 SCC 52, [2018] 3 S.C.R. 303, the Supreme Court of Canada explained (at para. 57) that:
The first stage requires the plaintiff to demonstrate that the defendant’s retention of the benefit at the plaintiff’s expense cannot be justified on the basis of any of the “established” categories of juristic reasons: a contract, a disposition of law, a donative intent, and other valid common law, equitable or statutory obligations (Garland, at para. 44; Kerr at para. 41). If any of these categories applies, the analysis ends; the plaintiff’s claim must fail because the defendant will be justified in retaining the disputed benefit.
[62] Unity Health points to three juristic reasons for the benefit it has received from the work done by the Plaintiff Subcontractors:
a. The Project Agreement: In Central Welding v. HPN et al., 2024 ONSC 1141, the court held (at paras. 33 and 46): “[A] contract between an owner and a general contractor for improvements to the owner’s land constitutes a juristic reason for the owner’s enrichment in circumstances where a subcontractor seeks to claim for unjust enrichment against the owner for those improvements.”
b. The subcontracting agreements: A contract between the plaintiff subcontractor and the general contractor also forms a juristic reason for the owner’s enrichment in construction projects (see Central Welding, at paras. 39 and 46).
c. The Construction Act (statutory obligations): So too is the comprehensive scheme of rights and obligations under the Construction Act considered to be a juristic reason for precluding claims for unjust enrichment by subcontractors against owners (see Central Welding, at paras. 40-46, citing Tremblar Building Supplies v. 1839563 Ontario Limited, 2020 ONSC 6302, 454 D.L.R. (4th) 546, at para. 18).
[63] Cases that the Subcontractor Plaintiffs rely upon to raise equitable considerations predate the Moore and Central Welding cases. These later cases (see Moore, at para. 57 and Central Welding, at paras. 33, 38–40, 46) suggest that the Subcontractor Plaintiffs’ claims of unjust enrichment against Unity Health as the owner should not succeed in the face of juristic reasons that account for Unity Health’s enrichment, where Unity Health has complied with its obligations under the Project Agreement, the subcontracts thereunder, and the Construction Act.
[64] However, Unity Health’s juristic reasons cannot be considered in isolation. In this case, they are tied up with the Bonds that were supposed to protect the Subcontractors’ entitlements. The Bonds were put in place to protect the Subcontractors if the Project Agreement and subcontracts were breached and the scheme under the Construction Act was insufficient to protect them. These Bonds are alleged to have been jeopardized by breaches of contract and fiduciary and other duties by Unity Health and by its alleged participation in a conspiracy. Success in the Rescission Action against Unity Health could undermine the very juristic reasons that Unity Health points to for its enrichment at their expense. This was a scheme, not a series of independent and unrelated contractual obligations.
[65] The claims against Unity Health for damages for unjust enrichment, conspiracy and breach of fiduciary duty are all pleaded in the alternative to each other and to the claims against Zurich under the Payment Bond, but they are also interconnected with each other and with Zurich’s claims against Unity Health (and others) for the rescission of the Bonds.
[66] The Court of Appeal has already held in an earlier decision in these related proceedings that, before a determination could be made about rescission of the Bonds and its effects on third parties, “the possible interconnections among the various agreements must be explored.” The court found that the issues of “mixed fact and law” could only be “determined by a trial judge upon consideration of the factual matrix and the parties’ intentions”. See Urban Mechanical Contracting Ltd. v. Zurich Insurance Company Ltd., 2022 ONCA 589, 163 O.R. (3d) 652, at paras. 84–85. The questions of mixed fact and law said to require a trial in that earlier decision arose in a different context, but those same interconnections among various agreements that the Court of Appeal determined needed to be explored the trial of the Rescission Acton may also be relevant to the juristic reasons relevant to the unjust enrichment claims in these actions.
[67] The interconnection between these claims calls into question the juristic reasons that Unity Health proffers. The allegations of the Subcontractor Plaintiffs would, if proven, mean that Unity Health would have received the benefit of work done in furtherance of the Project Agreement and its subcontracts under the false pretext that the Subcontractors were protected by the Bonds. Unity Health is an “obligee” under the Payment Bond. The record on these motions establishes that it represented to and assured the Subcontractors that they could rely on the bonds that were issued with respect to the Project. The Subcontractors relied on these assurances when they entered into the Subcontracts and provided their labour and services to the Project. Unity’s actions are alleged to have deprived or jeopardized the Subcontractors of the protections and guarantees of the bonds.
[68] The factual circumstances and the legitimate expectations of the parties at the time that the services were provided and accepted are relevant to an unjust enrichment claim, even in the commercial context. For example, where assurances are provided (as Unity Health is alleged to have done in this case regarding the Bonds) the party so doing may not be able to rely on its contractual rights as a juridical basis for avoiding unjust enrichment claims. See Atlas Cabinets & Furniture Ltd. v. National Trust Co. (1990), 1990 CanLII 1312 (BC CA), 68 D.L.R. (4th) 161 (B.C.C.A.), at para. 35; Brown & Collett Ltd., Re (1996), 11 E.T.R. (2d) 164 (Ont. Gen. Div.), at paras. 67–68.
[69] Unity Health’s answer to this interconnectivity argument is that those alternative claims (dependent upon the rescission of the Bonds) are foreclosed by the doctrine of inconsistent election, and the election of the Subcontractor Plaintiffs to accept payment under the Payment Bond; however, the court has decided against Unity Health on that issue.
[70] The Supreme Court emphasizes that “at heart of the doctrine [of unjust enrichment] ... lies the notion of restoration of a benefit which justice does not permit one to retain.” The test is not meant to be applied mechanically. It is intended to be flexible, and requires an assessment of both justice and fairness. See Moore, at paras. 35 and 38.
[71] Where the legal issues are interwoven with factual issues, it is inappropriate to dispose of the actions on a summary basis. The questions of fact and law should be fully explored through the processes of discovery and trial. There is real harm in denying litigants an opportunity to present the merits of their claims. See Canadian Premier Life Insurance Co. v. Sears Canada Inc., 2010 ONSC 3834, 91 C.C.L.I. (4th) 120, at para. 88; Butera v. Chown, Cairns LLP, 2017 ONCA 783, 137 O.R. (3d) 561, at paras. 36–38.
[72] The dismissal of the unjust enrichment claims asserted against Unity Health in this case is not as straightforward as was presented. It cannot be determined based on the mere fact of the existence of Project Agreement, subcontracts and the payment of the statutory holdbacks under the Construction Act alone. Any considerations beyond that are outside of the scope of this motion as it was constituted. The viability of the unjust enrichment claims against Unity Health is a genuine issue requiring a trial.
[73] The Subcontractor Plaintiffs also argued that partial summary judgment for the dismissal of the unjust enrichment claims where the other claims are continuing against Unity Health would not be appropriate. Partial summary judgment is only permissible under Rule 20.01(3) in rare circumstances and is subject to two requirements: (1) the claims must be readily severable; and, (2) granting partial summary judgment must increase litigation efficiency. See Khan v. Moore, 2019 ONSC 2801, at para. 25. The Subcontractor Plaintiffs say neither requirement is met on this motion.
a. There is an interconnection between the unjust enrichment claims and the other claims, and their share the common condition of Zurich’s success in its Rescission Action.
b. Dismissing the unjust enrichment claims would not release any party from the proceeding and would be unlikely to shorten the trial by any appreciable amount, especially in this case where the actions have already been timetabled for common discoveries and it is anticipated that they will be tried together or one after another.
[74] Limitations on granting partial summary judgment would be another reason not to dismiss the unjust enrichment claims, if one is needed.
C. Should the Ozz and Urban Actions by Stayed?
[75] Where a settlement entirely changes the litigation landscape “[b]oth the existence of the settlement and the terms of the settlement that change the adversarial orientation of the proceeding must be disclosed”. See CHU de Quebec-Universite Laval v. Tree of Knowledge International Corp., 2022 ONCA 467, 162 O.R. (3d) 514, at para. 55(d) and (h).
[76] The standard is “‘immediate’ not ‘eventually’ or ‘when it is convenient’” (see Tree of Knowledge, at 55(f)). In Tallman Truck Centre Limited v. K.S.P. Holdings Inc., 2022 ONCA 66, 466 D.L.R. (4th) 324, at para. 26, the Ontario Court of Appeal held that three-weeks failed to meet the requirement for “immediate” disclosure.
[77] The failure to make “immediate disclosure” of a settlement that changes entirely the litigation landscape amounts to an abuse of process”. The sole remedy according to the Court of Appeal is an automatic stay proceedings”. See Tree of Knowledge, at para 55(h); Hamilton-Wentworth District School Board v. Zizek, 2022 ONCA 638, at paras. 6, 10; Waxman v. Waxman, 2022 ONCA 311 at paras. 41-42.
[78] There is a proposed Rule amendment that is directed at the cases from the Court of Appeal dealing with partial settlements (the “Partial Settlement Cases”). It is intended to “respond to concerns relating to the effect of existing jurisprudence in this area”, specifically, the concern that a presumptive stay is an extraordinary remedy, and that more flexibility is required to address non-compliance. The Rule Amendment has not come into effect and need not be considered for purposes of this motion.
[79] This issue only affects the claims by Ozz and Urban because they agreed to co-operate under the Zurich Settlement, which is the alleged change to the litigation landscape that this partial settlement doctrine depends upon.
(i) Was the Zurich Settlement disclosed in a timely manner?
[80] The fact that the Minutes are “dated as of the 6th day of November 2023” does not establish that this is the date the settlements were concluded. The evidence discloses that the parties to the Zurich Settlement required the signature of all parties. This was clear from the various emails in relation to drafts of the minutes which explicitly stated: “The Minutes will only be enforceable on the execution by all parties.”
[81] As a practical matter, corralling all of the parties to the Zurich Settlement required common communications and consistent messaging. However, references in emails of the settlement having been agreed to by all parties (for example on November 6 and 15, 2023), to encourage parties who were not seeking changes to any of the settlement documents to sign their documents and return them, does not determine that there was an agreement on all essential terms by all parties on November 6, 2023, as Unity Health alleges.
[82] The Zurich Settlement was not finalized until Noram affirmed that it would sign it. That occurred on November 27, 2023. Prior to that date, while execution copies had been sent to all of the parties and others began to return the signed documentation, it was returned by some on the express condition that the signed documents be held in escrow until all parties had confirmed they were in agreement. The signed settlement documentation was received on that basis.
[83] The changes that Noram was requesting to the settlement terms, and in particular to its release that it wanted to be reciprocal, were implemented by the inclusion of a caveat under Noram’s signature (eventually provided on December 1, 2023) and amendments to add a new release schedule for Noram’s form of release (language agreed on November 27, 2023). However, until the reciprocal release had been agreed to by Zurich and the wording of the documents had been settled, there was no settlement.
[84] The releases were material to the Zurich Settlement. The Zurich Settlement required all parties to be in agreement because it was dividing up a finite pool of the Holdback Funds plus accrued interest. Noram’s designated share was one of the higher amounts at $1.4 million. The central provisions of the Minutes of Settlement had not all been finalized so as to have fulfilled the requisites for the formation of a contract until it was certain that Noram was participating and the terms of its release had been settled. See Bawitko Investments Limited v. Kernels Popcorn Limited (1991), 1991 CanLII 2734 (ON CA), 79 D.L.R. (4th) 97 (Ont. C.A.), at para. 21.
[85] The requirement of a signature from Noram was not a mere formality, nor did the parties act as if the deal was done prior to November 27, 2023, unlike the situation in John Richard Southwell v. Carigate Development Inc., Julie Anne Reis and Isabelle Margaret Southwell, 2024 ONSC 822, 170 O.R. (3d) 301, at para. 38, citing Kernwood Lid. v. Renegade Capital Corp. (1997), 1997 CanLII 846 (ON CA), 97 O.A.C. 3 (C.A.), at p. 7; see also Geoff R. Hall, Canadian Contractual Interpretation Law 4th Ed. (Toronto: Lexis Nexis Canada, 2020) at §7.5.
[86] Nothing was done in furtherance of the performance of the Zurich Settlement that manifested an intention of the parties to be bound by the Zurich Settlement until after November 27, 2023 when the Noram release issue had been settled (even if not yet fully documented and signed). It was only then that the Lien Orders (one of the conditions precedent to the Zurich Settlement) were submitted to the court for signature on November 28, 2023. Even then, the court was advised that the settlement was still being finalized.
[87] The fact that Zurich had, with authorization, signed some of the consents to the Lien orders prior to November 27, 2023 and was holding them in escrow is not inconsistent with this. Nor is the fact that counsel for Unity Health was told in a voicemail from November 13, 2023 that “we are getting close to the end of the path on getting all the minutes of settlement signed up and implementing”.
[88] Unity Health relies upon the disclosure it received on November 17, 2023, that the state of play was that “[a]ll bond and lien claimants are settling with Zurich” as evidence that there was a final deal that should have been disclosed. Now Unity Health says that the fact and terms of the Zurich Settlement should have been disclosed on November 6, 2023. The fact is, Unity Health was made aware that there was a settlement underfoot. That was confirmed and a copy of the Minutes of Settlement was provided to Unity Health on December 1, 2023, once the release issue with Noram had been settled and the final documents had all been signed.
[89] The Ontario Court of Appeal has uniformly held that the duty to disclose a partial settlement (with some but not all defendants) arises immediately after the settlement is concluded.: See Aecon Buildings v. City (Brampton), 2010 ONCA 898, 328 D.L.R. (4th) 488, at para. 14, leave to appeal denied [2011] S.C.C.A. No. 84; Laudon v. Roberts, 2009 ONCA 383, 249 O.A.C. 72, at para. 39, leave to appeal denied [2009] S.C.C.A. No. 304; Skymark Finance Corp. v. Ontario, 2023 ONCA 234, 166 O.R. (3d) 131, at para. 47(a); Handley Estate v. DTE Industries Ltd., 2018 ONCA 324, 421 D.L.R. (4th) 636, at para. 36.
[90] No Ontario authority requires that parties disclose an unexecuted, unenforceable draft of a settlement agreement to the non-settling defendants in advance of it being finalized and executed.
[91] I find November 27, 2023 to be the relevant date upon which the Zurich Settlement was concluded. The Zurich Settlement was disclosed to Unity Health within days after that (by email on December 1, 2023), and within a reasonable time to satisfy the requirements of the Court of Appeal in the Partial Settlement Cases.
(ii) Did the Zurich Settlement change the litigation landscape?
[92] The Ontario Court of Appeal has explained that an agreement which changes entirely the litigation landscape is “any agreement between or amongst the parties ‘that has the effect of changing the adversarial position of the parties into a co-operative one’”. See Tree of Knowledge International Corp., at para. 55(b); Crestwood Preparatory College Inc. v. Smith, 2022 ONCA 743, 164 O.R. (3d) 291, at para. 43(b).
[93] This would only have been relevant if I had found that the Zurich Settlement had not been disclosed in a timely manner by Urban and Ozz.
[94] The agreement by Urban and Ozz to cooperate with Zurich contained in paragraph 9 of the Minutes of Settlement did change the litigation landscape between Unity Health and Ozz and Urban. Whereas their interests had previously been aligned with those of Unity Health on the issues raised in the Rescission Action, they are no longer aligned as a result of this provision. Their agreement to cooperate is not, strictly speaking, limited to Urban and Ozz providing truthful testimony if asked to do so. They have agreed to provide documents not otherwise produced and access to their personnel, which goes beyond merely testifying if summoned.
[95] That is the very type of landscape-altering settlement that the Partial Settlement Cases are concerned about. The prompt disclosure of the Zurich Settlement is consistent with this view that it was a disclosable event. However, it was disclosed in a timely manner so the Urban and Ozz Bond Actions do not have to be stayed under the Court of Appeal’s Partial Settlement Cases.
Costs
[96] The parties agreed at the hearing to exchange their bills of costs by April 12, 2024. They were to advise the court by April 26, 2024 (later extended to May 3, 2024) if any agreement had been reached on costs.
[97] The court was advised by the parties on May 2, 2024 that the parties had agreed on costs:
The parties have settled the costs of the motions for an agreed to fixed amount payable to either side if the outcome is complete success on the motions by that side, i.e. a fixed amount payable to Unity Health if all of the bond actions are dismissed, and the same fixed amount payable collectively to the respondents if they are successful in having Unity Health’s motions dismissed. The agreed to costs are only in relation to the motions; the parties reserve their rights to make submissions regarding the costs of the respective actions, should a determination of those costs be necessary depending on the outcome of Unity Health’s motions.
[98] Since the respondents were successful in having Unity Health’s motions dismissed, the agreed amount of costs for these motions shall be paid by Unity Health to each of the respondents. Since the actions are continuing, there is no need for a determination of the costs of the actions at this time.
[99] This endorsement and the orders and directions contained in it shall have the immediate effect of a court order without the necessity of a formal order being taken out.
Kimmel J.
Date: June 18, 2024
[^1]: The amendments to the Statement of Claim by Noram Building Systems Inc., “Noram”, to assert the alternative claims for conspiracy and breach of fiduciary duty were the subject of an earlier rr. 21 and 26 motion by Unity Health to strike the amendments containing these new claims on the basis that they were statute-barred by ss. 4 and 5 of the Limitations Act. That motion was dismissed. See Noram Building Systems Inc. v. Zurich Insurance Company Ltd. et al, 2023 ONSC 5088.
[^2]: Noram never registered a lien. Oakdale conceded that its lien was not valid.
[^3]: The Subcontractor Plaintiffs also argued that the test for allowing inconsistent pleadings under r. 25.06(4) must be considered as part of the analysis and application of the doctrine of inconsistent election. I am not persuaded of that. These are two different types of situations to which two different tests apply. However, given my determination that the doctrine of inconsistent election does not apply in this case there is no need to go any deeper into the analysis of the inapplicability of the cases dealing with the test for allowing inconsistent pleadings.
[^4]: The Subcontractor Plaintiffs do not all allege breach of contract. There was some passing reference to “Subcontractor Direct Agreements” between Unity Health and Urban and Noram. Unity Health’s factum takes direct issue with the breach of contract claims by Oakdale and Urban that appear to be about their subcontracts with Bondfield that Unity Health claims not to be privy to. The question of which contracts are alleged to have been breached by Unity Health was not sufficiently elaborated upon for the court to make an independent decision to summarily dismiss these breach of contract claims. The breach of contract claims are further nuanced because of the suggestion that Unity Health may have breached the Payment Bond (which is a contract that it is privy to, as Obligee). No one approached this motion on the basis of an independent analysis of whether the breach of contract claims raise a genuine issue for trial; those claims will stand or fall on the same basis as the other claims as determined by this motion.