Superior Court of Justice – Ontario

Court File No.: CV-23-711126
Date of Decision: February 24, 2025

Between:
2698368 Ontario Inc.
and
Capitalplus Development Group Ltd.

Before: Associate Justice C. Wiebe

Counsel:
Allen Chao-Ho Chang for Capitalplus Development Group Ltd.
Ran He for 2698368 Ontario Inc.

Heard: February 20, 2025

Reasons for Decision

Introduction

[1] The defendant, Capitalplus Development Group Ltd. (“Capitalplus”), brings this motion under the Construction Act, R.S.O. 1990, c. C.30 (“CA”) section 47 for an order discharging the claim for lien registered by 2698368 Ontario Inc. (“269”) on the title to the subject land, 105 Angus Drive, Toronto (“the Angus Property”), returning the posted security to Capitalplus and dismissing this action. There are two grounds for the motion: there is no triable issue that 269 was an “owner” of the subject land under the CA and therefore disqualified from preserving and perfecting a lien; there is no triable issue that the bulk of the amount claimed in this action is frivolous and vexatious as there is no evidence supporting it.

Section 47 Motions

[2] In my decision in 2708320 Ontario Ltd. cob Viceroy Homes v. Jia Development Inc., 2023 ONSC 2301 I described the process to be followed and the principles to be considered on such a motion under section 47:

[27] The process to be followed in a section 47 motion has now been clarified. The moving party must prove that there is no triable issue as to the basis on which the lien is sought to be discharged; see Maplequest (Vaughan) Developments Inc. v. 2603774 Ontario Inc., 2020 ONSC 4308, para 25. Both parties must “put their best foot forward” in the evidence to assist the court in making this determination, and the court is entitled to make this assumption; see GTA Restoration Group Inc. v. Baillie, 2020 ONSC 5190, para 56. The lien claimant has this onus because it is invariably in the best position to provide the evidence; see GTA, op. cit., paragraph 55.

[28] What constitutes frivolousness, vexatiousness and an abuse of process? The caselaw provides some guidance in this regard. “Frivolous” is used to describe an action that is so highly unlikely to succeed that it is apparently devoid of practical merit; “vexatious” includes actions that obviously cannot succeed and that are brought for an improper purpose; “abuse of process” is a flexible doctrine that gives the court the inherent power to prevent the misuse of its process; see XPL Construction Solutions Inc. v. North Bay Capital Investments Ltd., 2023 ONSC 238, paras 34-39.

Background

[3] The following background facts were evident from the motion material and are not disputed. Yang Yu is the principal of 269. She worked with her son, Dylan Yu, a real estate agent. Ms. Yang used another company of hers, 13289061 Canada Inc. (“132”), to obtain investments and use them to purchase properties. Through 269, she would then refurbish the properties and have 132 sell them at a profit. She often obtained loans from Capitalplus to finance the renovation costs.

[4] On May 28, 2022, Ms. Yang had 132 purchase the Angus Property for $1 million (closing date of August 10, 2022) with a view to refurbishing the house as a duplex and selling it at a profit. However, she was unable to obtain the investments for the purchase. The closing was extended to September 1, 2022.

[5] On August 31, 2022, without lawyers, Ms. Yang entered into an agreement with Capitalplus whereby Capitalplus agreed to assume the purchase of the Angus Property. This agreement was entitled the “Renovation & Purchase Agreement” (“RPA”). There was another agreement on August 31, 2022 whereby 132 assigned the agreement of purchase and sale to Capitalplus. The sale closed the next day, September 1, 2023. A first mortgage securing a loan to Capitalplus for part of the purchase price was registered.

[6] In the RPA, 269 promised to complete the renovation at its own expense by March 3, 2023 and either repurchase it for $1.2 million by March 7, or have “the parties” sell it to a third party by the same date with Capitalplus taking the first $1.2 million of the proceeds of sale and 269 the remainder. The RPA specified that if Capitalplus “refused” to sell to 269, 269 would be paid its renovation costs and could register a claim for lien for same. There was a provision imposing a penalty of $500 per day if the Angus Property was not sold by March 7, 2023. There was also a provision that Capitalplus “shall not interfere with the renovation and design process.”

[7] 269 delayed the project. Ms. Yang in her affidavit says that 269 incurred $328,085.89 in renovation costs and that the delay was due to Capitalplus’ failure to provide 269 with “loans” for the renovation costs. To help 269 finish, Capitalplus gave it “loans” totaling $56,110 in July and August, 2023. However, by September 23, 2023, the renovation was only 60% done. Frustrated, Capitalplus took over the work. It obtained a $250,000 loan and spent $184,525.41 to finish. It paid off some lien claims as well.

[8] On September 14, 2023, 269 registered a claim for lien in the amount of $271,975.89. On December 11, 2023, 269 purported to perfect its lien by commencing this action and registering a certificate of action. Capitalplus delivered its statement of defence on January 17, 2024.

[9] On February 7, 2024, Ms. Yang was cross-examined pursuant to CA section 40 and gave several undertakings. In this cross-examination, Ms. Yang admitted essentially that the relationship between 269 and Capitalplus was that of a partnership. In her own words, she called it a “collaboration or cooperation agreement.” She said that the two “wanted to work together and to make money together.”

[10] On April 11, 2024, Capitalplus obtained an order vacating the 269 claim for lien by posting cash security of $339,969.87. This facilitated the sale of the Angus Property to a third party on April 16, 2024 at a price of $1.55 million. These sale proceeds covered the $1.2 million Capitalplus stake plus its further costs.

[11] On June 19, 2024, Capitalplus brought this motion returnable September 3, 2024. At that time Mr. He appeared for 269 but said he was “fired” and without instructions. I scheduled a removal motion for him on October 3, 2024 and adjourned this motion to a date to be determined. On October 3, 2024, Mr. He appeared and confirmed that there would be no removal motion. I re-scheduled this motion. Capitalplus filed two affidavits sworn by a director of Capitalplus, Jie Xing, and an affidavit sworn by Haopeng Shi, the principal of a contractor on the project. Mr. Jie was cross-examined. 269 filed an affidavit sworn by Ms. Yang.

Is 269 an “Owner”?

[12] It is trite law that an owner cannot lien its own improved land as this would defeat the purpose of the CA namely to provide security for those who supply services and materials to the improvement. It would also be an inappropriate merger of interests with the owner suing itself; see Big Creek Construction Ltd. v. York-Trillium Development Group Ltd., para 11.

[13] An “owner” is defined by section 1 of the CA as being any person with an interest in the land at whose request and upon whose credit, or on whose behalf, or with whose privity or consent, or for whose direct benefit an improvement is made. The issue in this motion is whether 269 had an interest in the Angus Property.

[14] If an improvement is made pursuant to a partnership that owns the land, the partners that do the work are not “contractors” who supply materials and services. They are “owners.” That proposition was confirmed by Master Albert in her decision in Cohen v. Brin, 2013 ONSC 1302. In paragraph 15 she stated that a partnership has the following three ingredients: (1) a business, (2) carried on in common, and (3) with a view to profit. She stated that partners can contribute money, property, effort, knowledge, skill or other assets to the common undertaking, a joint property interest and the sharing of profit. She found in the case before her that the partner who did the work was an “owner” and not a “contractor” and that he did not have a lien.

[15] In the case before me, there was in the end no issue that 269 was a “partner,” and therefore an “owner,” when it did the renovation work. Mr. He frankly admitted this in closing argument. That admission accorded with the evidence. Throughout her section 40 cross-examination, Ms. Yang made admissions that clearly establish that 269 was a partner and owner when it did the renovation work. As stated earlier, Ms. Yang called the RPA a “collaboration or cooperation agreement.” She also said that the two parties “wanted to work together and to make money together.” Indeed, the RPA gave 269 the equity on any sale to a third party and prohibited any interference by Capitalplus in 269’s renovation and design. The payments Capitalplus made to 269 were “loans,” not payment for services and materials. These are the attributes of a partnership.

[16] The issue raised was a novel one. Mr. He argued that when it terminated the RPA in September, 2023 and denied 269 its stake in the eventual sale, Capitalplus turned 269 into a “contractor” and, most importantly, did so retroactively in relation to the renovation work already performed. Mr. He provided no authority for this point.

[17] I do not accept it. There is no provision in the CA for such a retroactive conversion of non-lienable work done by a partner into lienable work due to a post-work dispute between the partners. CA section 14(1) confers the lien right when the services and materials are supplied, not later. If the service and materials were not lienable at the time of supply, they cannot be made lienable by a later dispute. Also, Mr. He’s point would invite the abuses the prohibition against owner liens was meant to avoid. Lien rights expire in real time. Partners who supply services and materials would invariably register claims for lien to protect their positions should there be future partner disputes, thereby causing confusion and prejudicing bona fide lien claimants.

[18] There was also some discussion about the provision in the RPA which purported to confer the right to lien for the renovation costs onto 269 in the event Capitalplus “refused” to sell to 269. There is nothing in the CA that allows the parties by contract to confer lien rights where none exist. Indeed, the opposite is the case. CA section 5(1) states that, “every contract or subcontract related to an improvement is deemed to be amended in so far as is necessary to be in conformity with this Act.” In my view, the RPA clause purporting to confer lien rights on 269 for non-lienable work contradicts the CA and, therefore, by virtue of CA section 5(1), is unenforceable.

[19] For these reasons, I declare that 269 does not have a lien and I order that the posted Capitalplus security be returned to Capitalplus.

Is the Quantum of the 269 Claim “Frivolous and Vexatious”?

[20] Mr. Chang did not argue that 269 had no triable claim for breach of contract damages concerning its renovation costs per se. This position makes sense given the evidence. The RPA specified that 269 would be entitled to be paid its renovation costs in the event Capitalplus “refused” to sell to 269. Mr. Chang said that Capitalplus did not “refuse” to sell the land to 269. Indeed, on October 18, 2023, Capitalplus offered to sell the Angus Property to 269, an offer that was not responded to. However, the price offered was $1.461 million, namely well above the price in the RPA. Also, in the end Capitalplus sold the land to a third party for an amount just enough to cover Capitalplus’ alleged costs and did so unilaterally. This issue is at minimum triable.

[21] Mr. Chang did argue though that the bulk of the quantum of the 269 damage claim was frivolous and vexatious. He argued that, despite the obligation to put its “best foot forward,” 269 provided corroboration (i.e. invoices, receipts, etc.) for only $126,376.31 of its total claimed costs of $328,085.89. He pointed out that in her section 40 cross-examination Ms. Yang gave ten undertakings, some of which concerned proof of the renovation costs. None of these undertakings are answered at this point. Mr. Chang urged me to draw an adverse inference against 269 in this regard as a result. He wanted me to reduce the damage claim to $70,266.31, being the $126,376.31 less the $56,110 in “loans” Capitalplus paid to 269.

[22] I am not prepared to find no triable issue on this point. In her affidavit, Ms. Yang listed the costs 269 claims it incurred. She attached the invoices for some of the claimed costs. She attached photographs she said were taken of the project work as it was being done. This showed considerable work. She attached the design for the project. She was not cross-examined on her affidavit. In her section 40 cross-examination Ms. Yang stated that 269 paid cash for most of its renovation costs. The fact that she has not answered her undertakings will be taken into account on the issue of costs; but I will not deny 269 its opportunity to prove the bulk of its breach of contract damages on this basis.

[23] I, therefore, deny this aspect of the motion.

Conclusion

[24] For these reasons, I declare that 269 does not have a lien and I order that the security posted by Capitalplus for the 269 claim for lien be returned to Capitalplus, including interest accrued. I also order that the remainder of the motion is dismissed.

[25] Concerning costs, the parties filed costs outlines. The Capitalplus costs outline shows $21,778.41 in partial indemnity costs, $32,050.11 in substantial indemnity costs and $35,474.01 in full indemnity costs. The 269 costs outline shows $11,996.65 in partial indemnity costs and $19,093.05 in actual costs.

[26] I encourage the parties to resolve the issue of costs. If they cannot, Capitalplus must serve and file with my Assistant Trial Coordinator written submission on costs of no more than two (2) pages on or before March 3, 2025. 269 must then serve and file responding written submission on costs of no more than two (2) pages on or before March 10, 2025. Any reply written submission on costs must be served and filed on or before March 12, 2025. I will then render my decision on costs.

Date: February 24, 2025

C. Wiebe