Sunview Doors Ltd. v. Academy Doors & Windows Ltd. et al., 2010 ONCA 198

• Judge: Weiler, Laskin, MacPherson, MacFarland and Epstein, JJ.A.
• Court: Court of Appeal (Ontario)
• Case Date: September 22, 2009
• Jurisdiction: Ontario
• Citations: 2010 ONCA 198;(2010), 265 O.A.C. 363 (CA)

Sunview Doors Ltd. v. Academy Doors (2010), 265 O.A.C. 363 (CA)

MLB headnote and full text

Temp. Cite: [2010] O.A.C. TBEd. AU.076

Sunview Doors Limited (plaintiff/respondent) v. Academy Doors & Windows Ltd., Vlasis Pappas, Vlasios Pappas and Olympia O'Brien (defendants/appellants)

(C50006; 2010 ONCA 198)

Indexed As: Sunview Doors Ltd. v. Academy Doors & Windows Ltd. et al.

Ontario Court of Appeal

Weiler, Laskin, MacPherson, MacFarland and Epstein, JJ.A.

March 16, 2010.

Summary:

Sunview supplied custom-made patio doors to Academy. Sunview did not know the location where the doors were being installed. Two of the individual defendants were directors and officers of Academy; the third (O'Brien) handled Academy's accounts. O'Brien incorporated a company to carry on a business very similar to that of Academy. Academy went out of business. Sunview sued Academy for breach of contract on the basis of the unpaid accounts ($87,029.98) and against the individual defendants for breach of trust, pursuant to the combined operation of ss. 8 and 13 of the Construction Lien Act. Academy did not defend.

The Ontario Superior Court, in a decision reported at [2007] O.T.C. Uned. 104, allowed the claim in breach of contract against Academy in the full amount of $87,029.98. However, Sunview could not establish that it was entitled to the benefit of the statutory trust in s. 8(1), based on Central Supply Co. (1972) Ltd. v. Modern Tile Supply Co. et al. (2001) (Div. Ct.); i.e., Sunview could not establish that, at the time it supplied its doors to Academy, it intended that they be used for known and identified improvements. Further, a nexus between the products and specific construction sites could not be made. As a s. 8(1) statutory trust had not arisen, the court did not have to decide the claim against O'Brien. Sunview appealed.

The Ontario Divisional Court, in a decision reported at (2008), 241 O.A.C. 212, allowed Sunview's appeal and, after deducting $28,785.36 on account of an order that Academy never picked up, gave judgment against the individual defendants for breach of trust in the amount of $58,244.62. The court held that O'Brien had "effective control" of Academy and that she, in addition to the two individual defendants, was personally liable for Academy's breach of trust. The court distinguished Central Supply on the facts. The defendants appealed.

The Ontario Court of Appeal, sitting as a panel of five, dismissed the appeal and upheld the decision of the Divisional Court granting judgment against the three individual defendants jointly and severally in the amount of $58,244.62. Sunview was the beneficiary of a s. 8(1) statutory trust. Thus, there was no issue that Academy was liable for breach of trust (s. 8(2)). In addition, the Divisional Court did not commit any palpable and overriding error in holding O'Brien personally liable.

Mechanics' Liens - Topic 3

General principles and definitions - General principles - Purpose of mechanics' lien legislation - The primary question on this appeal was whether a supplier of custom-made doors to a subcontractor was entitled to the benefit of a statutory trust under s. 8(1) of the Construction Lien Act (Ontario) - Having regard to the purpose of s. 8 and the object of the Act, the Ontario Court of Appeal resolved the issue in favour of the supplier - "Provided that the supplier is able to link the material to the improvement for which the subcontractor was owed money or has been paid, the supplier will be entitled to the benefit of the s. 8 statutory trust ... This interpretation best promotes the purpose of the section and the object of the Act. The purpose of s. 8 is to impress money owing to or received by contractors or subcontractors with a statutory trust, a form of security, to ensure payment of suppliers. The object of the Act is to prevent unjust enrichment of those higher up in the construction pyramid by ensuring that money paid for an improvement flows down to those at the bottom" - See paragraph 23.

Mechanics' Liens - Topic 4

General principles and definitions - General principles - Interpretation of mechanics' lien legislation - [See Mechanics' Liens - Topic 3 ].

Mechanics' Liens - Topic 7503

Trust fund - General - Breach of trust - Personal liability - Sunview supplied doors to Academy - Academy did not pay - O'Brien, one of the three individual defendants, handled Academy's accounts, but did not have signing authority - O'Brien incorporated a company to carry on a business similar to that of Academy - Academy went out of business - Sunview sued the individual defendants for breach of trust, pursuant to the combined operation of ss. 8 and 13 of the Construction Lien Act - The trial judge held that Sunview failed to establish a trust - On appeal, the Divisional Court held that O'Brien had "effective control" of Academy (s. 13(1)(b)) and held her personally liable for Academy's breach of trust - The Ontario Court of Appeal held that the Divisional Court properly exercised its discretion under s. 134 of the Courts of Justice Act in ordering judgment against O'Brien - The evidence of her active role in Academy together with the evidence that she was able to have Academy pay her between $150,000 and $195,000 in excess of her salary over a short period of time, when she was only owed $7,500, indicated that she had effective control over Academy or its related activities - Given her position, she had to know that the payments to her constituted a breach of trust - See paragraphs 103 to 107.

Mechanics' Liens - Topic 7504

Trust fund - General - When trust arises - The Ontario Court of Appeal resolved the conflicting jurisprudence concerning the interpretation of s. 8(1) of the Construction Lien Act - "The reference in s. 8(1) to the creation of a trust fund for the benefit of 'persons who have supplied services or materials to the improvement' generally requires that a link be made between the materials supplied and the improvement ... However, nothing in the wording of the section requires that the supplier intend that the material be incorporated into a known and specific improvement at the time of sale or supply ... Provided that the supplier is able to link the material to the improvement for which the subcontractor was owed money or has been paid, the supplier will be entitled to the benefit of the s. 8 statutory trust in the Act" - Here, the link was established because of the subcontractor's conduct in deliberately frustrating the supplier's attempts to obtain the disclosure that would enable it to link its products to the improvements into which they had been incorporated - Having regard to the purpose of s. 8 and the object of the Act, the court held that the supplier was entitled to the benefit of a s. 8(1) statutory trust - See paragraph 23.

Mechanics' Liens - Topic 7504

Trust fund - General - When trust arises - The Ontario Court of Appeal considered the wording of ss. 8, 14 and 15 of the Construction Lien Act in total context, and summarized as follows: "the phrase 'persons who have supplied services or materials to the improvement' in s. 8 and the phrase 'person who supplies services or material to an improvement' in s. 14 describe the beneficiary ... [T]he focus of each section remains quite different. Section 8 is linked to amounts owing or received on account of the contract price of an improvement; ss. 14 and 15 are linked to the interest of an owner in the premises and to the improvement itself. The time when a lien and a trust arise is not the same nor is their expiry date. When the wording of these provisions is considered in total context bearing in mind the scheme of the Act, and the object and intent of the legislature, the s. 8 trust remedy is a discrete form of redress, not dependent upon a supplier having a valid subsisting lien right" - See paragraph 72.

Mechanics' Liens - Topic 7504

Trust fund - General - When trust arises - The Ontario Court of Appeal concluded that, in order for a trust to arise under s. 8 of the Construction Lien Act, the supplier need not intend that the material be incorporated into a known and specific improvement at the time of supply - That conclusion was supported by the comments of Abella, J.A., in Central Supply Co. (1972) Ltd. v. Modern Tile Supply Co. et al. (2001), that the supplier in that case "had never shown any interest in tracing the product supplied to [the alleged subcontractor] to a specific work site, land, or improvement such that a claim for a lien could have been registered" - The comment implied that a link to the improvement was sufficient - The decision in St. Mary's Cement (1997) and the applicable principles of statutory construction also supported the court's conclusion - "Moreover, where the contractor or subcontractor does not allocate the supplier's material to a particular piece of land or improvement within a project, but it is clear that the contractor or subcontractor has received money on account of the contract price for the project and that the contractor or subcontractor owes money to the supplier, a link to the contractor's or subcontractor's contract for the project will be sufficient to establish a s. 8 statutory trust" - See paragraphs 81 and 82.

Mechanics' Liens - Topic 7504

Trust fund - General - When trust arises - The Ontario Court of Appeal stated that, in order for the plaintiff supplier (Sunview) to establish that it was the beneficiary of a trust under s. 8(1) of the Construction Lien Act, it had to prove the following four elements: (1) that the defendant (Academy) was a contractor or subcontractor; (2) Sunview supplied materials to the projects on which Academy was a contractor; (3) Academy received or was owed monies on account of its contract price for those projects; and (4) Academy owed Sunview money for those materials - Once all four elements were proven, the onus then shifted to the contractor, Academy, to demonstrate that payments made from trust funds were to proper beneficiaries of the trust - See paragraphs 83 and 84.

Mechanics' Liens - Topic 7504

Trust fund - General - When trust arises - The primary question on this appeal was whether a supplier of custom-made doors (Sunview) to a subcontractor (Academy) was entitled to the benefit of a statutory trust under s. 8(1) of the Construction Lien Act (Ontario) - It was Sunview's general commercial practice to not deliver its products to the construction sites of its customers - None of the purchase orders identified the project or location where Sunview's material would be installed - Sunview attempted, unsuccessfully, to discover the location where its materials had gone or the identity of the party with whom Academy had subcontracted - The trial judge dismissed the trust claim on the basis that Sunview failed to prove that it supplied materials to the projects on which Academy was a contractor - The Ontario Court of Appeal held that Sunview was entitled to the benefit of a statutory trust under s. 8(1) - The court agreed with the Divisional Court's opinion that, in the circumstances, Sunview ought not to be foreclosed from asserting a trust claim - "Precedent, principle and policy support this conclusion" - See paragraphs 91 to 102.

Mechanics' Liens - Topic 7568

Trust fund - Persons entitled to claim - Suppliers of materials - [See fifth Mechanics' Liens - Topic 7504 ].

Statutes - Topic 501

Interpretation - General principles - Purpose of legislation - Duty to promote object of statute - [See first Mechanics' Liens - Topic 7504 ].

Statutes - Topic 2603

Interpretation - Interpretation of words and phrases - Modern rule (incl. interpretation by context) - Intention from whole of section or statute - [See second Mechanics' Liens - Topic 7504 ].

Cases Noticed:

Central Supply Co. (1972) Ltd. v. Modern Tile Supply Co. et al. (2001), 149 O.A.C. 180; 55 O.R.(3d) 783 (C.A.), consd. [para. 15].

Schulz Concrete Pipe Ltd., Re (1979), 32 C.B.R.(N.S.) 157 (Ont. S.C.), consd. [para. 26].

Richmond Brothers Insulation Inc., Re (1989), 69 O.R.(2d) 22; 73 C.B.R.(N.S.) 284 (S.C.), refd to. [para. 29].

Maple Leaf Homes & Cottages Inc. v. Zoellner Windows (1982) Ltd. (1989), 34 C.L.R. 6 (Ont. H.C.), refd to. [para. 33].

Bell ExpressVu Limited Partnership v. Rex et al., [2002] 2 S.C.R. 559; 287 N.R. 248; 166 B.C.A.C. 1; 271 W.A.C. 1; 2002 SCC 42, refd to. [para. 47].

Rizzo & Rizzo Shoes Ltd. (Bankrupt), Re, [1998] 1 S.C.R. 27; 221 N.R. 241; 106 O.A.C. 1; 154 D.L.R.(4th) 193; 36 O.R.(3d) 418, refd to. [para. 47].

Minister of National Revenue v. Canada Trustco Mortgage Co., [2005] 2 S.C.R. 601; 340 N.R. 1; 2005 SCC 54, refd to. [para. 48].

Minneapolis-Honeywell Regulator Co. v. Empire Brass Manufacturing Co., [1955] S.C.R. 694, consd. [para. 51].

Canadian Bank of Commerce v. McAvity (T.) & Sons Ltd., [1959] S.C.R. 478, refd to. [para. 53].

St. Mary's Cement Corp. v. Construc Ltd. et al. (1997), 29 O.T.C. 376; 32 O.R.(3d) 595 (Gen. Div.), consd. [para. 76].

Plourde v. Wal-Mart Canada Corp. (2009), 396 N.R. 1; 2009 SCC 54, refd to. [para. 98].

Statutes Noticed:

Construction Lien Act, R.S.O. 1990, c. C-30, sect. 8 [para. 2]; sect. 13 [para. 12]; sect. 14 [para. 72].

Authors and Works Noticed:

Bristow, David I., Glaholt, Duncan W., Reynolds, R. Bruce, and Wise, Howard M., Construction Builders' and Mechanics' Liens in Canada (7th Ed.) (2008 Looseleaf), pp. 9-1 [para. 68]; 9-8 [para. 69].

Driedger, Elmer A., Construction of Statutes (2nd Ed. 1983), generally [para. 42]; p. 87 [para. 46].

Driedger, Elmer A., Construction of Statutes (3rd Ed. 1994), pp. 176 [para. 42]; 214 to 223 [para. 64]; 579 [para. 58]; 583 [para. 59].

Glaholt, Duncan W., and Keeshan, David, 2010 Annotated Ontario Construction Lien Act (2009), p. 260 [para. 95].

Kuchar, Joel S., Breach of Trust Actions Under the Construction Lien Act (1995), 20 C.L.R.(2d) 18, p. 31 [para. 43].

McGuinness, Kevin, Trust Obligations Under the Construction Lien Act (1994), 15 C.L.R.(2d) 208, p. 229 [para. 43].

Ontario, Attorney General's Advisory Committee Report on the Draft Construction Lien Act (1982), generally [para. 40]; pp. 7 [para. 62]; 37 [para. 54]; 47 [para. 70].

Sullivan, Ruth - see Driedger, Elmer A., Construction of Statutes.

Counsel:

Mauro Marchioni, and Brent Pearce, for the appellants;

Michael A. Handler and Giovanna M. Paolucci, for the respondent.

This appeal was heard on September 22, 2009, by Weiler, Laskin, MacPherson, MacFarland and Epstein, JJ.A., of the Ontario Court of Appeal. In reasons written by Weiler, J.A., the Court of Appeal delivered the following judgment and reasons for judgment, released on March 16, 2010.