WEIR'S CONSTRUCTION LIMITED Plaintiff And: The Toronto-Dominion Bank First Defendant And: CITY OF ST. JOHN'S Second Defendant And: BANK OF MONTREAL Intervenor, 2021 NLSC 80

court crest IN THE SUPREME COURT OF NEWFOUNDLAND AND LABRADOR GENERAL DIVISION Citation : Weir's Construction Limited v. Toronto-Dominion Bank , 2021 NLSC 80 Date : June 2, 2021 Docket : 201801G6411 Between: WEIR'S CONSTRUCTION LIMITED Plaintiff And: The Toronto-Dominion Bank First Defendant And: CITY OF ST. JOHN'S Second Defendant And: BANK OF MONTREAL Intervenor Before: Justice Robert P. Stack Place of Hearing: St. John’s, Newfoundland and Labrador Date of Hearing: May 27, 2021

Summary: The plaintiff commenced an action against the Toronto-Dominion Bank and the City of St. John’s. In response to the action, the City

paid $226,334.26 into the Court under Rule 20 of the Rules of the Supreme Court, 1986. Unbeknownst to the City, the intervenor claimsa security interest in the money paid into Court. The City therefore applied to convert the Rule 20 payment to an interpleader under Rule13. The Court allowed the City’s application. The conversion of the payment into Court from Rule 20 to Rule 13 was necessary to ensure aproper determination on the merits of the competing claims of the plaintiff and the intervenor. Appearances: R. Paul Burgess, Q.C. Appearing on behalf of the Plaintiff Sean M.

Pittman Appearing on behalf of the First Defendant Linda S. Bishop, Q.C. Appearing on behalf of the Second Defendant William T. Cahill Appearing on behalf of the Intervenor Authorities Cited: CASES CONSIDERED: Langor v. Spurrell (1997), (NL CA), 157 Nfld. & P.E.I.R. 301, 486 A.P.R. 301 (Nfld.C.A.); Bourgeois v. Jackman (1995), (NL SC), 128 Nfld. & P.E.I.R. 279, 400 A.P.R. 279 (Nfld. S.C. (T.D.));Hunwick v. Citaero Aviation Ltd. (1980), (BC CA), 21 B.C.L.R. 285, 16 C.P.C. 215 (C.A.); Clancey v. ClarkeTransport Canada Inc. (1998), (NL CA), 163 Nfld. & P.E.I.R. 188, 160 D.L.R. (4th) 621 (Nfld.

C.A.) STATUTES CONSIDERED: Bankruptcy and Insolvency Act, R.S.C. 1985, c. B-3 RULES CONSIDERED: Rules of the Supreme Court, 1986, S.N.L. 1986, c. 42, Sch. D REASONS FOR JUDGMENT Stack J.: INTRODUCTION [1] Weir’s Construction Limited, the plaintiff, commenced an action against the Toronto-Dominion Bank (“TD”) and the City ofSt. John’s (“City”) claiming $242,521, interest, costs, and other relief. In satisfaction of the claim, the City paid $226,334.26 into theCourt under Rule 20.01 of the Rules of the Supreme Court, 1986, S.N.L. 1986, c. 42, Sch.

D (“Rules”). [2] The plaintiff has applied for the money to be paid out of Court as a compromise of, and in satisfaction of, its claim. Bank ofMontreal (“BMO”) has intervened to claim a security interest in the money. The City now submits that it paid the money into Court bymistake and that the money should not be paid to the plaintiff pursuant to Rule 20. Rather, it says, although it has no interest in themoney and is satisfied for it to remain with the Court, it should have been paid under Rule 13.

Rule 13 provides for interpleader where aperson has a sum of money to which it makes no claim, and it desires the money paid in Court so that the rights of competing claimantscan be adjudicated. [3] The City has applied to convert its payment into Court from Rule 20 to Rule 13. BMO supports the City’s application; TDjoins the plaintiff in opposing it. The issue presently before me is whether I should exercise my discretion to permit the City to convertthe underpinning of its payment into Court from Rule 20 to Rule 13. facts [4] The facts are not in dispute for the purpose of this application.

The City filed an affidavit sworn by Jason Sinyard, Deputy City

Manager of Planning, Engineering and Regulatory Services. [ 5 ] The plaintiff commenced its action as against the City and TD on September 24, 2018, arising out of work that it completed in connection with a subcontract relating to a 2013 development by SkyMark Contracting Ltd. (“SkyMark”). [ 6 ] Development security was provided to the City by way of Letters of Credit from TD on behalf of SkyMark, provided by Equity Capital Corp. (“Equity”), a corporation related to SkyMark.

The Letters of Credit, in turn, were secured by the pledge of a cash term deposit belonging to Equity held by TD. [ 7 ] Because certain deficiencies remained outstanding in relation to the development, on August 23, 2017, the City issued demands to TD for payment under the Letters of Credit of the amounts of $45,000.00 and $197,521.00 for deficiencies stemming from SkyMark’s work.

TD paid the full amount of the Letters of Credit to the City. [ 8 ] On February 6, 2019, the City paid $226,334.26 into Court, representing the aggregate of amounts paid by TD pursuant to the Letters of Credit minus $16,186.74, which represented the actual amount of the development deficiencies. The payment into Court was made pursuant to Rule 20.01 of the Rules . The plaintiff filed a Notice of Acceptance of the Remaining Funds pursuant to Rule 20.03(1) on March 12, 2020. [ 9 ] In December 2020, the plaintiff sought leave of the Court pursuant to Rule 20.03(2) to withdraw the money paid into Court.

In January of 2021, BMO applied to intervene based upon the security interest that it claims in the money. [ 10 ] SkyMark and Equity were deemed bankrupt under the Bankruptcy and Insolvency Act , R.S.C. 1985, c. B-3 , on April 10, 2017. BMO’s secured claim in the estate of Equity was approved by the Trustee in Bankruptcy (the “Trustee”). It is BMO’s position that its security attached to the Equity term deposit prior to it being placed as security for the Letters of Credit.

The plaintiff submits, however, that it has a trust interest in the term deposit to which BMO asserts entitlement arising from correspondence between it and TD. In any event, it says, the term deposit no longer exists because TD paid the funds to the City pursuant to demands on the Letters of Credit. [ 11 ] Aside from its claimed trust interest in the money, the plaintiff states that the procedure under Rule 20 has now been perfected.

It says that because the City paid the money into Court and the plaintiff accepted it, the plaintiff can now take the money as a compromise of and in satisfaction of its claim. [ 12 ] The City states that at the time the money was paid into Court, it was not aware of the financial and/or contractual dealings as between the plaintiff, TD, or BMO, nor was it aware of the bankruptcy of Equity. The City claims no beneficial interest in the money paid into Court. Furthermore, it says, the payment into Court was not intended to compromise the plaintiff’s claim.

Rather, the payment was made with the understanding that the only two parties with a possible interest in the money were the plaintiff and TD. That is, the City says that the money was not paid into Court in recognition of the plaintiff’s claim, but merely as a mechanism by which it could divest itself of the money for the benefit of the only two parties that it understood had claims to it. Furthermore, the City says that it did not take

part in, nor was it aware of, any legal proceedings between the various parties until BMO applied to intervene in this action. [ 13 ] TD claims no interest in the money paid into Court. [ 14 ] I understand that there were no negotiations between the plaintiff, TD, or the City relating to settling this action for $226,334.26. That amount is what the City held on hand after it paid for the SkyMark deficiencies.

One can only surmise that once the money was paid into Court, it was close enough to the $242,521 claimed by the plaintiff that it was satisfied to compromise and accept the money in satisfaction of its claim.

THE ISSUE [ 15 ] The sole issue before me at this point of the proceeding is whether the City should be permitted to convert its payment into Court pursuant to Rule 20 to a payment into Court pursuant to Rule 13? analysis [ 16 ] Based upon the record before me, I am satisfied that almost two years after paying the money into Court, the City learned that the intervenor claims an interest in the money and may make a claim to recover it as against the City. [ 17 ] The City paid the $226,334.26 into Court using Form 20.01, which is the form associated with Rule 20 of the Rules .

Rule 20.01(1) provides that a defendant may pay into Court a sum of money in satisfaction of a cause of action. [ 18 ] By Rule 20.03(1), while the money remains in Court, but before the commencement of the trial or hearing, a plaintiff may accept the whole or any portion of it in satisfaction of the cause of action in respect of which the money was paid in by giving notice of the acceptance. Thereupon all proceedings in respect of the cause of action are stayed as against the defendant making the payment and any other defendant sued jointly or in the alternative with the defendant.

By Rule 20.03(2), with leave of the Court, the money accepted in satisfaction of the claim specified in the notice of acceptance will be paid to the plaintiff. [ 19 ] The City now says that because it paid the money into Court pursuant to Rule 20.01 by mistake, it should be permitted to convert the payment into Court to an interpleader pursuant to Rule 13.

Rule 13.01 provides that where a person is sued or expects to be sued in respect of any property in its possession, and two or more persons make adverse claims to it, and the person holding the property claims no beneficial interest in it, the person may apply to the Court for relief by way of interpleader. [ 20 ] By Rules 13.04 and 13.05, the Court may determine how the claims to the money paid into Court by way of interpleader shall be adjudicated.

[21] The issue before me is a procedural one, not a substantive one. The money has been paid into Court. BMO has been permittedto intervene. The only issue is whether I can accede to the City’s request to convert the rule under which the payment into Court wasmade. [22] Rule 2.01(1) provides that a failure in a proceeding to comply with any requirement of the Rules shall be treated as anirregularity and shall not nullify the proceeding, any step taken in the proceeding, or any document or order therein, unless the Courtorders otherwise.

This, however, is not a case where there has been a failure to comply with the Rules. Rather, it is a case of a partyseeking to change the rule under which it took a step in a proceeding, namely, paying money into Court. Do the same, or similar,considerations apply in this case as they would in an application pursuant to Rule 2? I think they do. To understand why, it is necessaryto place the issue in context. [23] The underlying issue before me is whether BMO should be permitted to make a claim to the money paid into Court.

If themoney was paid into Court under Rule 13, BMO would have automatically been entitled to assert its security interest. The outcome underRule 20 is not as clear. BMO, upon being made aware of the application by the plaintiff pursuant to Rule 20.03 for payment of themoney out of Court, sought and was granted leave to intervene. The plaintiff says, however, that because the Rule 20 procedure has beencompleted, it is not now open for BMO to assert a security interest in the money.

Having compromised its claim against the City byaccepting the money, says the plaintiff, it should now be entitled to receive it without interference by third parties, such as BMO. IfBMO has a security interest in the money and the City should not have paid it into Court, then the plaintiff says that BMO should sue theCity. [24] The issue is one of fairness and access to justice. However I decide, prejudice will be occasioned upon one or more of theparties.

It boils down to whether the plaintiff should be stymied in its Rule 20.06 procedure or whether BMO should be denied anopportunity to make its case to a security interest in the money. Balancing the interests of the parties and acting in the interests of justice,should I exercise my discretion to permit the City to convert its payment to one made under Rule 13? [25] The degree of flexibility available to the Court in the application of the Rules was addressed in Langor v. Spurrell (1997), (NL CA), 157 Nfld. & P.E.I.R. 301, 486 A.P.R. 301 at para. 42 (Nfld. C.A.).

Green J.A., as he then was, addressed thesetting aside of a default judgment: 42 To those who would say that such an approach would lead to sloppiness in practice and general non-compliance with the rules, itmust be remembered that the rules are in any event intended to be, not inflexible “iron rails” (to borrow a phrase used by Marshall, J.A.in another context in Lundrigan Group Ltd. v. Pilgrim (1989), (NL CA), 75 Nfld. & P.E.I.R. 217 (Nfld. C.A.)), butguidelines for action to be used in the furtherance of procedural justice to ensure a proper determination on the merits of a particulardispute.

If that aim can nevertheless be accomplished in a given case notwithstanding technical non-compliance with the rules, such non-compliance ought not to be fatal. Where there is a potentially good defence, therefore, the rights of the parties should not readily bedisposed of by

summary dismissal for a technical, peripheral reason where justice can be done by the granting of another remedy. Thefailure to comply with the rules can be better dealt with in a creative disposition with respect to costs, rather than as a matter ofentitlement to relief. In that way rule-compliance can be indirectly promoted as well. [26] I am satisfied that the statement of the law by Green J.A. applies in the circumstances of this case. The Court has discretion tofurther procedural justice in order to ensure a proper determination on the merits of a particular dispute.

Such a determination ought notto be thwarted for a technical, peripheral reason where justice can be done through a flexible application of the Rules. [27] Rule 20.06 permits a defendant to apply to withdraw a Rule 20 payment to the extent that it has not been accepted by theplaintiff. The plaintiff and TD argue that this application to convert the basis for the payment into Court from Rule 20 to Rule 13effectively amounts to an application pursuant to Rule 20.06.

Although there is no specific rule that contemplates amending a payment under Rule 20 to another type of payment under the Rules, there is jurisprudencerelated to applications made under Rule 20.06 to withdraw a payment, even after it has been accepted by the plaintiff. [28] In Bourgeois v. Jackman (1995), (NL SC), 128 Nfld. & P.E.I.R. 279, 400 A.P.R. 279 (Nfld. S.C. (T.D.)), adefendant attempted to withdraw funds paid into court sometime after the plaintiff had already provided a notice of acceptance. Atparagraph 13, L. D.

Barry J., as he then was, held that the reference to "With leave of the Court" in Rule 20.03(2) indicates that theremay be circumstances where a defendant could apply to withdraw a Rule 20.01 payment, even after the plaintiff has given notice toaccept it. The Court found that in order to exercise its discretion, there should be affidavit evidence asserting a material change incircumstances and demonstrating the inequity that would ensue if the money was not paid back to the defendant. [29] In Bourgeois, the Court cited Hunwick v. Citaero Aviation Ltd. (1980), (BC CA), 21 B.C.L.R. 285, 16 C.P.C.215 (C.A.).

There a defendant paid money into court in full satisfaction of a personal injury claim. Shortly before trial, however, thedefendants discovered evidence that had a substantial effect on the overall claim. The court found that this was a material change thatwould encourage the court to exercise its discretion in allowing withdrawal. At paragraphs 20 and 21 of Hunwick, Carrothers J.A. wrote: 20 Where there is a discretion to be exercised there must be some basis for the exercise of that discretion.

Here, the material evidenceand the new witness recently discovered with due diligence put a whole new complexion on the issues and position of the parties underwhich the moneys were paid in and so offered in settlement. 21 In my view, that is a good reason upon which to base an exercise of discretion and a compelling reason for exercising it in favourof the appellants. [30] The court in Hunwick went on to elaborate on the court’s discretion to permit a withdrawal, even where the funds have beenaccepted.

Such discretion would be exercised in instances of fraud, mistake in fact, and material changes in circumstances. As stated bythis Court in paragraph 8 of Bourgeois, “In Hunwick the court held that not only fraud but other material changes of circumstances

entitled the court … to exercise its discretion so as to permit withdrawal by the defendant of the payment.” [31] Based upon the affidavit of Mr. Sinyard, I find that the claim to the money by BMO amounts to a material change incircumstances resulting from a mistake of fact.

The City paid the money into Court on a mistaken understanding of to whom it belonged.The City was in possession of funds in which it had no interest but was unaware of the competing claims to it by the plaintiff and BMO.Had the City known at the time that BMO also claimed an interest in the money, it would have made its payment into Court pursuant toRule 13. In such circumstances, interpleader is the most appropriate procedure as it puts the true nature of the proceeding before theCourt.

Rule 13 would permit the City to absolve itself of further dealing with the money while at the same time permitting the partiesclaiming an interest in it to have their day in Court. [32] This application is less about the respective rights and obligations of the plaintiff and the defendants than it is about thecompeting claims to the money by the plaintiff and the intervenor. A conversion to Rule 13 would cause the plaintiff and TD to lose thefinality of the Rule 20 procedure resolving the claim. As for the City, it would only benefit indirectly from a conversion to Rule 13.

It isBMO that would gain the most by acquiring an opportunity to argue that the money is subject to its security interest. Based upon theentirety of the unique circumstances, I am satisfied that the interests of justice require BMO be permitted to assert its case. [33] The money remains intact in the possession of the Court. The issue of to whom it belongs can be adjudicated under Rule 13whereupon the plaintiff can assert its trust claim to the money, and BMO can assert its claim to security.

If the plaintiff is unsuccessful inthe Rule 13 proceeding, however, it can continue its claim against the City and TD in this action. I note that counsel for the City saysthat it is not concerned with that prospect as the City has determined that it has a good defence to the action. That may or may not be determined down the road, of course.

In any event, the possibility of that action proceeding is abetter mechanism by which to resolve the matter than by having BMO, if it were to be unsuccessful under Rule 20, commence a freshaction against the City. [34] I am supported in my conclusion by the reasoning of Green J.A. in Clancey v. Clarke Transport Canada Inc. (1998), (NL CA), 163 Nfld. & P.E.I.R. 188, 160 D.L.R. (4th) 621 (Nfld. C.A.), where he found at paragraph 63 that the appellantwas entitled to convert a Notice of Appeal to an application for certiorari and related prerogative relief.

The conversion from Rule 20 toRule 13 is necessary in the circumstances of this case to ensure a proper determination on the merits of the respective rights to the moneyof the plaintiff and BMO. disposition [35] The application by the City is allowed.

It is ordered that the sum of $226,334.26 paid into the Court under Rule 20 shall bedeemed to have been paid pursuant to Rule 13 of the Rules. [36] Because this was an issue that, to my knowledge, has not previously come before the Court, each of the parties and theintervenor shall bear its own costs. [37] Any of the parties or the intervenor may make an application for directions on how the matter will proceed to an adjudicationpursuant to Rule 13 relating to the competing claims to the money paid into Court, or any part of it.

Such an application shall be madewith notice to the Trustee insofar as it represents the interests of the general body of creditors. _____________________________ Robert P. Stack Justice