) ) Demikon Construction Ltd Plaintiff – v. –, 2024 ONSC 992

CITATION : Demikon Construction v. Oakleigh Holdings, 2024 ONSC 992 BARRIE COURT FILE NO.: CV-21-615 DATE: 20240216 ONTARIO SUPERIOR COURT OF JUSTICE BETWEEN: ) ) Demikon Construction Ltd Plaintiff – and – Oakleigh Holdings Inc. Defendant – and – Aurelia Limited Partnership Defendant ) ) ) ) ) ) ) ) ) ) ))))))))))) R. Kennaley, counsel for the Plaintiff J. Goode, counsel for the Defendants Oakleigh and Aurelia HEARD : February 9, 2024 Via Zoom ENDORSEMENT ON MOTION McCARTHY, J.

Background [ 1 ] The present action involves a claim for lien arising out of goods and services provided by the Plaintiff to the Defendant/Respondents Oakleigh Holdings and Aurelia Limited Partnership (“the Respondents”) towards the construction of a five-story residential/commercial building in Orillia (“the project”). The Plaintiff was the construction manager/general contractor, responsible for the project including the hiring of sub-trades. Effective March 30, 2021 the Respondents terminated the Plaintiff’s right to complete the project, citing deficiencies and delays.

The Plaintiff subsequently liened the project and brought the present claim. The Respondents defended that action and launched a counterclaim for $6 million dollars for deficiencies and delays [ 2 ] Prior to the termination, the Respondents exercised their option under s. 28 of the Construction Act , R.S.O., 1990 c. C.30 (“the Act ”), to make a direct payment to Magest Building Systems (“Magest”) a sub-trade on the project and a lien claimant in a separate action CV-20-1696.

The claim was resolved by way of minutes of settlement executed on or about March 25, 2021 (“the MOS”) and by a direct payment by the Respondents to Magest of $345,000 plus HST (“the Magest settlement’). The Motion [ 3 ] The present action was launched by the Plaintiff in April 2021 following its registration of a claim for lien at the end of March 2021. The Respondents posted security of just over $5 million to vacate the Plaintiff’s lien on May 7, 2021. The Respondents advised that they would be bringing a motion to reduce the quantum of security shortly thereafter.

That motion is scheduled to be heard on February 29, 2024, and is referred to as “the security motion”. In support of that motion, the Respondents furnished the Plaintiff with a final list of direct payments made to sub-trades which included the payment made to Magest. [ 4 ] Following a cross-examination of Geoffrey Campbell on an affidavit in support of the of the security motion, the Plaintiff brought this preliminary motion for an order that the Respondents produce the MOS and documentation relative to the Magest settlement.

The Respondent had refused to provide much of what was requested, stating that the information sought is not relevant to any issue on the security motion and is any event protected by settlement privilege. [ 5 ] In preparation for the motion, the Respondents filed with the court a complete copy of the Magest settlement documentation which remains subject to the refusal. The court made that settlement documentation Exhibit “A” to the proceeding for identification purposes only and ordered that the exhibit remain sealed pending its decision.

The Position of the Plaintiff [ 6 ] The Plaintiff argues that the settlement documents are highly relevant to the issue in the underlying motion because they may shed light on:

a) Why the Respondents made the payment to Magest despite their previous allegations that deficiencies and delays were attributable to it as a sub-trade;

b) How the Respondents arrived at the Magest settlement number and whether they put a number on Magest’s responsibility for the delays and deficiencies thereby “settling out” a portion of the counterclaim they now advance against the Plaintiff. At the security motion, the court needs to fairly determine the extent to which the Respondents should be given credit for payments made to Magest and other trades. [ 7 ] The Plaintiff relies on the decision of Mercier J of this court in Absolute Restoration Inc., v. Frum Development Group, 2000 CarswellOnt 673 (Ont.

S.C.J.) at para. 37 [“ Absolute ”] which stands for the proposition that an owner cannot pay a subtrade, argue that that trade’s work was deficient, and then claim reimbursement for the payment from the contractor. [ 8 ] While acknowledging that the settlement documents are prima facie protected by the doctrine of settlement privilege, the Plaintiff argues that they nevertheless fall within one of the three exceptions to the doctrine, thereby warranting an order for their production:

i) there is a risk that the Respondents will be over-compensated; ii) the settlement documents have changed the litigation landscape; and/or iii) that the Respondents have in any event waived settlement privilege by voluntarily producing a portion of the settlement documents. The Position of the Respondents [ 9 ] The Respondents’ primary contention is that the balance of the Magest settlement documentation is not relevant to the issue to be determined in the security motion: whether the lien is over-secured and if so, what is the appropriate amount for security which must remain posted with the court. [ 10 ] The Respondents add that a motion under s. 44(5) of the Act should be

summary in nature. They add that proper notice of payments to sub-trades has been given and that the merits of the counterclaim will not be an issue for the court’s determination at the security motion. There is no danger of any overcompensation at this stage of proceeding. [ 11 ] The Respondents also argue that the documents are in any event protected by settlement privilege, that none of the exceptions to the doctrine apply, and that settlement privilege has not been waived.

Discussion and Disposition [ 12 ] For the following reasons, I would dismiss the motion without prejudice to the Plaintiff to renew the motion at a later date: 1) The manner in which the Magest settlement was arrived at is of no relevance to the security motion which, if not merely an accounting exercise, will focus principally on what has been paid to sub-trades and lien claimants, and determine what is the reasonable amount of security required to protect remaining lien claimants. I agree with the Respondents that such motions were intended to be

summary in nature. 2) The merits of the counterclaim are not at issue in the underlying motion. The Plaintiff will have an opportunity to discover and test the evidence that the Respondents have in support of their allegations. It will be entirely open to the trial judge to assess the merits of that counterclaim on a full evidentiary record, including whether the alleged deficiencies and delays attributable to a sub-trade can be properly laid at the feet of the Plaintiff.

There is no real risk of overcompensation at this stage. 3) I have reviewed Exhibit A: there is nothing of substance which I could rely upon to resolve the issue that will come before me on the security motion 4) I would distinguish Absolute : it did not involve a s. 44(5) motion or anything close to it. It did not address settlement privilege whatsoever.

In the case at bar, the issue of whether the Respondents will be able to claim compensation from the Plaintiff for deficiencies and delays caused by a sub-trade with whom it settled will be for the trial judge to determine. [ 13 ] For the foregoing reasons, the Plaintiff’s motion is dismissed without prejudice to it to renew the motion at a later date. Exhibit A shall remain sealed until further order of the court. [ 14 ] The parties agreed that the costs of this motion shall be determined by me following adjudication of the security motion.

McCARTHY J. Released: February 16, 2024