Outland Camps Inc v M&L General Date:, 2020 MBCA 42

Citation: Outland Camps Inc v M&L General Date: 20200420 Contracting Ltd et al, 2020 MBCA 42 Docket: AI18-30-09157 IN THE COURT OF APPEAL OF MANITOBA Coram: Madam Justice Holly C. Beard Madam Justice Jennifer A. Pfuetzner Madam Justice Lori T. Spivak BETWEEN : OUTLAND CAMPS INC. ) ) (Applicant) Respondent ) J. D. Kendall and ) B. E. Roach - and - ) for the Appellant ) M&L GENERAL CONTRACTING LTD. ) and ARCWELD INDUSTRIES INC. ) J. A. Pollock ) for the Respondent (Respondents) ) Outland Camps Inc. ) - and - ) ) T. W.

Turner SIGFUSSON NORTHERN LTD. ) for the Respondent ) Ernst & Young Inc. as (Respondent) Appellant ) court appointed receiver ) of M & L General (by original action) ) Contracting Ltd. ) - and - ) ) Appeal heard: BETWEEN : ) January 24, 2020 ) OUTLAND CAMPS INC. ) ) Judgment delivered: (Applicant) Respondent ) April 20, 2020 ) - and - ) ) ERNST & YOUNG INC. as court appointed ) receiver of M&L GENERAL ) CONTRACTING LTD. ) ) (Respondent) Respondent ) ) - and - ) ) ARCWELD INDUSTRIES INC. ) ) (Respondent) ) ) - and - ) ) SIGFUSSON NORTHERN LTD. )

) (Respondent) Appellant ) ) (by order dated May 22, 2015) ) On appeal from 2018 MBQB 112 beard JA I. THE ISSUES [ 1 ] Sigfusson Northern Ltd. (SNL) is appealing an order that the remaining portion of money paid into court by Outland Camps Inc. (OCI), pursuant to section 55(2) of The Builders’ Liens Act , CCSM c B91 , (the BLA ) to secure the vacation of builders’ liens (the Fund), be returned to OCI.

SNL’s position is that the balance remaining in the Fund constitutes trust funds and, as such, should be held until its trust claim is resolved. [ 2 ] This appeal raises the following two issues: - did the motion judge make a palpable and overriding error in concluding that the balance of the Fund (after deducting the holdbacks) did not constitute trust funds pursuant to the provisions of the BLA ; and - did the motion judge err in ordering that the balance of the Fund be paid out to OCI? [ 3 ] The sections of the BLA referred to herein are attached as an appendix. II.

THE FACTS [ 4 ] On February 22, 2013, OCI entered into a contract with Manitoba Hydro (being the owner of the Project) to design, supply and build a construction camp for use by Manitoba Hydro’s workers during the construction of a converter station and hydro transmission line (the Project). On March 1, 2013, OCI entered into a subcontract with M&L General Contracting Ltd. (M&

L) for a portion of that work. M&L, in turn, entered into a sub-subcontract with SNL on May 28, 2013, for the completion of portions of the work undertaken by M&L. [ 5 ] The work commenced and progress payments were paid by M&L to SNL over the summer. On or about September 20, 2013, SNL became concerned that its accounts to M&L were overdue, so, in early October, it contacted Manitoba Hydro to notify it of the payment problems. This notification led to meetings between Manitoba Hydro, OCI and M&L to discuss the payment issues.

At the request of OCI, SNL provided a statement for the unpaid accounts owing to it by M&L. [ 6 ] The meetings led to OCI and M&L entering into a settlement agreement dated November 1, 2013 (the settlement), whereby they agreed to terminate M&L’s contract with OCI effective October 25, 2013, as it was clear that M&L would not be able to complete the contract. SNL did not participate in the negotiations and it was not a party to the settlement. That settlement set out the total amount owing by OCI to M&L for work done under the subcontract and how that money had been, or would be, paid and distributed.

The total amount owing was $6,035,532.65, and, according to the settlement, was, or would be, paid as follows: - $2,522,564.66 had previously been paid to M&L during the course of the construction; - $2,660,303.04 was paid directly to “parties with whom M&L contracted, either orally or in writing, to do work, provide services or supply materials to the Project on behalf of M&L”, i.e., its subcontractors, including SNL; - $452,664.95 was the statutory holdback; and - $400,000 was a remediation holdback to cover repairs to deficiencies in M&L’s work; $43,786.48 was ultimately found due to OCI for its share of the cost of the remediation work. [ 7 ] While the settlement determined the amount owing by OCI to M&L, in fact, no further funds were paid directly to M&L.

The amount owing, other than the holdbacks, was paid directly to M&L’s subcontractors and suppliers. As a result, SNL received two payments from OCI, totalling $420,280.55, to be applied to SNL’s accounts with M&L, the last payment being made on November 8, 2013. The balance of SNL’s accounts alleged to be owing by M&L of approximately $1.4 million, plus GST and interest, remains unpaid. [ 8 ] M&L packed up its equipment and left the work site on or about October 25, 2013.

SNL undertook some further work, which it completed by November 19, 2013, and for which it was paid separately by OCI. [ 9 ] The first builders’ lien was filed by Arcweld Industries Inc. (Arcweld) on November 14, 2013. SNL received notice that M&L had filed its own builders’ lien against the Project on November 28, 2013, that included funds owing to SNL.

When SNL received no further payments, it filed two builders’ liens, one on December 12, 2013, and another on December 18, 2013. [ 10 ] These events were followed by a proliferation of legal proceedings and court orders involving the four companies; however, those proceedings were stayed as a result of the receivership of M&L in 2014 and the plan of arrangement under the Companies’ Creditors Arrangement Act , RSC 1985, c C-36 in 2018 regarding OCI. Those proceedings are as follows: - In January 2014, OCI filed an application to vacate the builders’ liens, about which more will be said below;

- SNL filed a breach of trust claim against M&L related to the non-payment of its accounts, which was stayed in the M&L receivership; - Ernst & Young Inc. as court-appointed receiver of M&L (M&L’s receiver) filed a statement of claim against OCI and Manitoba Hydro to realise on the M&L lien. M&L’s receiver has since discontinued the claim and withdrawn the lien. - SNL filed a statement of claim against OCI alleging various legal wrongs related to the settlement. That claim has now been dismissed in its entirety.

Counsel confirmed at the appeal hearing that there are no further proceedings outstanding between OCI and SNL, other than the present appeal dealing with the disposition of the balance of the Fund. [ 11 ] This proceeding was commenced in 2014, when OCI filed an application to vacate the builders’ liens. To do so, it obtained a court order dated January 31, 2014, to pay the sum of approximately $1.8 million into court pursuant to sections 55(2) and 56(1) of the BLA (the Fund).

The order provides, consistent with section 56(1), that this Fund stands as security for the lienholders. [ 12 ] The liens filed by SNL and Arcweld were dealt with in the judgment pronounced on March 24, 2017. At that time, SNL’s liens were declared invalid because they were filed out of time, and its claim to a portion of the holdback funds based on those liens was dismissed. Thus, its liens are no longer outstanding. The lien by Arcweld was upheld (the valid lien) and its claim to a portion of the holdback was granted.

Arcweld’s claim was paid from the Fund, with the then-remaining balance of the Fund continuing to be held in court pending a determination of SNL’s claim to that balance on the basis that it constitutes trust funds to which it is entitled or which should be paid to M&L’s receiver. The judgment related to the liens has not been appealed. [ 13 ] At a hearing on May 4, 2017, the motion judge dismissed SNL’s claim challenging the validity of the settlement under

section 12 of the BLA , in which SNL alleged that it was a “device intended to defeat” liens and trusts. The motion judge found that the settlement was negotiated in good faith by the parties to terminate their contractual arrangement when it was clear that M&L would not be able to complete its contract. He noted that it was not the settlement that defeated SNL’s lien, but the fact that its lien was not filed within the limitation period.

SNL has not appealed this finding. [ 14 ] In an endorsement dated May 23, 2017, the motion judge found that the amounts designated in the settlement as the holdback and the remedial holdback (net of the sum of $43,786.48) were payable to M&L. He ordered that those amounts be paid from the Fund to M&L’s receiver. This decision has not been appealed. [ 15 ] On August 30, 2017, OCI applied to have the balance of the Fund (net of the holdbacks) paid out of court and returned to it. Its motion was granted, leading to this appeal. III.

THE MOTION JUDGE’S DECISION [ 16 ] The motion judge considered SNL’s position that it was advancing a trust claim related to payments made on the Project and that the balance of the Fund constituted trust funds that should be held in court pending the determination of that claim. He found that the amount owing by OCI to M&L was determined by the settlement, that OCI had complied with all of the terms of the settlement, and that all amounts owing by OCI to M&L and to SNL had been paid. [ 17 ] Also at issue was OCI’s position that the balance of the Fund did not constitute trust funds and should be paid out to it.

Having found that no further money was owing by OCI to either M&L or SNL, the motion judge concluded that SNL had no entitlement to the balance of the Fund. He granted OCI’s motion and ordered that the balance of the Fund be paid out to it. IV. THE PARTIES’ POSITIONS [ 18 ] SNL argues that the motion judge erred in his finding that the balance of the Fund did not constitute trust funds pursuant to the BLA .

It asks how money paid into court by OCI to secure its unpaid accounts, including those set out in M&L’s lien, can instead be used to pay the holdbacks, with the remainder being returned to OCI. [ 19 ] SNL also argues that the motion judge made a palpable and overriding error in finding that no further money was owing by OCI to M&L and that OCI complied with the settlement.

It claims that the entire balance of the Fund should be held in court pending a full hearing to determine the legal nature of the Fund, its trust claim and the parties’ entitlement to the money. [ 20 ] In support of its position, SNL points to several aspects of the evidence that, it says, should have led the motion judge to find either that the balance of the Fund was, in fact, trust funds or, at least, that the evidence was insufficient to determine the nature of the funds and to require that the Fund be held in court pending a full hearing. [ 21 ] OCI and M&L’s receiver both argue that the findings of the motion judge were available on the totality of the evidence and that he made no palpable and overriding error.

Their position is that, without a finding that the balance of the Fund constitutes trust funds, there is no basis upon which to order that it continue to be held in court. V. STANDARD OF REVIEW [ 22 ] The standard of review in this case is not contentious. The standard of review in relation to the BLA was considered by this Court in Olson (Stuart) Dominion Construction Ltd v Structal Heavy Steel , 2014 MBCA 8 at paras 15-20 , aff’d 2015 SCC 43 , wherein it confirmed that the standards of review in Housen v Nikolaisen , 2002 SCC 33 were applicable.

Thus, factual issues and inferences of fact are reviewed on the standard of palpable and overriding error, as are questions of mixed fact and law or the application of the facts to the law (absent an extricable question of law). Questions of law, including the

interpretation of the law and whether a judge applied the wrong legal test or principles, are reviewed on the standard of correctness. [ 23 ] Those issues that relate to the exercise of discretion by a motion judge and require consideration of the particular circumstances of the case are determined on a deferential standard. This means that appellate courts are not to overturn a motion judge’s

exercise of discretion barring either an error in principle or a decision so clearly wrong as to yield a truly unjust result. VI. ANALYSIS [ 24 ] As a subcontractor, SNL had access to two separate remedies under the BLA —a lien claim and a trust claim (see Stuart Olson (SCC) at paras 1, 3, 32-38). The Fund was paid into court by OCI as security for the lien claims, which secured amounts owing by M&L to its subcontractors. The four liens that were filed have now all been resolved, so there are no further lien claims outstanding. Thus, the Fund is no longer providing security for lien claims.

The issue is whether the Fund constitutes trust funds that should continue to be held in court to secure and/or satisfy SNL’s separate trust claims. [ 25 ] OCI and M&L’s receiver acknowledge that SNL has a claim against M&L under their contract for amounts due and owing and it has a claim in the M&L receivership, both of which were also recognised by the motion judge. Those claims are not at issue here. [ 26 ] For SNL to successfully assert a trust claim against the Fund, it must first establish that the Fund is a “trust fund” within the BLA . There are two trust funds under the BLA .

Section 4(1) creates a trust fund regarding funds received by a contractor (here, OCI), and it states that “[a]ll sums, including any interest on the holdback, received by a contractor on account of a contract price constitute a trust fund . . .” (the contractor trust).

Section 4(2) creates a trust fund regarding funds received by a subcontractor (here, M&L), and it states, “all sums, including any interest on the holdback, received by a sub-contractor on account of a contract price in the sub-contract, constitute a trust fund . . .” (the subcontractor trust). [ 27 ] SNL argues that there was evidence to infer that the Fund was paid from Project funds received by OCI from Manitoba Hydro and, therefore, it constituted trust funds (the contractor trust). [ 28 ] In support of its position regarding further Project funds, SNL points to evidence that it says indicates that OCI was entitled to additional funds from Manitoba Hydro after the date of the settlement and the payment of the Fund into court.

For example, it refers to a statement made by Mr. Landy, in his affidavit of January 16, 2014, that OCI was applying to pay money into court to vacate the liens because Manitoba Hydro had threatened to withhold Project funds if it did not do so. This, it argues, is evidence that there would be further money paid by Manitoba Hydro to OCI. It also points out that, in his examination, Mr. Landy refused to answer questions regarding the accounting for the construction project.

OCI’s position is that, if SNL was not satisfied with its replies, it should have taken further proceedings to require responses, but it did not do so. [ 29 ] Contrary to this, there was the evidence of Mr. Landy, for OCI, who stated in an affidavit in support of this motion that the Fund came from OCI’s own resources and was not funds received from Manitoba Hydro on account of the Project. He denied that any additional funds were received from Manitoba Hydro for work done by M&L or its subcontractors under M&L’s subcontract following the settlement.

It is implicit in the motion judge’s decision that he accepted this evidence. [ 30 ] While there was some evidence that suggested that further Project funds were to be paid by Manitoba Hydro to OCI after the settlement and the payment of the Fund into court, there was no evidence that any funds were, in fact, ever paid. The evidence regarding future payments was not strong, and must be considered in the context of the evidence of Mr.

Landy who clearly stated that no further Project funds were paid by Manitoba Hydro. [ 31 ] The motion judge found that “no additional funds were ever received by OCI from Manitoba Hydro which would have required OCI to account to M&L pursuant to subparagraph 17(

c) of the [settlement]” (at para 45). In my view, he made no palpable and overriding error in so finding. [ 32 ] SNL also argues that the motion judge erred in finding that no further money was owing by OCI to M&L. The amount owing by OCI to M&L was determined by the settlement. While SNL challenged both the validity and the fairness of the settlement, particularly given that it did not participate in the settlement or the negotiations that preceded it, all of those claims have been litigated and dismissed, leaving a final determination that the settlement is valid.

Thus, there has been a final determination of the amount owing by OCI to M&L, being the amount in the settlement. [ 33 ] As well, M&L’s receiver took the position before the motion judge and confirmed on appeal that no further money is owing by OCI to M&L, and that the balance of the Fund is not trust funds. This is consistent with M&L’s receiver’s actions in discontinuing M&L’s claim against OCI and withdrawing the lien filed by M&L.

In my view, the motion judge did not err in accepting and relying on M&L’s receiver’s conclusion. [ 34 ] In my view, there is evidence to support the motion judge’s finding that OCI has paid all of the money owing to M&L pursuant to the settlement, and he made no palpable and overriding error in concluding that no further money was owing by OCI to either M&L or to SNL. [ 35 ] I am of the view that the motion judge did not make a palpable and overriding error in concluding that the remainder of the Fund did not constitute trust funds pursuant to the BLA .

Given that finding, there was no basis, in my view, upon which to order that the balance of the Fund be held in court. For this reason, the motion judge’s decision to order the payment of the balance of the Fund to OCI was not clearly wrong and it did not yield a truly unjust result. Section 4(3) (

d) of the BLA [ 36 ] SNL argues that OCI is liable to it by operation of section 4(3) (

d) of the BLA , which states that a contractor cannot appropriate any part of the trust fund to its own use until “provision has been made for the payment of other affected beneficiaries of the trust to whom amounts are then owing out of the sum received.” SNL argues that it is such a beneficiary. [ 37 ] While SNL invited this Court to consider the effect of section 4(3) (

d) on OCI’s obligation to “other affected beneficiaries”, in my view there is no need to do so, given the finding that the Fund does not constitute trust funds.

VII. DECISION [ 38 ] For these reasons, I would find that the motion judge did not err either in finding that the balance of the Fund was not trust funds under the BLA or in ordering that it be paid out to OCI. [ 39 ] I would, therefore, dismiss the appeal with one set of costs to OCI and M&L’s receiver. JA I agree: JA I agree: JA APPENDIX The Builders’ Liens Act , CCSM c B91 (at sections 4(1) - 4(3) (d), 12 , 55(2) , 56(1)): Receipts of contractor constitute trust fund 4(1) All sums, including any interest on the holdback, received by a contractor on account of a contract price constitute a trust fund for the benefit of (

a) sub-contractors who have sub-contracted with the contractor and other persons who have supplied materials or provided services to the contractor for the purpose of performing the contract; (

b) the Workers’ Compensation Board; (

c) workers who have been employed by the contractor for the purpose of performing the contract; and (

d) the owner for any set-off or counterclaim relating to the performance of the contract. Receipts of sub-contractor constitute trust fund 4(2) All sums, including any interest on the holdback, received by a sub-contractor on account of a contract price in the sub-contract, constitute a trust fund for the benefit of (

a) sub-contractors who have sub-contract with the sub-contractor and other persons who have supplied materials or provided services to the sub-contractor for the purpose of performing the sub-contract; (

b) the Workers’ Compensation Board; (

c) workers who have been employed by the sub-contractor for the purpose of performing the sub-contract; and (

d) the contractor or any sub-contractor for any set-off or counterclaim relating to the performance of the sub-contract. Duties of contractor respecting trust fund 4(3) A contractor receiving a sum mentioned in subsection (1) is the trustee of the trust fund and he shall not appropriate or convert

any part of the trust fund to or for his own use or to or for any use not authorized by the trust until . . . (

d) provision has been made for the payment of other affected beneficiaries of the trust to whom amounts are then owing out of the sum received. Devices to defeat liens and trusts 12 Every device by a person and every payment made for the purpose of defeating or impairing a lien or a trust created under this Act is against public policy and void.

Vacating lien on payment into court, etc. 55(2) Upon application, a judge may order security or payment into court in an amount equal to the holdback required under this Act as it applies to a particular contract and any additional money payable with respect to that contract but not yet paid but not exceeding the total amount of the claims for liens then registered against a parcel of land and may then order that the registration of those liens be vacated.

Money paid into court, etc., in place of land 56(1) Any money paid into court or any security given under subsection 55(2) stands in place of the land against which the lien was registered and is subject to the claims of (

a) the persons whose liens have been vacated; and (

b) every person who (

i) both at the time of filing the application under subsection 55(2) and at the time of filing application for payment out under subsection (3), has a subsisting claim for lien, and (ii) has registered a claim for lien prior to the time of filing the application for payment out under subsection (3); but the persons whose liens have been ordered vacated have a first charge on the money or security to the extent of any amount, including costs, found by the judge to be owing to them.