Ontario’s highest court has upheld a Superior Court of Justice decision requiring a prominent Stratford developer to pay a local builder more than $530,000 after being found in breach of contract and in breach of trust.
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A three-person panel, including Chief Justice of Ontario George Strathy as well as Ontario Court of Appeal Justices Lois Roberts and Lorne Sossin, made the decision this week.
In its written decision, the panel said Superior Court Justice A. Duncan Grace did not make an error last year when he found Larson Properties Partnership Corporation and the company’s majority shareholder, Kevin Larson, legally responsible for debt owed to Feltz Design Build following work the contractor completed on a downtown Stratford pub and butchery in October 2019.
Larson’s lawyer, Eric Kerson, argued in part during the appeal that Grace was wrong to issue the decision without requiring a full trial, but the panel disagreed.
“The motion judge found (the partnership corporation) liable for breach of trust for the full amount of the outstanding debt, and that (Larson) was jointly liable given his knowledge and control over (the corporation’s) operations,” the panel wrote. “The motion judge’s findings are entitled to deference and clearly were available on the record. We find no error in the motion judge’s analysis or conclusion.”
Martha Cook, a lawyer representing Feltz, praised the decision Friday.
“I was confident about the original outcome … and so my client and I are obviously very pleased that the Court of Appeal viewed the situation the same way,” she said. “Feltz anticipates receiving the money very soon to satisfy the judgment and various costs orders, and will be happy to finally end its dealings with (Larson) and Larson Properties Partnership Corp.”
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Larson Properties Partnership Corp. responded to requests for comment with a company statement via email Friday.
“The matter was heard on appeal … on the basis that there is merit to the position that the services rendered under contract by Feltz Design Build lacked in quality, workmanship, and completion standards,” the statement said. “As it stands, the court made the decision solely on the architectural review of the site which is not a reflection of the full scope of matters in dispute. Funds for this matter were set aside regardless of the outcome.”
Larson, who was out of the province on a family vacation Friday, will consult with legal counsel about the company’s next steps when he returns, the statement said.
Larson Properties Partnership Corp. entered into a contract with Feltz to redevelop a chunk of property in Stratford’s Market Square in early February 2019, according to a summary in Grace’s original decision.
Although Larson Properties Partnership Corp. has argued the price of the work was fixed, Grace noted the contract does not specify a price, only the hourly rates of Feltz employees.
Feltz continued its work when payments from Larson’s company began to lag in April 2019, Grace wrote, but the relationship had completely soured by September. Feltz claimed checks from Larson Properties Partnership Corp. were dishonoured, while the Larson corporation claimed there were issues with the timeliness and quality of the work Feltz performed.
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Feltz registered a lien against the property for unpaid fees in late September 2019. A month later, a third-party architect certified that work on the project was “substantially completed” and that Feltz was owed nearly $670,000, minus the roughly $130,000 paid earlier.
In January 2020, Feltz took Larson Properties Partnership Corp. to court for the remainder, claiming a breach of contract and breach of trust. The motion was heard in January 2021 and Grace’s decision in favor of Feltz was published at the beginning of April.
“Along the way, (Larson Properties Partnership Corp.) has attempted to support its failure to pay with allegations that its ‘bankers’ have expressed concern with the work Feltz performed and the certificates the (architect) issued,” Grace wrote. “During cross-examination of (Larson), it became clear that no third-party financier had said any such thing. That does not reflect well on the defendants. In fact, it reinforces what the rest of the record establishes. (Larson Properties Partnership Corp.) owes Feltz the unpaid balance but is simply unwilling or unable to pay.”
A court order requested by Feltz temporarily froze Larson’s assets when it was issued Feb. 10. That order was lifted less than 24 hours later when the full amount of the disputed funds was paid into court.
“That money is available in court, but I think we might be needing more assistance from the court to resolve some housekeeping issues between the parties,” Cook said.
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In a letter emailed to “business associates of Kevin Larson,” as well as the Beacon Herald on Friday, Kerson said “at no point in time” were the disputed funds unavailable to satisfy the terms of the agreement between (Larson Properties Partnership Corp. ) and Feltz.
“In our offices’ opinion, the decision to take the extraordinary step of obtaining the order was an overreach on the part of Feltz,” the letter said.
The breach of trust falls under the province’s Construction Act, legislation that outlines the obligations a company has to settle a contract once work is certified complete. According to the legislation, once construction on a project is finished, every dollar a company makes – even those unrelated to the project – is held in trust for the contractor until that bill is paid.
According to Grace’s decision, Cook showed the court Larson Properties Partnership Corp. sold a property in Stratford in mid-March 2020 for $925,000 and had listed three other pieces of real estate for sale, one of which was sold with conditions by the time Larson was cross-examined. When Cook pressed the company for details, the information requested was not provided, Grace noted.
Besides a company, every director or officer of a corporation and any person who has effective control of a corporation can also be held liable for breaches of trust under the Construction Act, Grace wrote.
”It is clear (Larson Properties Partnership Corp.) received amounts in excess of the balance owed to Feltz and failed to use any part of them for the required purpose. (Larson Properties Partnership Corp.) is liable for breach of trust to the full extent of the outstanding indebtedness.”