



COURT OF APPEAL FOR ONTARIO

CITATION: Kawartha Capital Corp. v. 1723766 Ontario Limited,
    2020 ONCA 763

DATE: 20201202

DOCKET: C68063

MacPherson, Zarnett and Jamal JJ.A.

BETWEEN

Kawartha Capital Corp.

Plaintiff (Respondent)

and

1723766 Ontario Limited and Maryam Sadrieh

Defendants (Appellants)

Nancy J. Tourgis and Rajiv Joshi, for the appellants

J. Christopher Russell, for the respondent

Heard: November 23, 2020 by videoconference

On appeal from the
    judgment of Justice C.M. Smith of the Superior Court of Justice dated January
    23, 2020.

REASONS FOR DECISION

[1]

The appellants appeal from the summary judgment granted by the motion
    judge, ordering them to pay the sum of $185,999.32 and interest thereon to the
    respondent, and dismissing their counterclaim.

[2]

The corporate appellant, 1723766 Ontario Limited (172), was found
    liable because the sum claimed from it was an amount it agreed to pay to the
    respondent, Kawartha Capital Corp. (Kawartha), under Minutes of Settlement
    (the Minutes) dated September 19, 2016. The personal appellant, Maryam
    Sadrieh (Ms. Sadrieh), was held liable as she guaranteed the payment that 172
    was obligated to make by a written guarantee provided for by the Minutes. The
    counterclaim was dismissed because its subject matter was released in a mutual release
    provided for by the Minutes.

[3]

The appellants argue that the motion judge erred in finding that there
    was no genuine issue requiring a trial as to whether the Minutes (including the
    release and guarantee they contemplated) were unenforceable on the grounds of
    economic duress.

[4]

172 retained Kawartha in 2015 to perform construction work on a property
    owned by the appellants in Port Hope. By August 2016, disputes had arisen.
    Outstanding invoices dated April 29 and May 31, 2016, issued by Kawartha, were
    unpaid. Kawartha had been provided with cheques, post-dated to August 15, 2016,
    to cover those invoices but was advised on that date by the appellants that the
    cheques could not be honoured. Kawartha registered a construction lien on
    August 18, 2016. 172 took the position that Kawarthas delays in completing the
    work had caused it losses, a claim Kawartha disputed. 172 was attempting to
    refinance by placing a new mortgage on the property, but the construction lien
    prevented that from occurring.

[5]

Negotiations took place to resolve those disputes. The parties were represented
    by counsel in the negotiations. The result was the Minutes, executed on
    September 19, 2016.

[6]

Under the Minutes, and the guarantee and release it provided for,
    172 agreed to pay Kawartha an initial payment of $400,000 by September 23, 2016,
    and a second payment of $162,832.33 by March 12, 2017. Ms. Sadrieh personally guaranteed
    payment of the second payment. Kawartha agreed to discharge the construction lien
    upon specified arrangements being in place for the $400,000 initial payment,
    and receipt by Kawarthas counsel of the executed documents. The parties were
    to cooperate with respect to finishing the construction work. The parties
    released each other from any claim

by reason of any matter or thing existing as of the date
    hereof, whether known or unknown, with respect to the construction services and
    materials provided by
Kawartha as of the date hereof. The only exception to
    the release was for Kawarthas ordinary warranty obligations with respect to
    the quality of its workmanship and materials.

[7]

The parties subsequently agreed to amendments, extending the date for
    the initial payment to September 29, 2016, and increasing the amount of the
    second payment to $185,999.32.

[8]

The initial payment due under the Minutes was made on September 29, and
    the construction lien was discharged the same day. The second payment was not
    made.

[9]

On October 16, 2017, Kawartha commenced this action to recover the
    second payment. The appellants defended, alleging for the first time that
    economic duress made the Minutes, and the guarantee and release they provided
    for, unenforceable. The appellants also alleged that they had been damaged by Kawarthas
    delays in performing the construction work, and claimed an equitable set-off
    for those damages. They also counterclaimed for those damages.

[10]

We
    see no error in the motion judges finding that there was no genuine issue for
    trial raised by the appellants claim of economic duress.

[11]

For
    a party to establish economic duress, it must show two things: first, that it
    was subjected to pressure applied to such an extent that there was no choice
    but to submit, and second, that the pressure applied was illegitimate. On the
    first prong of the test, the court considers four factors:


(a) Did the party protest at the time the contract was entered
    into?

(b) Was there an effective
    alternative course open to the party alleging coercion?

(c) Did the party receive
    independent legal advice?

(d) After entering into the
    contract, did the party take steps to avoid it?

If the party alleging duress satisfies those four
    factors, it must go on to satisfy the second prong, by showing that the
    pressure exerted was illegitimate:
Techform

Products Ltd. v. Wolda

(2001), 56
    O.R. (3d) 1 (C.A.), at paras. 31-34, leave to appeal refused,
[2001] S.C.C.A. No. 603.

[12]

The
    motion judge found that the appellants satisfied none of the four factors
    relevant to the first prong of the test. These findings have a substantial
    factual component and are entitled to deference on appeal.

[13]

The motion
    judges finding that there was no protest of any kind by the appellants when
    they signed the Minutes cannot be challenged, as the appellants seek to do, by
    reference to the fact that the appellants had, in August, advised Kawartha of
    their position that Kawarthas delays had caused them damages. That position
    was one of the issues referred to in, and resolved by, the Minutes, signed on
    September 19. There was no evidence that the appellants, or their counsel,
    protested that they were being compelled to enter into the Minutes. Indeed, the
    motion judge found that the Minutes were largely based on a proposal that was
    made on behalf of the appellants on August 29.

[14]

The
    appellants submit that Ms. Sadrieh gave evidence that she felt she was in a
    vulnerable position and had no realistic alternative but to enter into the
    Minutes. They argue that given this evidence, and without other evidence, the
    motion judge was not entitled to find that the appellants were not without alternatives
    in the face of the construction lien. We disagree. The motion judge was
    entitled to consider the legal remedies potentially available to an owner when
    a construction lien is registered, including posting a bond to vacate a lien,
    or suing for damages for a liens wrongful registration. In assessing whether
    the appellants had satisfied their burden of showing an absence of an
    effective alternative course, the motion judge was entitled to take into
    account that the appellants led no evidence to suggest that they considered or
    pursued any of these alternatives.

[15]

The
    motion judges findings about the factors of independent legal advice and
    prompt steps to avoid the agreement also disclose no error. The evidence was
    undisputed that the appellants were represented by counsel and thus had
    independent legal advice up to and through the execution of the Minutes. Nor
    did the evidence disclose any timely steps by the appellants to avoid the
    Minutes after they were signed. The appellants not only made the initial payment
    under the Minutes, and received the benefit of the discharge of the construction
    lien, but even after they defaulted on making the second payment when it came
    due in March 2017, they requested more time to pay. They took no steps to
    challenge the Minutes until, having been sued for the second payment, they
    delivered a defence asserting economic duress on January 15, 2018, well over a
    year after the Minutes were signed and significant performance under them had
    taken place.

[16]

There
    was, accordingly, no error in the motion judges finding that the appellants
    had raised no genuine issue requiring a trial regarding the enforceability of
    the Minutes or the guarantee and release they provided for. The appellants
    failed to raise such an issue regarding the first prong of the test for
    economic duress. The appellants argue that the motion judge erred in not going
    on to specifically address the second prong of the test, namely whether the
    pressure was illegitimate, and in failing to make findings about whether the
    appellants had had a good claim for damages for delay, which would have shed
    light on whether the registration of the construction lien was imposing
    illegitimate pressure on them. We disagree. A person invoking economic duress
    must satisfy both prongs of the test. Having failed to show a genuine issue
    requiring a trial on the first prong, a specific ruling on the second prong
    could not change the outcome.

[17]

The
    dismissal of the counterclaim was entailed by the release contemplated by the
    Minutes. The motion judge found the counterclaim raised matters covered by the
    release, and we see no error in his conclusion. The appellants argue that the
    motion judge should have allowed the same matters to proceed to trial to the
    extent they were raised to support a defence of equitable set-off. We disagree.
    The release prohibited the appellants from pursuing claims arising from a broad
    spectrum of matters: it released the underlying basis of those claims, no
    matter the form (equitable set-off or damages in a counterclaim) in which they
    were asserted.

[18]

The appeal is therefore dismissed.

[19]

In
    accordance with the agreement of counsel, the appellants shall pay the
    respondent costs of the appeal in the sum of $8,750, inclusive of disbursements
    and applicable taxes.

J.C. MacPherson J.A.
B. Zarnett J.A.
M. Jamal J.A.


