Bridging Finance Inc. v. 1033803 Ontario Inc., 2023 ONSC 1721

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Insolvency Insider
March 29, 2023

Can a receiver obtain an order rectifying a pre-receivership agreement?

1033803 Ontario Inc. (“803”) operated a concrete forming business under the name of Forma-Con Construction (“Forma-Con”). It provided services to construction projects in and around the Greater Toronto Area. 803 is owned by the Aquino family and is related to Bondfield Construction Company Limited. Also part of the Bondfield Group was another company, 1428508 Ontario Limited (“508”).

On December 19, 2014, an agreement was entered into between MOD Developments (197 Yonge) Limited Partnership (“MOD”) and “Forma-Con Construction (a division of 1428502 Ontario Limited)” (the “Massey Tower Agreement”). Pursuant to the Massey Tower Agreement, Forma-Con was to provide concrete forming services for the Massey Tower Project. However, there was a mistake in the naming of the parties to the Massey Tower Agreement in that it described Forma-Con Construction as a division of 1428502 (“502”) rather than the proper and intended party, 508.

502 was never part of the Bondfield Group and had nothing to do with the Massey Tower Project. It ceased carrying on business and the corporation was cancelled on February 19, 2007, seven years before the Massey Tower Agreement was executed. 508 performed all Forma-Con work on the Project from the date of the Massey Tower Agreement (December 19, 2014) until December 31, 2016. 508 submitted progress billings in excess of $8,700,000 to MOD. MOD paid these billings in full (save for the required holdback). No billings were ever submitted by, or paid to, 502.

No one ever noticed the error in the naming of the party in the Massey Tower Agreement as 502 rather than 508. MOD never took the position that the Massey Tower Agreement was invalid, nor did it ever object to 508 providing services under the Massey Tower Agreement. Essentially, the Massey Tower Agreement was performed by both parties for approximately two years without incident or complication—508 provided the concrete forming services, and MOD paid 508 for those services.

A resolution approving the dissolution of 508 was passed on December 31, 2014. It provided that the property of 508 was to be distributed to 803. The Articles of Dissolution for 508 were issued and effective almost two years later, on June 21, 2016. Those Articles confirm that all the assets of 508 were distributed to 803 pursuant to the Ontario Business Corporations Act.

803 performed all of the Forma-Con services pursuant to the Massey Tower Agreement from January 1, 2017 until completion of the Project. 803 issued progress billings to MOD, which were paid in the ordinary course (again less the required holdback) in the aggregate amount of approximately $11,700,000.

Following its appointment, KSV Restructuring Inc., as Receiver of 803, determined that there was potential value for creditors of Forma-Con if the Massey Tower Project was completed. In particular, the Receiver concluded that its ability to collect the funds previously held back by MOD (in the amount of $2,038,704.26) (the “Holdback”) would be impaired if the Project was not completed. The Receiver set about negotiating with MOD the terms of a closeout agreement in December 2018. It was then that MOD asserted, for the first time, that the Receiver lacked any standing to deal with the Massey Tower Agreement because the Receiver had no authority with respect to 502.

The Receiver brought a motion for advice and directions and sought an order rectifying the Massey Tower Agreement by changing the name to 508, and declaring that the Holdback is “Property” within the meaning of the Receivership Order. The Receiver argued that the contract should be rectified to reflect 508 as the proper and intended party since MOD conceded that the description of the party in the Massey Tower Agreement was a mistake. MOD argued that since 508 filed Articles of Dissolution on June 6, 2016 yet continued to submit applications for payment and WSIB clearance certificates to MOD up until December 20, 2016, its conduct was wrongful in that it submitted documentation that amounted to successive misrepresentations as it was no longer an existing entity. As such, 508 lacked clean hands and was not entitled to equitable relief.

The Court held that the Massey Tower Agreement should be rectified to reflect 508 rather than 502. Both parties intended from the outset that 508 was to be the named party, and the naming of 502 was the result of a simple clerical mistake. MOD agreed and conceded that the naming of 502 was a mistake. Even without that admission, however, the Court noted that it would have reached the same conclusion. 502 never had anything to do with the Massey Tower Agreement, Forma-Con, or the Massey Tower Project.

The parties intended, at the time the agreement was made and throughout the relevant period during which it was performed, that Forma-Con would perform the concrete pouring services for the Project. It was the skill and expertise of 508 that MOD desired, and 508 performed those concrete pouring services without incident or complication for two years, from December 19, 2014 until December 31, 2016. All of this was consistent with the undisputed fact that the parties intended to name 508 as “Trade Contractor” and properly referred to that party as Forma-Con, but the clerical error was made in describing Forma-Con as a division of 502 rather than 508.

Rectification was appropriate to properly reflect the intention of the parties and ensure that the instrument would carry out the agreement. Accordingly, the Massey Tower Agreement was rectified to reflect 508 as the proper party to the agreement, 803 was the successor to 508 for the purposes of the Massey Tower Agreement and MOD was estopped from asserting that 803 was not the proper contractual counterparty. The Court fixed costs in favour of the Receiver in the amount of $110,000.

Judge: Justice Osborne

Counsel: Jeremy Opolsky, Scott Bomhof and Jake Babad of Torys for KSV as Receiver; Michael Farace, Asim Iqbal and Paul Guaragna of Miller Thomson for the Respondents 

By Matilda Lici