Call us: (905) 366 9700

Legal Blog


Posted on September 12, 2017 | Posted in Construction

No, we are not talking about the surface of a man’s head; rather, we are talking about “bald allegations” of fact in affidavits and whether they are effective to achieve their purpose. We have often stated that lawsuits should really be called factsuits because, in most cases, the real fight is not about the law; the real fight is about the facts to which the law is applied. This differentiation was front and centre in Airex Inc. v. Ben Air System Inc., a 2017 decision of the Ontario Court of Appeal.


This was a run-of-the-mill $217,000 summary judgment motion that a subsub brought against a sub and its two directors arising out of monies due on contract and breach of trust.

The Court gave a short summary of the trust provisions in the Construction Lien Act:

“Section 8 of the Act provides that monies received on account of a contract for an improvement constitute a trust fund for the benefit of subsubcontractors and other persons who supply services or material for the improvement (collectively “subsubcontractors”) and prohibits use of any such funds for a purpose inconsistent with the trust until all such persons have been paid in full.

 Section 10 of the Act discharges the recipient of trust funds from its trust obligations to the extent of payments to subsubcontractors. Section 11 of the Act permits the recipient of trust funds to reimburse itself from the trust funds for payments to subsubcontractors from monies not subject to the trust.

 Section 13 of the Act makes directors, officers and persons in effective control of a corporation personally liable for a breach of s. 8 where they assent to or acquiesce in conduct they know, or ought reasonably to know amounts to a breach of trust by the corporation.”

The issue in this case was whether the sub paid out more money for project expenses (i.e. equipment purchases, payments to subsubs, and project wages and salaries) than it received from the general. If it did, then the subsub’s summary judgment motion would be unsuccessful; if it did not, then judgment would be granted against the sub and, depending upon the evidence, against the directors.


The general paid the sub $387,000 for its work at the project. To support its position, the sub had to prove that it spent at least $387,000 in project expenses and did not use any of the funds from the general for its own office expenses. Each director filed an affidavit in support of the sub’s position.

The first director, Mr. C, asserted that the sub used a $158,000 cheque from the general to pay the invoices of two stated project subsubs, but did not provide any invoices or banking records to support that claim. This is what is known as a bald assertion, backed up by nothing.

The second director filed a profit and loss statement for the project demonstrating that the sub spent $400,000 “to cover equipment purchases, wages and salaries, and payments to subsubcontractors,” leaving the sub with a deficit on the project.

The Court, as did the motions judge, then started to pick apart the evidence:

  • The profit and loss statement suggested that the two stated project subsubs, which Mr. C referenced, were not paid out of the $158,000 cheque from the general, but, rather, were paid before the sub received the $158,000 cheque.
  • The profit and loss statement attached no supporting invoices or other evidence to indicate that the alleged payments were made in relation to this project.
  • There was no evidence to indicate that the monies claimed to have been paid were actually paid. In one instance, a cheque payable to one of the two stated project subsubcontractors had an unexplained stamp on the back of the cheque that included the words “dishonoured items returned to Bank of Montreal.”

Adverse Inference

The sub had argued that the affidavits it submitted as proof of its position should have been accepted as uncontroverted and reliable because the subsub had not cross-examined the affiants. The Court gave that argument short shrift. It noted that neither of the affidavits was delivered in compliance with the timetable established for the motion. One affidavit was one day late and the other was 7 weeks’ late and delivered only 10 days before the motion hearing date. Accordingly, the sub was not entitled to rely on any adverse inferences that might otherwise be drawn from a failure to cross examine.


Once the subsub established that (i) it was a subsub, (ii) it supplied materials to the sub for which it had not been paid, and (iii) the sub had received payments on account of the project from the general, the subsub established that it was a beneficiary of trust monies under the Act.

The sub then had to show that the trust monies were properly applied and, in its attempt to do so, was required to put its best foot forward on the summary judgment motion.

The Court concluded as follows: “Viewed as a whole, the evidence the (sub) filed was contradictory and lacked documentary support. It certainly did not carry sufficient weight to support their assertions that they had paid out more money than they received in relation to the contract – or even that payments they had made on the contract left them without sufficient trust funds to pay (the subsub).”

As an aside, the sub made the interesting allegation that the subsub did not mitigate its damages because it should have filed a claim for lien against the project and did not. This argument was ridiculous. The Act’s trust fund provisions are entirely separate from the lien provisions; the Act provides two distinct and separate remedies to aggrieved contractors. The Court disposed of this argument in one sentence.

Image courtesy of  Melodi2.

Jonathan Speigel

Written by Jonathan Speigel Jonathan Speigel, the founding partner of Speigel Nichols Fox LLP, leads the litigation and construction practices.



Download our free checklist:

“10 Questions to ask before hiring a law firm”


Speigel Nichols Fox LLP