ARTICLE
1 February 2023

Construction Lien Claims: Takeaways From Nova Concrete Inc. V. 2035211 Ontario Inc.

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Miller Thomson LLP

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An April 2022 Ontario decision Nova Concrete Inc. v 2035211 Ontario Inc., 2022 ONSC 2391 (which involved cross-motions and various layers of relief sought by the parties) outlines the importance of...
Canada Real Estate and Construction
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Introduction

An April 2022 Ontario decision Nova Concrete Inc. v 2035211 Ontario Inc., 2022 ONSC 2391 (which involved cross-motions and various layers of relief sought by the parties) outlines the importance of:

  • the summary nature of construction lien proceedings;
  • the intertwining threads between the procedural rules under Ontario's lien legislation (both the "old" Construction Lien Act and "new" Construction ActS.O. 1990, c. C.30) and Ontario's Rules of Civil Procedure (the "Rules");
  • joinder of breach of contract claims with construction lien claims; and
  • how context matters in moving for relief to dismiss a lien claim for delay as a "proper ground" under Section 47 of Ontario's lien legislation or to set aside a noting in default.

Background

In 2015, the defendant/owner, 2035211 Ontario Inc., retained the plaintiff/lien claimant contractor, Nova Concrete Inc. (the "Plaintiff"), to supply and install a concrete foundation and basement slab for a seniors residence project in Toronto. Disputes arose over the amount owing to the Plaintiff, leading the Plaintiff to register a claim for lien for $250,000 on February 8, 2017. The Plaintiff subsequently commenced a lien action and served its statement of claim on 2035211 Ontario Inc. 2035211 Ontario Inc. did not defend the action.

Nearly two years after the Plaintiff served its statement of claim, it moved to note 2035211 Ontario Inc. in default and the action was set down for trial. Nothing further was done by the Plaintiff or 2035211 Ontario Inc. and the action was struck from the trial list. There was further delay until in or around May 2021, when 2035211 Ontario Inc. amalgamated into 5048942 Ontario Inc. (the "Defendant"). The Defendant then moved before Associate Justice Robinson ("AJ Robinson") to vacate the Plaintiff's lien upon payment of security into court and then brought a motion for, among other relief, an order declaring the lien of the Plaintiff expired, paying lien security posted out of court and dismissing the Plaintiff's action for delay. The Plaintiff brought a cross-motion to restore the action to the trial list.

The Decision

Is there a triable issue on whether the Plaintiff's lien has expired?

As a "contractor" under the Construction Lien Act1 ("CLA"), having contracted directly with the owner of the property, the Plaintiff's lien rights for services and materials supplied under its contract expired at the conclusion of the 45-day period following completion or abandonment of the contract.2 The Plaintiff could not establish with evidence that lien preservation was timely (and not repair or deficiency work), and the Defendant was entitled to its declaration that the Plaintiff's lien expired, as well as a return of the security posted to vacate the Plaintiff's lien.

Before moving to the issue of whether the action should be dismissed for delay as a "proper ground" under Section 47 of the CLA, AJ Robinson addressed whether the action should be dismissed outright since the Plaintiff's lien was declared expired.

Although not addressed by the parties in their facta, AJ Robinson raised with counsel whether any cause of action would remain in the statement of claim after dismissal of the lien remedy.

The Plaintiff argued that its claim in breach of contract was not affected by the loss of the lien claim. Under the CLA, s. 55(1), a breach of contract claim may be joined with a lien claim.3 The Statement of claim in this case did not refer to any "breach" of contract by the Defendant, however the material facts for a breach of contract claim were plead.

AJ Robinson dismissed the Plaintiff's lien claim and ordered that the action proceed as a breach of contract claim under ordinary procedure, and the Rules.

Should the Plaintiff's action be dismissed for delay under s. 47 of the CLA

A defendant may move for dismissal of a lien action under s. 47 of the CLA upon "any proper ground and subject to any terms and conditions that the court considers appropriate in the circumstances."4 According to AJ Robinson, this case raised two issues about dismissals for delay under s. 47 of the CLA:

  1. Is delay always "a proper ground" on which to seek relief under s. 47, or is the analysis more contextual in the particular circumstances of a case?
  2. Is there any particular "test" that must be met by a moving party to obtain a dismissal for delay under s. 47?

Neither party cited case law in which s. 47 of the CLA was relied upon to seek a dismissal for delay. AJ Robinson raised M. Fuda Contracting Inc. v 1291609 Ontario Ltd., 2018 ONSC 4663,5 which dealt with a motion under s. 47 of the CLA to dismiss a lien action for delay. In that case, Boswell J, confirmed that the defendant's motion to dismiss the lien action for delay could proceed under s. 47 of the CLA, but did not go as far as to hold that delay is always "a proper ground" for seeking relief under s. 47(1) of the CLA. In dismissing the motion for delay, Boswell J. considered the statutory framework under the CLA and the Rules, the complexity of the proceeding, explanation for delay, and prejudice.

In his ruling, AJ Robinson states that whether delay is "a proper ground" for seeking relief under s. 47 should be contextual, not static, which is consistent with the overall scheme of the CLA. The CLA provides in s. 67(1), that procedure in a lien action shall be as far as possible of summary character.6 It also provides in s. 67(3) that the Rules apply to lien action except where inconsistent with the CLA.7 Justness of orders is always a concern of the court and AJ Robinson considered whether in this case, it would be just for a defendant in default "of the most basic obligation in litigation, namely defending an action, to raise delay as a basis for dismissing an action years after its was commenced despite having never defended it." The Defendant's failure to defend the action was directly relevant to AJ Robinson's analysis in deciding whether delay is "a proper ground" on which to dismiss this lien action.

Due to the Defendant's default for over 4 years, it had no reasonable complaint about any delay of the Plaintiff in this proceeding. However, AJ Robinson stated that there will be cases in which litigation delay properly supports dismissal of a lien action under s. 47 of the CLA.

In this case, delay was not a proper ground on which the Defendant was entitled to seek dismissal of the action and AJ Robinson did not consider any particular "test" that had to be met, in the circumstances.

Should the Defendant, 2035211 Ontario Inc.'s noting in default be set aside?

Under s. 54(3) of the CLA, leave to file a statement of defence is "to be given only where the court is satisfied that there is evidence to support a defence."8

The Court of Appeal in Franchetti v Huggins, 2022 ONCA 111 ("Franchetti") has confirmed that whether to set aside a noting of default is a discretionary decision, and that there are no static factors.9 Relevant factors to be considered include the parties' behaviour; the length of the defendant's delay; the reasons for the delay; the complexity and value of the claim; whether setting aside the noting of default would prejudice a party relying on it; the balance of prejudice as between the parties; and whether the defendant has an arguable defence on the merits.10

In this case, and despite 2035211 Ontario Inc.'s motion being brought in a lien action governed by the CLA, AJ Robinson adopted and applied the contextual approach recently outlined by the Court of Appeal in Franchetti, but with the caveat that the defendant must provide "evidence to support a defence" in accordance with s. 54(3) of the CLA.

Key takeaways

Pursuant to the CLA, s. 55(1), (and O.Reg 302/18, section 3(2) if governed by the Construction Act, R.S.O. 1990, c. C.3011) a plaintiff may, in an action, join a lien claim and a claim for breach of contract or subcontract. In every lien claim, a breach of contract claim and/or material facts to support a breach of contract claim should be plead to capture both a claim for lien and breach of contract.

Litigation delay is a "proper ground" for seeking relief under s. 47 of the CLA (and Construction Act, R.S.O. 1990, c. C.30, section 4712) and whether or not litigation delay properly supports dismissal of a lien action under s.47 entails (at present) an analysis which is contextual considering factors such as they complexity of the proceeding, explanation for delay and prejudice (as opposed to being subject of a particular "test" which must be met).

Lastly, in setting aside a noting in default, leave to file a statement of defence is discretionary and contextual, and will require evidence to support a defence, pursuant to s. 54(3) of the CLA (and O.Reg 302/18, section 5(3) if governed by the Construction Act, R.S.O. 1990, c. C.30).

Footnotes

1 Construction Lien Act, R.S.O., c. C.30, s.1. ["CLA"]

2 Ibid at s. 31(2)(b).

3 Ibid at s. 55(1).

4 Ibid at s. 47(1)

5 Fuda Contracting Inc. v 1291609 Ontario Ltd., 2018 ONSC 4663

6 CLA at s. 67(1)

7 Ibid at 67(3)

8 Ibid at 54(3)

9 Franchetti v. Huggins 2022 ONCA 111 at para 5-10

10 Ibid

11 Construction Act, R.S.O. 1990, c. C 30

12 Ibid at s 47.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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