The Ontario Superior Court of Justice ("ONSC") recently highlighted the importance of the summary nature of construction lien proceedings and confirmed that delay can constitute a "proper ground" for dismissal of an action under section 47 of the Construction Lien Act ("CLA"). Nova Concrete Inc. v. 2035211 Ontario Inc., 2022 ONSC 2391 provides important guidance for parties to construction lien actions in Ontario, as well as insight into the inter-related nature of construction lien actions and breach of contract actions and the "intertwining threads" between the procedural rules governing construction lien actions and those governing ordinary civil actions in the province.
In late 2015, the Defendant, owner 2035211 Ontario Inc. ("203 Ont") contracted with the Plaintiff contractor Nova Construction Inc. ("Nova") to supply and install a concrete foundation and basement slab for a seniors residence project in Toronto, Ontario. A dispute arose between the parties regarding the amount owed to Nova, and Nova ultimately registered a lien claim against 203 Ont for $250,000 on February 8, 2017 (the "Action").
Despite being served with the statement of claim, 203 Ont never filed a defence.
Neither party took any further steps until November 2018, when Nova moved to have 203 Ont noted in default, and the Court set the action down for trial. After this, the litigation became dormant again and in late 2019, the Court struck the action from the trial list.
The litigation between Nova and 203 Ont was reignited in May 2021, when 203 Ont was amalgamated into 5048942 Ontario Inc. ("504 Ont"). 504 Ont moved to vacate Nova's lien against 203 Ont upon payment of security into the Court under section 44 of the CLA.1 At the same time, 504 Ont brought a motion seeking several forms of relief, including an order declaring the lien expired, returning the security posted by 504 Ont, and dismissing the action for long delay.
In response, Nova brought a cross-motion asking the Court to restore the action to the trial list.
The Court referred to the various procedural issues as akin to "unravelling a Gordian knot".2 The decision presented three key issues:
- Could the Action continue without the lien remedy?
- Should the Action be dismissed for delay on account of Nova's failure to prosecute its claim diligently?
- Should the Action be restored to the trial list, and if so, should the noting in default of 203 Ont be set aside?
The Court found that Nova did not preserve its lien within the time frame required under section s. 31(2)(b) of the CLA, and thus declared the lien expired and dismissed Nova's action for a lien remedy.3 Having done so, the Court then considered the various procedural issues that would inform whether and how the action could proceed absent the lien remedy.
Could the Action continue without the lien remedy?
On the first issue, the Court held that although it had dismissed Nova's claim for a lien remedy, Nova's action could continue as a breach of contract action under section 55(1) of the CLA, which permits claimants to join construction lien claims with breach of contract claims. Of note, Nova had not specifically plead that 203 Ont breached its contract with Nova. Nevertheless, the Court found that Nova had pleaded all material facts needed to ground an action in breach of contract.4 Despite this procedural irregularity, the Court found that the action could continue as a breach of contract claim. Furthermore, the Court stated that there was no reason for the breach of contract Action to continue being governed by the CLA absent the lien claim.5 As such, the Court ordered the Action to continue as an ordinary action governed by the Rules of Civil Procedure, R.R.O. 1990, Reg. 194 (the "Rules").
Should the Action be dismissed for delay?
On the second issue, the Court dismissed 504 Ont's motion to dismiss the action for delay. In doing so, the Court confirmed that delay may constitute a "proper ground" for dismissal under section 47 of the CLA, but found that, in this case, the balance of justice weighed against granting 504 Ont's motion.
Section 47 of the CLA permits the Court to dismiss a lien action on "any proper ground and subject to any terms and conditions that the court considers appropriate in the circumstances." Yet, the CLA does not explicitly set out what will constitute a proper ground for dismissal. The Court thus considered whether delay will always constitute "a proper ground" for dismissal under section 47, or whether the analysis should be more contextual. In favouring the latter, the Court found that in conducting a contextual analysis, it should also consider whether dismissing the claim for delay would be just in the circumstances.6
The Court found that, in this case, considerations of justice required it to ask "whether it is 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 [sic] commenced despite having never defended it."7 The Court answered this question in the negative and dismissed 504 Ont's motion, pointing out that 504 Ont had not provided any explanation for 203 Ont's failure to file a defence or its ongoing default that spanned more than four years.8
Should the Action be restored to the trial list? If so, should 203 Ont's noting in default be set aside?
On the third issue, the Court granted Nova's motion to restore the action to the trial list and set aside the noting in default of 203 Ont.
On a motion to restore an action to the trial list, a plaintiff typically must establish two things on a balance of probabilities:
- a reasonable explanation for the delay; and
- that the defendant would not suffer any non-compensable prejudice, should the Court allow the action to proceed.9
Notwithstanding the above test, the Court found that there is an additional requirement in a lien action: the Court must "consent" to restore the action based on proof that doing so is necessary or would expedite the resolution of issues in dispute.10
The Court found that Nova provided a sufficient explanation for delay, "albeit barely,"11 considering the totality of the circumstances. In holding that 504 Ont would not suffer non-compensable prejudice should the Action be restored, the Court emphasized 203 Ont's complacency to date and its failure to take any steps to defend itself and held that "[i]f the action continuing was genuinely prejudicial, 203 Ont ought to have taken steps much sooner."12 Ultimately, the Court found that "the totality of the circumstances support preferring a hearing on the merits over technical resolution," and restored the Action to the trial list.13
Finally, the Court considered whether to set aside the order noting 203 Ont in default and allow 504 Ont to file a defence in the now restored Action.
Under section 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". As the Court observed, Ontario jurisprudence interpreting this section is inconsistent and although some cases have tried to delineate a specific "test,"14 there is no universal test to be applied when determining whether to grant leave under this section.15
The Court refused to establish a test to be used in every case, finding that such an approach would be "overly static." Instead, the Court held that the contextual approach applied under the Rules should equally apply to lien actions, with one caveat – there must be evidence to support a defence, as required by the CLA.16
Satisfied that 504 Ont had put forward sufficient evidence to support several defences, the Court considered the circumstances of this case and found that although 504 Ont had failed to provide any explanation for 203 Ont's failure to defend the action, it could not ignore Nova's complacency in holding the Action in abeyance to date.17 Overall, the Court set aside the noting in default and gave 504 Ont fifteen days to file a defence.
- When commencing a lien action, contractors should take advantage of the provisions allowing them to join construction lien claims and breach of contract claims (under sections 55(1) of the CLA and 3(2) of the Construction Act) by pleading breach of contract, or at a minimum, the material facts needed to ground such a claim. Doing so will preserve the contractor's right to recover from the owner should the Court dismiss the contractor's lien claim.
- The provisions of the CLA will apply to motions brought in a construction lien action, even if the Court has dismissed the lien claim and all that remains is a breach of contract claim. The Rules may inform the analysis, but the provisions of the CLA will guide the Court in making any rulings on such motions.
- Contractors must act diligently in pursuing construction lien claims. Although inaction on the part of a contractor will not automatically give rise to an order dismissing the action, in some cases, delay will constitute a "proper ground" for dismissal under section 47 of the CLA. When asked to dismiss a construction lien action on the basis of delay, the Court will engage in a contextual analysis to determine whether the delay in question amounts to a "proper ground" for dismissal.
1. Under section 44 of the Construction Act, R.S.O. 1990, c. C.30, where a party pays monies into court or posts security in the prescribed amount, the court shall make an order vacating the registration of a claim for lien and any certificate of action (where the lien attaches to the premises), or the claim for lien (where the lien does not attach to the premises).
2.Nova Concrete Inc. v. 2035211 Ontario Inc., 2022 ONSC 2391 at para. 4.
3. Ibid at paras. 14-27.
4. Ibid at para. 33.
5. Ibid at para. 34.
6. Ibid at paras. 40-41.
7. Ibid at para. 42.
8. Ibid at para. 43.
9. Ibid at para. 46, citing Carioca's Import & Export Inc. v. Canadian Pacific Railway Limited, 2015 ONCA 592 at paras.. 3 and 40-43; D'Souza v. Brunel International Inc. (ITECC Consulting), 2019 ONCA 339 at paras. 5 and 8.
10. Ibid at para. 47.
11. Ibid at para. 48.
12. Ibid at para. 60.
13. Ibid at para. 58.
14. See e.g., M.J. Dixon Construction Limited v. Hakim Optical Laboratory Limited, 2009 CanLII 14046 (ONSC) at para. 27; Volvo Rents v. ABCO One Corporation, 2014 ONSC 1045 at paras. 5-7.
15. Nova Concrete Inc. v. 2035211 Ontario Inc., 2022 ONSC 2391 at para. 63.
16. Ibid at para. 69.
17. Ibid at paras. 71-73.
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