Case Review – Nova Concrete Inc. v. 2035211 Ontario Inc., 2022 ONSC 2391

Introduction

The Ontario Superior Court of Justice 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”).

Lessons Learned

1. 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.
2. 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 of Civil Procedure may inform the analysis, but the provisions of the CLA will guide the court in making any rulings on such motions.
3. 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.

Facts

In late 2015, owner 2035211 Ontario Inc. contracted with Nova Construction Inc. 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, which registered a lien claim against 203 Ontario for $250,000 in February 2017.

Despite being served with the statement of claim, 203 Ontario never filed a defence, and neither party took any further steps until November 2018, when Nova moved to have 203 Ontario noted in default and the Court set the action down for trial. The litigation quickly became dormant again, and in late 2019 the Court struck the action from the trial list.

However, the dispute reignited when 203 Ontario was amalgamated into 5048942 Ontario Inc., and in May 2021, 504 Ontario attempted to vacate Nova’s lien against 203 Ontario upon payment of security into court under section 44 of the CLA,^[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 … Continue reading while simultaneously applying for an order (i) declaring the lien expired, (ii) returning the security posted by 504 Ontario, and (iii) dismissing the action for long delay.

In response, Nova brought a cross-motion asking the Court to restore the action to the trial list.

Issues

The Court referred to the various procedural issues as akin to “unravelling a Gordian knot”.^[2]Nova Concrete Inc. v. 2035211 Ontario Inc., 2022 ONSC 2391 at para 4. The decision presented three key issues:

1. Could the action continue without the lien remedy?
2. Should the action be dismissed for delay on account of Nova’s failure to prosecute its claim diligently?
3. Should the action be restored to the trial list, and if so, should the noting in default of 203 Ontario be set aside?

Analysis

The Court found that Nova did not preserve its lien within the time frame required under section 31(2)(b) of the CLA, and as a consequence, the Court declared the lien expired and dismissed Nova’s action for a lien remedy.^[3]Ibid at paras 14-27.

The Court then considered the various procedural issues that informed whether and how the action could proceed absent the lien remedy.

Could the action continue without the lien remedy?

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 Ontario breached its contract with Nova. Nevertheless, the Court found that Nova had pleaded all of the material facts needed to ground an action in breach of contract.^[4]Ibid at para 33. 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]Ibid at para 34. As such, the Court ordered the action to continue as an ordinary action governed by the Rules of Civil Procedure.^[6]R.R.O. 1990, Reg. 194.

Should the action be dismissed for delay?

On the second issue, the Court declined 504 Ontario’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 doing so.

Section 47 of the CLA permitted 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,” but the CLA does not define what constitutes proper grounds. The Court consequently considered whether delay represents obligatory grounds for dismissal under section 47, or whether the analysis should be contextual. In favouring the latter interpretation, the Court found that when conducting a contextual analysis it should consider whether dismissing the claim for delay would be just in the circumstances.^[7]Ibid at paras 40-41.

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 [it was] commenced despite having never defended it.”^[8]Ibid at para 42. The Court observed that 504 Ontario had not provided any explanation for 203 Ontario’s failure to file a defence, or its ongoing default that spanned more than four years, and dismissed 504 Ontario’s motion.^[9]Ibid at para 43.

Should the action be restored to the trial list? If so, should 203 Ontario’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 Ontario.

On a motion to restore an action to the trial list, a plaintiff must typically establish two facts on a balance of probabilities:

1. a reasonable explanation for the delay; and
2. that the defendant would not suffer any non-compensable prejudice should the court allow the action to proceed.^[10]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 … Continue reading

The Court found that there is an additional requirement to that test 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.^[11]Ibid at para 47.

The Court found that Nova provided a sufficient explanation for delay, “albeit barely”,^[12]Ibid at para 48. considering the totality of the circumstances. In holding that 504 Ontario would not suffer non-compensable prejudice should the action be restored, the Court emphasized 203 Ontario’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 Ontario ought to have taken steps much sooner.”^[13]Ibid at para 60. 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.^[14]Ibid at para 58.

Finally, the Court considered whether to set aside the order noting 203 Ontario in default and allow 504 Ontario 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,^[15]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. there is no universal test to be applied when determining whether to grant leave under this section.^[16]Nova Concrete Inc. v. 2035211 Ontario Inc., 2022 ONSC 2391 at para 63.

The Court declined to establish such a universal test here, finding that such an approach would be “overly static”. Instead, the Court held that the contextual approach applied under the Rules of Civil Procedure should equally apply to lien actions, with one caveat – there must be evidence to support a defence, as required by the CLA.^[17]Ibid at para 69.

Satisfied that 504 Ontario had put forward sufficient evidence to support several defences, the Court considered the circumstances of this case and found that although 504 Ontario had failed to provide any explanation for 203 Ontario’s failure to defend the action, it could not ignore Nova’s complacency in failing to advance the action.^[18]Ibid at paras 71-73. The Court set aside the noting in default and gave 504 Ontario fifteen days to file a defence.