COURT OF APPEAL FOR ONTARIO

DATE: 20000707 DOCKET: C33077

CARTHY, ROSENBERG AND O'CONNOR JJ.A.

IN THE MATTER OF THE CONSTRUCTION LIEN ACT, R.S.O. 1990, c.C.30, as amended

B E T W E E N :

TEEPEE EXCAVATION & GRADING LTD. and SPRINGVIEW LANDSCAPE INC.

Plaintiffs

(Respondents)

and

NIRAN CONSTRUCTION LTD. and VICTORIA WOOD DEVELOPMENT CORPORATION INC.

Defendants

(Appellant in Appeal)

Robert C. Harason for the appellant

Richard B. Jones for the respondent

Heard: May 17, 2000

On appeal from the order of the Divisional Court (Keenan, Cumming and Swinton JJ.) dated May 20, 1999.

CARTHY J.A.:

[1] This appeal raises a neat point which has vexed courts dealing with construction liens for a decade. Those without a devotion to lien esoterica need read no further.

[2] If a lien action is not set down for trial within two years of its institution, must the entire action be dismissed or is there a discretion to permit a claim on the contract to continue?

[3] Section 46(1) of the Construction Lien Act, R.S.O. 1990, c.C.30 reads:

46. – (1) Where a perfected lien that attaches to the premises has expired under section 37, the court, upon the motion of any person, shall declare that the lien has expired and shall make an order dismissing the action to enforce that lien and vacating the registration of a claim for lien and the certificate of action in respect of that action.

[4] Section 47(1) reads:

47. – (1) Upon motion, the court may,

(a) order the discharge of a lien;

(b) order that the registration of,

(i) a claim for lien, or

(ii) a certificate of action,

or both, be vacated;

(c) declare, where written notice of a lien has been given, that the lien has expired, or that the written notice of the lien shall no longer bind the person to whom it was given; or

(d) dismiss an action,

(e) upon any proper ground and subject to any terms and conditions that the court considers appropriate in the circumstances.

[5] Those on one side of the debate say the whole action must be dismissed under s.46. Those on the other side emphasize the words “action to enforce that lien” in s. 46(1) and, comparing this to the words “dismiss an action” in s. 47(1)(d), conclude that only the lien claim must be dismissed under s.46 with a discretion to dismiss the whole action under s.47.

THE FACTS

[6] The plaintiffs (respondents) issued a claim for a lien combined with a claim for payment of $73,774.36. The defendant, Niran (appellant), filed a defence and a counterclaim seeking, inter alia, recovery of the costs of posting a bond to vacate the liens and damages for breach of contract. The lien expired on October 24, 1996, pursuant to s. 37 of the Act, because the action had not been set down for trial prior to the expiry of two years from commencement of the action. In May of 1998, Niran brought a motion for an order declaring the lien had expired, dismissing the action, and allowing summary judgment on the portion of the counterclaim seeking recovery of bond premiums paid. The plaintiffs filed no affidavit evidence on the motion.

[7] The endorsement of Master Saunders reads:

Order to go dismissing action; for judgment to the defendant Niran on its counterclaim in the sum of $9,626.00 plus prejudgment and postjudgment interest, plus costs to defendant Niran fixed at $6,750.00 for the action, the counterclaim and this motion, payable forthwith by the plaintiffs to the said defendant Niran.

[8] Although there was some dispute before this court as to whether the Master was acting under both s.46 and s.47 or solely under s.46, I am satisfied from the factums filed in the Master’s court that the exercise of discretion was argued. Both the factums of the plaintiffs and those of the defendant asserted that he had such a discretion and both were presented in a form suggesting that, to dismiss the action entirely, he must exercise that discretion. I am therefore satisfied that the Master acted under both s.46 and s.47(1)(d) and that his reasons are sparse because, in the circumstance of there being no significant activity in the proceeding for four years and no material filed by the plaintiffs on the motion, it was obvious that there was no basis for the exercise of discretion in favour of the plaintiffs.

[9] An appeal was launched by the plaintiffs to the Divisional Court and, along the way, Campbell J. ordered security for costs covering the costs of $6,750 ordered by Master Saunders and $5,000 for the appeal to the Divisional Court.

[10] The Divisional Court’s reasons (Keenan, Cumming, Swinton JJ.) on the merits read:

The issue is whether the Master erred in dismissing the plaintiff’s action. Pursuant to Section 46 of the Construction Lien Act, the Master had jurisdiction to dismiss the lien claim in an action to enforce the lien because the lien had expired. Respondent’s counsel conceded that the Master relied on Section 46(1) in dismissing the action.

We are of the view that Mast Construction v. Appleton, Eurocor Ltd. v. Vernich and Golden City v. Iona Corporation correctly hold that an action under the Construction Lien Act can include a contract claim as well as lien claim and that a dismissal of lien claim under Section 46(1) because the lien has expired does not dispose of the contract claim. Even if the claim for lien is dismissed, the Court has discretion whether to dismiss a claim for breach of contract made in the same action pursuant to Section 47(1)(d).

The Master gave no reasons for his decision. Therefore, we are unable to discern whether the Master realized that there was a claim in contract as well as a lien claim in the action; nor, if so whether he addressed the issue of his discretion under Section 47(1)(d).

The failure to give any reasons and to make any statement with respect to the exercise of his discretion deprives the reviewing court of a record to assess the proper exercise of this discretion. This constitutes an error of law. Therefore, for those reasons, the Master’s order is set aside. The order of Campbell J. for (security for) costs is vacated and the funds paid out to plaintiffs.

The issue of the costs of the lien claim and the issue of the bond premiums are matters to be disposed of by the trial judge. We make no order as to the costs of the motion for security for costs before Campbell J. We order costs of this appeal be fixed at $3,000 and paid to the appellant forthwith.

[11] Leave was granted to appeal to this court. Before dealing with the legal issue, I would observe that the defendant denies making the concession referred to in paragraph one of the reasons and says that he stated the opposite to the court. This would be consistent with the defendant’s position throughout and I conclude that there was a misunderstanding. That “concession” may have been why the Divisional Court did not give its own reasoned basis for the exercise of a discretion under s.47(1)(d) in place of that of the Master. In my view, it should have done so if s.47(1)(d) was presented as a basis for relief, as I have heretofore concluded it was. It would only be if s.47 had never been raised for consideration that the defendant’s motion could be appropriately dismissed without articulated reasons for exercising a discretion.

ANALYSIS

[12] The Construction Lien Act serves a specialized purpose in a narrow field. A lien claimant may commence an action, provide shelter for other claimants, obtain a form of execution before judgment, and proceed to trial in summary fashion without production of documents, discovery or other interlocutory steps except by leave. A plaintiff may join with a lien claim a claim for breach of contract and a defendant may counterclaim in respect of any claim against the plaintiff. There may also be cross-claims and third party claims. There are no appeals from interlocutory orders.

[13] This court pointed out in A.J. (Archie) Goodale Ltd. v. Risidore Brothers Ltd. (1975), 1975 516 (ON CA), 8 O.R. (2d) 427 (C.A.) at 432 that, where it is apparent at any early stage that the plaintiff has no basis for a lien claim, it would be an abuse of process to allow the summary procedures to be used as a subterfuge for processing a personal claim in summary fashion. However, in that case, it was not discovered until after a hearing that there was no lien claim and, to avoid a multiplicity of proceedings, a personal judgment was granted. The present ss.46 and 47 were not at issue in that case. The finding was that there was never a valid lien claim; not that a lien had expired.

[14] In Bird Construction Co. v. C. S. Yachts Ltd., (1990) 46 C.L.R. 192 (O’Leary, Southey and Sutherland JJ.), the Ontario Divisional Court held, without elaboration, that, where s.46(1) is applicable, the entire action, including claims beyond a lien claim, must be dismissed. “There is but one action …. and the section speaks of dismissing the action” (at p.192).

[15] Four months later, in 1990, the Divisional Court, differently constituted, came to the opposite conclusion in Mast Construction v. Appleton, delivered November 5, 1990 (O’Driscoll, Campbell and Granger JJ.).

[16] O’Driscoll J. stated:

Although there was jurisdiction under s.46 to dismiss the action to enforce the lien, there was no such jurisdiction under s.46 to make such an order with respect to the personal contract claim.

It is clear from ss. 38, 57 and 65 that the personal contract action is separate from and, therefore, survives the dismissal of the lien claim.

The personal contract action might properly have been the subject of a motion under s.47 with notice and with full disclosure. There was no notice and no disclosure of the kind required under s.47. In the absence of such notice and disclosure, there was no proper basis to dismiss the personal contract action.

[17] In August of 1991, the Divisional Court, in Benjamin Schultz & Associates Ltd. v. Samet (1991), 1991 7330 (ON SC), 83 D.L.R. (4th) 574, followed Bird, without reference to Mast.

[18] The Divisional Court in the instant case followed Mast, again without elaboration.

[19] The issue was more fully canvassed by Kozak J. in 612354 Ontario Ltd. v. Tonecraft Corp. (1991), 1991 7208 (ON SC), 5 O.R. (3d) 764 (Gen. Div.). There, a counterclaim was filed against the plaintiff’s claim on the contract, full discovery and production were completed on consent, and the lien claim was dismissed, as expired under s.46(1). The defendant sought a dismissal of the action. Kozak J. reviewed the earlier authorities, holding that, where the lien expires before trial, the whole action must be dismissed and concluded:

To dismiss such an action because of the expiration of the lien prior to trial would result in unfairness and undue hardship for the plaintiff. It would require the plaintiff to commence a fresh action for personal judgment, and require that it proceed through the various interlocutory proceedings again in bringing the matter on for trial. To some extent, the court could alleviate some of the hardship, should the action be dismissed, by imposing terms and conditions that would make applicable the productions and discoveries conducted to the new action. However the dismissal of the personal action even upon such favourable terms would still result in a multiplicity of proceedings, and would not be in keeping with the just, most expeditious, and least expensive determination of every civil proceeding on its merits as generally provided for in the Rules of Civil Procedure.

[20] This approach was adopted in Eurocor Ltd. v. Vernich (1992), 1992 7555 (ON SC), 9 O.R. (3d) 631 (Gen. Div.) by Austin J. who concluded at p.639:

As I understand those cases, Mast and Schultz are in conflict with one another. As a result, I am in a position where I can choose between them. Section 46(1) does not refer to “an order dismissing the action”, but to “an order dismissing the action to enforce that lien” [emphasis added by Austin J.]. Neither s.1(1) nor s.50 of the Act confines an action commenced under the Act to lien claims. The reasoning of Kozak J. which has regard to the avoidance of multiplicity of proceedings appeals to me. The Vernichs have had full production and discovery; no complaint is made in that regard. I therefore conclude that, at least in the present case, the court has a discretion to split the action and that that discretion should be exercised in favour of splitting.

[21] The circle was completed in Golden City Ceramic & Tile Co. v. Iona Corp. (1993), 1993 9364 (ON SCDC), 106 D.L.R. (4th) 532 where the Ontario Divisional Court concurred with the reasoning of Austin J. in Eurocor.

CONCLUSION

[22] It is not surprising that there have been opposing interpretations of these provisions. The words in s.46(1) “dismissing the action to enforce that lien” ostensibly means the whole action and it is only when the words “dismiss an action” are seen in s.47(1)(d) that the thought of a difference of meaning between the two arises. Returning to s.46(1), the analyst must question why the words “to enforce that lien” were added when “dismissing the action” would suffice to embrace the whole action.

[23] We have, in my view, a true ambiguity that must be resolved by examining the purpose of the statute and the efficacy of either interpretation to serve that purpose within the general litigation framework.

[24] The broad purpose of the legislation is to provide an efficient means of dealing with trade claimants that would otherwise be left behind without security if unpaid on a building project where payments typically flow from above and follow performance. On a failing or failed project, there may be many such claimants. In setting down the rules, the Act does not go so far as to restrict claims thereunder to lien claims. Contract claims by the plaintiff and counterclaims of any kind are permitted, presumably to avoid duplication of proceedings. In my view, avoidance of multiplicity of proceedings is the element of the Act that provides the direction for the interpretation of s.46(1) and s.47(1)(d). Howland J.A., in A.J. (Archie) Goodale Ltd., set the tone for interpretation by observing that the Act should not be available as a subterfuge for pursuing an ordinary action by summary procedure; but where all of the steps have been taken and a conclusion reached at a hearing, the court should not dismiss the action for lack of a lien claim and thus compel a further proceeding concerning the same issue. The same reasoning suggests that the court has available the discretion to dismiss or to permit the action to proceed without the lien claim, as the circumstances dictate.

[25] All of the arguments against denying a defendant the procedures and protections of the usual form of litigation can be answered by the court’s discretion under s.47(1)(d) to dismiss the action because the defendant will be prejudiced or because little has transpired in the action that would be duplicated or by imposing conditions for continuance to assure protection of the defendant. The legislature intended more than claims for liens to be litigated in lien claim actions and that intention is best served by an interpretation of s.46(1) and s.47(1)(d) that leaves it to the court to monitor the interests of the parties and the procedure to be followed.

[26] I, therefore, agree with the Divisional Court’s interpretation of the Act, but not with its disposition. My conclusion, stated earlier, that the Master did exercise a discretion under s.47(1)(d), albeit soundlessly, is buttressed when I read the factums before him. The defendant asserted that the court must dismiss the lien action and had a discretion to continue the other claims if the state of the proceedings justified continuance. The plaintiff’s factum said that the court could not dismiss the personal claim under s.46(1), but that courts have allowed contract claims to continue where appropriate to avoid multiplicity of proceedings. They were on common ground before a very experienced Master. He exercised his discretion and concluded that the entire action should be dismissed and I see no arguable choice. Nothing of consequence had been done in the proceeding for four years and to permit the claim to go forward would be tantamount to instituting a personal contract claim in the guise of a lien action. I would, therefore, uphold the Master’s order dismissing the claim.

[27] The summary judgment application for a portion of the counterclaim was not answered by material or argument in the factums here or below and the Master’s order in that respect should be upheld.

[28] An order should go for payment out to the defendant, Niran, of the amounts paid in pursuant to the order of Campbell J., together with accrued interest to be applied against the costs here and below.

[29] The order of the Divisional Court is set aside, the order of the Master is reinstated, and payment is to be made on the terms set out above. Costs in this court and in the Divisional Court to the defendant, Niran, the costs before the Master to be as fixed by him.

Released: July 7, 2000 “JJC”

“J.J. Carthy J.A.” “I agree M. Rosenberg J.A.” “I agree D. O’Connor J.A.”