COURT FILE NO.: 015/09

DATE: 20090615

ONTARIO

SUPERIOR COURT OF JUSTICE

DIVISIONAL COURT

J. Wilson, Swinton and van Rensburg JJ.

IN THE MATTER OF THE Construction Lien Act, R.S.O. 1990, c. C.30, as amended

B E T W E E N:

STARLAND CONTRACTING INC.

Marco Drudi, for the Respondent

Plaintiff (Respondent on Appeal)

• and -

1581518 ONTARIO LTD., BUSINESS DEVELOPMENT BANK OF CANADA and MAMDOUH AKHRAS

Richard P. Quance, for the Appellant

Defendants (Appellant)

HEARD: At Toronto, April 24, 2009

REASONS FOR JUDGMENT

THE COURT:

THE APPEAL

1This is an appeal from the decision of Master Albert dated December 17, 2008 striking the statement of defence and counterclaim of the appellant 1581518 Ontario Ltd. (“158”) for failure to comply with court orders, and in particular a “last chance” order requiring the fulfilment of undertakings and particulars of the damages claimed in its counterclaim in this construction lien action.

APPEAL FROM THE DECISION OF THE MASTER SHOULD BE TO A SINGLE JUDGE

2Section 71 of the Construction Lien Act, R.S.O. 1990, c. C.30 provides for an appeal to the Divisional Court from a judgment or order on a motion to oppose confirmation of a report under the Act, provided the amount claimed is over $1,000.00. Subsection 67(3) provides that, except where inconsistent with this Act, and subject to subsection (2), the Courts of Justice Act, R.S.O. 1990, c. C.43 and the rules of court apply to pleadings and proceedings under this Act.

3This appeal was scheduled to be heard by a panel of the Divisional Court, although section 21(2) of the Courts of Justice Act provides that an appeal of a final order of a master may be made to a single judge of the Divisional Court.

4There is precedent for the full panel of this Court to hear an appeal from a final decision of a master in a construction lien matter (see: Benjamin Schultz & Associates Ltd. v. Samet (1991), 1991 7330 (ON SC), 4 O.R. (3d) 771; Wood Lumber Co. (Ontario) Ltd. v. Eng et al. (1999), 1999 15030 (ON SCDC), 45 O.R. (3d) 795; G.C. Rentals v. Falco Steel Fabricators Inc., [2002] O.J. No. 1055; R. Meo & Associates v. Gottenu Developments Ltd., [2000] O.J. No. 782; Furlan v. Structform International Ltd., [2006] O.J. No. 2925; Select Acoustic Supply Inc. v. College of Physicians and Surgeons of Ontario, [2008] O.J. No. 2163.) However, these cases did not specifically consider the issue whether a matter such as this should be heard by a single judge or a full panel.

5In our view any appeal of a master’s final order should be heard by a single judge of this Court. This approach is consistent both with the practice of this Court regarding appeals from the master, and with the objective of the Construction Lien Act section 67(1) to promote prompt resolution in construction lien matters.

STANDARD OF REVIEW

6The order of the master striking the defence and counterclaim was a final discretionary order.

7On appeal, the decision of a master is entitled to the same level of deference with respect to findings of fact and the exercise of discretion as would be accorded to the decision of a judge. The standard of review of an order, whether final or interlocutory, is correctness with respect to questions of law. Where the master exercises discretion, the Court on appeal must determine whether the correct principles were applied and whether the master misapprehended the evidence such that there is a palpable and overriding error (Zeitoun v. The Economical Insurance Group (2008), 2008 20996 (ON SCDC), 91 O.R. (3d) 131 (Div. Ct.), aff’d 2009 ONCA 415).

THE FACTS

8This construction lien action was commenced in 2005. The plaintiff, Starland Contracting Inc, registered a claim for lien and filed its statement of claim for approximately $120,000 for the balance of a contract for construction at 355 Rexdale Blvd., Toronto. 158 defended the claim and counterclaimed for $600,000 for alleged deficiencies in the work performed.

9In May 2006, the matter was referred on consent to a master for determination pursuant to s. 58 of the Construction Lien Act.

10Once a reference in a construction lien matter is made to a master in Toronto, as part of the trial process, there are a series of pretrials, the purpose of which is to give directions, fix a litigation timetable and ensure the parties are ready to call evidence.

11There have been a number of pretrials in this action, initially before Master MacLeod, and later before Master Albert, which have resulted in various interlocutory orders for schedules, discovery and documentary production, including:

• On October 5, 2006, 158 was ordered to deliver its affidavit of documents within 30 days and discoveries were to be completed by February 28, 2007.
• On June 7, 2007 Master Albert ordered a litigation timetable, including the exchange of Scott Schedules, and extended the discovery deadline to September 10, 2007. A motion for security for costs by 158 was adjourned to July 2007, after 158 filed supplementary materials just before the motion.
• In July 2007 the motion for security for costs was dismissed with costs. 158 made a request for an extension of time to deliver its Scott Schedule, which was granted, extending the time to August 31, 2007.
• In September 2007, 158 requested a further extension of time to deliver its Scott Schedule, having retained new counsel. The deadline was extended to February 13, 2008.
• On March 3, 2008, Master Albert dismissed the plaintiff’s first motion to strike 158’s pleadings, and set a new timetable peremptory to the parties. She ordered the exchange of expert reports by March 7, 2008, set discoveries for June 24, 25 and 26, 2008, and required undertakings to be complied with by August 31, 2008. If the defendant had documents pertaining to deficiencies, the delivery of such documents with a supplementary affidavit of documents was required by April 30, 2008. Costs were awarded against 158.
• The March 3, 2008 order provided that the defendant would have one last chance to comply with a litigation timetable, failing which it would be at risk of having its pleadings struck.
• The second motion to strike was heard at the next pretrial on September 15, 2008. By that time the plaintiff had examined 158 for discovery but 158 did not examine the plaintiff. 158 had not provided answers to undertakings, but had attempted to initiate arbitration proceedings. This motion resulted in the second “last chance” order dated September 15, 2008.

12The provisions of the September 15th order that are relevant to this appeal required 158 to comply with undertakings and to provide a breakdown and particularization of its counterclaim as follows:

i) 1581518 Ontario Ltd. shall comply with outstanding undertakings by October 31, 2008 failing which its defence and counterclaim will be struck upon the court being satisfied as to the non-compliance. This is truly a “last chance” order. In the event that there is non-compliance and the pleadings are struck this order is made without prejudice to the plaintiff moving to compel compliance with undertakings it requires answered to properly proceed to trial.

ii) 1581518 Ontario Ltd. shall provide to the plaintiff and to the court a breakdown of its counterclaim, particularizing the damages by category and indicating beside each category the quantum claimed for the item, by October 31, 2008 failing which its defence and counterclaim will be struck upon the court being satisfied as to the non-compliance. This is truly a “last chance” order.

13The plaintiff brought a further motion to strike 158’s pleadings on December 8, 2008 on the grounds that 158 had failed to comply with various orders and in particular the “last chance” order dated September 15, 2008.

14By the October 31, 2008 deadline, 158 had complied with many, but not all, of the undertakings, and had not provided a breakdown of its counterclaim.

15In early November 2008 158 retained new counsel, its third counsel. By November 25, 2008 further production was made. Counsel for the plaintiff acknowledges that there was in fact substantial compliance with all aspects of the September 15, 2008 order by the time the motion was heard by the master.

THE MASTER’S DECISION

16The master granted the plaintiff’s motion, striking 158’s defence and dismissing its counterclaim.

17In her reasons, the master recited the numerous defaults and delays by 158 in the action. She found that, with respect to the September 15, 2008 “last chance” order, 158 had complied with some but not all of its outstanding undertakings. With respect to the obligation that 158 particularize its damages, she noted that the breakdown provided no supporting documents or evidence. She found that there was “borderline compliance at best” with the requirements of her order. Having regard to the various breaches of prior court orders in the action causing significant delay, she determined that a further extension of time was not warranted.

18The master relied on the decision of Ferrier J. in Vacca v. Banks, [2005] O.J. No. 147 (Div. Ct.), and concluded that lack of prejudice to the plaintiff was not relevant.

THE POSITIONS OF THE PARTIES

19The appellant 158 acknowledges its failure to comply with the order of the master by October 31, 2008, but submits that by the time the motion was argued the terms of the final “last chance” order had been met.

20158 contends that the master, in concluding that some but not all undertakings had been answered and characterizing compliance as “borderline at best” made a palpable and overriding error in her consideration of the evidence. All of the undertakings had been complied with, although admittedly after the October 31st deadline.

21Further, with respect to the obligation to provide a breakdown of the damages claimed in its counterclaim, the master placed emphasis on 158’s failure to provide documentation in support of its claim for deficiencies. 158 asserts that, in so doing, the master erred in law when she concluded that there was non-compliance with the September 2008 order, which by its terms required “particulars” and not evidence.

22The respondent admits that there was “substantial compliance” with the September 2008 order by the time the motion was argued, but contends that the master had the discretion in the circumstances to strike 158’s defence and counterclaim for repeated delays and non-compliance with orders, and that there was no error in the exercise of her discretion.

LEGAL PRINCIPLES

23The court has authority to dismiss an action or defence as a sanction for default of court orders and failure to comply with case management timetables. (See rules 60.12 and 77.10(7).)

24The decision to strike a claim or defence is one of discretion, which must be exercised on proper principles.

25Gray J. in Broniek-Harren v. Osborne, [2008] O.J. No. 1690 (S.C.J.), describes the competing principles of a party’s right to have its case determined on its merits, and the need for the orderly procedural progress of litigation. He states at paras. 28 to 31:

The policy underlying the Rules of Civil Procedure is twofold: to ensure that cases that are not settled are tried on their merits; and to ensure that cases are processed, and heard, in an orderly way. A civilized society must ensure that a credible system of justice is in place, and the Rules of Civil Procedure, made pursuant to the Courts of Justice Act, reflect the scheme created by the Province for the orderly handling of civil cases.

The Rules reflect a balance. The litigant does not have an untrammelled right to have his or her case heard. In order to be heard, a case must be processed in accordance with the Rules. By the same token, adherence to the Rules must not be slavish in all circumstances. They are, after all, designed to ensure that cases are heard. Throughout the Rules, the principle is reflected that strict compliance may be dispensed with where the interests of justice require it: see, for example, Rules 1.04(1), 2.01, 2.03, 3.02, and 26.01. The difficult issue, in any particular case, is to determine when non-compliance reaches the point that it can no longer be excused. The Court, and society as a whole, have an interest in ensuring that the system remains viable. If the Rules can be ignored with impunity, they might as well not exist.

In determining matters of this sort, Courts in this province have had to wrestle with these competing objectives: see, for example, Cardoso v. Cardoso (1998), 22 C.P.C. (4th) 134 (Ont.Gen.Div.); Baksh v. Sun Media (Toronto) Corp. (2003), 2003 64288 (ON SC), 63 O.R. (3d) 51 (Master); Provato v. Burgantin (2003), 33 C.P.C. (5th) 385 (Master); 1066087 Ontario Inc. v. Church of the First Born Apostolic Inc. (2004), 1 C.P.C. (6th) 199 (Ont.Div.Ct.); and Vacca v. Banks (2005), 6 C.P.C. (6th) 22 (Ont.Div.Ct.).

26The ability of the court to control the litigation process is particularly important in matters that are case managed, such as construction lien actions. The authority to dismiss proceedings for repeated failure to comply with court orders and flagrant disregard for the court process is an essential management tool. A case management judge or master who has a continuous connection with an action, the parties and their counsel is well-positioned to monitor the conduct of the participants throughout the proceedings, and to determine whether anyone is deliberately stalling, showing bad faith or abusing the process of the court when deadlines are missed and defaults occur under procedural orders. A decision to dismiss an action or strike a pleading because of such defaults is entitled to deference, unless that decision is shown to have been exercised on wrong principles or based upon a misapprehension of the evidence such that there is a palpable and overriding error.

27Master MacLeod in Tizard Estate v. Ontario, [2003] O.J. No. 3010 and Master Dash in Eloro Resources Ltd. v. Sovereign Capital Group (Ont.) Ltd., 2004 14047 (ON SC), 2004 CarswellOnt 544 identify the principles that are relevant to the exercise of the discretion to strike a pleading. Both emphasize the gravity of such an order, and confirm that the discretion should be exercised as a last resort where warranted in order to protect the integrity of the justice system from abuse by a recalcitrant litigant.

28In Tizard Estate, Master MacLeod describes the relevant factors at paras. 3 and 21:

The central question on the motion is whether to impose the drastic remedy of dismissing the claim or to grant some lesser remedy. At what point should delay and disregard for court orders by the plaintiffs (or their counsel) deprive them of the right to proceed with the claim? The answer to that question requires careful review of the substance of the default and its impact on the ability of the court to do justice. Dismissal of an action should not result from trivial technical breaches but should be ordered only when continuation of the action is no longer viable and appropriate.

A secondary but certainly not trivial consideration is the integrity of the justice system. Open disregard for court orders and failure to enforce them with appropriate sanctions will bring the system of case management into disrepute and undermine confidence in the civil justice system. That in a way is to put systemic needs above justice to the individual litigant so again it should be a last resort to be used when a party has by its failure or refusal to be bound by the rules abandoned its right of access to the courts.

29In Eloro Resources, at para. 6, Master Dash describes the exercise of discretion as follows:

The court clearly has a discretion to strike a defence in appropriate cases for repeated procedural breaches, particularly when the breaches are in violation of court orders, since the rules otherwise become meaningless and the court becomes but a paper tiger. However, striking a defence is an extreme remedy and a last resort. It should only be ordered when the defence of the action is no longer viable and appropriate because the defendant has by its failure or refusal to be bound by the rules and orders of the court effectively abandoned its right to participate in the court process or when the breaches have become contumelious such as to demonstrate an utter disregard by the defaulting party for the court’s orders or when the moving party can demonstrate prejudice.

30In each of Tizard Estate and Eloro Resources, the court refused to strike the pleading, but imposed terms.

31In Schindler Elevator Corp. v. 11473335 Ontario Inc., [2007] O.J. No. 3772 (aff’d 2008 CarswellOnt 5796 (Div. Ct.)), Master Albert found that the defendant had breached a series of orders to provide particulars and production of documents in support of its counterclaim. The issue was whether, in the face of continued non-compliance, the defendant should be allowed a further “last chance” to comply. The master found there were no mitigating circumstances, and she dismissed the counterclaim. Her decision was upheld on appeal.

32Vacca v. Banks involved similar circumstances. There had been repeated breaches of court orders that required the plaintiffs to answer outstanding undertakings and to provide a damages brief. On appeal Ferrier J. declined to set aside the order of the master dismissing the action. He noted that the dismissal of the action was not for failure to answer undertakings, but as a result of the plaintiffs’ continued defiance of court orders. Ferrier J. stated (at paras. 27 and 28):

There comes a time when this court is obliged to meet its responsibility for the effective administration of justice through case management by dismissing an action. Such is the case when the plaintiff repeatedly fails to comply with orders of the court whether or not there has been prejudice to the defendants.

In the circumstances of four breached orders, including the “last chance” order, the Master realistically had only two options – one was to give the plaintiffs yet another chance – the other was to dismiss the action.

33In each of Vacca v. Banks and Schindler Elevator the master had made a “last chance order” which had not been complied with by the date of the motion to strike pleadings.

34Where an order is made by a court on a “last chance” basis, the defaulting party is given fair warning as to the possible consequences of a failure to comply with its terms. Unless the court has the authority to follow through with the threatened sanction, its ability to control its process will be undermined. That said, the fact that an order has been described as a “last chance” order is not determinative where a party seeks to strike the other party’s pleadings. In each case the discretion of the master or judge must be exercised having regard to the circumstances prevailing at the time the matter is brought back to court, including whether and to what extent the party remains in default of the order in question.

CONCLUSIONS

35We conclude that the master’s reasons reflect a misapprehension of the relevant evidence as to 158’s compliance with the September 15, 2008 order. The responsibility for the error may well lie with counsel, as the motion appears to have been argued with reference to the history of the proceedings, rather than focusing on whether there was a continuing breach of the specific terms of the master’s September 15, 2008 order.

36From our review of the record, the evidence discloses that by November 25, 2008 the order of September 15, 2008 had been complied with.

37The conclusion of the master that there was “borderline compliance at best” is not consistent with the record.

38A second aspect of the September 15, 2008 order appears to have been misinterpreted by the master. 158 had provided in its counsel’s letter of November 24, 2008 and attachments a breakdown of the damages claimed in its counterclaim under specific categories, and the deficiencies had been discussed in two expert reports. 158 however had not provided back-up documentation in support of these claims. The failure to provide the back-up documentation appears to have been an important factor in the master’s decision to strike the pleading. Unfortunately, the specific wording of the September 15, 2008 order seems to have been ignored. The term in the order provides:

1581518 Ontario Ltd. shall provide to the plaintiff and to the court a breakdown of its counterclaim, particularizing the damages by category and indicating beside each category the quantum claimed for the item, by October 31, 2008 failing which its defence and counterclaim will be struck upon the court being satisfied as to the non-compliance. This is truly a “last chance” order.

39The master concluded that the response provided did not comply with the requirement for particulars. She observed:

The response is in the form of a chart of estimated costs attached to a report prepared by A.W. Hooker Associates Ltd. (“Hooker”), as well as a report by Trow Engineering. The Hooker breakdown is nothing more than a projection of the costs anticipated to carry out various items of work, without supporting documents. There is no evidence of tenders or estimates from contractors and no evidence of any work having actually been carried out in the four years since Starland’s work on the property.

An unsubstantiated chart of estimated costs without documentary support is not much better than no particulars at all, and is inadequate for Starland to know the case it must meet at trial. If 158’s counterclaim is genuine then one would have expected it to take steps over the past four years to rectify the alleged deficiencies, complete the work alleged to be incomplete or at the very least to obtain written estimates for the work that 158 claims must be done to rectify deficiencies and complete the work that Starland allegedly failed to do properly or at all.

40In our view the schedule from the expert report that was provided, together with the letter of November 24, 2008, are responsive to the specific requirements of the September 15, 2008 order.

41In addressing the lack of documentary evidence the master was no longer evaluating compliance with the September 15, 2008 order. Rather she appears to have considered the strength or weakness of the defence and counterclaim, placing emphasis on the history of non-compliance.

42The September 15, 2008 order required “particulars”, not evidence. To conclude that there was a requirement to provide back-up documentation to the plaintiff based upon the wording of the above-noted order, and that the failure to do so justified the defence and counterclaim being struck is a misapprehension of the evidence, and in our view a palpable and overriding error in the exercise of the master’s discretion.

43We note as well that there were extenuating circumstances in this case. 158’s legal counsel brought a motion to be removed as solicitor of record and Mr. Quance, its present counsel, was retained on November 6, 2008. Mr. Quance then made what the master described as “valiant efforts” to remedy the outstanding defaults, and as acknowledged by the plaintiff, by the time Mr. Quance wrote to opposing counsel on November 24 and 25, 2008 with further responses and enclosing additional documents, the outstanding concerns of the plaintiff with respect to undertakings and particulars had been satisfied.

DISPOSITION

44Accordingly, the appeal is allowed and the order of the master, including the costs order, is set aside. There will be no costs of the motion before the master. Costs of this appeal are fixed at $6,000 inclusive of GST and disbursements in favour of the appellant and payable within 60 days.

J. Wilson J.

Swinton J.

van Rensburg J.

Released: June 15, 2009

COURT FILE NO.: 015/09

DATE: 20090615

ONTARIO

SUPERIOR COURT OF JUSTICE

DIVISIONAL COURT

J. Wilson, Swinton and van Rensburg JJ.

IN THE MATTER OF THE Construction Lien Act, R.S.O. 1990, c. C.30, as amended

B E T W E E N:

STARLAND CONTRACTING INC.

Plaintiff (Respondent on Appeal)

• and –

1581518 ONTARIO LTD., BUSINESS DEVELOPMENT BANK OF CANADA and MAMDOUH AKHRAS

Defendants (Appellant)

REASONS FOR JUDGMENT

THE COURT