2183164 Ontario Inc., carrying on business as Kandel Constructions v. Gillani et al.

[Indexed as: 2183164 Ontario Inc. v. Gillani]

Ontario Reports

Ontario Superior Court of Justice,

Divisional Court,

Molloy J.

March 7, 2013

114 O.R. (3d) 676 | 2013 ONSC 1456

Case Summary

Construction law — Liens — Discharge of lien — Defendant in construction lien action moving for order discharging lien and dismissing action after plaintiff twice failed to attend for cross-examination — Master finding that two abortive cross-examinations did not provide sufficient grounds for discharging lien under s. 47(1) of Construction Lien Act — Master discharging lien and dismissing action on basis that there were anticipated procedural problems that would pile up costs without resulting in expeditious resolution of core issues — Plaintiff's appeal allowed — Master going far beyond parameters of motion without notice to plaintiff — Master not acting in accordance with procedural fairness and natural justice — Master exceeding his jurisdiction — Motion to discharge lien under s. 47(1) being analogous to motion for summary judgment under Rule 20 of Rules of Civil Procedure and not appropriately resorted to if there are disputed issues of fact — Construction Lien Act, R.S.O. 1990, c. C.30, s. 47(1).

The defendants in a construction lien action moved for an order discharging the lien and dismissing the action or, alternatively, for an order compelling the plaintiff's representative to attend for cross-examination on the lien, based on the plaintiff's failure to attend two scheduled cross-examinations. The master found that the two abortive cross-examinations did not, in themselves, provide sufficient grounds for discharging the lien under s. 47(1) of the Construction Lien Act ("CLA"). However, after conducting a lengthy analysis of the action itself, he found that there were anticipated procedural problems that would pile up costs without resulting in the expeditious resolution of the core issues. Accordingly, he discharged the lien and dismissed the action. The plaintiff appealed.

Held, the appeal should be allowed.

The master was correct in finding that the two abortive cross-examinations were not a sufficient basis to warrant discharging the lien and dismissing the action. At that point, he should simply have proceeded with the alternative relief claimed. Instead, he wandered far beyond the parameters of the motion before him as framed by the defendants. That was unfair to the plaintiff, who had no notice that those issues would be raised and no opportunity either to prepare material in response or to address the issues appropriately in oral argument. The plaintiff was deprived of procedural fairness and natural justice. It was irrelevant that the actual relief granted by the master was sought in the notice of motion. It was the grounds for that relief that were important. Even if the issue was properly before the master, he exceeded his jurisdiction under s. 47(1) of the CLA and erred in law in striking the lien and dismissing the action in the circumstances of this case. A motion to discharge a lien under s. 47 is analogous to a motion for summary judgment under Rule 20 of the Rules of Civil Procedure, R.R.O. 1990, Reg. 194. It is not appropriately resorted to if there are disputed issues of fact, which was the case here.

Cases referred to

Buttcon Ltd. v. Beaver Construction Services Corp., [2006] O.J. No. 135, [2006] O.T.C. 33, 51 C.L.R. (3d) 150, 145 A.C.W.S. (3d) 28 (S.C.J.), distd [page677]

Other cases referred to

1246798 Ontario Inc. v. Stirling (c.o.b. Sterling Finlayson Architects) (2000), 2000 29031 (ON SCDC), 51 O.R. (3d) 220, [2000] O.J. No. 4261, 194 D.L.R. (4th) 346, 139 O.A.C. 27, 5 C.L.R. (3d) 146, 101 A.C.W.S. (3d) 14 (Div. Ct.); A-C-H International Inc. v. Royal Bank of Canada, 2005 17769 (ON CA), [2005] O.J. No. 2048, 254 D.L.R. (4th) 327, 197 O.A.C. 227, 6 B.L.R. (4th) 33, 139 A.C.W.S. (3d) 525 (C.A.); Beaver Materials Handling Co. v. Hejna, 2005 23127 (ON SC), [2005] O.J. No. 2733, [2005] O.T.C. 561, 45 C.L.R. (3d) 242, 140 A.C.W.S. (3d) 612 (S.C.J.); Labatt Brewing Co. v. NHL Enterprises Canada (2011), 106 O.R. (3d) 677, [2011] O.J. No. 3207, 2011 ONCA 511, 282 O.A.C. 151, 86 B.L.R. (4th) 226; Rodaro v. Royal Bank of Canada (2002), 2002 41834 (ON CA), 59 O.R. (3d) 74, [2002] O.J. No. 1365, 157 O.A.C. 203, 22 B.L.R. (3d) 274, 49 R.P.R. (3d) 227, 113 A.C.W.S. (3d) 68 (C.A.)

Statutes referred to

Construction Lien Act, R.S.O. 1990, c. C.30, ss. 40(1), 47(1)

Rules and regulations referred to

Rules of Civil Procedure, R.R.O. 1990, Reg. 194, Rules 20, 47, 76

APPEAL from an order discharging a construction lien and dismissing an action.

William Ribeiro, for appellant.

Fabio M. Soccol, for respondents.

MOLLOY J. (orally): —

A. Introduction

[1] This is an appeal from a decision of Master Sandler dated June 12, 2012 [[2012] O.J. No. 2636, 2012 ONSC 3377 (S.C.J.)] dismissing a lien action and discharging the lien.

B. The Decision of the Master Under Appeal

[2] By notice of motion dated March 8, 2012, the defendants in this construction lien action (the "Gillanis") sought an order discharging the plaintiff's construction lien and dismissing the action or, in the alternative, an order compelling the plaintiff's representative to attend for cross-examination on the construction lien pursuant to s. 40(1) of the Construction Lien Act, R.S.O. 1990, c. C.30 ("CLA"). The motion also sought costs thrown away in connection with two aborted cross-examinations and, in the alternative, security for costs. The stated grounds for the motion were that the plaintiff had failed to attend for cross-examination on September 14, 2011 and December 19, 2011; that the plaintiff had failed to advance the action since the close of pleadings on June 29, 2011; and that there was reason to believe the plaintiff had insufficient assets in Ontario to pay costs. [page678]

[3] In support of the motion was filed the affidavit of Cheryl Wong, a lawyer with the plaintiff's solicitor's law firm sworn March 8, 2012. The affidavit is divided into three sections: (1) particulars with respect to the attempts to cross-examine the plaintiff's representative on the construction lien; (2) the basis for the security for costs claim (essentially that Mr. Ribeiro, counsel for the plaintiff, had at one point ceased to act for the plaintiff because the plaintiff was unable to pay him and the lack of information from Mr. Ribeiro about the corporation's assets); and (3) particulars with respect to the impact on the defendants of the delay in the proceeding.

[4] A responding affidavit of Iyad Ghunaim was filed on April 18, 2012, providing information about the work and assets of the plaintiff and also setting out his version of the work done for and amounts paid by the Gillanis.

[5] Mr. Gillani then filed a reply affidavit addressing the merits of the lien claim and taking issues with some statements of Mr. Ghunaim regarding the assets of the plaintiff corporation.

[6] The motion was argued before Master Sandler on April 25, 2012 and written reasons for decision were issued on June 12, 2012. Those reasons are 91 paragraphs in length. After summarizing the background facts and the contents of the material before him, the master proceeded to consider the merits of the plaintiffs' construction lien action. Under the heading "Who Did SG Contract With?" (from paras. 33-63), the master entered into a detailed analysis of the pleadings, affidavits and some of the documents provided, essentially dealing with his concern that the defendants' contract was not with the entity that filed the construction lien. He concluded this analysis with the following observations, at para. 63 of his reasons:

In like manner, there is a genuine triable issue in this case as to whether this renovation contract was with the plaintiff corporation, or with MK otherwise known as MK cob as Kandel Constructions, and whether the plaintiff corporation actually provided the services or materials to this improvement so as to be entitled to assert a claim for a lien under s. 14(1) of the Construction Lien Act. If the defendants' position prevails, either in a later motion under s. 47(1) if the current motion is dismissed to allow for the cross-examination to proceed, or in a later summary judgment motion under Rule 20, which can be brought in a construction lien case, or at a trial if the case proceeds that far, then the real dispute between the Gillanis and their "contractor" over who breached the contract, and who is entitled to recover money from whom, and for how much, will not have been dealt with in this proceeding and a new action would be required provided the limitation period has not passed. This would result in great expense to these parties and should be attempted to be avoided so that a decision on the true merits can be had at a reasonable cost and a multiplicity of proceedings can be avoided. [page679]

[7] Next, the master considered the efficacy of a construction lien action to resolve all of the disputes between the parties, under the heading "Why Is All This Important On This Motion To, Essentially, Compel Re-Attendance for Cross-Examination?" (paras. 64-75). The master concluded, at para. 76:

I conclude that the Construction Lien Act procedure that is presently governing this case is most unsuitable, in the peculiar and unique circumstances here, for arriving at the simplest, least expensive, most expeditious and fairest disposition of all the issues that have been raised in this case.

[8] The master relied on s. 47(1) of the CLA as authorizing his disposition of this matter. That section provides:

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,

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

[9] The master concluded that the fact of two abortive cross-examinations, by itself, would not be sufficient grounds for discharging a lien under s. 47(1). However, he went on to hold that this behaviour did become sufficient when coupled with the fact that there were, in his view [at para. 78], "foreseeable procedural hurdles" that would make the lien proceeding inappropriate for obtaining a fair, expeditious and least costly resolution of the issues. Accordingly, he discharged the lien and dismissed the lien action, thereby ending the claim against the Royal Bank for priority over the bank's mortgage.

[10] The master proposed that the action should simply proceed under Rule 76 [of the Rules of Civil Procedure, R.R.O. 1990, Reg. 194] of the simplified procedure. In essence, the plaintiffs would have to start all over again, this time without the benefit of a lien protecting their claim as provided for in the CLA. [page680]

[11] On the issue of delay, the master held that if he had to decide this point, he would conclude that it was not possible under existing jurisprudence to dismiss the action for delay.

[12] The master did not decide the security for costs issue as he considered it unnecessary to do so. He held that if the action continued as a lien claim he believed that the defendant should have some security. However, he did not deal with the quantum or form of security.

[13] The master ordered the costs thrown away as a result of the abortive cross-examinations fixed at $4,615.19, payable forthwith. In a subsequent decision, he fixed costs of the motion itself at $7,193, payable by the plaintiffs to the defendants.

C. Position of the Parties

[14] The appellant plaintiff takes the position that the master erred in law in dismissing the lien and lien action, particularly since this was largely based on grounds not raised by the defendants, without proper notice to the plaintiff and without a fair opportunity to respond.

[15] The respondent defendants maintain that the master had a broad discretionary power under s. 47(1) of the CLA and that he properly exercised that discretion. They submit that the issue was properly before the master and the plaintiffs had notice of it because it is listed in the notice of motion as one of the sections of the CLA relied upon. In the alternative, the respondents seek security for costs.

D. Analysis

[16] The circumstances under which the two scheduled cross-examinations of the plaintiffs failed to proceed were not egregious. The first date, September 14, had been agreed upon between counsel. However, on September 13, Mr. Ribeiro advised Mr. Soccol that there had been a "miscommunication" between his office and his client involving sending a fax to a non-working fax number. As a result, Mr. Ghunaim did not know about the cross-examination date and was not available on September 14. After a number of e-mails and discussions back and forth between counsel, a new date of December 19, 2011 was agreed upon.

[17] On December 13, 2011, Mr. Ribeiro advised Mr. Soccol that his firm was getting off the record but that the client was aware of the December 19 date. On December 19, Mr. Ghunaim attended without a lawyer and requested an adjournment of the cross-examinations as he needed time to raise funds to pay his lawyer. Mr. Soccol refused to adjourn. The ensuing [page681] cross-examination was non-productive as Mr. Ghunaim refused to answer most questions.

[18] Thereafter, the problems between Mr. Ribeiro and his client were cleared up and counsel for the defendant was so advised on January 31, 2012. Defence counsel did not seek a further cross-examination date at that time, but rather focused his efforts on bringing a security for costs motion.

[19] Despite this, counsel for the plaintiffs continued to try and move the action along, including in February 2012, trying to obtain from defence counsel a consent to a judgment of reference for a trial of the lien claim, and requesting a schedule for delivery of affidavits and cross-examination for the proposed security for costs motion. Mr. Soccol's response to these overtures was the delivery of his motion material in March 2012.

[20] Master Sandler held, correctly in my view, that these two abortive cross-examinations were not a sufficient basis to warrant dismissal of the lien action and discharge of the lien.

[21] What he should have done at that point was to simply proceed with the alternative relief claimed, i.e., an order for cross-examination on the lien and a consideration of whether security for costs was appropriate. Unfortunately, rather than doing that, the master embarked on a lengthy analysis of the action itself and drew the conclusion that there were anticipated procedural problems that were only going to pile up costs in the proceeding without getting an expeditious resolution of the core issues.

[22] In entering into that analysis, the master wandered far beyond the parameters of the motion before him as it had been framed by the defendants. In my view, this was unfair to the plaintiff who had no notice that these issues would be raised and no opportunity to either prepare material in response or address the issues appropriately in oral argument. This is a matter that went to the fairness of the motion and undermines any decision rendered on those issues.

[23] When a party brings a motion, that party is required to deliver a notice of motion setting out the relief claimed and the grounds upon which it will be argued that the relief should be granted. The purpose of the notice of motion is to give notice to the other side of what the issues will be so that they will know the case they have to meet. The defendants delivered a notice of motion and also a factum in advance of the argument of the motion. The factum fairly and appropriately tracks the issues raised in the notice of motion as follows, at para. 8B: [page682]

B. What relief should be granted as a result of the Plaintiff's failure to attend and/or answer questions at two properly scheduled Cross-Examinations on the Construction Lien? In particular:

(i) Should the Plaintiff's Construction Lien be struck and/or action dismissed?

(ii) Or should an Order be granted compelling the Plaintiff to re-attend at a Cross-Examination Lien, plus pay costs thrown away forthwith? If so, what amount of costs thrown away should the Plaintiff be required to pay?

In the alternative, the defendants sought an order for security for costs, which also tracks the relief sought in the notice of motion.

[24] Nowhere in the defendants' material is there any indication that the action should be struck because it would be expensive and procedurally difficult and would be more appropriately dealt with as an action under Rule 76. These are issues raised solely by the master during the course of argument and in his reasons. This is not in accordance with procedural fairness and natural justice.

[25] In Rodaro v. Royal Bank of Canada (2002), 2002 41834 (ON CA), 59 O.R. (3d) 74, [2002] O.J. No. 1365, 157 O.A.C. 203 (C.A.), the Court of Appeal dealt with a case where a trial judge found liability based on improper disclosure and lost opportunity which was not the basis upon which the case had been pleaded and presented by the party. The Court of Appeal held, at para. 60, that "[i]t is fundamental to the litigation process that lawsuits be decided within the boundaries of the pleadings". And further, at paras. 61 and 62:

By stepping outside of the pleadings and the case as developed by the parties to find liability, Spence J. denied RBC and Barbican the right to know the case they had to meet and the right to a fair opportunity to meet that case. The injection of a novel theory of liability into the case via the reasons for judgment was fundamentally unfair to RBC and Barbican.

In addition to fairness concerns which standing alone would warrant appellate intervention, the introduction of a new theory of liability in the reasons for judgment also raises concerns about the reliability of that theory. We rely on the adversarial process to get at the truth. That process assumes that the truth best emerges after a full and vigorous competition amongst the various opposing parties. A theory of liability that emerges for the first time in the reasons for judgment is never tested in the crucible of the adversarial process. We simply do not know how Spence J.'s lost opportunity theory would have held up had it been subject to the rigours of the adversarial process. We do know, however, that all arguments that were in fact advanced by Mr. Rodaro and were therefore subject to the adversarial process were found wanting by Spence J.

[26] The Court of Appeal held that the trial judge deciding the case on a basis not pleaded and "with respect to which battle was never joined" constituted grounds, standing alone, which [page683] required reversal. (See, also, A-C-H International Inc. v. Royal Bank of Canada, 2005 17769 (ON CA), [2005] O.J. No. 2048, 254 D.L.R. (4th) 327, 197 O.A.C. 227 (C.A.); Labatt Brewing Co. v. NHL Enterprises Canada (2011), 106 O.R. (3d) 677, [2011] O.J. No. 3207, 2011 ONCA 511, 282 O.A.C. 151).

[27] The fact that the actual relief granted by the master in this case was sought in the notice of motion does not resolve the lack of notice. It is the grounds for that relief that are important. It is also no answer that s. 47(1) of the CLA is mentioned in the notice of motion. That does nothing to put the plaintiffs on notice of what is actually being sought. In truth, this was not a basis relied upon by the defendants. It was raised for the first time by the master and became the grounds upon which he made his decision. That is fundamentally unfair and cannot stand based on the authorities I have just cited.

[28] I am further of the view that even if the issue was properly before the master (which I find it was not) the master exceeded his jurisdiction under s. 47(1) of the CLA and erred in law in striking the lien and dismissing the lien action in these circumstances.

[29] In 1246798 Ontario Inc. v. Stirling (c.o.b. Sterling Finlayson Architects) (2000), 2000 29031 (ON SCDC), 51 O.R. (3d) 220, [2000] O.J. No. 4261, 194 D.L.R. (4th) 346, 139 O.A.C. 27 (Div. Ct.), the Divisional Court held that a motion to discharge a lien under s. 47 is analogous to a motion for summary judgment under Rule 20. As such, it is not appropriately resorted to if there are disputed issues of fact, as these must be left to the trial judge.

[30] To a similar effect is the decision of Shaughnessy R.S.J. in Beaver Materials Handling Co. v. Hejna, 2005 23127 (ON SC), [2005] O.J. No. 2733, 45 C.L.R. (3d) 242 (S.C.J.). Shaughnessy R.S.J. summarizes the appropriate test to be followed at Rule 47 as follows, at para. 24:

(1) Section 47 of the Construction Lien Act, R.S.O. 1990, c. C.30 gives the Court authority to vacate the registration of the Construction Lien and Certificate of Action; declare that the lien has expired, or that written notice of the lien shall no longer bind the person to whom it was given and/or dismiss the action.

(2) The motion under s. 47 of the Construction Lien Act is akin to a motion for summary judgment and therefore Rule 20 of the Rules of Civil Procedure, R.R.O. 1990, Reg. 194 applies.

(3) Therefore the moving party must establish in a Section 47 motion that there is no genuine issue for trial.

(4) If there are genuine issues of fact the matters should be left to be determined by the Trial Judge. [page684]

(5) If it is not patently demonstrable on an interlocutory motion that a party has no right to a lien, or unless the court is satisfied that the cause of action could not possibly succeed at trial, then the matter should be left to the Trial Judge.

(6) Assessing credibility, weighing the evidence and drawing inferences are the function of the Trial Judge, not the Motions Judge.

[31] The master in this case, although expressing concerns about various issues in the case, recognized that he was not in a position to make those definitive findings of fact on the materials before him.

[32] The master's main concern was about whether the plaintiff was the proper party to maintain the action. However, he held that there was a "genuine triable issue" on that point. This may or may not be the subject of a subsequent motion for summary judgment or of a motion to amend the proceedings. However, neither was before the master on this motion.

[33] The master then went on to predict that there would be a number of other procedural motions over the course of the litigation. Basically, he concluded that a proceeding under the CLA was not the "best way" to resolve this dispute. He may or may not be correct about that. I express no opinion on the point. However, with respect, neither should the master have done so. It is simply not open to the master to interfere in this way and to substantially compromise the rights of the plaintiff based on his own view that there is a "better way" to do things.

[34] I recognize, as pointed out by the defence, that there can be situations in which a lien claimant has so misconducted itself in the litigation as to disentitle it to maintain the security of the lien registration. The defendants relies in this regard on Buttcon Ltd. v. Beaver Construction Services Corp., [2006] O.J. No. 135, 51 C.L.R. (3d) 150 (S.C.J.).

[35] In that case, however, the facts were very different. The lien claimant there had failed to comply with two prior cost orders, had not retained counsel to represent it or obtain leave for someone else to do so, and had failed to attend on the motion on a return date that had been marked peremptory to it. There has been nothing like that kind of misconduct in this case. The master himself recognized that to be the case.

E. Conclusion

[36] Accordingly, I find the master breached rules of fairness, erred in law and exceeded his jurisdiction in making the orders he did. The appropriate disposition was an order requiring the plaintiffs to re-attend for cross-examination, probably on strict terms. The order he made cannot stand. [page685]

[37] The master did not deal with the security for costs motion. It is not appropriate for this court to deal with it in the first instance. The defendants are free to bring such a motion before a master other than Master Sandler in the normal course.

F. Costs and Order

[38] I have endorsed on the record: The appeal is granted for oral reasons delivered today. The order of Master Sandler bearing date April 25, 2012 and entered on July 20, 2012 is hereby set aside. Order to go requiring Iyad Ghunaim and Magdy Kandel to attend for cross-examination on April 24, 2013 at 10:00 a.m. at Professional Court Reporters in Toronto, pursuant to a notice to be served on their counsel by defence counsel. If either fail to attend, the defence may move on five days' notice for an order discharging the lien and dismissing the action. Costs thrown away with respect to the aborted cross-examinations in 2011 are fixed at $1,500 payable by the plaintiffs to the defendants prior to April 25, 2013. In light of the unfairness of the motion to the plaintiffs and the master's role in that, as well as the outcome of this appeal, I am also setting aside the costs disposition made by the master. It is not appropriate to accord deference in this situation. I will decide the costs anew. The order dated July 10, 2012 is therefore set aside. Given the result here, the fact that the security for costs was not dealt with by the master and the fact that an order for reattendance and some amount of costs payable by the plaintiffs was inevitable, it seems to me that in the result the success before the master was divided and each side should bear its own costs.

[39] The plaintiff has been wholly successful on this appeal and would normally be entitled to its costs fixed and payable forthwith. The defence points out, correctly, that the basis upon which this appeal was successful was not a problem created by the defence. They were not overreaching on their motion. I would find that argument compelling if the defence had not taken such an adversarial role on the appeal. In the circumstances, I do not see a fair basis for denying costs to the plaintiff in the normal course. Those costs are fixed at $6,500, all inclusive, payable in six months.

Appeal allowed.

End of Document