CITATION: K.H. Custom Homes Ltd. v. Smiley, 2015 ONSC 6037
COURT FILE NO.: DC-14-675
DATE: 20150929
ONTARIO
SUPERIOR COURT OF JUSTICE
DIVISIONAL COURT
B E T W E E N:
K.H. CUSTOM HOMES LTD.
M. John Ewart, for the Plaintiff/Appellant
Plaintiff/Appellant
- and -
PAULINE GERTRUDE MARY SMILEY
D. Larry Todd, for the Defendant/
Respondent
Defendant/Respondent
HEARD at Oshawa: September 16, 2015
DECISION
D.L. Corbett J.:
[1] This appeal concerns procedural issues that arise with some frequency under the Construction Lien Act:
(a) summary removal of stale liens from title; and
(b) dismissal of non-lien claims with lien claims in construction lien proceedings.[^1]
Scheme of the Construction Lien Act
[2] The CLA creates substantive claims and security for claims that operates in parallel with traditional contract claims. The CLA supplements, rather than replaces, contract claims.[^2]
[3] The CLA includes three statutory deadlines that must be met by a lien claimant:
(a) the lien must be “preserved” by registering a claim for lien within 45 days of substantial completion of the improvement or within 45 days of completion or abandonment of the contract or last supply of services or materials to the improvement[^3];
(b) the lien must then be “perfected” within the next 45 days by commencement of an action to enforce the lien, and registration of a certificate of action[^4];
(c) the action must be set down for trial or scheduled for trial within two years of commencement of the action.[^5]
[4] These requirements are statutory. They are mandatory.[^6] The court has no discretion to relieve from them.[^7] The language of the CLA is clear on this point, as is consistent appellate authority.
[5] This conclusion is consistent with the scheme of the CLA. The first two requirements are essential to the timely flow of funds on construction sites: persons advancing money to pay for construction may rely upon the state of title before making an advance. This reliance would be compromised if late liens could be placed on title as a result of the court’s exercise of discretion after-the-fact.
[6] The third statutory deadline – to set the action down for trial or schedule a trial date – has turned out to be less fundamental to the scheme of the CLA. It places responsibility firmly on the parties to ensure that actions proceed with reasonable promptness, but it also creates a potential liability for unwary counsel, arguably without a commensurate benefit to the overall administration of lien proceedings: the commonplace need to bring a motion to set a trial date before completion of discoveries in complex lien proceedings is but one of the costs of this provision. Nonetheless, however one might assess the costs and benefits of this provision, it remains part of the scheme of the Act and is no less mandatory for being less than essential to the efficient administration of the Act. The principle that underlies the provision – which has clear analogues in the requirement to move expeditiously after obtaining a certificate of pending litigation – is to require parties to proceed diligently with their claims when they tie up title to property pending final disposition of their lien claims.
[7] Section 46 of the CLA provides:
(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.
(3) A motion under subsection (1)… may be brought without notice, but no order as to costs in the action may be made upon the motion unless notice of that motion was given to the person against whom the order for costs is sought.[^8]
[8] Subsection 47(1) of the CLA provides:
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; [or]
(c) dismiss an action,
upon any proper ground and subject to any terms and conditions that the court considers appropriate in the circumstances.[^9]
[9] Subsection 46(1) is mandatory: where it applies, the court “shall” declare that the lien has expired and dismiss the lien action.[^10] Subsection 46(3) is permissive: the motion “may” be brought without notice. Any motions brought under s.47(1) to vacate a lien and dismiss a lien action must be brought on notice, subject to the usual notice principles that apply in civil litigation: the express provision for without notice motions in s.46, and silence on the issue in s.47, make it clear that the legislature intended the special without notice provision in s.46 to be an exception to the general requirement of notice.
Circumstances of this Case
[10] The plaintiff alleges that it performed construction work to the defendant’s property in the City of Kawartha Lakes.[^11] It alleges that it completed the work and was never paid anything by the defendant. It preserved its claim for lien, commenced this action, and perfected its lien by registering a certificate of action, all apparently within the time limits prescribed by the CLA. The statement of claim was issued on October 25, 2009.
[11] The plaintiff alleges that it contracted directly with the defendant. Thus it asserts claims against the defendant both for a construction lien and in respect to a breach of contract.
[12] The CLA permits a contract claim to be joined with a lien claim.[^12]
[13] The plaintiff failed to set the action down for trial or to schedule a trial date within two years of commencement of the proceeding. Thus it failed to comply with the mandatory requirements of s.37(1)(c) of the CLA and its lien expired on October 14, 2011.
[14] The defendant brought a motion to remove the lien from title and dismiss the action. The motion was brought in writing, without notice, and was returned before Gunsolus J. on March 31, 2014. Gunsolus J. granted the motion, without reasons, and dismissed the entire action, including the claims for breach of contract.
This Appeal
[15] The plaintiff appeals on the basis that, although the lien was properly discharged, and the lien claims were properly dismissed, the court should not have dismissed the claims for breach of contract (a) without notice; and (b) in the circumstances of this case, at all.
[16] The defendant argues that the language of s.46 is mandatory, and the proper order was dismissal of all, and not just part, of the action.
[17] Cases have gone both ways on this issue, but current binding authority favours the plaintiff’s position. And justice clearly favours the plaintiff’s position. Therefore, for the reasons that follow, the appeal is allowed, and the judgment below is set aside in part by varying the dismissal order of Gunsolus J. to apply only to claims brought by the plaintiff under the CLA. The plaintiff’s claims based on breach of contract remain to be determined on their merits.
Analysis
[18] The phrase “the action to enforce that lien” in CLA s.47(1) may reasonably be read in two ways. It may refer to the entire proceeding in which lien remedies are sought, or it may refer to the portion of the proceedings to enforce lien remedies. Subsection (3) gives an indication of the legislature’s intent. It provides that the motion may be brought without notice only if there is no claim for costs. Why? Because if there is a claim for costs, the adverse party may well having something to say and should be heard.
[19] A second indication is found in the CLA provision permitting joinder of contract claims with lien claims. Why is this included in the CLA? And what is its effect? It is included to facilitate joinder of two closely related claims that should, in most cases, be tried together. A reading of s.46 that requires mandatory dismissal of contract claims when they are joined with lien proceedings, because of non-compliance with lien deadlines, would provide a disincentive to join contract and lien claims in the first place. What would be the result? Unnecessary multiplicity of legal proceedings, a risk of inconsistent verdicts, and a waste of scarce court resources to try the same dispute twice.
[20] A third indication is found in s.38 of the CLA, which provides:
The expiration of a lien under this Act shall not affect any other legal or equitable right or remedy otherwise available to the person whose lien has expired.
Summary dismissal of contract claims as a result of expiry of lien rights would affect significantly a plaintiff’s legal right to recover on its contract claims, and thus run counter to the express wording of s.38.
[21] I conclude from these indications, and the language of the provision itself, that the legislature never intended that s.46(1) be used for mandatory summary dismissal of contract claims without notice. We also note that the purpose of the CLA is to provide a balanced yet enhanced set of remedies and a special procedure for construction claims. There is no reason to read into the CLA an intention to derogate from contract claims, and the clear language of s.38 stipulates otherwise.
[22] Some of the cases justify summary dismissal of contract claims on the basis that plaintiffs should not have the “benefit” of the construction lien process where their liens have expired. This point is not without merit, though in some cases it has been overstated. In my view it is a matter of discretion for the court to decide whether the contract claim should proceed under the auspices of the CLA, or whether the subsisting contract claims should be transferred to the general civil list of the Superior Court or to the Small Claims Court.[^13] For example, in some cases the contract claims may be closely related to subsisting lien claims that will proceed under the CLA in any event. It may serve the interests of justice to have the contract claims continue in the lien proceedings to conserve judicial resources and guard against inconsistent decisions. In other situations, the “benefit” of the process under the CLA may be marginal or non-existent. If the case is ready for trial and is outside Toronto, transferring the case to the regular Superior Court civil litigation list would do no more than change the place in the courthouse that the file is stored: the trial would proceed before a Superior Court Justice in the same course whether it remains as a CLA matter or not. On the other hand, a case which has not gone beyond pleadings, and which is unrelated to other lien litigation, might well be transferred to proceed as the ordinary contract action it has become. Where the amount in issue puts the case within the jurisdiction of the Small Claims Court, the case for transferring the matter may be all the stronger. However, any of these options would be fairer than dismissing the action and putting an end to the plaintiff’s contract claims.
[23] In his textbook, Professor McGuinness summarizes the position of the law as of 1997:
The fact that personal claims survive the expiration of a lien begs the question of whether the court may allow a personal action to continue within the context of a lien proceeding, where the lien expires under section 37. Section 37(1) and 46(1) deal with the effect of a prolonged delay in prosecution of the lien action. They do not specify the effect of a section 46(1) order on any personal claim to which the lien claimant may be entitled, or upon any counterclaim or crossclaim. Although the position is still not entirely clear, there is a growing body of authority to the effect that the court has a discretion to allow the personal claim to continue, so as to avoid the need to institute a new proceeding.[^14]
[24] The law has developed since this commentary. In 2000, the Court of Appeal endorsed the approach taken in recent jurisprudence, as confirmed by the Divisional Court:
When a lien action is not set down for trial within two years of its commencement, there is, nonetheless, discretion to permit a claim on the contract to continue. The avoidance of multiplicity of proceedings guides the interpretation of s.46(1) and s.47(1)(d) of the Act. The court has discretion to dismiss an action or to proceed without the lien aspect of the claim, as circumstances dictate…. The legislature intended more than claims for lien be litigated in lien actions. 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.[^15]
[25] Following this decision from the Court of Appeal, Ontario limitations law underwent a fundamental reform. The general limitations period for contract claims became two years. At the time Professor McGuinness was writing the most recent edition of his text, and the Court of Appeal was deciding Teepee Excavation, the limitation period for contract claims was six years. Thus, at the time these earlier authorities were written, the issue was whether the plaintiff should be permitted to continue with the action on his personal claims in the lien proceeding, or whether that action should be dismissed and he be made to start his personal claims all over again in a new proceeding. Now, when a lien action is dismissed because of failure to set the action down within two years, dismissal of the personal claims in the lien proceeding will terminate those claims, for it will be too late to commence a fresh proceeding on those claims. The provisions in the CLA were written before the reform of limitations law, and there is no basis to suppose that the legislature intended such a draconian effect as is argued for by the defendant. This point was made already, definitively, by this court in 2007.[^16]
[26] In the past two decades the practice of civil litigation has evolved considerably. There is more case management. There is greater use of summary judgment and proportionate procedures described by the Supreme Court of Canada in Hryniak v. Mauldin.[^17] Practice in ordinary contract claims is more flexible, and the practice under the CLA may not differ materially or offer significant “benefit” to a plaintiff, depending on the nature of the case, the progress of the case, and the jurisdiction within which the action is proceeding.
[27] Finally, all of this is not to say that contract claims must subsist no matter how long a plaintiff has delayed the prosecution of its claim. But that is a different issue, and one on which the plaintiff is entitled to be heard before his claims are extinguished. The remedy in that situation is for the defendant to bring a motion to dismiss for delay, on notice to the plaintiff, and not for the action to be dismissed summarily without notice.
[28] The respondent relied principally on the Divisional Court decision in Bird Construction, which authorized summary dismissal of non-lien claims on a motion without notice under s.46, on the basis that “[t]here is but one action even though there may have been claims beyond a lien claim”.[^18] Bird Construction and a predecessor decision, 697470 Ontario Ltd. v. Presidential Developments, were decided wrongly on this point and were not followed in subsequent Divisional Court decisions until they were overruled by the Court of Appeal in Teepee Excavation.[^19]
[29] Teepee Excavation established that the CLA does not make it mandatory to dismiss non-lien claims upon expiry of the related lien. Subsequent development of the law leads me to conclude that the discretion to be exercised about whether to dismiss non-lien claims in these circumstances should only be exercised on a motion brought with notice, on the basis of the usual test for dismissing claims for delay. If the non-lien claims continue, it is within the discretion of the court to determine whether that will be within the lien proceedings, or whether those claims will be transferred elsewhere to continue as regular civil proceedings.
[30] Finally, I note that the right to move without notice under s.46(3) is not an absolute one. The party bringing the motion has the duties that apply to any party moving without notice to provide full and frank disclosure of all material matters to the court before which the motion is brought. This includes a duty to fully and fairly advise the court of the law. This point has been made repeatedly in the context of motions under s.46(3), and, with respect, was not followed in this case.[^20]
[31] The appeal is allowed and the judgment below is set aside to the extent described in these reasons. The plaintiff shall have sixty days from the date of release of these reasons to deliver an amended statement of claim restricted to its claims for breach of contract. The defendant shall have thirty days after delivery of the amended statement of claim to deliver an amended statement of defence. This order is without prejudice to either of the parties seeking an order from a Superior Court judge to have this action transferred to a non-lien civil list or to the small claims court.
[32] Costs payable by the respondent to the appellant fixed at $1,500, the amount requested, payable within thirty days.
D.L. Corbett J.
Reilly J.
Nordheimer J.
Released:
COURT FILE NO.: DC-14-675
DATE: 201509
ONTARIO
SUPERIOR COURT OF JUSTICE
B E T W E E N:
K.H. CUSTOM HOMES LTD.
Appellant
- and –
PAULINE GERTRUDE MARY SMILEY
Respondent
DECISION
D.L. Corbett J.
Reilly J.
Nordheimer J.
Released: 20150929
[^1]: Construction Lien Act, R.S.O. 1990, c. C.30 (the “CLA”).
[^2]: CLA, s.55; Teepee Excavation & Grading Ltd. v. Niran Construction Ltd. (2000), 2000 3447 (ON CA), 189 D.L.R. (4th) 210, 49 O.R. (3d) 612 (Ont. C.A.); Duncan W. Glaholt and David Keeshan, The Annotated Ontario Construction Lien Act (2013), p.287.
[^4]: CLA, s.36.
[^5]: CLA, s.37(1).
[^6]: Duncan W. Glaholt and David Keeshan, The 2014 Annotated Ontario Construction Lien Act (2013), pp. 275-6.
[^7]: Bird Construction Co. v. C.S. Yachts Ltd. (1990), 46 C.L.R. 192 (Div. Ct.).
[^8]: CLA, ss.46(1), (3). Subsection (2and the omitted portion of subsection (3) address expired liens that do not attach to the premises.
[^9]: CLA, s.47. Paragraph 47(1)(c) addresses liens that do not attach to the premises.
[^10]: The law is clear that the court has no power to relieve from the statutory deadlines in the Construction Lien Act. There is a line of cases which raises an issue as to whether a defendant, by its conduct, may be estopped from relying upon these deadlines: see, for example, Ambler-Courtney v. Ellis-Don Ltd (1988), 2 Kirsh C.L.C.F. 37.3; Golden City Ceramic & Tile Ltd. v. The Iona Corp. (1993), 2 Kirsh C.L.C.F. 37.15, aff’d. 1993 9364 (ON SCDC), 12 C.L.R. (2d) 1 (Div. Ct.). This issue does not arise in this case and we say nothing about it.
[^11]: In what was formerly known as the Town of Lindsay.
[^12]: CLA, s.55(1).
[^13]: See Kevin Patrick McGuiness, Construction Lien Remedies in Ontario (2nd ed.), para. 6.118; Eurocor v. Vernich (1992), 1992 7555 (ON SC), 2 C.L.R. (2d) 208 (Gen. Div.). Also see, for example, 986506 Ontario Ltd. v. Pringle (2003), 30 C.L.R. (3d) 296 (Ont. Master), where the court ordered that the surviving contract claims proceed as a regular civil action under the Simplified Rules.
[^14]: Kevin Patrick McGuiness, Construction Lien Remedies in Ontario (2nd ed., 1997), para. 6.117. especially chapters 1-4, which provide a summary of the history and context of lien law.
[^15]: Teepee Excavation & Grading Ltd. v. Niran Construction Ltd. (2000), 2000 3447 (ON CA), 189 D.L.R. (4th) 210, 49 O.R. (3d) 612 (Ont. C.A.), paras. 22-26, as summarized in Duncan W. Glaholt and David Keeshan, The 2014 Annotated Ontario Construction Lien Act (2013), p.278.
[^16]: 1339408 Ontario Inc. v. 1579138 Ontario Inc. (2007), 71 C.L.R. (3d) 13 (Div. Ct.).
[^17]: Hryniak v. Mauldin, 2014 SCC 7, [2014] 1 S.C.R. 87.
[^18]: Bird Construction Co. v. C.S. Yachts Limited et al. (1990), 46 C.L.R. 192 (Div. Ct.). See also 697470 Ontario Ltd. v. Presidential Developments Ltd. et al. (1989), 1989 4336 (ON SC), 69 O.R. (2d) 334 at 338 to the same effect.
[^19]: Teepee Excavation & Grading Ltd. v. Niran Construction Ltd. (2000), 2000 3447 (ON CA), 189 D.L.R. (4th) 210, 49 O.R. (3d) 612 (Ont. C.A.).
[^20]: See, for example, Mueller-Hein Corp. v. Donar Investments Ltd. (2003), 29 C.L.R. (3d) 143 (Ont. S.C.J.).