Court File and Parties

COURT FILE NO.: CV-17-571686 DATE: 2022 04 19

SUPERIOR COURT OF JUSTICE - ONTARIO

IN THE MATTER OF the Construction Act, RSO 1990, c C.30, as amended

RE: NOVA CONCRETE INC., Plaintiff - and - 2035211 ONTARIO INC., Defendant

BEFORE: Associate Justice Todd Robinson

COUNSEL: P.-P. Du Vernet, for 5048942 Ontario Inc., successor by amalgamation of the defendant, 2035211 Ontario Inc. D. Goodman, for the plaintiff

HEARD: December 15, 2021 (by videoconference)

REASONS FOR DECISION

[1] 5048942 Ontario Inc. (“504 Ont”), the successor by amalgamation of the defendant, 2035211 Ontario Inc. (“203 Ont”), seeks an order continuing this proceeding with 504 Ont as defendant, declaring the lien of Nova Concrete Inc. (“Nova”) expired, paying out security posted by 504 Ont to vacate Nova’s lien, and dismissing this action for delay. Nova has brought a cross-motion seeking to restore this action to the trial list, the action having been struck from the trial list in late 2019. If the action is not dismissed and is restored to the trial list, 504 Ont seeks an order setting aside the noting in default of 203 Ont and reducing the quantum of Nova’s lien. 504 Ont also seeks leave to bring a motion for security for costs.

[2] The underlying action arises from a construction contract dating back to late 2015. Nova was contracted by 203 Ont to supply and install a concrete foundation and basement slab for a seniors residence project in Toronto. Disputes appear to have arise over the amount owing to Nova, and Nova ultimately registered a claim for lien for $250,000 on February 8, 2017. It subsequently commenced this lien action. The statement of claim was served on 203 Ont, but 203 Ont did not defend.

[3] Nearly two years later, Nova took steps to have 203 Ont noted in default and this action was set down for trial. Nothing further was done, as a result of which the action was ultimately struck from the trial list. No further steps were taken until May 2021, when 203 Ont was amalgamated into 504 Ont. 504 Ont moved in writing before me to vacate Nova’s lien upon payment of security into court and then brought its motion.

[4] Resolving this motion was aptly described by counsel as “unravelling a Gordian knot”. Unfortunately, unlike Alexander the Great’s solution to the fabled knot tied by King Gordius, which he is said to have sliced with his sword (at least in some versions of the legend), navigating the “Gordian knot” before me has been less straightforward. There are many intertwining threads between not only the various layers of relief, but also between the factual circumstances and procedural rules under both the now-former Construction Lien Act, RSO 1990, c C.30 (the provisions of which continue to apply to Nova’s lien and this lien action by operation of s. 87.3 of the Construction Act) (the “CLA”) and the Rules of Civil Procedure, RRO 1990, Reg 194 (the “Rules”). These threads, and the evidentiary gaps in the record before me, have presented challenges in reaching a fair and just result.

[5] Ultimately, though, I have managed to unravel the knot. I have determined that there is no genuine issue that Nova failed to preserve its lien in time. The lien should be declared expired and the security posted for the lien is properly returned to 504 Ont. Although this motion has been a close call in deciding the delay-related aspects, I am not dismissing the action for delay and am restoring it to the trial list. The action will continue with 504 Ont as defendant. I am also setting aside the prior noting in default of 203 Ont and permitting 504 Ont to defend.

[6] Since Nova’s lien claim is no longer proceeding, I am further dismissing the action insofar as it seeks to enforce the lien. Nova may continue its contract claim, but the action will now proceed as an ordinary action governed by the Rules.

Analysis

[7] Relief continuing this action with 504 Ont as defendant is not opposed by Nova. 203 Ont’s amalgamation into 504 Ont is supported by the evidence before me. The order to continue with 504 Ont as defendant is granted.

[8] With respect to the other relief sought by 504 Ont and Nova, the following issues are implicated:

(a) whether 504 Ont’s alleged non-compliance with the service requirement of my vacating order, failure to answer an undertaking given during cross-examination, and a refusal to answer a question dealing with the amalgamation are themselves sufficient to dismiss this motion; (b) whether there is a triable issue on the date by which Nova’s contract was completed, namely if it was actually completed or deemed completed more than 45 days prior to Nova registering its claim for lien, such that Nova’s lien rights had already expired by that time; (c) whether partial judgment should issue in favour of Nova for $126,731.95; (d) if Nova’s lien is expired, whether this action may continue without the lien remedy and, if so, whether it should continue as an action governed by the CLA or the Rules; (e) whether delay is “a proper ground” on which 504 Ont’s may seek dismissal of this action; (f) whether Nova has adequately explained delay in this lien action and sufficiently addressed prejudice to support restoring the action to the trial list; (g) if the action is not dismissed, whether 203 Ont’s noting in default should be set aside; (h) if there is a triable issue on whether Nova’s lien has expired, whether there is any triable issue that Nova supplied unpaid lienable services and materials in an amount greater than $126,731.95 or, at the most, $168,870.39, such that the lien quantum should be reduced; and (i) if the action continues and remains governed by the CLA, whether leave should be granted for 504 Ont to move for security for costs.

Should 504 Ont’s motion be denied based on its conduct?

[9] Nova argues that 504 Ont does not come to court with “clean hands”, and that the motion should be dismissed on that basis alone. Specifically, Nova submits that 504 Ont failed to serve my vacating order in compliance with its terms and, further, that 504 Ont’s affiant, Preet Dass, has failed to answer an undertaking given on cross-examination to find out whether the order was, in fact, sent to Nova as required. Nova also argues that a request on cross-examination for 504 Ont to provide proof that creditors of the amalgamating companies were notified of the amalgamation (as suggested in information attached to the articles of amalgamation) was improperly refused.

[10] I do not agree that any of Nova’s challenges support denying 504 Ont’s motion outright. I say this for three reasons.

[11] First, relief sought by 504 Ont under s. 45 of the CLA is mandatory. If Nova’s lien was not preserved or perfected in time, the language in s. 45 is that the court “shall declare the lien expired” and grant ancillary relief. I have been directed to no provision of the CLA nor any case law supporting a legal or equitable basis on which to deviate from that mandatory language. To the contrary, although not cited by either party, existing case law supports that the court has no ability or discretion to ignore or adjust the time periods set by the CLA: Krypton Steel Inc. v. Maystar General Contractors Inc., 2018 ONSC 3836 (DivCt) at para. 11; QH Renovation & Construction Corp. v. 2460500 Ontario Ltd., 2019 ONSC 3237 (Master) at paras. 15-16.

[12] Second, delayed service of my vacating order is not itself sufficient to trigger equitable considerations. It is true that 504 Ont did not answer the undertaking to confirm if Nova was served with the vacating order. However, 504 Ont did not ultimately argue that Nova or its lawyer were, in fact, served prior to 504 Ont’s motion being brought. A copy was included in 504 Ont’s motion record. Nova was served with that motion record on September 17, 2021, about 3.5 months after the lien was vacated. I agree that the order was not served “forthwith after entry” as required. However, Nova has not suffered any prejudice from delayed notice that its lien was vacated.

[13] Third, since Nova does not oppose the relief to continue this action with 504 Ont as a defendant, the refusal by 504 Ont to provide proof that creditors were given notice of amalgamation is at best only relevant to Nova’s explanation for delay. It is not itself a sufficient basis to deny this motion.

Is there a triable issue on whether Nova’s lien has expired?

[14] I am satisfied that there is no genuine issue that Nova’s lien had expired prior to the claim for lien being registered. Since Nova did not preserve its lien in time, 504 Ont is entitled to the declaration it seeks that the lien is expired, as well as to return of the vacating security.

[15] Nova is a “contractor” under the CLA, having contracted directly with the owner of the property at the time, 203 Ont. Nova’s lien rights for services and materials supplied under its contract expired at the conclusion of the 45-day period following completion or abandonment of the contract: CLA, s. 31(2)(b). Nova does not suggest or argue that its contract work is incomplete. The claim for lien was registered on February 8, 2017. Accordingly, for lien preservation to be timely, there must be a genuine issue that the contract was not completed or abandoned until on or after December 25, 2016. There is not.

[16] 504 Ont relies on the affidavits of Preet Dass, a representative of 504 Ont who is involved in the construction project. Ms. Dass’ affidavit evidence is that 203 Ont’s construction manager, Chamberlain Group of Companies (“Chamberlain”), previously confirmed that Nova’s last work was performed on May 25, 2016. Ms. Dass appends to her first affidavit an email from Lilly Hoshowsky of Chamberlain from July 2017 noting that Nova’s last work was in May 2016.

[17] Nova has tendered evidence from its president and director, Sergio Capilongo, who swore two affidavits. Mr. Capilongo was also cross-examined on his affidavits. Significant to the issue of timeliness, Mr. Capilongo agreed during his cross-examination that Nova’s contract scope of work, including extras, was done and that Nova was wrapping up work as of May 25, 2016. He subsequently re-characterized that completion as being “the brunt” of the contract work, but the only evidence of any work after May 25, 2016 is as follows:

(a) Mr. Capilongo’s general statements in both his affidavit evidence and during cross-examination that he was “on call for the project” and went back at the request of Chamberlain’s representative, Lilly Hoshowsky, who was managing the project for 203 Ont, whenever she requested him to do additional work; (b) Mr. Capilongo’s evidence that he attended sometime in September 2016 to meet with the concrete core slab contractor to assist slab installation by “adjusting the concrete walls and pockets to accommodate the discrepancies found between the new and old set of drawings”; (c) Mr. Capilongo’s evidence that he attended on December 20, 2016 to work alongside the steel contractor in the west stairwell to “chip concrete to expose rebar to accommodate the revised staircases”, which Mr. Capilongo states was an extra to the contract because the drawings had been revised; and (d) Mr. Capilongo’s evidence that he further attended on December 28, 2016, at which time he “grouted and patched the rough concrete in the West stairwell in order to leave a smooth surface”.

[18] Cross-examination of Mr. Capilongo confirmed that he has access to Nova’s books and records, and specifically the timesheets for Nova’s workers. However, those timesheets are immaterial to timeliness of Nova’s lien, since Mr. Capilongo’s evidence is that he alone performed the work after May 2016, for which he has no timesheets.

[19] Sergio Capilongo’s statements are the only evidence of any work taking place after May 2016. There is a complete lack of any corroborating evidence to substantiate that any of the work was actually performed. No timesheets were kept and no invoices were issued for any of the post-May 2016 work. Other than Mr. Capilongo’s statements, Nova has tendered no evidence that the work was requested by or on behalf of 203 Ont and completed. Notably, although Mr. Capilongo stated during his cross-examination that Lilly Hoshowsky requested that he perform the work, and that she knows about and confirmed all of his site attendances, an affidavit has not be provided from her. Mr. Capilongo suggested during cross-examination that Ms. Hoshowsky said she was “too busy” to provide it. Nevertheless, Nova elected not to conduct a Rule 39.03 examination of her.

[20] Nevertheless, even assuming that the work was requested and performed as alleged, none of that work assists Nova in establishing timeliness of its lien. On the record before me, I am satisfied that the contract was clearly completed, or at least deemed completed, more than 45 days prior to Nova registering its claim for lien.

[21] Both the alleged work performed in September 2016 and the concrete chipping work said to have been performed on December 20, 2016 were more than 45 days before the claim for lien was registered. Even if the contract was not completed or deemed completed until December 20, 2016, the lien was not preserved in time.

[22] The concrete grouting and patching work that Sergio Capilongo says he performed on December 28, 2016 is the only alleged work occurring within the relevant 45-day period. During cross-examination, Mr. Capilongo confirmed that he was not requested by anyone to do that work, but said it was a continuation of the work on December 20, 2016, which still remained to be completed.

[23] There is very limited evidence on the nature of the grouting and patching work and the reasons for why it was required. I accept 504 Ont’s argument that, as described, it appears to be in the nature of repair work. Work performed to repair or rectify deficiencies in otherwise completed work cannot extend lien rights: Sub-Terrain Directional Drilling Ltd. v. Carnello Civil Construction Limited, 2014 ONSC 4877 (Master) at para. 65; Scepter Industries Ltd. v. Georgian Custom Renovations Inc., 2018 ONSC 988 at para. 25.

[24] Even if I am wrong that it was repair work, Mr. Capilongo’s brief summary of the work fails to include information on the extent of grouting and patching work performed or the value of that work. A contract is deemed to be completed when the price of completion or correction of a known defect is not more than $1,000: CLA, s. 2(3). Since Nova did not charge 203 Ont for the work and it appears that Nova also did not provide any quote or estimate for performing the work at the time, it is incumbent on Nova to tender evidence of the extent and value of work performed to demonstrate a triable issue on the timeliness of its lien. Even if Nova had been a subcontractor, the same evidence would be required since s. 2(3) also deems last supply by the same metric. Since Sergio Capilongo performed the work himself, what precisely he did and its value is solely within his knowledge.

[25] In the absence of any evidence on the extent or value of work purportedly performed on December 28, 2016, and being mindful of the summary nature of lien proceedings, I infer that the grouting and patching work was no more than $1,000 in value. Since there is no evidence of any other work being performed on December 28, 2016 or on any other date after December 20, 2016, the contract was thereby deemed completed by no later than December 20, 2016, which (as already noted) is more than 45 days prior to the claim for lien being registered.

[26] Although not necessary to my disposition, I am also not satisfied that there is any triable issue that the claimed work constitutes work under Nova’s original contract. There is no cogent evidence connecting any of the post-May 2016 work, which Mr. Capilongo alleges are extras, to Nova’s contract. In circumstances where Nova’s base contract work was admittedly completed and Nova’s forces had demobilized some 7 months prior to the only work that could support timeliness of the lien, my view is that evidence beyond self-serving statements that the work constituted extras to Nova’s existing contract (as opposed to a new contract with either Nova or Mr. Capilongo himself) is necessary.

[27] For these reasons, I find that there is no triable issue over timeliness of Nova’s lien. I am satisfied that Nova’s lien rights had already expired when the claim for lien was registered. Since I am satisfied that Nova’s lien was not preserved in time, s. 45(3) requires that I also order payout of the funds paid into court by 504 Ont to vacate Nova’s lien.

Should partial judgment issue in favour of Nova?

[28] Nova argues that $126,731.95 is admitted by 504 Ont as owing, so judgment for that amount should issue, with the amount paid from the security if the lien is discharged. I do not agree. I am not prepared to grant partial judgment on the record before me.

[29] Firstly, I do not agree with Nova that 504 Ont has admitted liability for $126,731.95 by pointing to the construction manager’s records in challenging the quantum of Nova’s lien. An email from Lilly Hoshowsky of Chamberlain is appended to Preet Dass’ first affidavit, which states, “According to our records the trade contractor [Nova] is owed $126,731.95 which includes holdback and HST.” However, Ms. Dass’ affidavit does not say that the amount is owing. Rather, Ms. Dass states that Chamberlain confirmed to 203 Ont, its shareholders, and Nova that “Even on the basis of Nova’s own invoices, only the amount of $126,731.95 appears to be outstanding, subject to deductions and backcharges.” Ms. Dass was not asked to confirm if any amounts were owing to Nova during her cross-examination.

[30] Secondly, and more importantly, partial judgment was only sought in Nova’s factum, which was served after the affidavits had been exchanged and cross-examinations completed. It is not relief sought in Nova’s notice of cross-motion. In my view, 504 Ont was not given fair notice and opportunity to respond to the potential for a partial judgment being granted.

Can this action continue without the lien remedy?

[31] Before considering whether to dismiss the action for delay, I address whether the action should be dismissed outright since Nova’s lien is being declared expired. It follows from that declaration that the action to enforce the expired lien should be dismissed.

[32] Although not addressed by the parties in their facta, I raised with counsel whether any cause of action would remain in the statement of claim after dismissal of the lien remedy. Nova argues that its claim in breach of contract is not affected by a loss of the lien. A breach of contract claim may be joined with a lien claim: CLA, s. 55(1).

[33] While the statement of claim does not specifically refer to any “breach” of contract by 203 Ont, I agree with Nova that the material facts for a breach of contract claim appear to be pleaded. I am thereby not dismissing the action in its entirety, but am dismissing it insofar as relief to enforce the lien. I leave it to Nova to determine if its existing statement of claim is sufficient to support a remedy in contract, or if amendment is required to plead the specific cause of action more clearly.

[34] Since the lien remedy is gone, there is no reason this action should continue to be governed by the procedures under the CLA, which are intended for more summary lien actions. I am thereby ordering that this action continue as an ordinary action governed by the Rules.

Should the action be dismissed for delay?

[35] Although the action will be continuing as an ordinary action governed by the Rules, the motions before me were brought in an action governed by the CLA. Its provisions are thereby still applicable in deciding the balance of these motions.

[36] 504 Ont seeks dismissal of this action for delay under s. 47 of the CLA. Nova, by its cross-motion, seeks an order restoring this action to the trial list. That cross-motion is moot if 504 Ont’s motion succeeds. I accordingly deal first with 504 Ont’s request for dismissal.

[37] Dismissal of a lien action under s. 47 of the CLA may be made “upon any proper ground and subject to any terms and conditions that the court considers appropriate in the circumstances.” This case raises two issues about dismissals for delay under s. 47 of the CLA:

(a) Is delay always “a proper ground” on which to seek relief under s. 47, or is the analysis more contextual in the particular circumstances of a case? (b) Is there any particular “test” that must be met by a moving party to obtain a dismissal for delay under s. 47?

[38] Neither party had cited any case law in which s. 47 of the CLA was relied upon to seek a dismissal for delay. I raised M. Fuda Contracting Inc. v. 1291609 Ontario Ltd., 2018 ONSC 4663, which dealt with a motion under s. 47 to dismiss for delay. In that case, Boswell J. accepted that the defendant’s motion to dismiss the lien action for delay could proceed under s. 47. In dismissing the motion, Boswell J. considered the statutory framework under the CLA and the Rules, the complexity of the proceeding, explanation for delay, and prejudice.

[39] Boswell J. did acknowledge that the motion to dismiss the plaintiff’s claim for delay was a “type of process that is properly addressed under s. 47(1).” However, he did not go so far as to hold that delay is always “a proper ground” for seeking relief under s. 47 in all cases. Boswell J. also did not articulate any particular evidentiary onus on the moving defendant, or any test to be met in seeking dismissal for delay, instead assessing the entirety of the record before him.

[40] I have determined that whether delay is “a proper ground” for seeking relief under s. 47 should be contextual, not static. In my view, such an interpretation is more consistent with the overall scheme of the CLA.

[41] I agree with Boswell J. that the statutory framework of the CLA supports the conclusion that “lien actions are intended to be prosecuted diligently and expeditiously”: M. Fuda Contracting, supra at para. 50. The CLA itself provides, in s. 67(1), that procedure in a lien action shall be as far as possible of a summary character. It also provides, in s. 67(3), that the Rules apply to lien actions except where inconsistent with the CLA. Justness of orders is always a concern for the court, as underscored by the many references to just determination of actions and just orders found in the Rules.

[42] In my view, the particular circumstances of this case require me to consider 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 its was commenced despite having never defended it. That, to my mind, is directly relevant in deciding whether delay is “a proper ground” on which to dismiss this particular lien action.

[43] Nova’s evidence on this motion is that the statement of claim was served on 203 Ont on March 25, 2017. That evidence is undisputed. 504 Ont’s motion was served 4.5 years later in September 2021. 203 Ont’s amalgamation into 504 Ont took place in May 2021, after which the vacating motion was brought. 504 Ont has provided no explanation for 203 Ont’s failure to defend or to take any steps to defend this action until this motion was brought. Nevertheless, 504 Ont complains about Nova’s delay in advancing this action to judgment. Considering 203 Ont’s ongoing default for over 4 years, 504 Ont has no reasonable complaint about any delay by Nova in this proceeding.

[44] There have been and will be cases in which litigation delay properly supports dismissal of a lien action under s. 47. On the facts of this case, though, I find that delay is not a proper ground on which 504 Ont is entitled to seek dismissal of this action. I have thereby not considered if there is any particular “test” that must be met.

Should the action be restored to the trial list?

[45] Although I have decided that delay is not a proper ground for 504 Ont to seek dismissal of this action, that does not mean delay is rendered irrelevant. Explanation for delay and prejudice remain central to deciding Nova’s cross-motion to restore this action to the trial list.

[46] In a motion to restore an action to the trial list, a plaintiff must show on a balance of probabilities that there is a reasonable explanation for the delay and, if the action were allowed to proceed, that the defendant would suffer no non-compensable prejudice: 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 Consulting), 2019 ONCA 339 at paras. 5 and 8.

[47] In a lien action, there is formally an added requirement. Interlocutory steps not contemplated by the CLA first require “consent” of the court on proof that the step is necessary or would expedite the resolution of issues in dispute: CLA, s. 67(2). Restoring an action to the trial list is not a step contemplated by the CLA, but in my view is evidently necessary for Nova to proceed with its action.

[48] Whether the explanation for delay is adequate is a discretionary decision. Although, in my view, a better explanation ought to have been provided, I have determined that Nova’s evidence provides a sufficient explanation for the delay in overall context of this action, albeit barely.

[49] Sergio Capilongo’s affidavits outline various communications with Chamberlain and 203 Ont’s counsel about support for the lien to August 2017. Although there is a gap until mid-2018, Mr. Capilongo’s evidence supports that there were settlement negotiations between counsel in June 2018, following which another lien claimant (Prestressed Systems) obtained an order directing sale of the property in August 2018. This action was set down for trial to comply with s. 37 of the CLA and, in early 2019, Nova’s counsel sought confirmation on whether the sale was proceeding, but did not receive a response. Months later, in June 2019, a further inquiry was made on the status of the sale, apparently also without response.

[50] No further steps were taken until 504 Ont’s motion was brought. Mr. Capilongo explains Nova’s failure to pursue default judgment as follows:

19. Because we believed that the land was at that point in time very likely not worth the money (the property was sitting there as an unfinished concrete structure, decaying day by day, we decided simply to wait until the Prestressed Order would be acted upon or the land would be sold.
20. Not many months after that came the COVID-19 pandemic, reinforcing our belief that nothing was going to happen in the short term.

[51] Nova’s explanation for the delay between June 2019 and fall 2021, when the motions before me were brought, is a weak one. Put simply, Nova made a conscious decision to do nothing in the hopes that the property would be sold and they would then be able to recover. Nova ought to have known that being struck from the trial list was the inevitable result of doing nothing. Essentially, it allowed this action to be struck from the trial list.

[52] I am nevertheless mindful of the totality of the circumstances. 203 Ont had been involved in a shareholder dispute in 2017, had failed to defend, had been noted in default, and had judgment against it in at least Prestressed Systems’ proceeding. Based on Preet Dass’ evidence, the project still remains incomplete. 504 Ont urged me to find that the real reason Nova did nothing is because it went out of business. Nova’s counsel acknowledged that was one reason, although pointed to Mr. Capilongo’s cross-examination evidence that Nova went out of business following this project because Nova had no cash flow. Non-payment to Nova is alleged to have directly contributed (if not caused) its cessation of business.

[53] In all of these circumstances, I am prepared to accept that Nova viewed further steps as being financially futile, which is a relevant factor in assessing the reasonableness of failing to seek default judgment.

[54] I have also considered that the Rules will be governing this action moving forward. Rule 48.14(1) provides a plaintiff with five years to set an action down for trial and two years from an action being struck from the trial list to restore it. Without accounting for the deadline extensions by O Reg 73/20, it had been less than 5 years since the action was commenced when these motions were argued and Nova’s cross-motion to restore the action to the trial list was served within two years of the action being struck from it.

[55] In cases such as H.B. Fuller Company v. Rogers (Rogers Law Office), 2015 ONCA 173, the Court of Appeal has pointed out the tension between the court’s strong preference for civil actions to be decided on their merits and the importance of civil actions being resolved in a timely and efficient manner in order to maintain public confidence in the administration of justice: H.B. Fuller Company at para. 25. That tension is strong in this case.

[56] Here, both plaintiff and defendant have defaulted on their procedural obligations. Although 504 Ont argues that Nova’s default should result in dismissal, this is not a situation where the defendant has no blame in the overall delay. Sergio Capilongo’s first affidavit notes a letter dated June 27, 2018 from Nova’s counsel to 203 Ont’s then-counsel that is said to refer to the noting in default. Mr. Capilongo suggests that 203 Ont thereby knew about its noting in default in June 2018. The problem with that evidence is that Nova did not note 203 Ont in default until November 2018. Regardless, it is undisputed evidence.

[57] I accept that, by entering into settlement negotiations in mid-2018, 203 Ont knew this action was outstanding. Combined with the failure to defend, that could also support an inference that 203 Ont felt Nova was owed something. As already noted, the email from Lilly Hoshowsky of Chamberlain appended to Preet Dass’ first affidavit acknowledges that Chamberlain’s records indicate an amount owing of $126,731.95. While 504 Ont has not admitted that the amount is owing, it also has not denied that any amount is owing.

[58] Although Nova’s explanation for delay is far from ideal, the totality of the circumstances support preferring a hearing on the merits over technical resolution, even considering the summary nature of lien proceedings.

[59] In addition to explaining delay, Nova must also satisfy me that 504 Ont will not suffer any non-compensable prejudice if the action is allowed to proceed. Prejudice is a factual question. The Court of Appeal has set out that mere passage of time cannot be an insurmountable hurdle in determining prejudice, else timelines would become inflexible and explanations futile. A defendant’s conduct in light of its assertions of prejudice must also be considered, and it is an error not to do so if dismissal for delay is being considered: Carioca’s Import & Export Inc., supra at paras. 49-50.

[60] Neither party has tendered direct evidence on prejudice, other than general statements. Sergio Capilongo states that he believes no prejudice has resulted to the defendant from the action being struck off the trial list. Preet Dass makes only a general statement that the action remaining pending is prejudicial “as it continues to affect financing and the re-commencement of construction of the Project on the site.” Ms. Dass provides no substantiation for financial impacts from the action or impact on re-commencing construction. The statement is, in any event, undercut by 203 Ont’s complacency in failing to take any steps to defend the action. If the action continuing was genuinely prejudicial, 203 Ont ought to have taken steps much sooner.

[61] I am satisfied that there is no non-compensable prejudice to 504 Ont if the action continues. Since I have also accepted the explanation for delay, the action will be restored to the trial list.

Should 203 Ont’s noting in default be set aside?

[62] Where a defendant has been noted in default in a lien action, obtaining a set aside order is typically viewed as being more onerous than in an action governed by the Rules. Under s. 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”.

[63] Case law before me on the “test” for setting aside a noting in default under s. 54(3) is not entirely consistent. 504 Ont relies on M.J. Dixon Construction Limited v. Hakim Optical Laboratory Limited. In that case, at para. 27, Master Polika held that the sole test needed to be met by a party moving to set aside a noting of default in a lien action is to satisfy the court there is evidence to support a defence. However, I raised with counsel the decision of Volvo Rents v. ABCO One Corporation, 2014 ONSC 1045, in which, at paras. 5-7, Master Albert held that three requirements must be shown: (i) the defendant has a good reason for failing to deliver a defence in time; (ii) the defendant had a continuous intention to defend and acted promptly to set aside the default upon learning of it; and (iii) the defendant has a meritorious defence. Other case law cited by Nova was decided under the Rules.

[64] In a non-lien action, Rule 19.03(1) provides that a noting of default may be set aside by the court on such terms as are just. Since this motion was argued, the Court of Appeal has released its decision in Franchetti v. Huggins, 2022 ONCA 111, in which it reviewed applicable considerations on a motion to set aside a noting in default under the Rules. Since the principles discussed by the Court of Appeal are substantially outlined in case law placed or argued before me, I did not invite further submissions arising from the decision.

[65] The Court of Appeal has confirmed that whether to set aside a noting of default is a discretionary decision. Although there are no static factors, relevant factors to be considered include the parties’ behaviour; the length of the defendant’s delay; the reasons for the delay; the complexity and value of the claim; whether setting aside the noting of default would prejudice a party relying on it; the balance of prejudice as between the parties; and whether the defendant has an arguable defence on the merits (although courts will rarely require a defendant who has been noted in default to show an arguable defence on the merits if the motion is brought early in the litigation process): Franchetti v. Huggins, supra at paras. 5-10.

[66] I have ordered that this lien action continue as an ordinary action governed by the Rules. However, that was not the case when this motion was brought and argued. Since 504 Ont’s motion was brought in a lien action governed by the CLA, I have applied s. 54(3).

[67] In my view, applying either “test” as articulated in M.J. Dixon or Volvo Rents suggests an overly static approach. Section 54(3) does state that a prerequisite to permitting a defendant to file a defence is the court being satisfied that there is evidence to support a defence. Although s. 54(3) does not use similar language to that found in Rule 19.03(1) that the noting in default be set aside “on such terms as is just”, it also does not state that factors beyond a meritorious defence cannot be considered.

[68] As already noted, the CLA requires that procedure in a lien action be as far as possible of a summary character having regard to the amount and nature of the liens in question: CLA, s. 67(1). In my view, it is contrary to that directive to only require evidence of a meritorious defence, without room to assess other factors such as intention to defend, reasons for failing to defend, delay in seeking to defend, and prejudice, or to limit the list of relevant factors to be considered. Fixing a static “test” for setting aside a noting in default under s. 54(3) would amount to a procedural requirement that has no regard to the summary nature of lien proceedings or the amount or nature of the lien in question.

[69] I see no reasoned basis why the same contextual approach recently outlined by the Court of Appeal in Franchetti should not equally apply in lien actions, albeit with one caveat. Since there is an express statutory requirement that there be “evidence to support a defence”, that cannot be overlooked even though the lack of such evidence may not matter in setting aside a noting in default in a non-lien action governed by the Rules.

[70] On the facts of this case, though, it is a distinction without difference. Given the length of defendant’s delay, my approach would be the same if set aside was properly assessed under Rule 19.03(1) instead of s. 54(3) of the CLA.

[71] Dealing first with the requirement that there be “evidence” of a meritorious defence, I agree with 504 Ont that it has put forward evidence supporting one. In particular, there is evidence supporting a number of defences, including that Nova’s accounting is discrepant from Chamberlain’s accounting as construction manager, that extras claimed by Nova were not authorized, approved or performed, and that 203 Ont may be entitled to deductions for payments made directly to Nova’s subcontractors (those payments being noted in the email appended to Preet Dass’ first affidavit).

[72] What is absent from the record is any explanation for 203 Ont’s failure to defend this action or any evidence supporting a continued intention to defend. There is some evidence of repeated requests for backup documentation between counsel in 2016-2017, which Ms. Dass’ evidence states was never provided, but that is the only explanation for any delay.

[73] Evidence from 504 Ont in support of setting aside the noting in default is scant. However, I cannot ignore Nova’s complacency in holding this action in abeyance. By failing to take any active steps to seek judgment, Nova has left the door open for 203 Ont (now 504 Ont) to step in and defend. 504 Ont has demonstrated a meritorious defence. The prejudice to 504 Ont from denying it the opportunity to defend itself is greater than the prejudice to Nova from having to prove its claim. Nova has not provided a breakdown of its round-figure claim of $250,000, other than confirming that its claim as of May 2016 was $168,870.39, plus interest and costs. Nova must thereby prove its claim in any event. The record before me supports that 203 Ont has been asking Nova to do just that since before litigation commenced.

[74] I am setting aside the noting in default, but on terms that 504 Ont deliver its statement of defence within 15 days.

Other relief

[75] Since I have found that Nova failed to preserve its lien in time, I need not address 504 Ont’s arguments on reduction in the quantum of Nova’s lien. Also, since this action will now continue as an action governed by the Rules, and not the CLA, I need not address leave for 504 Ont’s proposed security for costs motion.

Disposition

[76] This case was a close call on many fronts. To a great extent, it seems that neither party has taken this litigation seriously. Nova took only the bare minimum steps to preserve and pursue its claim in over 4 years, while 203 Ont did essentially nothing to defend itself during the same period. Both sides are receiving the benefit of the court’s indulgence: Nova in the action being restored to the trial list and 504 Ont from being given the opportunity to defend. Although no longer governed by the CLA, the parties should take steps to ensure this action moves swiftly to a final disposition.

[77] I accordingly order as follows:

(a) This action shall continue with 504 Ont as defendant and the title of the proceedings in all documents issued, served, or filed after the date of this order shall replace 203 Ont with 504 Ont as the named defendant. (b) Nova’s lien is hereby declared expired. (c) The Accountant of the Superior Court of Justice shall pay out to 504 Ont the funds previously posted by 504 Ont pursuant to my prior order to vacate Nova’s lien. (d) This action is hereby dismissed insofar as enforcing Nova’s lien, and the balance of the action shall continue as an ordinary action governed by the Rules and shall no longer be governed by the CLA. (e) This action is hereby restored to the trial list. (f) The noting in default of 203 Ont is hereby set aside. (g) 504 Ont shall deliver a statement of defence within fifteen (15) days of this order, subject to any agreement of the parties to extend that deadline. (h) This order is effective without further formality.

[78] A formal order approved as to form and content may be submitted directly to my Assistant Trial Coordinator by email for my review and signature.

Costs

[79] Costs outlines have been exchanged and submitted. I encourage the parties to agree on costs of this motion. If they cannot agree, then then written costs submissions shall be exchanged. 504 Ont shall serve any costs submissions by May 6, 2022. Nova shall serve its responding costs submissions by May 20, 2022. There shall be no reply submissions absent leave of the court. Costs submissions shall not exceed four (4) pages, excluding any offers to settle and case law, and shall be submitted by email directly to my Assistant Trial Coordinator, with proof of service.

[80] Unless costs submissions are exchanged and filed in accordance with the above, the parties shall be deemed to have agreed on costs.

ASSOCIATE JUSTICE TODD ROBINSON DATE: April 19, 2022