CITATION: 1159337 Ontario Ltd. v. Saplys, 2021 ONSC 7909
DIVISIONAL COURT FILE NO.: 235/2021
DATE: 20211208
ONTARIO
SUPERIOR COURT OF JUSTICE
DIVISIONAL COURT
Morawetz C.J.S.C.J., R. Gordon and Kristjanson, JJ
In the Matter of the Construction Act, R.S.O. 1990, c. C.30, as amended
BETWEEN:
984499 ONTARIO INC. operating as EKARTE GENERAL CONTRACTING
Plaintiff
– and –
1159337 ONTARIO LTD. and GARY ULIAS & ASSOCIATES INC. carrying on business as GUPM CONSTRUCTION MANAGERS
Defendants (1159337 Ontario Ltd., Appellant)
– and –
M.R. WRIGHT AND ASSOCIATES CO. LTD. and LINAS SAPLYS carrying on business as both AWS ARCHITECTS and ARCHITECTURE AND PLANNING INITIATIVES aka API, SOLE PROPRIETORSHIPS
Third Parties (Linas Saplys carrying on business as Architecture and Planning Initiatives, Respondent)
Andrea Lee and Katherine Thornton, Counsel for the Appellant 1159337 Ontario Ltd.
Alison Kuchinsky and Tamara Watson, Counsel for the Respondent Linas Saplys carrying on business as Architecture and Planning Initiatives, Sole Proprietorship
HEARD: November 29, 2021 in Toronto by videoconference
Kristjanson J.
Reasons for Judgment
[1] The appellant 1159337 Ontario Ltd. ("1159") appeals from the order of Rasaiah J. which set aside the noting in default of the respondent Linas Saplys carrying on business as his sole proprietorship, Architecture and Planning Initiatives (“API”). The motion judge also permanently stayed a third party claim against API brought by 1159 under the Construction Act, R.S.O. 1990, c. C.30 (“CLA”): Ekarte v. GUPM, 2021 ONSC 2203.
[2] 1159 argues that the motion judge erred by declining to order that the third party claim, which was commenced without leave in the construction lien proceeding, be continued in the ordinary civil stream. I would not give effect to this argument.
[3] The relevant background of this appeal dates to 2012, when the general contractor, Ekarte General Contracting (“Ekarte”), commenced a construction lien action against 1159 as owner of the lands and building. 1159 counterclaimed against Ekarte. In May 2014, 1159 issued a third party claim in the construction lien action against API.
[4] Contrary to the requirements of section 56 of the CLA, 1159 did not seek leave to issue the third party claim, and the claim was not limited to contribution and indemnity in the construction lien action. At the time, section 56 provided:
The following rules govern third party claims:
Subject to paragraph 2, a person against whom a claim is made in a statement of claim, crossclaim, counterclaim or third party claim may join a person who is not a party to the action as a third party for the purpose of claiming contribution or indemnity from the third party in respect of that claim.
A person may only be joined as a third party with leave of the court upon a motion made with notice to the owner and all persons having subsisting preserved or perfected liens at the time of the motion, but such leave shall not be given unless the court is satisfied that the trial of the third party claim will not,
i. unduly prejudice the ability of the third party or of any lien claimant or defendant to prosecute a claim or conduct a defence, or
ii. unduly delay or complicate the resolution of the lien action.
- The court may give such directions as it considers appropriate in the circumstances in respect of the conduct of third party claims.
[5] 1159 noted API in default on July 2014. Between 2014 and 2019 API took no steps to seek default judgment against API. 1159 did not contact API until April 2019. The construction lien matter proceeded between 2014 and 2019, with 1159 participating.
The Motion Judge’s Decision
[6] API sought an order setting aside the noting in default pursuant to subsection 54(3) of the CLA, and an order staying the third party claim as against API. 1159 brought a cross motion seeking leave to issue the third party claim nunc pro tunc if the default was set aside, and to continue the third party claim as an ordinary civil proceeding rather than a CLA third party claim.
[7] The motion judge set aside the noting of default and denied 1159’s request for leave to issue the third party claim nunc pro tunc. The motion judge also stayed the third party claim as against API.
Standard of Review
[8] Appellate standards of review apply as set out in Housen v. Nikolaisen, 2002 SCC 33, [2002] 2 S.C.R. 235. On questions of law, the standard is correctness. On questions of fact, and questions of mixed fact and law where there is no extricable legal issue, the standard is palpable and overriding error. An appeal does not involve a retrial of the case. As set out by the Supreme Court of Canada in Modern Cleaning Concept Inc. v. Comité paritaire de l’entretien d’édifices publics de la région de Québec, 2019 SCC 28, [2019] 2 S.C.R. 406, at para. 69, the “appellate court’s role is not to reconsider the evidence globally and reach its own conclusions but simply to ensure that the trial judge’s conclusions — including the trial judge’s legal inferences — are supported by the evidence.”
Issues and Analysis
[9] 1159 does not appeal from the decision setting aside the noting in default, nor the denial of leave to convert the third party claim nunc pro tunc. Rather, the appellant argues that the motion judge erred in declining to order that the third party claim continue as a separate action in the ordinary civil stream, and staying the proceeding.
[10] The third party claim was issued in 2014. Section 56 of the CLA provided that a party could be joined as a third party to a lien action only with leave of the court, and such third party claim was limited to a claim for contribution and indemnity. As noted above, 1159 did not seek or obtain leave, and the claim was not limited to contribution and indemnity. The motion judge found as a matter of fact that the latest possible date for expiry of the limitation period for commencing the third party claim was July 9, 2015. The motion was argued in November 2020. Thus, 1159 sought to regularize a proceeding by converting the third party claim in the construction lien proceeding to a regular civil action more than five years after the expiry of the limitation period.
[11] In denying 1159’s motion for leave nunc pro tunc and staying the third party claim, the motion judge correctly articulated the test in s. 56(1) of the CLA, which required the third party claim to (1) not unduly prejudice the ability of the third party, lien claimant, or defendant to prosecute a claim or conduct a defence, and (2) not unduly delay or complicate resolution of the lien action. She found that there would be prejudice to the main parties in the construction lien action because pleadings and discoveries would need to be reopened. She found as a fact that Saplys/API would be prejudiced because the limitation period expired more than five years ago, and Saplys/API had lost documents and lost contact with witnesses. Finally, she would not exercise her discretion to grant leave so as not to undermine the limitation period. In all of this I find no error of law, no palpable and overriding error of fact or mixed fact and law, and no error of principle in the exercise of discretion. These findings all inform the motion judge’s decision not to convert.
[12] Where leave is required to commence a proceeding, leave must be sought prior to the expiry of a limitation period. The Supreme Court of Canada specifically addressed this in Canadian Imperial Bank of Commerce v. Green, 2015 SCC 60, [2015] 3 S.C.R. 801. That case considered three appeals where class action plaintiffs claimed damages for negligent misrepresentation and sought to claim damages for the statutory cause of action set out in s. 138.3 of the Securities Act, R.S.O. 1990, c. S.5. None of the plaintiffs obtained leave to commence the statutory action, required under the Securities Act, before the expiry of the limitation period.
[13] Côté J. held at paras. 91-93 of Green:
[91] Returning to the issue in the cases at bar, there are two schools of thought in the jurisprudence on whether a failure to obtain leave within a specified limitation period results in the nullity of the action or is merely a procedural irregularity. According to one view, a failure to do so results in the nullity of the action, which cannot be remedied by a nunc pro tunc order, and is therefore an “insurmountable obstacle”: Holst v. Grenier (1987), 1987 4512 (SK QB), 65 Sask. R. 257 (Q.B.), at para. 10. According to the second view, such a failure is merely a procedural irregularity that can be corrected by a nunc pro tunc order: see, e.g., CIBC Mortgage Corp. v. Manson (1984), 1984 2587 (SK CA), 32 Sask. R. 303 (C.A.), at paras. 8-11 and 33; McKenna, at para. 22.
[92] In my opinion, van Rensburg J. correctly stated the law on this point in IMAX. She noted that the courts have been willing to grant nunc pro tunc orders where leave is sought within the limitation period but not obtained until after the period expires (as in Montego Forest Products). She also noted that, in the cases suggesting that an action commenced without leave was a nullity, the applicable limitation periods had expired before the application for leave was brought. A nunc pro tunc order in such cases would be of no use to the plaintiff, as it would be retroactive to a date after the expiry of the limitation period.
[93] Thus, subject to the equitable factors mentioned above, an order granting leave to proceed with an action can theoretically be made nunc pro tunc where leave is sought prior to the expiry of the limitation period. One very important caveat, identified by Strathy J., is that a court should not exercise its inherent jurisdiction where this would undermine the purpose of the limitation period or the legislation at issue.
[14] The Court of Appeal has held that the court has no authority to grant an order nunc pro tunc validating and regularizing proceedings pursuant to subsection 187(9) of the Bankruptcy and Insolvency Act, R.S.C., 1985, c. B-3 after the expiration of the limitation period if the party did not seek the order before the expiry of the limitation period: Thistle v Schumilas, 2020 ONCA 88, 442 D.L.R. (4th) 339, at paras. 25 and 31.
[15] None of the cases relied on by the appellants deal with requests to regularize improper pleadings after the expiry of the limitation. 1159 relies on Bentivoglio v. Le Groupe Brigil Construction, 2016 ONSC 1237, 57 C.L.R. (4th) 82, aff’d 2017 ONCA 413, 64 C.L.R. (4th) 177. While the third party claim under the CLA in that case was similarly commenced without leave for more than just contribution and indemnity, the effect of the order in that case was that the third party claim had been converted to the regular civil track prior to the expiry of the limitation period. The motion judge found as a fact that the fourth party action was commenced within the limitation period even though leave was not sought until after the limitation period expired. The Court of Appeal held that since the third party claim had moved to the ordinary track at the time the fourth party proceedings were commenced (and before the limitation period had expired), leave was not required to commence the fourth party claim. That case is not authority for the proposition that after the expiry of a limitation period the court can convert a CLA proceeding brought without leave to the ordinary civil stream.
[16] Here, the appellant accepts the motion judge’s ruling that she did not have authority to make an order nunc pro tunc, but the motion judge erred in not ordering the claim converted five years after the limitation period expired. I do not agree. The statutory requirement for leave to convert a third party claim commenced under the CLA means that the leave motion must be brought before the expiry of the limitation period.
[17] The appellants argued that unlike the Securities Act leave requirement, the CLA leave requirement does not serve a screening function. However, it is a statutory requirement. As held in Hobbs Miller Maat Inc. v. UPI Inc., 80 C.L.R. (3d) 126, at paras. 32-33, a case relied on by the motion judge:
[32] Section 56 of the Construction Lien Act is a complete code. It is more restrictive than the provision in Rule 29.01 of the Rules of Civil Procedure, which establishes that a third party claim may be brought against a person who is or may be liable to the defendant for an independent claim for damages or other relief arising out of a transaction or occurrence involved in the main action or a related transaction or occurrence.
[33] Under section 56 of the Act, a third party claim is permissible only to claim contribution or indemnity in respect of the claim in the statement of claim, or, in this case, the counterclaim -Domus Development Corp. v. York Condominium Corp. No. 82 (2001), 8 C.L.R. (3d) 228 (Ont. Sup. Ct.). Leave of the court is required in order to join a person as a third party to a construction lien claim.
[18] Leave to convert a construction lien third party claim to an action was sought for the first time after the expiry of the limitation period. I agree with the motion judge that she did not have the authority to convert the claim.
[19] In any event, if the motion judge had discretion, she did not err in declining to make the order sought. A discretionary decision attracts deference on appeal. It should not be interfered with absent an error in law or principle, a palpable and overriding error of fact, or unless the decision is so clearly wrong as to amount to an injustice, none of which apply here.
[20] The motion judge considered the relevant factors. In addition to the presumed prejudice associated with the expiry of the limitation period, the motion judge found undue prejudice to the ability of API and Saplys to conduct a defence. The motion judge found as a fact that documents and witness contacts had been lost. She found as a fact that the potential involvement in the claim did not come to Saplys’s intention until April 2019, almost 7 years after the project was completed and almost 4 years after the expiry of the limitation period. The undue prejudice to API and Saplys was caused solely by 1159’s failure to effect a valid service and its failure to make API and Saplys aware of the third party claim through other means prior to the expiry of the limitation period. The motion judge considered the relative prejudice to the parties including prejudice alleged by 1159. This was a reasonable exercise of judicial discretion. There is no basis to interfere.
[21] While 1159 does not appeal the setting aside of the noting in default, it attempts to label some of the factual findings as the product of legal error. We do not agree. Determining whether valid service has occurred requires the motion judge to apply the test for service on a sole proprietorship in subrule 16.02(1)(n) of the Rules of Civil Procedure to the underlying facts. It is an issue of mixed fact and law, subject to a standard of palpable and overriding error. In thorough reasons, the motion judge found that the steps taken by 1159 to serve Saplys and API were ineffective, and she also found that the third party claim did not come to the attention of Saplys and API until 2019.
[22] The motion judge articulated the correct legal test for setting aside a noting in default under the CLA. There was no error with respect to the legal test, and no palpable and overriding error in the application of that test to the facts. All the facts found by the motion judge were open to her on the evidence. There is no reason to interfere with the motion judge’s finding that service was not effective, and that the noting in default should be set aside.
Order
[23] I would dismiss the appeal. Costs are payable by the appellants to the respondents in the amount of $27,500 inclusive, which we find to be a reasonable and proportionate amount in the circumstances.
Kristjanson J.
I agree _______________________________
Morawetz C.J.S.C.J.
I agree _______________________________
R. Gordon J.
Released: December 8, 2021
CITATION: 984499 Ontario Inc. v. 1159337 Ontario Ltd., 2021 ONSC 7909
DIVISIONAL COURT FILE NO.: 235/2021
DATE: 20211208
ONTARIO
SUPERIOR COURT OF JUSTICE
DIVISIONAL COURT
Morawetz C.J., R. Gordon and Kristjanson, JJ
In the Matter of the Construction Act, R.S.O. 1990, c. C.30, as amended
BETWEEN:
984499 ONTARIO INC. operating as EKARTE GENERAL CONTRACTING
Plaintiff
– and –
1159337 ONTARIO LTD. and GARY ULIAS & ASSOCIATES INC. carrying on business as GUPM CONSTRUCTION MANAGERS
Defendants (Appellant)
– and –
M.R. WRIGHT AND ASSOCIATES CO. LTD. and LINAS SAPLYS carrying on business as both AWS ARCHITECTS and ARCHITECTURE AND PLANNING INITIATIVES aka API, SOLE PROPRIETORSHIPS
Third Parties (Respondent)
REASONS FOR JUDGMENT
Released: December 8, 2021