CITATION: 1995636 Ontario Inc. C.O.B. 2B Developments v. 5010729 Ontario Inc. C.O.B. as Astute Capital Corp., 2024 ONSC 7089
DIVISIONAL COURT FILE NO.: DC-24-2893
DATE: 2024/12/17
ONTARIO SUPERIOR COURT OF JUSTICE DIVISIONAL COURT
IN THE MATTER OF THE CONSTRUCTION ACT, R.S.O. 1990, c. C. 30
BETWEEN:
1995636 ONTARIO INC. C.O.B. 2B DEVELOPMENTS
Appellant / Moving Party
– and –
5010729 ONTARIO INC. C.O.B. as ASTUTE CAPITAL CORP.
Respondent / Responding Party
Marco Falco and Jonathan Goode, for the Appellant / Moving Party
Martin Black, for the Respondent / Responding Party
HEARD: December 9, 2024
REASONS FOR DECISION
DOYLE, J.
Overview
[1] The Moving Party, 1995636 Ontario Inc. C.O.B. 2B Developments (“2B”) moves for an order staying the Final Order of Justice McLean (Final Order) who dismissed 2B’s action, discharged 2B’s lien and awarded damages to 5010729 Ontario Inc. C.O.B. as Astute Capital Group (“Astute”) the amount of $325,375 plus costs in the amount of $112,663.40.
[2] 2B’s appeal of the Final Order automatically stays the damages of the Final Order but 2B must request an order to stay the discharge of the lien pursuant to rule 63.02 of the Rules of Civil Procedure, R.R.O. 1990, Reg. 194, deletion of the lien from title and vacating 2B’s certificate of action registered against the property.
[3] For the reasons set out below, the court grants the motion.
Discussion
Introduction
[4] As stated in Carvalho Estate v. Verma, 2024 ONCA 222, at para. 4:
The overarching consideration is whether a stay is in the interests of justice: Sase Aggregate Ltd. v. Langdon, 2023 ONCA 644, at para. 10. This is determined by a consideration of the factors in RJR-MacDonald Inc v. Canada (Attorney General), 1994 117 (SCC), [1994] 1 S.C.R. 311, at pp. 347-49:
(a) whether the appeal raises a serious question to be tried;
(b) whether the moving party would suffer irreparable harm if the stay were refused; and
(c) the balance of convenience, namely which of the parties would suffer greater harm from the granting or refusal of the stay.
[5] The Court of Appeal further stated that: “The relative strengths of these factors need not be equal. One factor may favour a stay more strongly than another.”
[6] All three factors must be satisfied for a stay to be granted: R. v. Canadian Broadcasting Corp., 2018 SCC 5, [2018] 1 S.C.R. 196, at para. 12.
Does the appeal raise a serious issue to be tried?
[7] Although not prepared to do so in oral argument, in their factum at para. 4, Astute concedes that the existence of a serious issue to be tried has been satisfied.
[8] At this stage of the appeal, this court must be satisfied that the appeal is neither frivolous, that is, devoid of merit or has little prospect of success, or it is vexatious, meant to annoy or embarrass. See Carvalho at para. 7. It is a low threshold.
[9] The standard of review at the appeal is not a re-hearing of the merits but whether there has been an error of law or a palpable and overriding error of fact.
[10] Before turning to the grounds of appeal, the court will provide a brief background.
[11] The parties entered into a contract whereby 2B would provide project management and site supervision to a multi-unit residential development in the Town of Smith Falls (“the project”). Astute was the owner of the premises for the project.
[12] 2B was responsible to apply for the planning approval for 13 units for the project. In November 2021, the municipality did not approve the 13 units. There was some delay and ultimately, Astute unilaterally terminated the contract with 2B.
[13] There was no prior warning or opportunity to correct any issues such as problems, defects or deficiencies. Astute alleged, among other things, that 2B did not fulfil their contract and obtain approval for 13 units and that there was a delay.
[14] 2B registered a lien against the premises on March 3, 2022, for the amount of $452,382.93 and commenced an action on April 4, 2022 for breach of contract. Astute counterclaimed on September 23, 2022.
[15] The motion before Justice Johnson heard on April 5, 2023, resulted in an order reducing the amount of the lien to $195,204.41.
[16] Astute vacated the lien by a payment of $244,005.51 filed with the Accountant of the Superior Court of Ontario (amount of the lien plus 25% for security for costs).
[17] On March 21, 2024, a few weeks before the trial was to commence, Astute served an amended statement of defence and counterclaim which requested new relief of unjust enrichment, fraudulent misrepresentation, deceit and breach of fiduciary duty.
[18] There was no prior notice nor leave of the court before the service of this pleading.
[19] Counsel for 2B placed his consent on the record to this amendment and 2B’s amended statement of claim, amended reply and defence to counterclaim was also filed on consent.
[20] The trial of the action took place between April 15, 2024 to June 13, 2024 where evidence in chief was proffered by way of affidavits and cross-examination on the affidavits took place.
[21] On May 16, 2024, 2B retained new counsel, Jonathan Goode, who brought a motion to strike the amended pleadings as they were exchanged without leave of the court pursuant to section 13 of the O. Reg 302/18 of the Construction Act, R.S.O 1990, c. C. 30, (“the Act”). He submitted that parties may not consent to any waiver of the requirements set out in the Act, or alternatively, an adjournment of the trial and permission to attend limited re-examination for discovery or a mistrial.
[22] Justice McLean dismissed the motion on June 13, 2024 and granted leave to the parties to deliver amended pleadings nunc pro tunc. In the trial decision, the court dismissed 2B’s claim and awarded damages to Astute with costs.
[23] In his decision dated August 21, 2024, Justice McLean found, among other things, that:
The parties’ planning agreement or the construction contract provided for the construction of 13 units at the project site; and
2B, as a developer or development company committed fraud/fraudulent misrepresentation.
Conclusion
[24] This court finds that 2B has satisfied this step as there is some merit in the grounds of appeal in that:
The trial judge failed to provide procedural fairness in not granting an adjournment and allowing a brief re-examination on the allegation of fraud in the amended pleadings;
He failed to consider that Astute improperly terminated the construction contract without reasonable notice or reasonable notice for correction;
He did not follow s. 13 of the regulation of the Act which requires that the court when dealing with interlocutory steps (including amendments of pleadings even if on consent as here) determine if “the steps are necessary or would expedite the resolution of the issues in dispute”; see PBW High Voltage Ltd. v. Metrolinx, 2021 ONSC 6715.
He did not provide an analysis under s. 13 as stated Krypton Steel Inc. v. Maystar General Contractors Inc., 2018 ONSC 3836, where the court held that parties may not consent to any wavier of the requirements set out in the Act, including the requirement to obtain leave to amend a pleading; and
Astute’s amendments, which raised novel causes of action, were made after the delivery of the affidavits of evidence-in-chief to be used at the trial. Some of the causes could be statute barred and there was a denial of procedural fairness in not permitting an adjournment and permitting re-examination.
[25] 2B also plead that the trial judge erred in law in making a finding of fraud against 2B when the court acknowledged there was no intention to deceive and there was no evidence of intent.
[26] I find that 2B has met the low threshold, that the appeal has merit, and it is neither frivolous nor vexatious.
Will 2B suffer irreparable harm if the stay is not granted?
[27] 2B argues that it would suffer irreparable harm if the stay were not granted as the discharge of a lien is irrevocable and even if successful at the appeal, the discharge cannot be reinstated. See section 48 of the Act.
[28] Astute submits that the unavailability of the lien does not mean that they will not be able to collect on the underlying claim.
[29] Astute argues that there may be harm, but it is not irreparable as 2B can still collect damages against Astute. There is no evidence that Astute cannot pay the damages. There was no cross examination on the affidavits sworn by staff in the lawyer’s office. See Carvalho Estate v. Verma, 2024 ONCA 222, at para. 18 where the court of appeal stated that “…irreparable harm in the context of a stay motion is harm that flows from the denial of the stay: Belton v. Spencer 2020 ONCA 623 at para. 51.”
[30] 2B has the burden to show that they will suffer irreparable harm, which will not be inferred. See Morguard Residential v. Mandel, 2017 ONCA 177. It must not be simply the potential for irreparable harm.
[31] At this point, it is important to review the characteristics of a lien.
[32] First, a lien is a statutory right under the Act. (Sections 14 and 15).
[33] Second, the parties agree that the discharge of a lien is irrevocable, and once gone, cannot in any way be reversed by the court, even on appeal. See JDM Developments Inc. v. J. Stollar Construction Ltd., [2006] O.J. No. 2620 (Sup. Ct.), per Justice Valin at para. 9.
[34] The lien stands as security for the amount owed as proven by the lien claimant if the defendant is unable to satisfy a monetary judgment against it.
[35] Here, the evidence indicates:
Astute is still the owner of the property;
The property is for sale at approximately $500,000;
The land has not sold and there have been no offers; and
A second mortgage was registered in March 2024 for $600,000 with collateral on other property.
[36] There is no evidence of:
How much has been advanced on the second mortgage and what is owing;
Details of the collateral and what is owing;
Whether Astute has any other assets; and
Astute’s financial situation and whether they are solvent.
Conclusion
[37] Although 2B can proceed against Astute on a judgment, a refusal to stay the discharge of the lien will cause irreparable harm to the moving party that cannot be compensated with costs.
[38] A request in a Notice of Appeal requesting a reinstatement of a lien is moot. As stated in JDM at para. 11, “The registered discharges of the liens and certificates of action are irrevocable. A discharged lien cannot be revived in any manner.”
[39] H.I.R.A. Limited v. Middlesex Standard Condominium Corporation No. 823, 2018 ONSC 3661, is instructive. Justice Morawetz (as he was then) had to determine if the order appealed from was interlocutory (thereby requiring leave in the Divisional Court) or final. He first determined that an order that reduces a portion of the claim from being secured to unsecured is a substantive issue and deprives a lien claimant of certain legal rights and hence the order is final. He then determined the stay motion and found that the lien claimant’s loss of security would result in a loss of security and hence would be considered irreparable.
[40] At para. 19 in Warren Woods Land Corporation v. 1636891 Ontario Inc., 2012 ONCA 12, at para. 19, the court stated that “Irreparable harm is harm that cannot be quantified in monetary terms or which cannot be cured, usually because one party cannot collect damages from the other”. However, the lien holds specialized relief and is significant right under the Act and if a stay is not granted, it will be lost forever.
[41] In my view 2B will suffer irreparable harm as they will lose a statutory right.
Does the balance of convenience favour the granting of the stay?
[42] At this final stage, the court must determine which of the parties would suffer greater harm from the granting or refusal of the stay.
[43] Astute argues that as stated in Warren Woods at para. 22, if the stay is granted then Astute will not be able to refinance or sell the property pending the outcome the appeal.
[44] The lien was registered in March 2022 (almost three years ago). The lien registered was an exaggerated lien.
[45] Astute argues that a lien is a statutory right but not an absolute one as it is a privilege under the law which can be removed under the appropriate circumstances. Astute submits that 2B does not come to court with clean hands given the deception and the extensive findings of lack of credibility made by the trial Judge. See Urbacon Building Groups Corp. v. Guelph (City), 2014 ONSC 3840. There have been findings of bad faith on the part of 2B by the trial judge, so it does not come to court with “clean hands”.
[46] In Kamali Design Home Inc. v. Bondarenko, 2013 ONSC 5506, Justice McEwen quotes from Louch v. Louch, 2011 ONSC 2998, where Justice Power at para. 29 states that: “The right to register a lien and a certificate of action is a privilege under our law. However, it is a privilege that can be removed in appropriate circumstances.”
[47] Justice Power referred to Master Albert’s decision in Federated Contractors Inc. v. Ann-Maura Developments Inc., 2010 CarswellOnt 370, 2010 ONSC 346. In Louch, the court stated at para. 40 that: “The court will not be an accomplice to an abuse of the Construction Lien Act. The Act is designed to provide an extraordinary remedy to legitimate suppliers of materials and services to construction projects.” In the Federated case, the court found that the lien claimant did not come to court with clean hands and hence forfeited any entitlement to benefit from the act and its extraordinary remedy.
[48] Justice Power found that the lien claim was false and was an attempt to frustrate the mortgagees in their attempts to pursue the mortgagee remedies.
[49] In Morguard Residential v. Mandel, 2017 ONCA 177, at para. 18 the court stated that a stay is a discretionary remedy and hence the court must consider the “clean hands” doctrine. At para. 29, the court found that the Landlord and Tenant Board’s finding of bad faith on the part of the moving parties militated against the exercise of the court’s discretion to stay the order.
Conclusion
[50] The court must take a holistic approach.
[51] Justice McLean made numerous negative findings against Ms. Blair, the principal of 2B, in that she had provided false testimony, falsely exaggerated the lien and that it was done in bad faith.
[52] One of the grounds of appeal is that of fraud against the principal of 2B based on propensity reasoning by relying on character evidence of various individuals to conclude that 2B had committed fraud or fraudulent misrepresentation.
[53] In addition, although the trial judge made strong credibility findings against the 2B, these findings are live issues in the appeal, i.e., propensity reasoning in arriving at credibility findings and error in law in arriving at the finding of fraud regarding the mental element.
[54] Certainly, these findings against 2B are serious but the grounds of appeal are not frivolous. Hence these findings do not militate against the exercise of my discretion in staying the appeal.
[55] Regarding the rights of Astute as the owner of the property, they have been able to place a second mortgage. Astute states that they cannot sell because there is a lien on the property but there is no evidence that this property which is a hole in the ground is not selling because of the lien on the property.
[56] The costs and resources incurred by Astute do not factor into this stay motion.
[57] I have concluded that the balance of convenience favours 2B.
Conclusion and costs
[58] For these reasons, the motion for a stay is granted.
[59] 2B is presumptively entitled to costs.
[60] I have reviewed the costs outlines filed on Case Centre.
[61] I note that 2B’s costs on a partial indemnity basis are approximately $29,636 with hourly rates for lead counsel ranging from $300 to $500 per hour. This appears very high as this is not a complicated motion to stay the discharge of a lien. It is not clear why two lawyers had to play an active role and both were required to attend the motion.
[62] Astute’s costs on a partial indemnity basis of $9,799 are based on counsel’s hourly rate of $560 with an increase to $600 per hour commencing January 1, 2024.
[63] I also note that Astute states that it made an effort to agree with costs in advance.
[64] I encourage parties to agree on quantum, failing which 2B may file a one-page submission with attached bill of costs and any offers to settle by January 6, 2025, and Astute may file their one pay response with their attachments by January 15, 2025.
Justice A. Doyle
Date: December 17, 2024
CITATION: 1995636 Ontario Inc. C.O.B. 2B Developments v. 5010729 Ontario Inc. C.O.B. AS Astute Capital Corp., 2024 ONSC 7089
DIVISIONAL COURT FILE NO.: DC-24-2893
DATE: 2024/12/17
ONTARIO
SUPERIOR COURT OF JUSTICE
BETWEEN
1995636 ONTARIO INC. C.O.B. 2B DEVELOPMENTS
Appellant
– and –
5010729 ONTARIO INC. C.O.B. as ASTUTE CAPITAL CORP.
Respondent
Reasons for decision
Doyle J.
Released: December 17, 2024