Court File and Parties

COURT FILE NO.: CV-07-086031-00
DATE: 20120601
SUPERIOR COURT OF JUSTICE - ONTARIO

RE: ABBOTSFORD GROUP INC., Plaintiff

AND:
ANTONIA REA and GAETANA REA, Respondents

BEFORE: THE HON. MR. JUSTICE J.R. McCARTHY

COUNSEL:
J. Binavince, for the Plaintiff
R. Macklin and E. Hiutin, for the Defendants

HEARD: March 30, 2012

ENDORSEMENT

McCarthy, J.:

[ 1 ] The defendants bring a motion for the following:

(a) leave to bring the motion pursuant to section 67(2) of the Construction Lien Act , RSO. 1990, c. C.30 , as amended (the “ CLA ”);

(b) an order setting aside the ex parte order of Stong J., dated July 9, 2009, extending the time for service of the Statement of Claim in this matter by 19 months;

(c) an order invalidating service of the Statement of Claim on the defendants and striking out the claim;

(d) an order that the Claim for Lien of the plaintiff registered on August 2, 2007, on the lands in question be vacated and the lien discharged;

(e) an order that the Certificate of Action of the plaintiff registered on Sept 24, 2007, against the lands be vacated;

(f) in the alternative, leave to amend the Statement of Defence;

(g) if the claim is not terminated, an order for security for costs;

(h) costs on a substantial indemnity basis against the plaintiff and its former lawyer, Michael Mackay, on a joint and several basis.

BACKGROUND

[ 2 ] This is a proceeding under the Construction Lien Act . The defendants are the registered owners of the lands legally described as LT 27, PL 5757 Vaughan; VAUGHAN, and known municipally as 238 Pine Valley Crescent, Vaughan, Ontario (the “Property”).

[ 3 ] Pursuant to contracts with the defendants entered into in December 2005 and October 2006, the plaintiff provided certain construction and management services in respect of a new home on the Property, beginning in 2006 and running through to June 2007. A dispute arose between the parties at that time. The defendants claimed that the plaintiff was inflating the invoices of sub-contractors and pocketing the difference between the sub-contractors’ actual cost and the amount charged to the defendants. The defendants did no further work on the property after June 18, 2007. As of June 26, 2007, the defendants had paid the plaintiff $836,919.36.

[ 4 ] The plaintiff registered a Claim for Lien against the Property on August 2, 2007. It perfected its claim for lien by issuing a Statement of Claim on September 24, 2007 through its then solicitor, Michael MacKay, of Toronto. The claim included was for payment of $285,100.20 for services and materials and a further $252,064.65 for damages for breach of contract.

[ 5 ] Pursuant to s. 53(2) of the CLA , the Statement of Claim must be served within 90 days after it is issued. In the case at bar, the last date for service of the claim was therefore December 23, 2007. The claim was not served within that time frame. That same subsection of the CLA empowers the court to extend the time for service before or after the expiration of that period of time.

[ 6 ] During the week of June 29, 2009, the plaintiff, through new counsel (present counsel) brought an ex parte (without notice) motion for an order extending the time to serve its claim. The affidavit in support of that ex parte motion was sworn by Paul Mior, the principal of the plaintiff.

[ 7 ] On July 9, 2009, Mr. Justice Stong granted the plaintiff an order extending the time for service of the Statement of Claim. The claim was then served on the defendants on July 15, 2009.

Section 67(2) OF THE CLA

[ 8 ] The first question for the court’s consideration is whether an interlocutory motion can be made. Section 67(2) requires the court’s “consent” which may be obtained upon proof that the step is necessary or would expedite the resolution of the issues in dispute. I am satisfied that the steps proposed to be taken are necessary. The defendants were not put on notice of the relief sought in the ex parte motion before Stong J. Seeking to set aside the order can only be done by way of a motion. Moreover, the step is necessary to expedite the resolution of the issues in dispute since the effect of the relief sought by the defendants may serve to hasten the conclusion of the action or lead to early resolution. This court therefore grants consent to the interlocutory motion being brought by the defendants.

RULE 37.14 OF THE RULES OF CIVIL PROCEDURE

[ 9 ] This rule allows a party affected by an ex parte order to move to set aside the order. The court hearing a motion under this rule may set aside or vary the order on such terms as are just.

[ 10 ] On ex parte motions, the moving party is under an obligation to make full and fair disclosure of all material facts, and failure to do so is in itself sufficient ground for setting aside any order obtained on the motion: see rule 39.01(6) of the Rules of Civil Procedure , R.R.O. 1990, Reg. 194.

[ 11 ] On a motion to set aside an order obtained on an ex parte basis, the court should not consider whether an order would have been granted if there had been full and fair disclosure. The question is whether the omitted facts might have had an impact on the original granting of the order. If the answer to this inquiry is yes, the failure to make full and fair disclosure on an ex parte motion, generally, will result in the order obtained being set aside: see Newtec Print & Copy Inc. v. Woodley , [2001] O.J. No. 4180 (S.C.) , leave to appeal ref’d, [2001] O.J. No. 5634 (S.C.(Div. Ct.)) at para.22.

THE EX PARTE MOTION MATERIALS

[ 12 ] The plaintiff’s motion materials included a 12 paragraph affidavit from Paolo (Paul) Mior. Paragraph eleven of that affidavit reads as follows:

My previous lawyer always made me believe that this action was proceeding and things were in order. That simply was not the case. At no time did I or my company cause this slip or delay the prosecution of this action. This slip is attributable to my previous lawyer’s inaction.

[ 13 ] The defendants in this present motion assert that there are a number of inaccuracies in the Mior affidavit but none as flagrant as those found in paragraph 11. They point out that former solicitor Mackay was acting for Mr. Mior in a fraud matter during the time period when service of the claim remained outstanding. They point out that Mackay remained on as solicitor of record in the present action until the end of 2008. More importantly, they point out that Mior has now conceded in cross-examination that there never was any email or communication from Mackay confirming that the Statement of Claim in this action had in fact been served. The only mention of the service of the claim is found in an email from Mackay of January 7, 2008, wherein the solicitor advised Mior, inter alia:

...the statement of claim for Tony Rea is out for service. I will follow up on that. I can always send a copy directly to his lawyer, and ask if he’ll accept service, but they will have to agree to that....I will give you a call tomorrow.

[ 14 ] Between March 18, 2008, and December 10, 2008, Mior sent Mackay no less than ten emails enquiring about the status of the lien claim without reply. The final email in that series reads as follows: “Michael, I find it frustrating not to be able to get in contact with you. Could you return my call. Respectfully. Paul J. Mior.”

[ 15 ] The defendants submit that the email of January 7, 2008, represents the only information relevant to the status of the lien claim that Mackay would have provided to Mior in a one year period. They further submit that, far from conveying any kind of assurance that the matter was “proceeding and things were in order,” it is apparent that the solicitor consistently ignored the inquiries of his client. He provided nothing that could be considered an affirmative update, assurances or confirmation on the status of proceedings that would imbue in a reasonable person any level of comfort that his interests were being protected and advanced.

[ 16 ] Neither the emails nor the background of the relationship between the plaintiff and its lawyer came before Stong J. in the ex parte motion materials. The gist of the defendants’ position is that the plaintiff utterly failed to make a full and frank disclosure of the history of that solicitor and client relationship (including full disclosure of Mior’s emails and the absence of replies). Had this disclosure been made, it might have had an impact on the original granting of the order. In light of that, the order of Stong J. should be set aside.

[ 17 ] Mr. Mior, in a responding affidavit to this motion dated September 14, 2009, maintains that he was always under the impression that his company’s lien action was on track and moving forward. The affiant then asserts that at no time did his company cause the delay in the prosecution of the action. Rather, he was led to believe that everything was on course. He reiterates that he had been misled by solicitor Mackay. The plaintiff asserts that it would be a terrible injustice if the lien action was struck and the lien vacated because of a lawyer’s misdoing. Finally, the plaintiff contends that the defendants will suffer no prejudice if the order of Stong J. is left undisturbed and the lien action is allowed to proceed.

[ 18 ] On a motion without notice, full and frank disclosure of all “material facts” is what is required; however, a party is not required to inform the court of information or allegations that would not have impacted on the ultimate decision to grant the relief sought: see 1376273 Ontario Inc. v. Woods Property Development Inc . (2001), 8 C.P.C. (5th) 111 (S.C.) per Master Haberman. The “material facts” in each case will be different. In seeking the extension under Section 53(2) of the CLR , Mior swore that he did not know that his company’s Statement of Claim was not served until he hired his new solicitor, Mr D’Alimonte, who “looked into the file.”

[ 19 ] This was undoubtedly true; but it was also true that Mr. Mior received no assurance from Mackay at any time that the claim had in fact been served. On the contrary, Mior’s multiple inquiries for updates and confirmations went unanswered over a period of nine months. In particular, the inquiry of September 21, 2008, (more than nine months prior to the ex parte motion being brought) specifically raised concerns about the status of the lien, the Statement of Claim and the matter of service. It is difficult to understand how the absence of information and updates from his solicitor and the abject failure of Mackay to reply to simple inquiries would provide any kind of assurance to Mior upon which he could form a belief that “this action was proceeding and things were in order.” Without a doubt, those were material facts that should have been disclosed by the moving party even though they would not have been supportive of the statement made in paragraph 11.

[ 20 ] Because I have no reasons from the motions judge, I have no way of determining the facts that he considered paramount in granting the relief sought. Similarly, I have no way of determining whether he would have considered the missing information of significance in exercising his discretion to grant the relief sought. My function here is not to conduct a de novo hearing or an appeal of the order in question. I return to the line of cases which emphasize the need for full disclosure in ex parte motions. In Rosenhek v. Kerzner , [1997] O.J. No.2831 (C.J.) at para. 19 , Cameron J. wrote as follows:

This court relies on full, true and plain disclosure in all evidence presented to it. It is the foundation for the administration of justice. Compliance with this principle must be scrupulous when a party opposite in interest is not given the opportunity to cross-examine on the affidavit and present other evidence to ensure the facts before the court are complete, true and plain. Lack of mala fides is not the issue. Substantial compliance with the principle is the issue.

And later, citing similar cases that had applied the principle, he concluded:

I am satisfied that the extension orders may well not have been made if proper disclosure had been given. The omitted facts might have had an impact on the orders.

[ 21 ] Applying the test enunciated in Rosenhek , I am satisfied that the omitted facts might well have had an impact on the disposition of Stong J. on the ex parte motion. The emails sent out by the affiant to his lawyer and the glaring dearth of replies and responses should have formed part of the materials put before the ex parte motions judge. That evidence might have served to undermine the affiant’s assertion that “at no time did I or my company cause this slip or delay the prosecution of this action” (emphasis added). More than that, it might have led the motions judge to conclude that the reason for the delay could be laid at the feet of the affiant as much as at the feet of the lawyer.

BALANCE OF PREJUDICE

[ 22 ] In Rosenhek , Cameron J. went on to balance the prejudice to each of the parties that would result from the decision to set aside an ex parte order. He held that the failure to give notice of the particulars of the cause of action within a prescribed limitation period was fatal to the claim in the absence of evidence that there was no prejudice or extraordinary or unusual circumstances weighing in the plaintiff’s favour. In the present case, the plaintiff has asserted that there is no prejudice to the defendants in allowing the lien action to continue; however, it was a mere assertion with no evidence or substance to support it. The plaintiff further contended that Rule 2.01(1) of the Rules of Civil Procedure affords the court discretion to grant relief in respect of irregularities and non-compliance with a view to allowing matters to proceed for determination on their merits. I prefer the reasoning of Cameron J in Rosenhek :

The plaintiff’s lack of disclosure in the affidavits in support of the ex parte motion weighs against the exercise of any discretion in its favour. The policy of the rules that actions should be decided on their merits rather than technical breaches of the rules have little weight when balanced against the reasons for limitation periods.

[ 23 ] I find that, in the case at bar, the plaintiff failed to give full, frank and complete disclosure of all material facts that the ex parte motions judge might have considered in exercising his discretion to grant the extension of the time for service under section 53(2) of the CLA . This lack of disclosure weighs against the exercise of any discretion in his favour.

[ 24 ] Moreover, I agree with the submissions of counsel for the defendants that the ability to lien, as security for payment on a potential judgment, is something unique to contractor and sub-contractor claims under the CLA legislation. While a party’s right to adjudication on the merits of a claim is a guiding principle of civil litigation in this province, in construction lien claims, that right is clearly balanced by requirements to preserve liens, perfect those liens by issuing claims within truncated limitation periods, and to serve originating processes within a shorter time frame than under the ordinary rules. By flouting the full disclosure requirement while it sought ex parte discretionary relief from the court under section 53(2) of the CLA , the plaintiff has effectively tipped the discretionary balance in favour of a strict application of the timelines in the CLA .

SECURITY FOR COSTS

[ 25 ] The plaintiff did not contest that it should be required to post security for costs under Rule 56.01. The plaintiff merely puts forward a proposal for a form and amount of security which differs from that which the defendants are seeking. Rule 56.04 states that the amount and form of security and the time for paying into court or otherwise giving the security shall be determined by the court.

[ 26 ] The plaintiff proposes a personal undertaking from a third party, a party unrelated to the proceedings, as a form of security under the rules.

[ 27 ] The defendants urged upon me that this is really not security at all. From a practical standpoint, there is nothing about the personal undertaking of the proposed individual which could give any assurance to this court that a fund or deposit would be readily available and easily accessible to satisfy an award of costs made in favour of the defendants, should that be the result. In short, the proposed form of “security” is impractical from an enforcement standpoint.

[ 28 ] I agree. The plaintiff was unable to refer me to any case where a personal undertaking of an individual who was not an officer, director or shareholder of a corporate entity was accepted by the court as a proper form of security. The case of 1049086 Ontario Ltd. v. Torbear Contracting Inc. (2005), 49 C.L.R. (3d) 204 (S.C.) , was put forward as authority for the proposition that a personal undertaking of an officer, director or shareholder might, in certain circumstances, be sufficient security to satisfy the requirements of an order made pursuant to rule 56.01(d). That case is not authority for the proposition that a personal undertaking from an unrelated party should serve as a proper form of security.

[ 29 ] The plaintiff further submits that both the company and its principal are impecunious and that this should weigh against this court ordering a traditional form of security such as the posting by the plaintiff of funds to the credit of the action.

[ 30 ] I agree with the submissions of the defendants that the only evidence of the plaintiff’s impecuniousness is the bald statement to this effect in the affidavit of Paul Mior. Neither the plaintiff nor the affiant have furnished copies of financial statements, income tax returns, evidence of debt servicing or borrowing capabilities or asset disclosure. The onus rests on the person seeing to rely on the fact of it being impecunious to provide sufficient evidence in support of its position: see Coastline Corp. v. Canaccord Capital Corp ., 2009 21758 (ON SC) , [2009] O.J. No. 1790 (S.C.) at para. 7 per Master B.T. Glustein.

[ 31 ] The defendants have suggested that costs at a partial indemnity rate for a five day trial might result in legal costs exposure to the defendants in the amount of $54,000. This number strikes me as moderately excessive. I have determined that an appropriate amount to post as security for costs under Rule 56.01 is $35,000.

LEAVE TO AMEND THE STATEMENT OF DEFENCE

[ 32 ] The defendants seek leave to amend their Statement of Defence to include three allegations, namely proposed paragraphs 6, 7and 8 in the draft “Fresh as Amended Statement of Defence,” found at Document 3, Tab 1, page 11 of the motion materials. The proposed allegations are grouped together under the heading, “The Events of June 2007.”

[ 33 ] The plaintiff objects to the proposed amendments on the grounds that the allegations are entirely unrelated to the matters at issue between the parties. It argues that the proposed amendments raise issues the determination of which can have no effect on the outcome of the action. The pleading is therefore embarrassing and should not be allowed: see Caras v. IBM Canada Ltd. , [2004] O.J. No. 3009 (S.C.) at paras. 8 and 11 per Master Albert.

[ 34 ] The defendants contend that the proposed paragraphs serve as both useful background and as part of the narrative of the breakdown in the relationship between the parties. The Statement of Claim alludes to the framing contract, which became a lightning rod for the litigation. The proposed allegations in the Statement of Defence are directly responsive to the allegations in the Statement of Claim.

[ 35 ] I find that, while the proposed amendments in paragraphs 6, 7 and 8 reference problems between non-parties to the present litigation, they serve as useful background and certainly form part of the continuum in the relationship of the parties to the present litigation. Leave should accordingly be granted to the defendants to incorporate those paragraphs in its Fresh as Amended Statement of Defence

DISPOSITION

[ 36 ] For the reasons set out above, I order as follows:

(a) The order of Stong J. dated July 9, 2009, is set aside;

(b) Service of the plaintiff’s Statement of Claim is invalidated;

(c) The plaintiff’s Statement of Claim is struck;

(d) The Claim for Lien of the plaintiff registered as Instrument No. YR1030176 be vacated and the lien be discharged;

(e) The Certificate of Action of the plaintiff registered on September 24, 2007, as Instrument No. YR1058956 be vacated;

(f) Should the plaintiff be successful in reinstating the action under the ordinary rules of court or should my orders made in (a) through (e) above be set aside by an appellate court, then the plaintiff shall post security for costs by depositing the amount of $35,000 to the credit of the action with the Accountant of the Superior Court of Ontario prior to embarking on any form of discovery or setting the action down for trial, whichever comes first;

(g) Should the action be reinstated as per paragraph (f) above, the defendants shall have leave to serve and file their Fresh as Amended Statement of Defence in the form set out at Book 3, page 10-15 of the motion materials (Second Supplementary Motion Record of the defendants).

[38] The defendants are entitled to their costs of the motion, fixed and payable forthwith, in the amount of $7,500 against the plaintiff only. They are not entitled to costs against the solicitor, Michael Mackay, personally. Under Rule 37.07 (1), the notice of motion shall be served on any party who will be affected by the order sought. Michael Mackay would clearly be affected by the order sought. I was furnished with no evidence that Mackay was served with the motion. For that reason, the Defendants are not entitled to their cost of the motion against the solicitor Michael Mackay personally.

McCARTHY J.

Date: June 1, 2012