Court File No. CV-11-424621

SUPERIOR COURT OF JUSTICE

IN THE MATTER OF THE CONSTRUCTION LIEN ACT, R.S.O. 1990, C.c.30

Between: 2183164 Ontario Inc. carrying on business as Kandel Constructions— Plaintiff

And: Shirin Gillani, Sadrudin Gillani and Royal Bank of Canada – Defendants

And Between: Shirin Gillani and Sadrudin Gillani --- Plaintiffs-by-Counterclaim

And: 2183164 Ontario Inc. carrying on business as Kandel Constructions, Magdy Kandel and Iyad Ghunaim Defendants-by-Counterclaim

BEFORE: MASTER SANDLER HEARD: APRIL 25, 2012

COUNSEL: for the moving parties, the defendants (except Royal Bank of Canada) and plaintiffs-by-counterclaim: F.M. Soccol for the responding parties, the plaintiff and defendants-by-counterclaim: W. Ribeiro

REASONS FOR DECISION

[1] This is a motion by the defendant homeowners (except the defendant Royal Bank of Canada, a prior mortgagee), who are also plaintiffs-by-counterclaim, which is brought in this construction lien action. The plaintiff is said to be the contractor who did the work. The details of the relief requested by this motion will be described in detail later in these reasons but the motion flows from two abortive cross-examinations, that were scheduled pursuant to s. 40(1) of the Construction Lien Act, of IG who is a representative of the plaintiff/lien claimant. There is a large volume of motion material, being a thick motion record with a 13-page, 29-paragraph supporting affidavit by one of the defendants’ lawyers, with many exhibits; a correcting affidavit of that lawyer; a 12-page transcript of the abortive cross-examination of IG; a 1 1/2” thick, 15-page, 72-paragraph reply affidavit of IG with many exhibits; a supplementary affidavit of IG; an 11-page, 45-paragraph reply affidavit of SG with 9 exhibits, a Factum and a Revised Factum of the moving party defendants; moving parties’ two Books of Legal Authorities; a Factum of the responding party plaintiff; and plaintiff’s Book of Legal Authorities.

The Facts

[2] Sadrudin Gillani (“SG”) and his wife, Shirin Gillani (“ShG”) own a house in Toronto in which they resided with their family prior to the start of a renovation project in October, 2010.

[3] SG hired a contractor to do the renovations starting sometime around early October, 2010. The construction contract was initially an oral one between SG and Magdy Kandel (“MK”) who carried on business under the name Kandel Constructions. In December, MK presented SG with an 8-page written contract that shows that it was between Kandel Construction (without the “s” and Gillani Sadrudin (names reversed). The work was done between early October, 2010 and March 3, 2011. The contract price was $137,860 inclusive of HST. SG and MK had a falling out around March 3, 2011 over MK’s request for more money and SG’s refusal to pay because of his complaints about the delay in completion and lack of progress by MK in relation to the amount of money SG had already paid and was now being asked to pay.

[4] On March 11, 2011, a company called 2183164 Ontario Inc. c.o.b Kandel Constructions registered a lien on the Gillanis’ house for $96,937.78. This company, as plaintiff, issued a statement of claim on April 18, 2011 claiming a lien and claiming payment of $98,005.37 (being an amount slightly higher that the amount claimed in the lien).

[5] On June 16, 2011, the Gillanis delivered a statement of defence and also a counterclaim naming not only the plaintiff as a defendant-by-counterclaim but also MK and Iyad Ghunaim (“IG”) personally. IG is the individual who signed the lien claim as “agent” for the corporate plaintiff. This counterclaim claims a return of $23,809.41 that the Gillanis claim were overpayments made to MK based on the value of the work he had done, and also claims $150,000 to cover the alleged increased costs to complete the renovation and to repair alleged defects in the work, and finally, claims $35,000 for damages pursuant to s. 35 of the Construction Lien Act for registering an excessive lien.

[6] The plaintiff/defendants-by-counterclaim delivered their reply and defence-to-counterclaim which is dated June 29, 2011 but was actually served on Aug, 2, 2011 and filed thereafter.

[7] Counsel for the defendants/plaintiffs-by-counterclaim wanted to cross-examine the “agent” who signed the lien, namely, IG, pursuant to s.40 (1) of the Construction Lien Act (which had recently been amended effective July 1, 2011). The procedure for such cross-examination is governed by s.40 (2), (3) and (4). The defendants’ lawyer (“Soccol”) wrote to the plaintiff’s lawyer (“Ribiero”) on July 29, 2011 serving a Notice of Examination with a return date of Aug. 26 and advising that if that date was not convenient, any day the following week could be arranged. This Notice also listed 11 categories of documents that Soccol wanted produced by IG at this cross-examination and he asked that copies be sent to him in advance of the examination. The August date didn’t work for Riberio and a new date was agreed to for Sept. 14. Soccol then served a new Notice of Examination on August 2 for this new agreed-upon date.

[8] In the early afternoon of Sept. 13, Riberio e-mailed Soccol that there was a “miscommunication” between his office and his client, IG, and IG didn’t know about the scheduled examination and couldn’t attend on Sept.14. Apparently, Riberio’s fax of Aug. 4, sent to IG notifying him of the cross-examination, was sent to a non-working fax number (although I believe that most business fax machines show when a fax has not been received). Riberio offered to reschedule but no new date was suggested. Soccol obtained a certificate of non-attendance and on Sept. 15 sent a copy of this certificate to Riberio together with a demand for the costs thrown away, being $320 for fees in relation to booking and scheduling the original appointment, $480 for the time spent preparing (3 hrs.-50% of usual fee), and $100 for the certificate, for a total of $900 plus HST of $117=$1017. Soccol offered to settle the matter of the abortive cross-examination by having IG agree to attend on a date in the next few weeks-(Soccol asked to be provided with a few convenient dates)-and by having the plaintiff pay a somewhat lesser amount for costs, failing which a motion would be brought seeking to “strike” the lien or compel re-attendance, and seeking the full costs thrown away and the costs of such a motion, all on a substantial indemnity basis.

[9] On Sept. 16, Riberio replied, disputing some of the costs claim and seeking proof of other amounts claimed. He concluded with a suggestion that they should just get on with the cross-examination and pick a new date but no specific date was offered.

[10] Nothing further came from either lawyer regarding a new date so on Nov. 10, Soccol set a new date for Dec.13 and served a new appointment for the cross-examination of IG. Soccol also sent an invoice for the lost time and disbursements as Riberio had requested, and again offered to accept a lesser amount than the $1017 that he has asked for previously. He also asked Riberio to proceed to take out the usual judgment of reference to a construction lien master and obtain the usual order fixing the date for the first construction lien “pre-trial”, i.e., the hearing for directions.

[11] During Nov., there were back and forth e-mails between the lawyers about the new examination date and they finally agreed on Dec. 19. Riberio made a counter-offer to pay $224.30 in costs thrown away because of the Sept. 14 abortive cross-examination.

[12] On Dec. 8, Soccol e-mailed Riberio about the pending cross-examination for Dec. 19. He noted that s. 40 of the Act had recently been amended and that it specified that an “agent” of the lien claimant could be cross-examined, and that he might want to cross-examine MK as the “agent” in place of IG but he left the final decision as to who was to be cross-examined up to Riberio.

[13] On Dec. 13, Riberio sent an e-mail to Soccol advising that he was moving to remove his firm as lawyers of record for the plaintiff and defendants-by-counterclaim and that his motion was now returnable on Jan.13, 2012, the earliest date he could get. He noted that his “client” was aware of the Dec.19 appointment but he was not sure if “they” would be represented or not. He agreed to send Soccol a copy of the order once it had been obtained (which the rules require in any event).

The Dec.19 Cross-Examination

[14] Soccol attended the cross-examination on Dec.19. IG attended without a lawyer. IG advised that he couldn’t pay Riberio and so Riberio wasn’t there. IG was not prepared to proceed without a lawyer and he said he needed time to arrange to pay Riberio. Soccol insisted that they proceed and he began the cross-examination. IG refused to answer most of the questions or answered by saying “no comment”. The transcript is 8 pages long, is at Tab 7 in the motion record and shows that IG provided, in effect, no answers to any of Soccol’s questions and produced none of the documents asked for. The cross-examination was a useless exercise.

[15] Nothing further occurred in this case from Dec. 19 until Jan. 25, 2012 when Soccol wrote Riberio asking for a copy of the order removing his firm as lawyers of record, presumably so he could then serve the plaintiff with a new notice of examination at the address specified in the order. Riberio replied on Jan. 31 that he had resolved the motion with “his client” and the motion had been withdrawn on Jan. 16.

[16] On Feb. 29, 2012, Soccol prepared an account directed to his own clients for legal services in connection with the attempted cross-examination of IG, running from Aug.2 to Dec. 19, 2011, in the amount of $4288 plus HST of $557.44 and disbursements of $660.19 (including HST) for a total of $5505.63. Soccol’s hourly rate is $320/hr. and he claimed to have spent 13.4 hours related just to these abortive cross-examination efforts.

The Motion Before Me

[17] Soccol prepared a Notice of Motion on or about March 8 returnable on Apil 25, 2012. The defendants/ plaintiffs-by-counterclaim seek the following relief:

Leave to bring this motion pursuant to s. 67(2) of the Act.

An order discharging the plaintiff’s lien and dismissing the entire action pursuant to s. 47(1) and s. 40 of the Act, and pursuant to Rule 34.15(1) (d) re examinations, and pursuant to Rule 24 re delay.

In the alternative, an order compelling the “plaintiff” (by which I presume is meant IG) to re-attend for continued cross-examination on the lien and for related relief.

Costs thrown away relating to the abortive cross-examination efforts above described.

An order for security for costs.

The Facts Related To the Claim For Security For Costs---Rule 56.01(1) (d)

[18] The affidavit in support of this part of the motion, made, as I have said, by another lawyer in Soccol’s office, alleges that the plaintiff is a corporation and there is good reason to believe that the plaintiff has insufficient assets in Ontario to pay the costs of the defendants if they are ultimately successful. There were some bank records of the plaintiff exhibited which showed small balances for Feb. and March, 2011. These records had been sent by Riberio earlier to show certain payments made by the defendants to the plaintiff during the construction. And the deponent stated that in the affidavit used on the earlier motion by Riberio to get off the record, it states that the plaintiff wasn’t paying its legal accounts. And IG admitted on his abortive cross-examination that he was unable to pay his lawyer. And it is stated that Soccol asked Riberio to supply information about the plaintiff’s assets but received no reply.

[19] The deponent estimates that the costs of the action, if their clients are successful, would be $48,700 on a partial indemnity basis and about $69,000 on a substantial indemnity basis. A draft Bill of Costs is included in the motion record.

Delay and Prejudice

[20] The said supporting affidavit shows that pleadings had closed around Aug. 2, 2011 but the plaintiff has taken no other step to move this action forward except that on Feb. 28, 2012, Riberio wrote asking for a consent to a judgment of reference after he learned that this motion was being prepared.

[21] As to prejudice, the Gillanis’ line of credit with their bank has been blocked because of the plaintiff’s lien on their home and they can’t access funds from their bank to complete the renovations or even to “bond off” the lien. The renovations were only partially completed when the relationship broke down in March, 2011. The house is said to be basically unlivable because there is no kitchen or finished flooring and some heating vents are missing. Mrs. Gillani and her elderly mother are living in a relative’s house and SG and his sons go to the house only to sleep.

The Response Material

[22] Riberio delivered a reply affidavit of IG sworn April 18, 2012. (I will only summarize information that has not already been described above.) IG is the owner and sole officer and director of the plaintiff corporation which carries on business as Kandel Constructions. 2183164 Ontario Inc. was incorporated in Aug., 2008. It is his company. It has been using the business name Kandel Constructions since Dec. 20, 2010 according to a “Master Business Licence” which is marked as an exhibit. I am aware that this “Licence” merely confirms that the corporation submitted a business name, i.e., Kandel Constructions, for registration under the Business Names Act and having one makes some required interactions with the provincial government easier.

[23] The above-noted written contract between Kandel Constructions (MK’s business name) and SG (actually GS, i.e., names reversed) is dated Dec. 10, 2010, just 10 days before the date of 2183164 Ontario’s business names registration application above described. This contract says it is about the renovation of the Gillanis’ house. The scope of the work is defined in para. 2. The contract provides that the work was to start on Dec. 13 and was to be fully completed by Sept. 13, 2011. The price is shown as $104,000 with a deposit of $30,000 and with further instalments to be paid as certain milestones in the work were achieved. This written contract is the same one that is referred to in the supporting affidavit, and exhibited in the correcting affidavit, of lawyer Cheryl Wong filed by the defendants to support their motion.

[24] IG deposes that on March 5, 2011, the plaintiff corporation left the job without finishing the work because of what IG claims was non-payment by SG of money due. IG claims that SG has paid the plaintiff corporation only $19,069.41 on account. IG claims that the plaintiff was entitled to be paid $81,000 as of March 5, 2011. IG claims that there were 8 extras agreed to for a total amount of $18,000 plus HST, and that a further $4469.41 is also owing.

[25] IG claims that the plaintiff sent an invoice dated Feb. 22, 2011-(it is ex. F)-to the Gillanis for $96,937.78 which was not paid and so the plaintiff hired Riberio to register a lien for this amount. (SG in his reply affidavit denies receiving this invoice until this litigation had started and claims it is a “fabrication”.)

[26] As to assets, IG claims that the plaintiff carries on business as a renovation contractor and currently has two jobs, and the contracts for them are attached as exhibits, one for $47,200 and the other for $52,640. One job has started and one will start soon. The plaintiff has tools valued at $28,757; it has an active bank account and owns a 2003 GMC truck. IG personally owns a 2010 truck and has an active bank account (but I note that the balances on some monthly statements that are made exhibits are blacked out). IG is 28 years old and describes his company, the plaintiff, as a “small and relatively young renovation contractor”.

[27] In a supplementary affidavit, sworn April 20, 2012, IG deposes that if this court orders security of $48,700+/- as requested by the defendants, neither the plaintiff nor IG personally could post this amount and such order would bar the plaintiff and thus himself from continuing with this claim and this would result in “extreme prejudice”. IG claims he is not “impecunious” but would not be able to post the requested security for costs.

Reply Affidavit of SG

[28] SG operates a local convenience store for a living. He understands spoken English but his ability to speak or read or write English is poor. When he decided to renovate his house, a friend referred him to a contractor by the name of Magdy Kandel (“MK”). He had no prior experience hiring a contractor but he says he “trusted” MK. In Oct., 2010, he entered into a “verbal agreement” with MK to do renovations to his home for a total price of $104,000. MK told SG he would not require any building permits but that if any were required, he, MK, would look after them.

[29] SG claims that he never contracted with IG or 218364 Ontario Inc. He believed he was contracting with MK personally whose business name was Kandel Constructions. He only dealt with MK. A Business Name Report marked as an exhibit in this affidavit shows that Kandel Constructions was a sole proprietorship and was registered under the Business Names Act for the first time (my emphasis) on Nov. 30, 2010. The sole proprietor is shown to be MK. Interestingly, the address of the business is shown as 230 Queens Quay West, Suite 822, which is the same address as the one shown in the Master Business Licence issued to Kandel Constructions on Dec. 20, 2010, that shows the “legal name” of this business as 2183164 Ontario Inc. and that is referred to in the IG reply affidavit, above described. This address also appears on the written contract of Dec. 10, 2010, above referred to.

[30] SG claims that MK originally provided him with two written quotations for the work, one for $102,000 and one for $105,000 but they finally agreed on a price of $104,000. MK started work in October based on the first 3-page quotation of $102,000 which provides that it is to run “FROM 10/15/2010 to 10/15/2012”. Basically, MK worked alone although he occasionally had other workers helping him. SG claims that MK and SG didn’t follow the written contract provisions for the payment of money. SG paid MK from time to time as MK requested payments. HST was to be included in the $104,000 price.

[31] Around Dec. 10, 2010, after MK had been working on the job for about two months, MK presented SG with a more formal written “Renovation Contract”. MK told him that this written contract didn’t change their verbal understanding so SG just signed it without reading it because he trusted MK. This contract, which is described above, and is marked as an exhibit in both parties’ material, is shown to be with “Kandel Construction”. SG deposes, in para. 12 of his reply affidavit, that the contract was signed by MK and not by IG “whom I have never dealt with”. The defendants’ copy of this contract shows that it is signed by MK who is shown as “Contractor” and the date is shown as “12/10/2010”. The signature is the same as the signature that appears on the Kandel Constructions invoice number “01” of “12/10/2010” which is ex. C to the reply affidavit of SG. Interestingly, the copy of this contract marked as ex. B to the reply affidavit of IG is only signed by “SG” on “Dec 10th 2010” so IG himself never signed any copy of this contract, whether personally or on behalf of any other named entity. SG deposes that there were agreed extras of $6600 “verbally” agreed between SG and MK so that the total revised price was $104,000 plus $6600=$110,000 inclusive of HST. The e-mail address on this contract is “magdy.kandel@Gmail.com”. The business number shown is “201256971” which is the same number as the Business Identification Number on the Business Names Report that MK filed on Nov. 30, 2010 about 1 ½ months after MK started work at the house.

[32] MK never rendered any invoices except one, being “Invoice No. 01”dated Dec.10, 2010, which says it is for a “Deposit as per agreement signed on 12/10/2010”, and is for a “cost” of $10,000 plus “tax” of “$1300” for a “total $13,000”. (This invoice is ex. C to this SG affidavit.) I note the address of the contractor is shown as 230 Queens Quay West which is the same address as on the said Master Business Licence that the plaintiff relies on and that is described above. SG claims he never received invoice No. 3 that IG says was sent to him-(see para. 25 above)- and there is no proof offered by IG that this invoice was actually mailed or faxed or delivered or given to SG. Interestingly, the formats of these two Kandel invoices are similar but not identical. There was, apparently, no invoice “No. 2”.

Who Did SG Contract With?

[33] The statement of claim alleges, in para. 3, that on Dec. 10, 2010 the plaintiff 2183164 Ontario Inc. cob as Kandel Constructions entered into a written contract with “SG and ShG” (names shown in full in the pleading) to renovate their house. The claim goes on to plead, in para. 9, that the plaintiff corporation “provided” the construction services. The price is said to be $91,530 inclusive of HST, that there were extras agreed of $25,544.78 inclusive of HST, and that the total price was $117,074.78, that the defendants have paid $19,069.41, and that the balance owing is $98,005.37. The details of the written contract pleaded are the same as those I have described earlier in the Reasons.

[34] In the statement of defence, the defendants plead the same story about the “verbal” and then the written contract as I have described above. They plead that they understood they were contracting personally with MK and not with a corporation, and specifically, not with 2183164 Ontario Inc., and that MK held himself out as a sole proprietorship carrying on business as Kandel Constructions (“KC”). See especially, para.’s 3, 5, 9 and 10 of the statement of defence. And in para. 29, they plead that the plaintiff’s lien is invalid because 2183164 Ontario Inc. was not the contracting party and did no work on the property and, in effect, provided no services or materials to the property and they have never had any dealings with IG who signed the lien as “agent” of the lien claimant. And, in any event, the lien is claiming a grossly exaggerated amount.

[35] In para.’s 14, 15 and 16, they plead about the one invoice-(Invoice No. 01)-that they received in Dec., as above described, and about the payments they made. They plead that SG paid MK a total of $53,809.41 representing 48.7% of the agreed revised contract price of $110,600. In para.’s 18, 19 and 20 they plead that MK/KC only completed 30-35% of the contract work so there has been an overpayment and the defendants, as plaintiff-by-counterclaim, seek a refund of the overpaid money.

[36] In para. 21, they plead that on or about March 3, 2011, MK/KC asked SG for a further $10,000 failing which he would stop work. SG refused to pay any more money at this time because of the lack of progress and because, in his view, the value of the work done was far less that the money he had already paid, so MK/KC then “abandoned” the job and, soon thereafter, took on another job in Winnipeg.

[37] There are many other allegations in the statement of defence about the incomplete and defective work and the damages suffered by the Gillanis.

[38] And in para. 43, the counterclaim, they counterclaim against 2183164 Ontario Inc. and MK and IG for $23,809.41 for the alleged overpayment, and $150,000 for damages being the increased costs to complete the work and costs to remedy defects, and $35,000 for damages pursuant to s.35 of the Construction Lien Act.

[39] The plaintiff and defendants-by-counterclaim delivered a reply and defence to counterclaim wherein they take issue with all the defendants’ allegations. They plead that both MK and IG are officers and/or directors of the plaintiff and they did not agree to provide any services in their personal capacity and at all times acted as agents for and on behalf of the plaintiff and there is no privity of contract between MK or IG and either defendant and that the counterclaim is an abuse of process.

[40] I note that the evidence of SG on this issue of “The Merits” of the plaintiff’s claim, especially on the question of who the contract was with, is found in para.’s 4-26 of SG’s reply affidavit. Basically, SG repeats in his affidavit what has been pleaded in his statement of defence and counterclaim as above-noted. I have compared para.’s 9-23 of his statement of defence with para.’s 4-22 of his reply affidavit and they are almost identical. So I have before me not only a plea of no contract between the plaintiff and SG but also sworn evidence in support of such a plea. The law is now clear that on a motion for security for costs, which this one in part is, the “merits” as to the issues raised in the pleadings are to be considered as one of the factors in exercising discretion to order security for costs. There is much evidence from SG on who he dealt with in making the contract in question but there is nothing in IG’s affidavit, nor was there any response affidavit to SG’s reply affidavit, about the relationship between MK and IG and how and why, at some point between December, 2010 and March, 2011, it appears that MK drops out of the picture and IG comes into the picture, and how and why his corporation, which was incorporated in 2008, takes on the name of MK’s sole proprietorship on Dec. 20,2010, and seems to take over the Kandel Constructions bank account into which MK deposited some of the money he had received from SG, and how it is that SG paid MK about $53,800 and how $14,600 of this money got into the hands of IG or his company through the Kandel Constructions bank account, as detailed in IG’s affidavit at para.’s 13 and 16 and ex. C to his affidavit. This is all quite a mystery and quite suspicious.

[41] IG, in para. 12 of his said reply affidavit, claims that SG paid only a total of $19,069.41 on account of this contract, including $4469.91 directly to a supplier of the plaintiff. SG claims in his reply affidavit that he paid a total of $53,809.41 on account of this contract, of which $4469.91 was paid directly to the same supplier, being a supplier of MK/KC. These total amounts paid are quite different and the difference requires some sort of explanation if there is one.

[42] IG provides proof that SG paid a $10,000 amount and a $4600 amount and claims that these amounts were deposited into a “Kandel Contractors” bank account and the bank statements are made exhibits. But whose account really was “Kandel Contractors” account at the time of these deposits is not revealed. These two payments are also referred to by SG and summarized in para.’s [50] and [56] below.

[43] Some clarity is shown by the evidence of SG which is found in para.’s 15-19 of his affidavit. In para. 17, he says he kept track of the payments he made to MK or as MK directed. He prepared a list with back-up documents which show the following:

[44] Oct. 14/10 $5000 paid cash to MK.

[45] Octt.27/10 $10,000 paid cash to MK.

[46] Nov.5/10 $5000 paid cash or endorsed a cheque to MK.

[47] Nov.13/10 $5000 paid cash or endorsed a cheque to MK.

[48] Nov. 20/10 $2000 paid cash or endorsed a cheque to MK.

[49] Total $27,000

[50] Dec.10/10 $10,000 “bank transaction”.

[51] Dec. 15/10 $4000 paid cash or endorsed a cheque to MK.

[52] Dec.20/10 $2600 paid cash or endorsed a cheque to MK.

[53] Total: $43,600

[54] Feb.23/11 $4469.41 paid lumber supplier by SG’s Visa.

[55] Total: $48,069.41

[56] Feb.25/11 $4600 SG’s bank draft payable to Kandel Constructions.

[57] Total: $52,699.41

[58] Feb.25/11 $1140 cheque from SG payable to Kandel Constructions and on back of cheque it says “Received Cash from Mr. Gillani” and it is signed by MK.

[59] Total: $53,809.41

[60] What is interesting is that the $10,000 deposit that IG claims SG paid to the “plaintiff”, which was deposited into the “Kandel Constructions” bank account on Dec. 7, 2010, appears to be the same money that SG claims he paid to MK as a “bank transaction” as above noted. And the $4600 deposit that IG claims SG paid, again, to the “plaintiff”, which IG claims was deposited into the “Kandel Constructions” bank account on Feb. 25,2011, appears to be the same money that came from SG’s bank draft that was made payable to “Kandel Constructions” that SG purchased from his Royal Bank on Feb.25 as above noted. All these money transaction documents are to be found at Tab 9 of SG’s reply affidavit and at Tab C of IG’s earlier reply affidavit. None of this is explained by IG nor by MK. MK is said in its pleading to be an officer/director of 2183164. And Mr. Riberio acts for all three defendants-by-counterclaim. There is something suspicious going on between MK and IG in their dealings with SG as is revealed from the above-noted facts. And yet there is no affidavit from MK explaining his relationship with IG on this job and how 2183164 came into the picture. I draw the strongest inference from the absence of an explanation from MK, that his evidence would not be at all helpful to the plaintiff on the issue of who SG originally contracted with, and this issue bears directly on all the other issues raised on this motion including how I should exercise my wide discretion under s. 47(1) to determine if there is “any proper ground” for discharging the lien and dismissing the action.

[61] Para. 23 of SG’s reply affidavit indicates that the lien was signed by IG as agent for the lien claimant, 218316 Ontario Inc. on Mar. 11,2011. SG deposes that IG and 2183164 Ontario Inc. are a “mystery” to SG and that SG never heard of 2183164 prior to the lien being registered. SG does recall seeing IG at his house on three or four occasions talking to MK but MK introduced him to SG as a friend of his called “Eddy”. SG claims that he never saw IG do any significant work at the house. As noted earlier, SG claims that all his dealings were with MK.

[62] There are a large number of lien cases where the named lien claimant, and the named plaintiff in the subsequent action to enforce the lien, were found not to be the correct entity to assert the lien claim and/or the contract claim. I will not set out in detail the facts in all these cases in order to reduce the length of these reasons and, if necessary, they can be read by others as may be required. The cases are Inter Property Investment Ltd. v. Trpchich (1975), 1975 CanLII 571 (ON SC), 11 O.R. (2d) 568 (Ont. S.C.); Allied Fasteners and Supplies Ltd. v. Ferris (No.1) (1986), Kirsh’s C.L.C.F. 66 (Ont. Div. Ct.); 031465 New Brunswick Ltd. v. Motel Parfait Inc. (1987), 24 C.L.R. 223 (N.B.Q.B.); Lionel J.L. Maclean Ltd. v. Winters (1990) 1989 CanLII 9856 (NS SC), 35 C.L.R. 148 (N.S. Co. Ct.); 573521 Ontario Inc. v. Waldman (1996), 31 C.L.R. (2d) 305 (Ont. Gen. Div.); Kobes Nurseries Inc. v. Convery 2010 ONSC 6499, [2010] O.J. No.5056 (S.C.J.), Lauwers J.; Bayan Construction Ltd. v. Cusimano (2008), 70 C.L.R. (3d) 123; and Vinpat Construction Ltd. v. Henze Holdings Inc. (2003) 18 C.L.R.(3d) 307. There are also cases where the effort to dismiss a lien action on the basis that the contracting party was not the lien claimant were unsuccessful: see Tamarack North Holdings Ltd. v. Hallisey (2007) 59 C.L.R. 316 (S.C.J.) being one such example, but the facts there were totally different than in the cases above-noted where the effort was successful. And there are many non-lien cases where a named plaintiff or a named defendant were held not to be the correct contracting party and the plaintiff lost accordingly. Again, I will not review these cases or even set out the citations but they can easily be found in any contracts text book.

[63] In like manner, there is a genuine triable issue in this case as to whether this renovation contract was with the plaintiff corporation, or with MK otherwise known as MK cob as Kandel Constructions, and whether the plaintiff corporation actually provided the services or materials to this improvement so as to be entitled to assert a claim for a lien under s. 14(1) of the Construction Lien Act. If the defendants’ position prevails, either in a later motion under s.47(1) if the current motion is dismissed to allow for the cross-examination to proceed, or in a later summary judgment motion under Rule 20, which can be brought in a construction lien case, or at a trial if the case proceeds that far, then the real dispute between Gillanis and their “contractor” over who breached the contract, and who is entitled to recover money from whom, and for how much, will not have been dealt with in this proceeding and a new action would be required provided the limitation period has not passed. This would result in great expense to these parties and should be attempted to be avoided so that a decision on the true merits can be had at a reasonable cost and a multiplicity of proceedings can be avoided.

Why Is All This Important On This Motion To, Essentially, Compel Re-Attendance for Cross-Examination?

[64] This case is currently governed by the procedures laid down in the Construction Lien Act which differ in many important respects from the procedures set forth in the Rules of Civil Procedure. If this action is allowed to continue and be governed by the Act, I forsee that the following procedural steps will likely be required or will be chosen to be taken resulting in the incurring of large legal expenses to the parties and delay in resolving the real essence of their dispute.

[65] The defendants are presently clearly entitled to an effective cross-examination of IG who is shown in the lien claim as the “agent” of the lien claimant who has “informed myself of the facts stated in the claim for lien and believe them to be true”. And that they wish to do so is shown by this motion which seeks, inter alia, an order compelling re-attendance if the other reliefs requested fail. This cross-examination will cost the parties a lot of money.

[66] The defendants’ lawyer has also indicated that he may wish to cross-examine MK, either in addition to or in the alternative to IG, because MK is the person who the defendants say they dealt with and to whom they paid about $53,000+/- as above noted. MK is an “agent” of the plaintiff/lien claimant within s. 40 of the Act; the plaintiff /defendants-by-counterclaim admit that he is an officer and/or director of the plaintiff in their pleading.

[67] This raises the issue of whether an “agent”, other than the “agent” who signed the lien on behalf of a corporate lien claimant, can be cross-examined, and whether, if the cross-examination of IG proves to be unsatisfactory because he claims to have no knowledge of the dealings between SG and MK, and/or no relevant documents, the defendants can then cross-examine another “agent” of the lien claimant, relying on the rights given by s. 40 of the Act. Section 40(4) provides that “The rules of court pertaining to examinations (my emphasis) apply, with necessary modifications, to cross-examinations under this section”. This, arguably, could bring into play not only Rule 34.15(1) but also Rule 31.03(2) (a) and/or (b) to permit the defendants, if the appropriate order could be obtained, to either examine MK after IG or in lieu of IG.

[68] Further, s.40(2) of the Act provides that “There shall be only one examination under subsection(1)…” but it is unclear whether this reference to “only one examination” means that all participants who are entitled to participate in the cross-examination must get together and conduct “one examination” or whether it also means that only one “agent” can be cross-examined and no other “agent” can be subsequently cross-examined no matter how unsatisfactory the first cross-examination turns out to be.

[69] I can forsee the likelihood of another motion being required in this particular case to decide these issues.

[70] And if IG on his cross-examination fails or refuses to answer questions asked or produce demanded documents, it is likely that this would require another motion to rule on these questions in dispute. Because of the involvement of MK in this construction project from Oct., 2010 until even as late as June, 2011, as detailed in para.’s 4-27 of SG’s reply affidavit, I can forsee questions being asked of, or documents being demanded from, IG that he may well claim he is unable to answer or produce and again, a motion is likely to be required to rule on such questions and perhaps to require him to inform himself from MK.

[71] The whole purpose of a cross-examination under s. 40 in this case would be to support a motion under s. 47 of the Act to discharge the lien and dismiss the action on the basis that the named plaintiff is the wrong entity to assert this claim. (There are several other purposes for such a cross-examination which are detailed in the recently published text, “A Guide To Construction Liens in Ontario”, third edition, by Kirsh and Alter, ch. 6, pp.148-150. It must be remembered that the plaintiff does not claim to be a subcontractor who supplied services or materials through a contractor to the site, but rather, a contractor who had direct contractual dealings with the defendants. This is made clear in the lien claim itself where the services supplied are described as “General construction services to renovate a residential dwelling”. Nor does the plaintiff claim to be an assignee of the lien rights under s. 73 of the Act. The likelihood of such a further s. 47 motion in this case, if the cross-examination is ordered to proceed, is high because of the harmful effect that this lien claim is having on the defendants and their family as described in SG’s reply affidavit and as detailed above. If such a further motion were brought, and if successful, the lien would be ordered discharged and the title to the house would be cleared which would open up the defendants’ line of credit with their bank. Therefore, the defendants must obtain an effective cross-examination to support a successful s.47 motion. The cases under s.47 are clear that if there is any doubt about the validity of the lien, the case must proceed to trial. The 031465 New Brunswick case, above cited, is a perfect example of a successful motion that was brought to lift a lien (there, to”vacate”, in our terminology, to”discharge”) before trial on the basis that the claimant cannot legally assert the lien claim.

[72] I now turn my attention to the Gillanis’ counterclaim. If at trial it is found that the contract was not between SG and the plaintiff corporation but rather between SG and MK, then the counterclaim against the plaintiff cannot succeed. That is why the Gillanis have counterclaimed not only against the plaintiff but also against MK, and also against IG, I assume, out of (as the saying goes) an “abundance of caution”. But this cannot be validly done in a construction lien action for reasons that I will make clear below.

[73] So yet a further motion, this time by the defendants-by-counterclaim, IG and MK, is also likely. That a counterclaim against non-parties cannot be asserted in a construction lien action is clear because of s. 55(2) of the Act and the case of Wharton Enterprises Ltd. v. Brompton Financial Corp. (1990), 37 C.L.R. 121 which was approved in the later case of Bay City Carpentry Inc. v. Matushovsky, [1999] O.J. No.506; 1999 CarswellOnt 482 (Ont. C.A.). If this motion to strike out the counterclaim against MK and IG were brought and the order obtained, this might well generate a second ordinary action by the Gillanis against MK, and probably also against IG, again, “out of an abundance of caution”, to try and recover the alleged overpayment and other damages, and this would then require some sort of motion to ”connect” these two actions under Rule 6.01 by having the lien action and the second action both tried by a judge or having the second action referred to a master under Rule 54.02(1) so that both actions could be tried together, one way or the other.

[74] But this motion to strike out this counterclaim must be brought before there is a judgment of reference to a construction lien master under s. 58(1) of the Act. Mr. Riberio has indicated in several e-mails to Mr. Soccol that he now wants to move for the judgment of reference as soon as possible and wants Mr. Soccol’s usual consent to facilitate getting the judgment. If no motion to attack the counterclaim against MK and IG is made before the judgment is obtained, and the case proceeds before a construction lien master for trial, it will be too late to attack this irregular counterclaim. This is what happened in Metric Excavation Ltd. v. Ghods Builders Inc., [1993] O.J. No. 2682 where there was an improper joinder of claims under s.55(1) of the Act but no motion was brought to strike out this improper joinder before the case came before me for trial. I held that this improper joinder could not then be successfully attacked at trial because of the wording and legal effect of the judgment of reference. I was directed by that judgment to “determine all questions” raised by the pleadings and the claim that was improperly joined was set forth in the statement of claim and disputed in the statement of defence.

[75] In the present case, Mr. Riberio during argument, noted that the counterclaim against MK and IG was improper. He also pointed out that Mr. Soccol had to be aware of this invalidity because he was counsel for the plaintiff and defendants-by-counterclaim in the case of Biotechnik Inc. v. O’Shanter Developments Co. reported at (2004), 30 C.L.R. (3rd) 52. At p. 54 of this judgment, at para. 46, I pointed out that under s.55 (2) of the Act, a counterclaim against a non-party is not permitted and I cited the above-noted cases for the support of that statement. Perhaps, Mr. Soccol in the present case thought he could get away with asserting this counterclaim against MK and IG and hoped it would not be attacked. But that is not going to happen based on what Mr. Riberio has argued. So, as noted above, yet another procedural motion will likely be brought.

Conclusion

[76] I conclude that the Construction Lien Act procedure that is presently governing this case is most unsuitable, in the peculiar and unique circumstances here, for arriving at the simplest, least expensive, most expeditious and fairest disposition of all the issues that have been raised in this case.

[77] Mr. Ruberio argued that it would be most unfair to his client to deprive it of all the rights given to it under the Construction Lien Act and, especially, the right to have its money claim secured by way of a lien against the property owned by the defendants so that if it is successful, recovery on any judgment will almost certainly be guaranteed (unless the prior mortgagee’s claim “eats up” all the equity which is why the plaintiff has also sued the Royal Bank claiming priority over that mortgage). But those special Construction Lien Act rights have been brought into jeopardy by the conduct of the plaintiff and its “agent”, IG, relating to the cross-examinations as described at the beginning of these reasons. And I must consider the rights and interests not only of the plaintiff but also of the defendants/plaintiffs-by-counterclaim, and the individual defendants-by-counterclaim, in exercising my discretion under s. 47(1).

Jurisdiction to Terminate the Lien Action

[78] Section 47(1) of the Act contains a “General power to discharge lien” as the heading of the section specifies. The section provides that a court may order the discharge of a lien and the dismissal of an action (and other related relief) “upon any proper ground and subject to any terms and conditions that the court considers appropriate in the circumstances”. This is a very broad power that is conferred on the court. In my view, the repeated failure of a lien claimant, or the representative (“agent”) of a lien claimant, to attend for cross-examination and answer proper questions and produce relevant documents could be, depending on the circumstances, a proper ground for ordering the discharge of the lien (and the necessary related relief). In most cases, the fact, as here, of two abortive cross-examinations, by itself, would not be sufficient grounds for discharging a lien under s.47(1). But this behaviour, coupled with the fact that, in this particular case, the Construction Lien Act procedures that generally govern lien actions are inappropriate for achieving, in this case, a fair, expeditious and least costly resolution of all the issues because of all the forseeable procedural hurdles that will likely be needed to be overcome, as noted above, do justify my making an order under s.47(1). I therefore exercise my discretion and order the discharge of the lien, and order the vacating of registration of the lien and certificate of action and the dismissal of the lien action. This will also end the claim against the Royal Bank for priority over their mortgage which claim can only be asserted, under s. 78, in a lien action. And the continued cross-examination will no longer be available or required to be endured because, again, the action will no longer be a lien action.

The Disposition of the Remaining Action

[79] Because the statement of claim pleads a direct contract between the plaintiff and SG and ShG, there exists in this case both a statutory lien action and a common law contract action. The case of Teepee Excavation & Grading Ltd. v. Niran Construction Ltd. (2000), 49 O.R. (3d) 612; (2001), 2000 CanLII 3447 (ON CA), 4 C.L.R. (3d) 193 (Ont. C. A.) makes it clear that in a case such as this, there is both a lien claim and a common law contract claim, and the fact that the lien claim has been dismissed under s. 46(1) or 47(1) of the Act does not mean that the contract claim cannot continue in the same action. The court then has a discretion as to whether to dismiss the contract action as well (with the result that the plaintiff would probably start a new non-lien action) or allow the contract action to continue, using the existing pleadings, but then making it clear what procedure is to govern the continuing action which could be the procedure under the Act, or the procedure under Rule 76, Simplified Procedure, or the procedure under the general Rules of Civil Procedure aside from Rule 76. And where the claim was under $25,000, the court could even transfer the remaining contract action to the Small Claims Court: see Capano v.Rahm 2010 ONSC 3241, [2010] O.J. No.2866; 2010 ONSC 3241, Pitt J. at para.’s 4 and 5.

[80] If the 2-year limitation period under the Limitations Act, 2002, has expired, as would always be the case if the lien action were to be dismissed under sections 37(1) and (2) and 46(1) of the Act, then a court should allow the contract claim to continue in the existing action and direct what procedure is to govern: see 1339408 Ontario Inc. v. 1579138 Ontario Inc. (2007), 71 C.L.R. (3d) 13 (Ont. Div. Ct.). If the limitation period has not expired, the Teepee case, supra, makes it clear that the court has a discretion as to whether to allow the contract claim to go forward in the existing action or to dismiss the entire action with the possibility of the contract claimant starting a new non-lien contract action. And, as noted above, if the contract claim is to continue in the existing action, the court should provide what procedure is to govern: see Cornerstone Estates Ltd. v. Polaris Restorations Inc. (2001), 13 C.L.R. (3d) 174--general Rules of Civil Procedure to apply; Haflidson v. Hollingsworth 2006 CarswellOnt 5092--Rule 76 procedure to apply.

[81] One of the factors to consider when deciding whether to allow the contract action to continue in the existing action or not (where, as here, the limitation period has not expired, since the cause of action arose on or about March 5, 2011) is to consider the stage at which the action is at when the lien claim is dismissed and what steps have already been taken and how much time and money have been invested in the existing action which would be wasted if a new action were to be required. (Of course, it could always be provided that already-conducted examinations for discovery etc. could be used as such in any such new action.)

[82] In this case, the only steps that have been taken are the completion of pleadings so very little time and money have been invested in pursuing this case. Further, if the contract claim in this action were to be allowed to continue, and ordered to be subject to the Rule 76 because this money claim is for less than $100,00, the pleadings would have to be significantly amended especially if the corporate plaintiff or its advisors decide that it is advisable to add MK or MK cob Kandel Constructions as a plaintiff so as to avoid the risk of losing everything because the correct plaintiff was not named. Making the action governed by the Rule 76 would also regularize the counterclaim if it were to be pursued against non-parties as this is allowed. The pleadings would also have to be amended to delete all references to the Construction Lien Act and the claims based thereon.

[83] And since Rule 76 would apply, a rather complex set of provisions in the order would be required to convert this on-its-face lien action into a Rule 76 action and deal with the requirements of Rule 76.02 (4), and Rule 76.09(1)---the 180 day time limit having long passed. And a problem could arise because of Rule 48.14(1) that would also have to be dealt with in the order. Accordingly, I think the best solution is to dismiss the entire action under s. 47(1) (d) without prejudice to the rights of any of the parties to start any fresh action as they may be advised.

Delay

[84] In view of my disposition of this action, it is not necessary to consider the defendants’ request to dismiss this action for delay pursuant to Rule 24. But if I had to decide the issue, I would not dismiss the action for delay as the grounds to do so have not been made out based on the existing jurisprudence.

Security for Costs

[85] In view of my disposition above-noted, it is also not necessary for me to consider the defendants’ request for an order for security for costs. Had this action continued as a lien action, with the plaintiff having security for its claim and costs by reason of the registration of the lien against the defendants’ home, but with the defendants being pursued by a corporation that has, on the evidence, at best, minimal realizable assets so that if the defendants are successful in defending the action and are awarded the costs of defending the action, their chances of recovering on such judgment are quite small, I would have considered either ordering some security for costs to be posted or making an order that the principals of the plaintiff corporation provide a written undertaking to personally pay any costs that might be ordered to be paid by the plaintiff, or even making a combination of these two forms of security order. The cases of Biotechnik Incorporated v. O’Shanter Development Ltd. supra; D.M.S. Concrete Forming Inc. v. Eastern Construction Ltd. (2004), 36 C.L.R. (3d) 153; John Bianchi Grading Ltd. v. Belrock Design Build Inc. (2005), 44 C.L.R. (3d) 196 and 1049086 Ontario Ltd. v. Torbear Contracting Inc. (2005), 49 C.L.R. (3d) 204 would support the making of some type of security for costs order. But since this entire action is being dismissed, I dismiss the motion for security as well.

Costs

[86] There are two issues with respect to costs. One is the costs thrown away by reason of the two abortive cross-examinations. The defendants are now claiming $5503.63(see ex. K to the affidavit of Cheryl Wong sworn March 8, 2012). The plaintiff has offered to pay $224.30. I rule that the costs thrown away should be fixed at $3500 plus HST of $455, plus disbursements of $608.40 plus HST of $51.79 for a total of $4615.19, and order that these costs be paid by the plaintiff to the defendants forthwith.

[87] As to the costs of this motion, the defendants were successful on their s. 47(1) motion seeking to have the lien discharged and the action dismissed. Leave of the court under s. 67(2) is not required for a motion under s. 47 which is one that is “authorized” by the Construction Lien Act. Leave is required for a motion for security for costs or for dismissal for delay under Rule 24 but since I dismissed those motions as being unnecessary once I dismissed the entire action, I do not have to grant leave. The relief granted by my rulings as above-noted was asked for in para.’s 17,18,22,23 and 33(b) of the defendants’ Factum as well as in the Notice of Motion. The defendants are entitled to their costs of this motion on a partial indemnity basis which are also to be paid forthwith once the quantum has been determined.

[88] As to quantum, I will deal with this issue by written submissions. The defendants’ submissions on the quantum of costs, and a draft Bill of Costs, shall be served, and filed with my Assistant Trial Co-ordinator, Al Noronha, within 10 days of the date of release of these reasons. The submissions, including the Bill of Costs, shall not exceed 5 pages in length, one-sided, double spaced, standard margins. Any reply submissions shall be served, and filed with Mr. Noronha, within 10 days after being served with the defendants’ costs submissions, and the same format restrictions above-noted shall apply.

[89] I will advise counsel of my ruling on quantum and Mr. Soccol can then draft an order (making detailed reference to the registration #’s and dates of registration of the claim for lien and certificate of action whose registrations are being vacated and attaching a legal description of the lands) and providing for the discharge of the lien, and the dismissal of the action and the counterclaim, and adding the costs rulings. Mr. Soccol shall send the draft order to Mr. Riberio for approval as to form, and then the original order, and the approved draft, shall be left with Mr. Noronha for my signature.

[90] If there is any dispute about the form of the order, my ATC, Mr. Noronha, should be notified and a telephone conference will be scheduled to settle any dispute. I doubt this will be necessary as the form of the order is routine and I expect counsel to co-operate in this administrative task.

[91] Because I am vacating registration of the certificate of action, Mr. Soccol should also provide me with an up-to-date title search when he leaves the draft order for my signature so I can ensure that there are no sheltering liens under the existing certificate.

Date of Release: June 12, 2012 ”D.H. Sandler”

Master D.H. Sandler