SUPERIOR COURT OF JUSTICE - ONTARIO
2014 ONSC 1616
COURT FILE NO.: CV-12-461038
DATE: March 12, 2014
RE:
DM Urban-Scape Property Developments Ltd. operating as Sheffield Contracting v. Body Blitz Spa East Inc., Body Blitz Construction Inc., Body Blitz Spa Inc. and Equinox Development Inc.
BEFORE: Master C. Albert
APPEARING:
D Monaco, officer, for plaintiff, moving party, email: sheffieldcontracting@yahoo.com
A. Habas, counsel, for defendant Body Blitz, responding party, Fax: 416-869-0321
C. Raphael, counsel, for defendant Equinox, Fax: 416-863-1515
HEARD: February 19, 2014
ENDORSEMENT
DM Urban-Scape Property Developments Ltd. operating as Sheffield Contracting (“Sheffield”) registered claims for lien for $489,916.00 on May 31, 2012 and June 26, 2012 as instruments AT3032150 and AT3056244 and issued an action against Body Blitz Spa East Inc., Body Blitz Construction Inc., Body Blitz Spa Inc. (“Body Blitz”) and Equinox Development Inc. (“Equinox”) on August 10, 2012. Equinox issued a counterclaim against Sheffield on or about September 6, 2012 and on May 2, 2013 Equinox noted Sheffield in default for failing to deliver a defence to the counterclaim.
In this motion Sheffield asks for leave pursuant to rule 15.01(2) for Diego Monaco, who is president of Sheffield but not a lawyer, to represent the company and also asks the court to set aside the noting of Sheffield, as defendant in the counterclaim, in default.
The grounds for the motion for Mr. Diego to represent the company are:
a) Sheffield’s former lawyer’s motion to be removed from the record was granted by Master Wiebe on June 12, 2013;
b) Sheffield is a small corporation and Mr. Diego its sole director. As such, Mr. Diego has the authority to bind Sheffield;
c) Sheffield cannot afford to retain a lawyer but will consult a lawyer as required; and
d) Mr. Diego is capable of adequately representing the corporation.
- In his notice of motion Mr. Diego does not specify the grounds upon which the noting of Sheffield in default should be set aside. At the hearing of the motion he argued that the reason to set aside Sheffield’s default is that the defendant Equinox, plaintiff by counterclaim, must prove its counterclaim at trial.
I. Leave for a person who is not a lawyer to represent a corporate litigant
- Rule 15.01(2) provides:
“A party to a proceeding that is a corporation shall be represented by a lawyer, except with leave of the court.”
- That Mr. Monaco has authority from Sheffield is admitted. The remaining relevant factors on the motion to represent the company are whether the company financially unable to retain counsel and whether the proposed representative capable of representing the company in the civil action (see: JC Nature Source Health Centre Inc. v Iso Renovation Design[^1]).
a) Financial inability to retain counsel
Master Wiebe, faced with the same Sheffield motion for Mr. Monaco to represent the company, dismissed it for lack of financial information, without prejudice to Sheffield bringing the motion back before the court with better evidence.
Sheffield’s evidence on the present motion on the issue of financial inability consists of bald statements by Mr. Monaco in his affidavit evidence that the company does not have the financial means to retain counsel, and letters setting out bank balances on a particular date. When asked on cross-examination to produce the company’s financial statements and tax returns Mr. Monaco responded that the company does not have any financial statements and the tax returns are privileged. Mr. Monaco clearly did not understand legal privilege or that tax returns of a company seeking relief based on financial circumstances are relevant.
Similarly, on cross-examination, Mr. Monaco refused to produce the company’s bank statements. The company’s bank statements are not privileged and are relevant.
Mr. Monaco also refused to produce his own tax returns. As a one-person company, considering the relief sought, Mr. Monaco’s personal tax returns are relevant to the issue of whether the company has the ability to borrow from its principal to fund retaining legal representation.
The court draws the inference, from this lack of evidence and failure to produce relevant documents, that Sheffield has the financial means to retain counsel.
b) Is the proposed representative capable of representing Sheffield in this civil action?
In Lamond v Smith[^2] Justice Quinn explained the rationale for the rule regarding representation of a company in civil litigation, and the factors that the court should consider on a motion for leave under rule 15.01(2). Justice Quinn noted that protecting a company from unauthorized representation does not apply in situations where the principal of a one-person company seeks leave to represent the company.
Lamond applies to Mr. Monaco and his small, one person company Sheffield, on the issue of authority to represent the company. Ability to handle the litigation is a different factor. The court, on a leave motion, must consider whether the proposed representative is capable of representing the company (see: JC Nature Source Health Centre Inc. v Iso Renovation Design, supra, and cases cited therein).
A self-represented litigant who is incapable of navigating the complex waters of a civil lawsuit inevitably drives up the cost of litigation to the opposite party. If that self-represented litigant is a corporation, it has the ability to shield behind the corporate veil, unlike an individual who is personally at risk.
In this case Mr. Monaco’s conduct of this proceeding to date is reason to be concerned about whether he is capable of representing the company. Examples are:
a) By order of June 12, 2013 Master Wiebe allowed Sheffield’s solicitor to be removed from the record and included in the order notice that Sheffield had been noted in default on the counterclaim. Sheffield’s motion for leave for Mr. Monaco to represent the company and to set aside the noting in default on the counterclaim was brought on quickly, but the materials were completely inadequate. On June 26, 2013 Master Wiebe dismissed the motion to set aside the noting in default without prejudice to bringing it back on proper evidence, and he expressed concern over Mr. Monaco’s ability to represent the company based on how he had handled the motion. He granted leave for Mr. Monaco to represent the company for the limited purpose of bringing the present motion.
b) Mr. Monaco failed to follow the directions given by Master Wiebe in his June 26, 2013 endorsement as to the evidence required on a motion under the Construction Lien Act to set aside a default.
c) Mr. Monaco was cross-examined on January 15, 2014 on the two affidavits he filed in support of this motion. When asked about the affidavits (questions 88 through 90) he responded that he did not have them. He explained on the record that he did not bring them to the cross-examination because his car broke down and he had to take a cab and so he only took what was in the car. A lawyer, or a representative capable of representing a company, would know that when attending a cross-examination on specific affidavits, the party being questioned should bring copies of those affidavits. If his car broke down on the way to the cross-examination he ought to have had the affidavits with him. If it broke down before he left for the examination he similarly should have had the affidavits with him. His explanation is evasive and unsatisfactory and demonstrates his inability to conduct the litigation properly.
d) Mr. Monaco was not forthcoming with his answers on cross-examination. In particular his answers when questioned about efforts to regain possession of his documents from his former lawyer were particularly evasive (see transcript, beginning at question 115).
e) Mr. Monaco’s characterization of his relationship with Weir, Foulds, LLP is misleading. He represented to the court that Weir, Foulds, LLP is on standby to assist him throughout this construction lien reference. The documents filed in his evidence show that the contrary is the case: Wier, Foulds, LLP was retained for the limited purpose of advising Mr. Monaco and his company on the February 19, 2014 motion.
The retainer letter dated January 21, 2014 is on Weir, Foulds, LLP letterhead. It was filed as exhibit 5 to the affidavit of Diego Monaco sworn February 14, 2014 and describes the “Scope of Service” as follows:
“To provide legal services and advice to DM Urban-Scape Property Development Ltd. o/a Sheffield Contracting with respect to its construction dispute with Equinox Development Inc., Body Blitz Spa East Inc., and/ or Body Blitz Spa Inc. regarding a construction project located at 497 King Street East, Toronto, Ontario, specifically, general advice on the form and procedure to prepare for your motion to represent your company as its legal representative.” Emphasis added
The retainer payment, in the form of a bank draft for $1,500.00 payable to Weir, Foulds, LLP in trust, filed as exhibit 7 to the affidavit of Diego Monaco sworn February 14, 2014, is dated February 14, 2014 and on the “re” line describes what the payment is for, as follows:
“ Limited retainer B.B.S. Motion Feb. 19, 2014”
Based on this evidence I find that, contrary to Mr. Monaco’s representation to the court as to the scope of the Weir, Foulds, LLP retainer extending to advising him throughout the duration of this construction lien reference, the retainer is confined to the February 19, 2014 motion.
If the court grants leave Mr. Monaco is not required to have a lawyer in the background assisting him. But it is significant to this motion that Mr. Monaco does not understand the limited scope of the Weir, Foulds, LP retainer. He seems incapable of grasping a basic legal concept as reflected in his contractual arrangement with his lawyer. This causes me to question whether he has the ability to represent Sheffield in a case wherein the company is claiming almost half a million dollars.
f) Despite a long outstanding obligation to comply with undertakings he gave at a cross-examination on June 14, 2012, Mr. Monaco took no steps to comply with the undertakings prior to June 2013, when he was still represented by counsel of record, and no steps for more than five months thereafter to obtain his documents from his former lawyer so that he could answer his undertakings. His explanation is that he did not need his documents prior to December 2013 so he did not ask for them.
g) The answers to undertakings that Mr. Monaco eventually provided to the defendants on December 6, 2013 (one and a half years after the cross-examination), filed at tab 15 of the Body Blitz responding motion record, demonstrate that Mr. Monaco is not capable of adequately representing Sheffield:
i) As to the form of his response, he failed to use question numbers from the transcript to identify the questions being answered, rendering it time consuming and more expensive for the defendants to match responses to outstanding undertakings; and
ii) As to the substance of his responses, Mr. Monaco answered 16 out of 28 undertakings with the explanation that he could not answer the undertakings because the information is with his previous solicitor. If that is the case his answer to the court that he did not require these documents prior to December 2013 is wrong. He required his documents the moment his previous lawyer ceased acting for Sheffield.
Mr. Monaco appears not to have understood his legal obligation to take the steps necessary to obtain the information from his former lawyer so that he could answer his undertakings promptly. Alternatively, he deliberately mislead the court when he stated that he did not need his documents from his former lawyer prior to December 2013. Either way, this is another example that demonstrates to the court that Mr. Monaco is not capable of adequately representing Sheffield in the litigation.
The defendants argue that it would be grossly unfair to them to allow Mr. Monaco to represent Sheffield. They express concern that it would drive up their costs, require excessive motions to compel answers and productions that a lawyer would know must be produced, and would be prejudicial because of Mr. Monaco’s demonstrated inclination to provide misleading answers.
The court agrees. No one expects a layperson to conduct litigation as efficiently as a lawyer who has undergone many years of legal training and has civil trial experience. However there is a point at which it is inappropriate to permit a layperson to represent a company. In my view, a person who fails to understand the meaning of simple documents, and who deliberately mischaracterizes straightforward facts and evidence is not capable of adequately representing a corporation.
Mr. Monaco has demonstrated that he is not capable of conducting this litigation in a responsible manner. His motion to represent Sheffield is refused. Sheffield shall have thirty days from the date this decision is released to retain a new lawyer and file a notice of appointment of solicitor.
II. Setting aside noting in default
Equinox, the project manager on the construction project, counterclaims for $250,000.00 for rectification and completion costs, alleging that Sheffield did not carry out its work properly. The counterclaim was issued and served on or about September 6, 2012. Sheffield failed to defend and was noted in default almost eight months later, on May 2, 2013.
The Construction Lien Act (the “Act”) provides at section 54 that a defendant noted in default may not contest the claim or file a defence without leave of the court, given only upon satisfying the court that there is evidence to support a defence. The requirement to provide evidence to satisfy the court that there is merit to the proposed defence is mandatory. The Act further provides at section 67 that where the Rules of Civil Practice and the Act conflict, the Act prevails.
In a civil action subject only to the rules but not to the Act, the relevant considerations on a motion to set aside the noting of a defendant in default are whether the defendant has a good reason for failing to deliver a defence in time; and whether the defendant had a continuous intention to defend and acted promptly to set aside the default upon learning of it.
Under the Act the defaulting defendant must meet the additional test of leading evidence to show that the defaulting defendant has a meritorious defence.
a) Reason for default and intention to defend
Mr. Monaco deposes that Sheffield was noted in default because its previous lawyer did not inform Sheffield that a defence was required. No evidence was filed from that lawyer to corroborate this assertion. I accept that Mr. Monaco lost touch with Sheffield’s previous lawyer and was not aware of the counterclaim. On that basis I give Sheffield the benefit of the doubt and accept that Sheffield has a sufficient reason for failing to file a defence to the counterclaim.
Mr. Monaco deposes that he first learned of the default from Master Wiebe’s order of June 13, 2014 removing his former lawyer from the record and notifying Sheffield of the default. He acted promptly to file his motion to set aside the default, returnable June 26, 2014. He did not succeed because his motion materials were deficient.
Mr. Monaco then waited until December 6, 2013 to serve another motion for the same relief. In the interim Body Blitz took steps to obtain a judgment of reference under the Act[^3] and an order for trial[^4]. He attended at the first hearing for directions on November 18, 2013 at which time the court ordered a timetable for this motion and fixed the hearing date of January 22, 2014. At the court’s request (not in any way attributable to Mr. Monaco) the motion was adjourned to February 19, 2014.
I find that once the default was brought the attention of Mr. Monaco, Sheffield had a continuous intention to defend the counterclaim and moved promptly.
b) Has Sheffield provided evidence of a meritorious defence to the claim?
Master Sandler considered the test for setting aside a default judgment in a construction lien case in St. Clair Roofing & Tinsmithing Inc. v Davidson[^5]. The case is relevant because Master Sandler opines that under the Act the test for setting aside a default judgment is the same as the test for setting aside the noting of a defendant in default and the moving party must provide evidence of a meritorious defence.
As stated, section 54 of the Act requires a party moving to set aside a noting in default to provide evidence of a meritorious defence. This criteria is unique to construction lien actions and does not apply to regular civil actions. Master Wiebe explained this requirement to Mr. Monaco on June 26, 2013, when he dismissed Sheffield’s first motion for this relief for lack of evidence of a meritorious defence. Master Wiebe endorsed the record, in part, as follows:
“Concerning the noting in default motion, by his own admission, Mr. Monaco has presented no evidence to support a defence to the counterclaim. Therefore, I am compelled by CLA s.54 and I so order, that that motion is dismissed , but without prejudice to it being brought forward with proper evidence.”
I find that by June 26, 2013 Sheffield and Mr. Monaco were well aware of the requirement to present evidence of a meritorious defence to the Equinox counterclaim.
On this motion, as evidence of a meritorious defence, Sheffield relies on paragraph 9 of Mr. Monaco’s affidavit sworn December 6, 2013:
“Sheffield Contracting has a meritorious action against the defendants body blitz spa and Equinox Development Inc. the defendants have withheld payments in the amount of $490,000 thousand dollars owing to Sheffield Contracting, and currently have enriched by the non payment to Sheffield Contracting.” sic
This purported evidence is not evidence of a meritorious defence to the Equinox counterclaim. Firstly, Mr. Monaco’s bald statement is nothing more than an unsupported allegation. Secondly, it speaks to the Sheffield claim and not to the Equinox counterclaim in which Equinox claims $250,000.00 for rectifying deficiencies and completing the contract work.
Also filed as evidence of a meritorious defence is Shefield’s proposed statement of defence in which Sheffield pleads broad denials of the counterclaim. At paragraph 2 Sheffield pleads:
“2. The defendant Sheffield Contracting by counterclaim denies categorically allegations contained in the statement of defence and counterclaim submitted by equinox development inc. sic Referred in paragraph 7 A, B, C, D, E, F, G, 8, 9, 10, 11, 12, 13, 14, 15, 16, 17-18, A, B, C, D, 19, 20, 21, 22, 23”
“5. Sheffield Contracting comprehensively disputes the Equinox Development Inc. counter Claim with in the claim against Sheffield Contracting in the amount of $250,000.00 to be frivolous and bogus.”
“6. Sheffield Contracting disputes any claims for damages, legal fees, or any claim Equinox may bring against Sheffield Contracting.
“7. Sheffield Contracting has a meritorious claim against Equinox Development Inc. and will proceed to have this claim administered forward by the superior courts justice sic”
The proposed Sheffield pleading is not evidence. Rather, it sets out the allegations that Sheffield proposes to prove through evidence at trial.
To resurrect its entitlement to defend the counterclaim Sheffield must “lead trump”, to borrow a phrase used in summary judgment cases, and provide the court with evidence that there is merit to its proposed defence to the counterclaim so that the court is satisfied that the defence should be permitted to proceed. Sheffield filed no evidence to support the allegations pleaded, contrary to the requirements of section 54 of the Act.
The Divisional Court in Deman Construction Corporation v 1429036 Ontario Inc. et al[^6] found that a motions judge, in making findings of fact based on evidence filed on such a motion, must assess whether there is a meritorious defence. Shefield filed no evidence for the court to assess whether it has a meritorious defence.
This is Sheffield’s second motion for the same relief, the court having previously pointed out to Sheffield the deficiency in its motion materials the first time the motion was before the court.
The Act is designed to provide for the summary disposition of construction lien disputes. The rationale underlying the more stringent test in section 54 of the Act for setting aside the noting of a defendant in default is to avoid unnecessarily prolonging construction lien proceedings.
Sheffield has had two opportunities and has yet to file the evidence required to meet the test under the Act. It would be contrary to section 54 of the Act for the court to grant the relief sought.
For these reasons the motion to set aside Sheffield’s default in defending the counterclaim is dismissed. This time the dismissal is with prejudice: the motion may not be brought a third time.
Conclusion
For all of the reasons Sheffield’s motion for Mr. Monaco to represent the company and to set aside the noting of Sheffield in default on the Equinox counterclaim is dismissed.
Costs: The parties filed their costs outlines at the conclusion of the motion hearing. Counsel may make brief oral submissions as to costs of this motion at the next or a subsequent hearing for directions on the reference.
The next hearing for trial directions shall be convened on June 2, 2014 at 10:00 a.m. by personal attendance at 393 University Avenue, 6th floor, Toronto. The time between release of these reasons and the return date takes into account the time required for Sheffield to retain a lawyer. The purpose of the next hearing for trial directions is to review compliance with directions, review issues for trial, determine the number of days required for trial, consider whether mediation or a settlement conference is appropriate before trial, and other matters to narrow the issues and ensure readiness.
Master C. Albert .
DATE: March 12, 2014
2014 ONSC 1616
COURT FILE NO.: CV-12-461038
DATE: March 12, 2014
SUPERIOR COURT OF JUSTICE - ONTARIO
RE: DM Urban-Scape Property Developments Ltd. v Body Blitz Spa East Inc. et al
BEFORE: Master C. Albert
APPEARANCES:
D Monaco, for plainitff
A. Habas, counsel, for defendant Body Blitz,
K.J. Harild, counsel, for defendant Equinox
ENDORSEMENT
Master C. Albert
[^1]: [2013] O.J. No. 4349 (M.L. Edwards, J.) at para. 11
[^2]: (2004), 2004 6218 (ON SC), 11 C.P.C. (6th) 104; 2004 CarswellOnt 3213; [2004] O.J. No. 3255
[^3]: Order of Justice Wilson of September 9, 2013
[^4]: Order of Master Albert October 2, 2013
[^5]: 1992 7660
[^6]: 2004 34928 at paragraphs 48 - 55