ONTARIO
SUPERIOR COURT OF JUSTICE
CONSOLIDATED COURT FILE NO.: CV-14-236
DATE: 20150807
BETWEEN:
Northridge Homes Ltd.
Eric Gionet, for the Plaintiff
Plaintiff
- and -
The Travellers Motel (Owen Sound) Limited, Chandra Grewal, Pirithi Grewal and First Source Mortgage Corporation
Defendants
Allen Wilford, for the Defendants The Travellers Motel (Owen Sound) Limited, Chandra Grewal and Pirithi Grewal.
Jeff Larry for the Defendant First Source Mortgage Corporation
- and –
Harold Sutherland Construction Ltd.
Douglas Grace, for the Plaintiff
Plaintiff
- and -
The Travellers Motel (Owen Sound) Limited, Chandra Grewal, Pirithi Grewal and First Source Mortgage Corporation
Defendants
Allen Wilford, for the Defendants The Travellers Motel (Owen Sound) Limited, Chandra Grewal and Pirithi Grewal.
Jeff Larry for the Defendant First Source Mortgage Corporation
- and –
CAAJ Construction Inc., 2156559 Ontario Inc., Preet Plumbing & Heating Ltd., A & M Heating & Air Conditioning Ltd., New Starline Painting Ltd. and
Marble and Granite Stonecraft Ltd.
Harjaap Mann, for the Plaintiffs
Plaintiffs
- and -
The Travellers Motel (Owen Sound) Limited, Chandra Grewal, Pirithi Grewal and Northridge Homes Ltd.
Defendants
Allen Wilford, for the Defendants The Travellers Motel (Owen Sound) Limited, Chandra Grewal and Pirithi Grewal.
Eric Gionet, for the Defendant Northridge Homes Ltd.
REASONS FOR DECISION ON MOTIONS
Conlan J.
I. INTRODUCTION
[1] The background that follows is borrowed from my Reasons for Decision on a prior Motion, reported at 2015 ONSC 3743, at paragraphs 1 through 6.
On August 7, 2013, an Owner/Contractor Agreement (“Contract”) was executed by Mr. Dave Rai for Northridge Homes Ltd. (“Northridge”), as the contractor, and Traveller’s Motel Owen Sound (“Motel”), Mr. Pirithi Grewal and Ms. Chandra Grewal (collectively the “Grewals”), as owners.
The Contract was for the construction of a new building on the Motel property located on 9th Avenue East in Owen Sound. The Contract amount was $900,000.00 plus taxes, with some stipulations and a limited scope of work. The commencement date was August 26, 2013, and the completion date was six months thereafter.
From time to time, Change Orders (amendments to the Contract) were signed by the parties. And, from time to time, subcontractors were engaged for some of the work.
It is now June 2015. The construction has not been completed. The Grewals are still operating the Motel. First Source Mortgage Corporation (“First Source”) has taken steps to enforce an alleged default on its mortgage. Very recently, a Notice of Sale was issued. Northridge, the subcontractors and Harold Sutherland Construction Ltd. (“Sutherland”) have advanced lien claims against the property and have issued Statements of Claim under the Construction Lien Act, R.S.O. 1990, chapter C.30, as amended (“CLA”). The Court actions were commenced in September and October 2014 as the result of alleged non-payment by the Motel and the Grewals.
On June 9, 2015, in Owen Sound, I heard a Motion brought by the Motel and the Grewals. That Motion was opposed by Northridge, the subcontractors (CAAJ Construction Inc., 2156559 Ontario Inc., Preet Plumbing & Heating Ltd., A&M Heating & Air Conditioning Ltd., New Starline Painting Ltd. and Marble and Granite Stonecraft Ltd.) and Sutherland. That Motion is not the primary concern of First Source – it simply wants to be paid what it is owed or at least have the mortgage brought in to good standing, failing which it intends to realize on its security.
The Motion brought by the Motel and the Grewals was for some 25 heads of relief, most principally to (i) consolidate three Court files (which relief was granted, unopposed, on an earlier date), (ii) for security for costs (which request was dismissed as abandoned at the commencement of the Court hearing on June 9, 2015), and (iii) to strike/discharge/vacate all of the liens registered by the other parties (which relief is the subject of these Reasons).
[2] I dismissed the Motion referred to above brought by The Travellers Motel (Owen Sound) Limited (“Motel”) and Pirithi Grewal and Chandra Grewal (the “Grewals”). In subsequent Reasons, I resolved the issue of costs of that Motion.
[3] The subject of the within decision is a request by Northridge Homes Ltd. (“Northridge”) to (i) set aside the noting in default against Northridge filed by the Motel and the Grewals in the context of their Counterclaim in Court File No. 14-236; (ii) strike out the entirety of paragraphs 110 and 118 of the Motel and the Grewals’ Statement of Defence and Counterclaim in that same Court File, without leave to amend; (iii) strike out portions of paragraphs 8, 11, 104, 105, 113 and 117 of that same pleading in that same Court File, without leave to amend; (iv) dismiss the claims advanced in paragraphs 126(b) and 126(d) of that same pleading in that same Court File; (v) set aside the noting in default against Northridge filed by the Motel and the Grewals in the context of their Crossclaim in Court File No. 14-251; (vi) strike out the entirety of paragraph 116 of the Motel and the Grewals’ Statement of Defence and Crossclaim in that same Court File, without leave to amend; (vii) strike out portions of paragraphs 10, 110, 119 and 124 of that same pleading in that same Court File, without leave to amend; and (viii) dismiss the claim advanced in paragraph 128(e) of that same pleading in that same Court File.
[4] Originally, there were two separate Motions brought by Northridge – one in Court File No. 14-236 and one in Court File No. 14-251. Those Court Files, by Order on consent, have since been consolidated.
[5] By agreement of all interested parties, these Motions brought by Northridge were decided on the basis of the written materials filed. There were no oral submissions.
[6] I have reviewed all of the pleadings, the two Motion Records and the two Supplemental Motion Records filed by Northridge, the two Facta and the two Briefs of Authorities filed by Northridge (those materials filed by Northridge are very similar or in some cases identical in the two former Court Files), the two Facta filed by the Motel and the Grewals (one of which includes the Affidavit sworn by Ms. Armstrong), and the Book of Authorities filed by the Motel and the Grewals (two volumes).
II. THE POSITIONS OF THE PARTIES
Northridge
[7] Northridge argues that it always intended to defend the Motel and the Grewals’ Counterclaim against it in Court File No. 14-236; that counsel for the Motel and the Grewals knew that but noted Northridge in default anyways; and that it is in the interests of justice to set aside the noting in default.
[8] Essentially, Northridge makes the same arguments in favour of setting aside the noting in default against it regarding the Crossclaim advanced by the Motel and the Grewals in Court File No. 14-251.
[9] Northridge submits that paragraphs 8, 11, 104, 105, 110, 113, 117 and 118 of the Motel and the Grewals’ Statement of Defence and Counterclaim in Court File No. 14-236 are improper because they contain personal allegations against Dave Rai (who is a principal of Northridge but not a named party to the action).
[10] In the context of Court File No. 14-251, Northridge makes the same submission in support of its request to strike paragraphs 10, 110, 116, 119 and 124 of the Motel and the Grewals’ Statement of Defence and Crossclaim.
[11] Northridge submits that paragraphs 8, 11, 104, 105, 110, 113, 118, 126(b) and 126(d) of the Motel and the Grewals’ pleading in Court File No. 14-236 are improper because they make allegations of a breach of trust, contrary to subsection 50(2) of the Construction Lien Act, R.S.O. 1990, Chapter C.30, as amended (“CLA”).
[12] In the context of Court File No. 14-251, Northridge makes the same submission in support of its request to strike paragraphs 10, 110, 116, 119, 124 and 128(e) of the Motel and the Grewals’ Statement of Defence and Crossclaim.
[13] Further or in the alternative, Northridge submits that all or some of the paragraphs complained about in the said two pleadings of the Motel and the Grewals are prejudicial, scandalous, frivolous, vexatious and/or an abuse of the process of the Court.
[14] Finally, Northridge argues that the claims advanced by the Motel and the Grewals in paragraphs 126(b) and 126(d) of their Counterclaim (Court File No. 14-236) and paragraph 128(e) of their Crossclaim (Court File No. 14-251) ought to be dismissed as they allege breach of trust, which claims are expressly prohibited under the CLA.
The Motel and the Grewals
[15] The Motel and the Grewals argue that Northridge has demonstrated no good reason for failing to file its Defences on time. Further, Northridge has not always intended to act promptly and defend the Counterclaim (Court File No. 14-236) and Crossclaim (Court File No. 14-251). Finally, Northridge does not have a meritorious defence to either the Counterclaim or the Crossclaim, and thus, the noting in default against Northridge in both actions ought not to be set aside.
[16] The principal argument put forward by the Motel and the Grewals against the request by Northridge to strike certain paragraphs in their pleadings (those related to breach of trust) is that the CLA does not prohibit those claims in the specific context of a Counterclaim or Crossclaim (as opposed to a Statement of Claim). Alternatively, it is submitted that “the paragraphs sought to be struck out are essential to the proceedings and are so intertwined that removing the paragraphs sought to be struck out would not be just…” (page 32 of the Motel and the Grewals’ Factum – the 39-page one).
III. ANALYSIS and CONCLUSION
The Law
[17] In terms of the test for setting aside the noting in default, I am prepared to adopt the framework outlined by Master Albert of the Ontario Superior Court of Justice in the fairly recent decision in Volvo Rents v. ABCO One Corporation and City of Toronto, 2014 ONSC 1045, a decision filed by the Motel and the Grewals.
[18] Although in Volvo, supra it was the Defendant ABCO who was moving to set aside the noting in default against it regarding the lien claim brought by Volvo (and not the Plaintiff moving to set aside the noting in default against it in the context of a Counterclaim and Crossclaim, as here), the principles outlined by Master Albert are helpful. The following are paragraphs 5, 6 and 7 of the decision in Volvo, supra.
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 Act further provides at section 67 that where the Rules of Civil Practice and the Act conflict, the Act prevails.
Under the rules the relevant considerations on a motion to set aside the noting of a defendant in default are:
a) Whether the defendant has a good reason for failing to deliver a defence in time; and
b) 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.
[19] With regard to whether a trust claim may be joined with a lien claim, subsections 50(1), (2) and (3) of the CLA provide as follows.
- (1) A lien claim is enforceable in an action in the Superior Court of Justice in accordance with the procedure set out in this Part.
(2) A trust claim shall not be joined with a lien claim but may be brought in any court of competent jurisdiction.
(3) Any number of lien claimants whose liens are in respect of the same owner and the same premises may join in the same action.
[20] The rationale for the above subsections of the CLA is outlined in the decision of Justice Smith at paragraph 22 in Tri-Tec Drywall Services Ltd. v. Wilson Memorial General Hospital, 2005 CarswellOnt 3550 (S.C.J.).
- This is a lien action – it is not a trust action. Section 50(2) of the CLA does not permit a trust action to be joined with a lien action. The rationale for this distinction is found in the Report of the Attorney General’s Advisory Committee on the Draft Construction Lien Act at p. 47:
While the principles of joining these different claims is attractive in theory, in practice the joining of these different types of claims likely would result in hardship for many lien claimants. The issues as well as the parties would often be very different in a claim for lien as opposed to a trust claim. The avoidance of undue delay in the resolution of lien claims should be the primary purpose of the Act.
[21] Rule 25.11 of the Rules of Civil Procedure provides as follows.
25.11 The court may strike out or expunge all or part of a pleading or other document, with or without leave to amend, on the ground that the pleading or other document,
(a) may prejudice or delay the fair trial of the action;
(b) is scandalous, frivolous or vexatious; or
(c) is an abuse of the process of the court. R.R.O. 1990, Reg. 194, r. 25.11.
The Law as Applied to this Case
[22] There is no question that the noting in default against Northridge, both regarding the Counterclaim (Court File No. 14-236) and the Crossclaim (Court File No. 14-251), ought to be set aside.
[23] The Affidavit of Erin Durant, a lawyer assisting counsel for Northridge, sworn on April 14, 2015, sets out a sufficiently good explanation for Northridge’s failure to deliver Defences on time regarding both the Counterclaim and the Crossclaim. Counsel for Northridge was provided with the Motel and the Grewals’ pleadings. Counsel for Northridge then contacted counsel for the Motel and the Grewals. Whether there was in fact an agreement or not to refrain from noting Northridge in default, it is clear that, in addition to preparing Defences to the Counterclaim and the Crossclaim, Northridge intended to move to strike certain portions of those pleadings delivered by the Motel and the Grewals. That intention, alone, provides good reason for Northridge having failed to strictly comply with the timelines for its Defences.
[24] The Motel and the Grewals’ Statement of Defence and Counterclaim was served on November 11, 2014. Just one month later, on December 11, 2014, counsel for Northridge sent to counsel for the Motel and the Grewals Northridge’s Reply and Defence to Counterclaim.
[25] The Motel and the Grewals’ Statement of Defence and Crossclaim was served on November 11, 2014. Just one month later, on December 12, 2014, having just served its Defence to Counterclaim in the companion action, Northridge (through Mr. Gionet) put counsel for the Motel and the Grewals on notice that Northridge intended to defend the Crossclaim and would be bringing a Motion to strike certain portions of the Motel and the Grewals’ pleadings.
[26] Clearly, Northridge had a continuous intention to defend both the Counterclaim and the Crossclaim.
[27] In terms of whether Northridge acted promptly to set aside the noting in default upon learning of it, I accept the evidence of Ms. Durant that she learned of the noting in default against Northridge only when reviewing the materials served by the Motel and the Grewals in support of their Motion to strike the liens. Immediately, the Court was contacted by counsel for Northridge and their materials were amended to include the request to set aside the noting in default in both former Court Files.
[28] Finally, as to whether Northridge has shown a meritorious defence to the Counterclaim and the Crossclaim, the Reply and Defence to Counterclaim (Exhibit W to Ms. Durant’s Affidavit) provides ample grounds to conclude that Northridge has plausible arguments against the relief sought in both the Counterclaim and the Crossclaim advanced by the Motel and the Grewals. As Master Albert put it at paragraph 35 in the decision in Volvo, supra, is there any merit to the proposed defence? Yes there is. Northridge may or may not succeed, however, this is not a case where the proposed defence is devoid of any merit or, even worse, where there is no evidence put forward of any defence at all.
[29] Northridge has established on balance all three components of the test outlined in Volvo, supra, and thus, the noting in default against Northridge shall be set aside – both with regard to the Counterclaim (Court File No. 14-236) and the Crossclaim (Court File No. 14-251).
[30] Moving on to whether certain portions of the Motel and the Grewals’ pleadings ought to be struck or dismissed, I reject the argument made by Northridge that the impugned paragraphs ought to be struck because they contain personal allegations against Mr. Rai.
[31] Although it is true that pleadings ought to generally be confined to the parties to the action, and although Mr. Rai is not a named party, and although Northridge has filed some case law where the Courts have struck paragraphs of a pleading on the basis that they contain allegations against a non-party in the context of construction lien litigation (in one case a solicitor, for example), it is obvious to me that the facts of this case are different.
[32] In essence, Mr. Rai is Northridge, at least from the perspective of the Motel and the Grewals. To strike the impugned paragraphs of the Motel and the Grewals’ pleadings now, at this stage on a Motion, solely on the basis that they refer to Mr. Rai personally, would be unjust in my opinion. If the case ends up at trial and those allegations against Mr. Rai are found to be baseless, at least those that survive the within decision, then there will undoubtedly be costs consequences to the Motel and the Grewals.
[33] As for whether some or all of the complained about paragraphs in the Motel and the Grewals’ pleadings ought to be struck in accordance with Rule 25.11 of the Rules of Civil Procedure, I adopt the following summary of the applicable legal principles set out by Justice Nordheimer at paragraph 21 in Abdi Jama (Litigation Guardian of) v. McDonald’s Restaurants of Canada Ltd., 2001 CarswellOnt 939 (S.C.J.).
- …Those principles include:
(a) motions under rule 25.11 should only be granted in the “clearest of cases” – see Wernikowski v. Kirkland, Murphy & Ain (1999), 1999 3822 (ON CA), 181 D.L.R. (4th) 625 (Ont.C.A.);
(b) any fact which can effect the determination of the rights of the parties can be pleaded but the court will not allow facts to be alleged that are immaterial or irrelevant to the issues in the action – see Duryea v. Kaufman (1910), 21 O.L.R. 161 (Ont. Master);
(c) portions of a pleading that are irrelevant, argumentative or inserted for colour, or that constitute bare allegations should be struck out as scandalous – see George v. Harris, [2000] O.J. No. 1762 (Ont.S.C.J.);
(d) facts may be pleaded but not the evidence by which those facts are to be proved – rule 25.06(1) of the Rules of Civil Procedure;
(e) similar facts may be pleaded as long as the added complexity arising from their pleading does not outweigh their potential probative value – see Garwood Financial Ltd. v. Wallace (1997), 1997 12276 (ON SC), 35 O.R. (3d) 280 (Ont.Gen.Div.).
[34] This is not one of those clearest of cases. I agree with Northridge that some of the impugned paragraphs are, shall we say, hyperbolic. They certainly have a flare for argument and colour, however, I think that they fall shy of being unduly prejudicial, scandalous, frivolous, vexatious and/or an abuse of the process of the Court.
[35] Regarding whether portions of the Motel and the Grewals’ pleadings ought to be struck/dismissed by virtue of the provisions of the CLA itself, I agree with Northridge.
[36] However attractive the statutory interpretation arguments put forward by the Motel and the Grewals’ may be, in the end the magnetism of that position loses its luster.
[37] Because they are statute-barred under subsection 50(2) of the CLA, all of the following portions of the Motel and the Grewals’ pleadings are struck (or, where applicable as being a claim, dismissed): paragraphs 8, 11, 104, 105, 110, 113, 118, 126(b) and 126(d) of the Motel and the Grewals’ pleading in Court File No. 14-236; and paragraphs 10, 110, 116, 119, 124 and 128(e) of the Motel and the Grewals’ pleading in Court File No. 14-251.
[38] If the Motel and the Grewals wish to amend their pleadings in a way that will not run afoul of the CLA, then they may provide their draft amended pleadings to the other parties and to the Court by 4:00 p.m. on August 14, 2015. If the amendments are on consent, fine. If not, then counsel shall contact the Trial Coordinator in Owen Sound to arrange a date and time to address the issues before me (whether in person or by teleconference).
[39] Regardless of whether the Motel and the Grewals’ pleadings are amended, new ones shall be served and filed so that the consolidated Court File is not burdened by pleadings which have, in part, been struck. Of course, the original pleadings shall be maintained in a separate folder in the Court File.
[40] In my view, to adopt the interpretation of section 50 of the CLA advocated for by counsel for the Motel and the Grewals would gut the object of the legislation as outlined by Justice Smith in Tri-Tec, supra. The purpose of the legislation is to make lien proceedings more efficient, period. That includes all claims, whether by Statement of Claim, Counterclaim, Crossclaim or Third Party Claim.
[41] I find some comfort in my decision in that of Justice Platana in Salter Farrow Pilon Architects Inc. v. Thunder Bay Regional Hospital, 2006 CarswellOnt 7471 (S.C.J.). In that case, the Defendant wanted to add a counterclaim to its Statement of Defence. The proposed counterclaim contained a trust claim. For various reasons, including subsection 50(2) of the CLA, the Defendant’s request was denied (see paragraphs 85 and 86 of the decision of Platana J.).
[42] The allegations of breach of trust and the trust claims advanced by the Motel and the Grewals are barred by the legislation. It matters not that they are contained in a Counterclaim and Crossclaim.
Conclusion
[43] The Motions brought by Northridge are allowed. The noting of default is set aside in each of the former Court Files. Certain of the paragraphs of the Motel and the Grewals’ pleadings are struck, with leave to amend if desired and with Court approval, in so far as those paragraphs offend subsection 50(2) of the CLA. No paragraphs are struck on either of the other grounds advanced by Northridge - the personal allegations against Mr. Rai and Rule 25.11.
[44] In the normal course, as the largely successful party on the Motions, Northridge would be entitled to some costs. If the parties cannot settle the issue of costs, I will accept written submissions. Each submission shall be limited to two pages, excluding supporting documents (such as a Bill of Costs and any settlement offer or offers). Northridge’s submissions are due by 4:00 p.m. on August 21, 2015. The Motel and the Grewals’ submissions are due by 4:00 p.m. on August 28, 2015. No reply is allowed.
Conlan J.
Released: August 7, 2015
COURT FILE NO.: CV-14-236
DATE: 20150807
ONTARIO
SUPERIOR COURT OF JUSTICE
BETWEEN:
Northridge Homes Ltd. et al.
Plaintiffs
- and -
The Travellers Motel (Owen Sound) Limited et al.
Defendants
REASONS FOR DECISION ON MOTIONS
Conlan J.
Released: August 7, 2015