CITATION: Built-Con Contracting Ltd. v. Lisgar Construction Company 2016 ONSC 1720

COURT FILE NO.: CV-11-429070

DATE: March 9, 2016

SUPERIOR COURT OF JUSTICE - ONTARIO

RE: Built-Con Contracting Ltd. v. Lisgar Construction Company a Division of United Shelters Limited;

BEFORE: MASTER C. WIEBE

COUNSEL: Ann A. Hatsios for Lisgar Construction Company, a Division of United Shelters Limited; Justin P. Baichoo for Built-Con Contracting Ltd.;

HEARD: March 7, 2016 at Toronto, Ontario.

REASONS FOR DECISION

I. INTRODUCTION

[1] Lisgar Construction Company (“Lisgar”) brings a motion for an order declaring the claim for lien of Built-Con Contracting Ltd. (“Built-Con”) expired, returning the posted lien bond security to Lisgar, dismissing the lien action, setting aside the noting of Lisgar in default and the default judgment against Lisgar, setting aside any writs, garnishments and other enforcement orders issued against Lisgar concerning this default judgment, and permitting Lisgar to defend the contract action. Built-Con opposes the motion in its entirety.

[2] Having reviewed the motion material and heard argument, I have decided to dismiss the motion as it relates to the default judgment, but allow the motion as it relates to declaring the Built-Con claim for lien expired.

II. BACKGROUND

[3] Built-Con provided services and materials to Lisgar in relation to certain property owned by Toronto Community Housing Corporation. On May 6, 2011 Built-Con registered a claim for lien of $30,664.34 on the title to the property. On June 10, 2011, Lisgar posted lien bond security for the Built-Con claim for lien and obtained an ex parte order from Master Short vacating that claim for lien. The lawyer for Lisgar was Joel Kuchar.

[4] Mr. Kuchar registered an Application to Amend Based on Court Order for the vacating order. As with all such documents, the “applicant(s)” field of the e-registration document contains the name of the moving party, Lisgar. In that same field, Mr. Kuchar inserted beside the wording, “address for service,” the address of his firm.

[5] On June 13, 2011 Mr. Kuchar sent a copy of the vacating order to Mr. Baichoo, lawyer for Built-Con. In the covering letter, Mr. Kuchar stated that he was acting for Lisgar “in connection with the above-noted matter.” The reference was to the “re” line of the letter which referenced the Built-Con claim for lien. In the letter, Mr. Kuchar advised that, should an action become necessary to perfect the lien, Built-Con register no certificate of action.

[6] On June 20, 2011, Built-Con commenced an action naming only Lisgar as defendant. The statement of claim stated that Built-Con was claiming both damages for breach of contract and restitution in the amount of $30,664.34, and a declaration that Built-Con is entitled to a lien against the posted security for the same amount.

[7] On August 22, 2011, Mr. Baichoo sent Mr. Kuchar a fax enclosing the Statement of Claim. In the covering letter, Mr. Baichoo stated that he was serving his client’s pleading in accordance with the Rules of Civil Procedure.

[8] On September 6, 2011 Mr. Kuchar sent a letter to Mr. Baichoo acknowledging receipt of the Statement of Claim. He then stated the following: “I would ask for a reasonable period of indulgence for the delivery of our responding pleading, as my clients have had to attend to some personal health matters in recent days, and I do not expect to be in a position to provide you with our responding pleading before the end of September, 2011.”

[9] There was no further correspondence between Messrs. Kuchar and Baichoo. Lisgar did not defend. Mr. Kuchar concluded that, as nothing appeared to be happening with this file, “Built-Con had abandoned the action.”

[10] Six months later, on March 29, 2012, Built-Con had Lisgar noted in default and obtained a Registrar’s default judgment against Lisgar. The requisition for default judgment was noted as concerning a “debt or liquidated demand for money.” The default judgment was for $30,664.34 plus $310.17 in interest. Built-Con did nothing to pursue the default judgment.

[11] Nothing further happened on this file before the within motion. Ms. Hatsios advised that when the posted lien bond came up for renewal in June, 2015, Mr. Kuchar had his office check the court file. This is when he discovered the default judgment. He obtained copies of the court file material, including the default judgment, on July 9, 2015. Mr. Kuchar was then hospitalized, initially due to a spinal condition and then cancer. Mr. Kuchar retired in September 1, 2015. He passed away in February, 2016. Ms. Hatsios took carriage of the file in October, 2015. On December 1 and 2, 2015 she scheduled this motion to be returnable March 7, 2016.

III. ISSUES

[12] Having reviewed the motion material and heard the arguments, I believe that the following are the issues to be determined:

a) Was service of the Statement of Claim such that the default judgment should be set aside?

b) If not, was this motion brought promptly?

c) Is there a plausible excuse for the default?

d) Is there are arguable defence on the merits?

e) Where is the balance of prejudice on the motion to set aside?

f) What is the effect on the integrity of the administration of justice?

g) Has the Built-Con lien expired?

h) If so, should the remaining action be dismissed?

IV. ANALYSIS

(a) Was service of the Statement of Claim such that the default judgment should be set aside?

[13] Ms. Hatsios’ first argument was that service of the Statement of Claim in this matter was not proper and that the noting in default and default judgment should be set aside as a result. She argued that Mr. Kuchar did not in any document indicate that service of the Statement of Claim could be done by service on him.

[14] It is now settled law that, in accordance with Construction Lien Act (“CLA”) section 87(1), service of the Statement of Claim in a lien action such as this can be effected by any method mandated by the Rules of Civil Procedure or by sending the Statement of Claim “by certified or registered mail” to the party at the party’s “last known mailing address, (a) according to the records of the person sending the document, or (b) as stated on the most recently registered document identifying the recipient as a person having an interest in the premises.” Service of an originating process under the Rules can be done on a party with a lawyer if the lawyer endorses the document accordingly. That was not done here.

[15] But that is not the end of the matter. Was the Statement of Claim served in accordance with the alternative method specified by CLA section 87(1)? Mr. Baichoo argued that it was because it was sent to the address for service indicated in the last document Lisgar registered on title, namely the Application to Amend Based on Court Order for the vacating order. That argument would have had validity had the document been sent by “certified or registered mail.” It was not. It was sent by fax. Therefore, the service was not done in accordance with CLA section 87(1) and was defective.

[16] But that is also not the end of the matter. Mr. Baichoo referred me to the decision of Justice D. J. Power in Lapointe v. Les Gaz Speciaux M.E.G.S. Inc. [2008] O. J. No. 4699 (S.C.J.) at paragraph 42. This decision concerned a motion to set aside a default judgment. His Honour found that service of the Statement of Claim had been defective because it had not been made on someone with management responsibilities at the corporate defendant. Nevertheless, His Honour refused to set aside the default judgment on this basis because there was evidence that the originating process had come to the attention of the corporate defendant in a timely way. He stated that the court must in these circumstances consider all relevant factors in determining whether to set aside the default judgment.

[17] Similarly, I find that there is evidence in this motion that the Statement of Claim came to the attention of the attention of Lisgar in a timely way. In response to Mr. Baichoo’s letter of August 22, 2011 wherein Mr. Baichoo clearly asserted that he was purporting to serve the Statement of Claim in accordance with the Rules, Mr. Kuchar acknowledged in his September 6, 2011 letter receiving the document and advised that his client had some health issues and needed “an indulgence” until the end of September, 2011 to deliver a responding pleading. The letter was marked “cc: client.” This all indicates to me that, being the good lawyer that he was, Mr. Kuchar sent the Statement of Claim to his client in a timely way and was instructed to seek additional time to respond. I note that there is no evidence from Lisgar on this motion that the Statement of Claim did not come to its attention at this time or at any time.

[18] Because the Statement of Claim came to Lisgar’s attention in a timely way, I am not prepared to set aside the default judgment for this reason.

(b) Was the motion brought promptly?

[19] The test for setting aside a default judgment has been outlined by the Ontario Court of Appeal in Kisel v. Intact Insurance Co. 2015 ONCA 205, [2015] O. J. No. 1473 (O.C.A.) at paragraph 14. The court must consider five factors: whether the motion was brought promptly after the defendant learned of the default judgment; whether the defendant has a plausible excuse for the default; whether the defendant has an arguable defence on the merits; whether the potential prejudice to the defendant in dismissing the motion is outweighed by the potential prejudice to the plaintiff in allowing the motion; and the effect of any order on the overall integrity of the administration of justice. The court must apply these factors to determine whether it is just to relieve the defendant from the consequences of default.

[20] I note that the test for setting aside a noting in default under the CLA is more difficult that it is for setting aside a noting in default under the Rules of Civil Procedure. There is a requirement to show a meritorious defence; see Duncan W. Glaholt, Conduct of a Lien Action (2016: Thomson Reuters Canada Limited) at page 397. The tests for setting aside default judgments under the CLA and under the Rules are, however, similar.

[21] The first factor to consider is whether the motion was brought promptly after the default judgment was discovered. There was no dispute that it was. Mr. Kuchar learned about the default judgment in July, 2015 when the lien bond came up for renewal and he checked the court file. He was then overtaken by his health issues. Ms. Hatsious took over carriage of the file at the end of October, 2015, and she moved promptly to bring this motion on.

(c) Is there a plausible excuse for the default?

[22] The explanation given by Lisgar for the default was that, as Built-Con made no effort to validate service of the Statement of Claim, Mr. Kuchar concluded that Built-Con had abandoned the action and that Lisgar did not need to do anything further.

[23] In my view, this was not a plausible excuse. The Statement of Claim came to Lisgar’s attention in early September, 2011. Mr. Kuchar, no doubt with instruction, represented to Mr. Baichoo in response to his service letter (wherein Mr. Baichoo clearly purported to serve the Statement of Claim) that Lisgar would be delivering a statement of defence by the end of September, 2011. This was a representation that Lisgar was overlooking any issue of defective service.

[24] There was, therefore, no reasonable basis for Lisgar to then in effect “switch gears” without notice and do nothing, assuming that Built-Con had itself “switched gears” without notice and abandoned the action. However, that is what Lisgar did. Lisgar had every reason to believe that Built-Con was expecting the Lisgar defence by the end of September, 2011. I notice that Built-Con waited another six months before it noted Lisgar in default.

(d) Is there an arguable defence on the merits?

[25] There is a significant issue as to whether this motion has any evidence of the merits of Liagar’s defence. The initial affidavit that was filed in the motion by Lisgar was that of Constantine Alexiou, a partner in Ms. Hatsios’ firm. It was sworn on December 10, 2015. Mr. Alexiou stated in this affidavit that he reviewed the file and discussed the matter with Mr. Kuchar and Ms. Hatsios. In paragraph 20, Mr. Alexiou states that he is advised by Ms. Hatsios and believes that Lisgar “has a defence on the merits and a valid counterclaim.” He does not state as to how Ms. Hatsios obtained her alleged knowledge of the merits of Lisgar’s case. He attaches a draft Statement of Defence and Counterclaim (for $50,000 in damages) from Lisgar. This document alleges that Lisgar was acting at all times as agent for the owner. The document contains further general allegations that Built-Con was responsible for defective work, late work and insufficient documentation for its invoices. There is no evidence that Lisgar had any part in the preparation of this document. This is the entirety of the evidence on merits in this motion.

[26] As stated by Justice Beth Allen in Valente v. Personal Insurance Company, 2010 ONSC 975 at paragraphs 23 and 24, the moving party on a motion like this must adduce the evidence it intends to lead at trial and must show that it has an arguable case, “putting its best foot forward.” She dealt with an affidavit from the lawyer for the defendant concerning the merits of the defendant’s case. Her Honour held that the lawyer was not in a position to attest to the truth of the allegations in the pleadings. She found that the lawyer’s affidavit “does not assist the defendant in meeting the test of presenting the material facts of its defence.”

[27] The motion before me is even worse on this point. Mr. Alexiou’s affidavit gives no credible evidence concerning the merits of the Lisgar defence. All it presents is a draft pleading. Not only is this not Lisgar’s “best foot,” it is no foot. I find that Lisgar presented no arguable defence on the merits.

(e) What is the balance of prejudice on the motion to set aside?

[28] Mr. Baichoo argued that his client would be significantly prejudiced by an order setting aside the noting in default and default judgment. He argued that the default judgment met the requirements of CLA section 37, and that if the default judgment was set aside, Built-Con would automatically loose its lien rights as a result.

[29] CLA section 37 is the section that requires that an action in which a lien may be enforced must be set down for trial or contain an order for trial within two years from the date on which one’s lien action is commenced, failing which that lien automatically expires. There is no dispute that the Built-Con lien action was not set down for trial and that it is well past this two year time period. Mr. Baichoo stated that he did not set the action down for trial because he had the default judgment. It is also not disputed that there are no other claims for lien on title, much less one that has either been set down for trial or been ordered for trial within the two year period. This is clear from the abstract of title in the Lisgar motion record.

[30] Ms. Hatsios’ response is that the Registrar’s default judgment does not meet the requirements of CLA section 37, that Built-Con should have known this, and that setting this default judgment aside would therefore have no effect other than to restore what is left of the action after the automatic expiration of the Built-Con lien. Her argument was that, therefore, there would be no prejudice to Built-Con in setting aside the noting in default and default judgment, whereas the prejudice to Lisgar in not setting these aside would be considerable as it would have lost its right to prosecute its defence.

[31] I agree with most of Ms. Hatsios’ argument here. The Registrar has no jurisdiction to issue default judgments for lien remedies. That is clear from Rule 19.04(1). This point has also been reiterated clearly in a leading text in the area of construction law, namely the book by Duncan W. Glaholt called Conduct of a Lien Action (2016: Thomson Reuters Canada Limited) at page 396. The author states the following at page 396: “A lien judgment declaring a lien and holdback amount is not available simply by signing judgment in default of defence, but may be available on motion.” The wording of the default judgment in this case underscores this point. It only refers to a “debt or liquidated demand for money.” There is no reference to a lien judgment. What Built-Con could have, and should have, done is move before a judge for default judgment on both the contract and lien actions, and the provisions of CLA section 37 would have been met. That did not happen.

[32] I, therefore, find that Built-Con would not be significantly prejudiced by an order setting aside the default judgment other than the additional costs and time of having to prove its claim. I do not agree with Ms. Hatsios, however, that this justifies an order to set aside the default judgment.

(f) What is the effect on the integrity of the administration of justice?

[33] Mr. Baichoo made a good point about the administration of justice in this case. CLA section 67(1) requires that lien proceedings be as far as possible of a summary character, having regard to the amount and nature of the liens in question. He argued that this imperative required that I not set aside the default judgment.

[34] I agree. Where, as here, there is no credible evidence of a defence and where there is no plausible excuse for the defendant’s default and where considerable time has passed, I have concluded that it is inappropriate to set aside a default judgment for the relatively modest amount of $30,664.34 plus $310.17 in interest. I will not do so.

(g) Has the Built-Con lien expired?

[35] Because of the reasons given in issue (e) above, I am also driven to the conclusion that the Built-Con lien has expired by operation of CLA section 37. There has been no default judgment on the lien action. There has been no order for trial or setting down for trial in the Built-Con lien action. There are no other claims for lien concerning the subject improvement. The two years specified by CLA section 37 have passed.

[36] I declare the Built-Con lien expired, order that the lien bond security posted by Lisgar for the Built-Con lien be returned to Lisgar for cancellation, and dismiss any action to enforce this lien.

(h) Should the remaining action be dismissed?

[37] Because I have decided not to set aside the default judgment, this issue is now moot.

CONCLUSION

[38] I, therefore, dismiss the Lisgar motion to set aside the noting in default and default judgment.

[39] I also declare the Built-Con lien expired, order that the lien bond security posted by Lisgar for the Built-Con lien be returned to Lisgar for cancellation, and dismiss the action to enforce the Built-Con lien.

[40] Concerning the costs of this motion, Mr. Baichoo verbally advised that his client was seeking $1,500 in partial indemnity costs for this motion. Ms. Hatsios submitted a costs outline that showed substantial indemnity costs of $4,167.10 and partial indemnity costs of $2,941.05. She advised that her client was seeking partial indemnity costs of $2,941.05 less a credit of $500 for the costs of the noting in default and default judgment proceedings.

[41] Both of these costs submissions seem reasonable as to quantum and what the parties could reasonably have expected to pay in the event of a loss. The result is divided, with Built-Con succeeding in defeating the motion to set aside the default judgment and with Lisgar succeeding in having the Built-Con lien declared expired. I am therefore reluctant to order any costs.

[42] However, I am not impressed with Lisgar’s conduct. It brought on the default and default judgment through what I view to be unacceptable conduct. The default was the primary focus of the motion.

[43] I have decided to order that Lisgar pay Built-Con $1,000 in partial indemnity costs on or before 30 days from the date of this decision.

DATE: March 9, 2016 __________________________

MASTER C. WIEBE