Court File and Parties

Court File No.: 13-CV-476246 Motion Heard: 2015-07-31 Reasons Released: 2016-05-26 Superior Court of Justice – Ontario

Between: Technicore Underground Inc., Plaintiff And: Mardave Construction (2007) Ltd., and Mario Tedesco, Defendants

Before: Master D. E. Short

Counsel: Lori Marzinotto, for moving defendants Andrew McComb, for responding plaintiff

Released: May 26, 2016

Reasons for Decision

I. Nature of Motion

[1] This is a 2013 action relating to a major construction project for a new concrete pressure pipe transmission main on behalf of the Region of Peel. This was a major project where the initial value of the subcontract between the parties was almost $5 million.

[2] Ultimately, the final subcontract price was $3,740,936, exclusive of HST.

[3] The plaintiff subcontractor Technicore Underground Inc. (“Technicore”) sues the general contractor Mardave Construction (2007) Ltd. (“Mardave”) for the balance owing under its contract together with a trust fund claim pursuant to the provisions of the Construction Lien Act. Their claim now stands at $263,139.92.

[4] A motion was brought by each side to amend their pleading. The defendants seek, on this motion, to amend their pleading to respond to the amended Statement of Claim and to assert a new counterclaim.

[5] This motion thus addresses whether or not those amendments ought to be permitted.

II. The Work

[6] On or about January 26, 2011, the corporate defendant Mardave retained the plaintiff to carry out tunneling work. Technicore asserts that its work was completed on or about April 9, 2012. The General Contract between Mardave and Peel was certified as substantially complete on June 25, 2012 with the holdback period thus scheduled to expire on the main contract on August 9, 2012.

[7] On or about July 31, 2012 the parties conducted a Settlement Meeting at which point a number of issues were discussed, including allegations of delay and deficient work had been performed by the plaintiff.

[8] The plaintiff asserts that the agreement reached at the Settlement Meeting included establishing an agreed-upon net balance owing, together with a timetable for the payment of elements of that amount.

[9] The plaintiff further pleads that the defendant failed to pay the agreed amounts on the basis that had been agreed upon in the settlement negotiations. As a consequence an action was started to recover the balance claimed to be owing to the plaintiff by the defendant company.

[10] The Statement of Claim was issued in March of 2013.

[11] The Mardave defendants delivered their original pleading, dated May 9, 2013 in which the defendant denied that any amounts were owing and asserted a right of set off in the defence in these terms:

“16. In order to fulfill its other contracts, Mardave had no option but to rent additional equipment and incurred additional expenses.

Deficiencies

17. Technicore's work was deficient, causing leaks in the tunnel shaft.
18. Despite repeated requests by Mardave, Technicore refused and/ or failed to rectify the leaks in the shaft.
19. Accordingly, Mardave was required to locate and hire another contractor on an expedited basis, to seal the leaks in the shaft.
20. In addition, as a result of Techicore's delays, Mardave's original subcontractor it had hired to complete the mortar lining of the steel pipes could not sustain the long delay and Mardave was forced to find a new subcontractor at a considerably higher rate than the first subcontractor.
21. Mardave repeatedly warned Technicore that the delays were resulting in additional expenses to Mardave and that that Region of Peel was considering charging Mardave, The Region of Peel requested that a 24 hour shift be in place in order to complete the subcontract. This was communicated to Techincore by Mardave.”

[12] The original 2013 pleading further asserted:

“Given Technicore's delays and deficient work, Mardave incurred additional charges and expenses for which it backcharged Technicore and set-off against Technicore's final payment.”

[13] Before me, Mardave filed a draft amended pleading dated September 30, 2014. However, the case history for this matter would seem to reflect that the relevant Notice of Motion to amend was originally returnable January 20, 2015 and that the Notice of Motion in that regard was not filed with the court until January 14, 2015.

III. Reciprocal Motions

[14] Initially motions were brought by both sides seeking to increase the amounts they were seeking in the litigation. Apparently the plaintiff, Technicore moved to amend its claim asserting that “the proposed amendments concern new causes of action and damages that arose or were discovered in or around July 2014.”

[15] Thus their notice of motion was served within a few months of the new causes of action apparently being discovered.

[16] While both motions originally came on before Master Hawkins, the hearing time available on the return of the motions only permitted him to address the amendments sought by the plaintiff.

[17] In his view, the proposed amendments complied with the rules of pleading and raised a tenable plea. He therefore issued an order granting the plaintiff leave to amend the statement of claim in terms contemplated by the draft pleading annexed to the plaintiff’s notice of motion, on terms.

[18] Pursuant to those terms the defendants were given leave to conduct a further examination for discovery of the plaintiff on the matters raised by amendments.

[19] Master Hawkins directed that the costs of the motion, of delivering an amended statement defence and of the further examination for discovery, the plaintiff were to be reserved to the trial judge who would know whether or not the additional claims reflected in the amended claim were successful.”

[20] After a number of false starts, the defendants’ companion motion ultimately came on for a hearing before me.

[21] By its motion Mardave seeks to amend its defence and to add a counterclaim in the amount of $800,000 inter alia for the damages for delay it claims to have actually suffered.

IV. Proposed Amendments

[22] The proposed amendments are underlined in the draft pleading annexed to the Defendants’ Notice of Motion. I have no problem permitting the amendments sought to the defence but the counterclaim causes me concern.

[23] The relevant portion of the proposed pleading (with the requested amendments underlined) reads:

22. Technicore breached the- subcontract with Mardave by failing to complete the work in a timely or good and workmanlike manner.
23. Notwithstanding Mardave's requests to Technicore to rectify the delays and deficiencies, Technicore failed or refused to do so causing Mardave to retain the services of additional contractors and/or equipment on an expedited basis and at significantly increased costs.
24. Given Technicore's delays and deficient work, Mardave incurred additional charges and expenses for which it backcharged Technicore and set-off against Technicore's final payment.
25. At the time of payment, the extent of all of the remaining backcharges to Technicore were not known.

[24] Later the draft pleading reads:

31. On October 26, 2012, Mardave paid Technicore $159,585.85. This amount took into account the remaining backcharges to Technicore.
32. The particulars of the backcharges were provided to Technicore with the $159,585.85 payment
33. At the time of the payment of $159,585.85 to Technicore, the extent of all of the backcharges were not yet known to Matdave.
34. At no point prior to or during the Settlement Meeting did Mardave agree to the full amount Technicore now claims it is owed. Mardave advised Technicore that it would be setting off any backcharges to Technicore. Accordingly, Mardave was not and is not estopped from claiming any set-offs.
35. Mardave was entitled to set-off amounts it incurred as a result if Technicore's delays and deficiencies from any amount that may have been owed to Technicore.
36. As a result of Technicore's delays and deficiencies, Mardave incurred costs in an amount in excess of $800,000,00 which it is owed from Technicore,
37. In the event and to the extent that any sum may be found to be due from Mardave to Technicore, which is not admitted but denied, the Defendants are entitled to set-off their losses, expenses and damages as pleaded herein and entitled to judgment against Technicore for the excess of its claim against Technicore.
38. Mardave pleads and relies upon the doctrine of legal and equitable set-off and asks that the Court grant judgment for the balance owed to Mardave.
39. Mardave pleads and relies upon s.111 of the Courts of Justice Act R.S.O. 1990, c. C. 43

[25] The pleading then sets out a section headed “Counterclaim”

48. The Defendant Mardave Construction (2007) Ltd. (“Mardave) claims: (a) Damages in the amount of $800,000.00; (b) Pre-judgment and post-judgment interest in accordance with section 128 and 129 of the Courts of Justice Act, R.S.O. 1990, c, C.43, as amended; (c) Its costs of this action on a full indemnity: basis, together with any applicable taxes; and, · (d) Such further and other relief as to this Honourable Court may seem just
49. Mardave repeats and relies upon the allegations in the Statement of Defence in support of its Counterclaim.
50. Mardave suffered losses, costs, expenses and damages as a direct result of the breaches of the subcontract by the Plaintiff, Technicore Underground Inc. (“Technicore”).

[26] Referring to a number of events in 2012, as set out in the Defendants’ pleading, the plaintiff’s factum contends:

20. Each of these dates - May 7, July 11, July 31 or October 26 - are dates upon which Mardave has pleaded facts that indicate it had discovered it had suffered damage, and that Technicore was responsible for that damage. A reasonable person would surely know that litigation would be an appropriate means to seek remedy for damage suffered on account of a subcontractor creating delays in the course of a construction project. Mardave, a general contractor, thus knew or ought to have known of its litigable claim against Technicore by May 7, 2012 at latest.
21. The Plaintiff therefore submits that the Counterclaim must have been discoverable as at May 7, 2012 when Mardave had accrued and recorded additional charges of approximately $700,000 allegedly stemming from Technicore's delays. In the alternative, (a) the claim was discoverable on July 11, 2012, when Mardave completed the recording of its summary of charges flowing from Technicore's delays; (b) the claim was discoverable on July 31, 2012, as Mardave pleads and admits it had knowledge that Technicore's delays had caused it damage; or (c) the claim was discoverable, at latest, by October 26, 2012, as Mardave pleads and admits it made only partial payment on amounts owing to Technicore on account of backcharges stemming from Technicore's delays.
22. As every one of these dates is prior to January 15, 2013, the Counterclaim is time-barred, both on its face and on the evidence tendered by the Defendants to date.”

V. Argument of Moving Party

[27] In response, Mardave asserts that it has already defended the claim and denied that it owed any outstanding amount to Technicore and further claimed that it was entitled to set-off any amounts incurred as a result of Technicore's delays and deficiencies. Their factum asserts that Mardave's proposed Amended Statement of Defence and Counterclaim “expands on the facts in its Statement of Defence.”

[28] The Factum of the moving party addresses the issues and relevant law on these terms:

“(A) Should leave be granted to Mardave to amend its pleadings?

8. Amendments to pleadings are mandatory in nature and, pursuant to Rule 26.01 of the Rules of Civil Procedure, the Court:

On motion at any stage of an action the court shall grant leave to amend a pleading on such terms as are just, unless prejudice would result that could not be compensated for by costs or an adjournment.

9. Amendments to a Statement of Defence to add a counterclaim engages Rules 27.07, 26.02 and 26.01.

10. Pursuant to Rule 27.07

A party may amend the party's pleading, (a) without leave, before the close of pleadings, if the amendment does not include or necessitate the addition, deletion or substitution of a party to the action; (b) on filing the consent of all parties, and, where a person is to be added or substituted as a party, the person's consent; or (c) with the leave of the court.

11. In this case, Rule 26.02 (a) and (b) do not apply and the Defendant seeks leave pursuant to Rule 26.01 to amend its Statement of Defence and add a Counterclaim.

12 On a motion to amend a pleading, the Court will consider whether the amendment is tenable in law and does not examine the motives behind it:

On a motion to amend a pleading, the court does not examine the factual merits of the proposed amendments or the moving party's motives for seeking the amendment, but it does examine whether as a matter of law, the amendment raises a tenable claim or defence and whether the proposed amendment has been properly pleaded in the sense of complying with the rules that govern pleadings, including sufficient particularity ....

Brookfield Financial Real Estate Group Ltd. v. Azorim Canada (Adelaide Street) Inc., 2012 ONSC 3818 at para 23 , citing Morden & Perell, The Law of Civil Procedure in Ontario , First Edition.]

13. Evidence is not necessary to support a pleadings amendment. The allegations in the pleading are taken to be true and provable. .

Schembri v. Way, 2012 ONCA 620 at para 27 , 33.]

14. There is no new cause of action asserted in Mardave's proposed amended pleading. A new cause of action is not asserted if the amendments arise out of the same facts previously pleaded.

Zahran v. Ben-Jami, 2013 ONSC 7000 at para. 18 (Sup.C.J.)]

15 Technicore's basic entitlement is to have notice of the factual matrix out of which the claim for relief arises. Mardave submits that the existing pleading provided the required notice to Technicore."

1309489 Ontario Inc. v. BMO Bank of Montreal, 2011 ONSC 5505 at para 20 , 26, 27 (Sup.C.J.) ]

16. The amendments sought by Mardave are legally tenable, would not prejudice the Plaintiff, are not statute barred and no new cause of action or facts are asserted.”

[29] While I appreciate counsel’s arguments I am not satisfied that in this case the addition of a counterclaim at this stage ought to be permitted.

[30] I reach this conclusion for a number of reasons.

VI. Affidavit in Support

[31] While generally evidence is not necessary to support a pleadings amendment on the basis that allegations in the pleading are taken to be true and provable; it is still necessary to assert a tenable basis for a claim.

[32] A claim by a plaintiff that is clearly statute-barred will not normally be permitted as it simply adds costs with no justification to prevent the application of Rule 1.04 of the Rules of Civil Procedure.

[33] The affidavit filed on behalf of the moving defendants presents problems. It is sworn by an “assistant” with “the lawyers for the Defendants”. The significant portion of the brief nine paragraph affidavit reads:

4. On January 22, 2014, the Defendants were examined for discovery;
5. On February 6, 2014, the Plaintiff was examined for discovery;
6. I am advised by Lori Marzinotto, an associate with Nicholas C. Tibollo Professional Corporation and verily believe to be true that the Plaintiff, Technicore Underground Inc. ("Technicore"), and the Defendant, Mardave Construction (2007) Ltd., ("Mardave"), seek to amend their pleadings.
7. I am further advised by Ms. Marzinotto that should leave be granted to the Plaintiff to amend the Statement of Claim, it would necessitate the Defendants amending its Statement of Defence and conducting further examinations for discovery.
8. I am advised by Ms. Marzinotto that no prejudice will result from granting Mardave the amendments sought in the proposed draft Amended Statement of Defence .and Counterclaim attached at Exhibit A.
9. I swear this affidavit in response to the Plaintiff's motion and for the relief sought in the Defendant's Notice of Motion and for no delay or other improper purpose.”

[34] The affidavit was commissioned by Ms. Marzinotto who also was counsel on the motion before me. Whether this affidavit contravenes the rule of counsel not relying upon their own affidavit was not raised before me. In any event, I find the document of little practical utility.

[35] There is nothing in the affidavit that speaks in any way to problems with discoverability.

[36] In December of 2015, a defendant is seeking to assert a claim based upon a project that was declared substantially completed in mid-2012. Whether such a pleading is to be permitted turns on an analysis of the applicable sections of the Limitations Act, 2002, S.O. 2002, c. 24 Sch. B.

VII. Limitations Act, 2002

[37] The basic Limitation period is established as two years from an event by Sections 4 and 5 of the Limitations Act which reads in part:

Basic limitation period

4. Unless this Act provides otherwise, a proceeding shall not be commenced in respect of a claim after the second anniversary of the day on which the claim was discovered.

Discovery

5. (1) A claim is discovered on the earlier of, (a) the day on which the person with the claim first knew, (i) that the injury, loss or damage had occurred, (ii) that the injury, loss or damage was caused by or contributed to by an act or omission, (iii) that the act or omission was that of the person against whom the claim is made, and (iv) that, having regard to the nature of the injury, loss or damage, a proceeding would be an appropriate means to seek to remedy it; and (b) the day on which a reasonable person with the abilities and in the circumstances of the person with the claim first ought to have known of the matters referred to in clause (a). (my emphasis)

[38] With my emphasis added, Section 5 provides that these provisions are subject to a defined “Presumption”:

(2) A person with a claim shall be presumed to have known of the matters referred to in clause (1) (a) on the day the act or omission on which the claim is based took place, unless the contrary is proved.

[39] In my view it is clear that the onus of asserting a claim is still available after the basic two year period is on the party seeking to recover that claim.

[40] There was no evidence whatsoever placed before be to support an effective refutation of the statutory presumption. The counterclaim is clearly out of time.

[41] But that does not end the matter. While the proposed counterclaim is out of time, an alternative may be available to the Defendants.

[42] Prudently their notice of motion sought “Such further and other relief as this Honourable Court may permit”. I interpret that request as permitting an analysis of the law relating to equitable set off.

VIII. “Set off”

[43] The proposed amendments to the Defendants’ pleading include the following:

44. Mardave pleads and relies upon s.111 of the Courts of Justice Act, R.S.O. 1990, c. C-43.”

[44] That section of the Courts of Justice Act, with my emphasis added, reads as follows:

111(1) Set off - In an action for payment of a debt, the defendant may, by way of defence, claim the right to set off against the plaintiff's claim a debt owed by the plaintiff to the defendant.

(2) Idem - Mutual debts may be set off against each other even if they are of a different nature.

(3) Judgment for defendant - Where, on a defence of set off, a larger sum is found to be due from the plaintiff to the defendant than is found to be due from the defendant to the plaintiff, the defendant is entitled to judgment for the balance.

[45] The interaction of these provisions of the Courts of Justice Act and the Limitations Act, 2002 is addressed by Section 20 of the Limitations Act, 2002 provides:

“This Act does not affect the extension, suspension or other variation of a limited period or other time limit by or under another Act.”

[46] Without any evidence of late discovery of the items now sought to be raised as justifying a $800,000 counterclaim I am satisfied that the time for bringing such claims expired two years from the certification of Substantial completion in August of 2012. A motion to add a counterclaim brought in January of 2015 is too late.

[47] However, I am satisfied that reaching that conclusion does not prevent the assertion of a set off. Limitation periods do not appear to apply to set offs as they are not “claims” but traditionally have been regarded as in the nature of equitable defences. The legislature has established the extent of the utility and availability of such defences, not in the Limitations Act but rather in the Courts of Justice Act.

[48] I interpret the provisions of the Courts of Justice Act as permitting claims of the nature sought to be added by the defendant, without any time limitation being applicable, so long as they are asserted only as set off claims.

IX. Disposition

[49] I therefore am not permitting the requested amendment to add a counterclaim as in my view such a claim is clearly statute barred.

[50] I am however allowing the other amendments sought to the defence including the proposed paragraph setting out the quantum of the set off now sought. I regard this as paralleling the commonly granted request made by plaintiffs to increase the quantum of damages claimed by them even after the expiry of a limitation period.

[51] The defendants shall deliver an amended statement of defence (without a counterclaim), reflecting the guidance of these reasons. If this presents any problems to the parties, I will convene a conference to settle the form of the pleading.

[52] Given the nature of the relief I have granted and my justification for permitting those changes, I am directing that the amendments are without prejudice to any further limitation arguments the parties may wish to put before the trial judge.

[53] The plaintiff shall be entitled to conduct a further examination for discovery of the defendants on the matters raised by amendments.

[54] As success on the motion before me is somewhat divided I have determined to award the costs of this motion should be on the same basis, mutatis mutandis, as directed by Master Hawkins with respect to the plaintiffs motion. Thus, I am directing that the costs of the motion, of delivering an amended or fresh Reply and of the further examination for discovery, are to be reserved to the trial judge who would know whether or not the additional claims reflected in the amended defence were successful.

R. 109/DS Master D.E. Short Date: May 26, 2016