Court File and Parties

CITATION: Kovacs v. Sparkes, 2017 ONSC 938 COURT FILE NO.: CV-16-553790 DATE: 2017-05-02

SUPERIOR COURT OF JUSTICE - ONTARIO

RE: Colin Matthew Kovacs, Plaintiff AND: Larry Clyde Sparkes, Beverley Allen (also known as Beverley Sparkes and also known as Beverley Allen-Sparkes), Mill Creek Construction Ltd., MCC Developments Ltd. and 947357 Ontario Inc., Defendants

BEFORE: Pollak J.

COUNSEL: Neal Roth, for the Plaintiff Terrence Liu, for the Defendants Larry Clyde Sparkes, Beverley Allen, MCC Developments Ltd., and 947357 Ontario Inc.

HEARD: February 7, 2017

Endorsement

[1] In 2015, the Plaintiff, Mr. Kovacs, was awarded a default judgment on his Counterclaim (“Counterclaim”) in a construction lien action (“Lien Action”) (brought by Mill Creek Construction Ltd. (“Mill Creek”) against him for $193,659.03).

[2] In this Action, Mr. Kovacs claims that Mr. Sparkes and Ms. Allen (the “Moving Parties”), misrepresented and concealed how Mill Creek charged Mr. Kovacs and that the Moving Parties stripped Mill Creek of its assets, making Mill Creek judgment proof. He submits that these claims were not made against Mr. Sparkes or Ms. Allen in the Counterclaim, nor could they have been made in that Counterclaim. Such allegations, he submits, could not be made against these Defendants until after Mr. Kovacs obtained Judgment in the Lien Action. I agree with this submission.

[3] The Moving Parties bring this motion under Rule 21.01(3) of the Rules of Civil Procedure, R.R.O. 1990, Reg. 194 (“Rules”) to strike particular paragraphs from the Plaintiff’s Fresh as Amended Statement of Claim. They submit that this Action repeats the same allegations of overpayment on labour fees for the construction project and seeks repayment from them personally for $350,000. They submit that this claim seeks to re-litigate the default judgment and that the “impugned” paragraphs should be struck. They submit that all or part of a pleading may be struck where (a) the doctrine of res judicata applies; or (b) it is an abuse of process.

[4] To succeed on their motion, the Moving Parties must prove that either the doctrine of res judicata applies or that this Action is an abuse of process. At para. 44 of their factum, the Moving Parties submit that the test for action estoppel, which is a “branch” of res judicata, is as follows:

(a) …There must be a final decision from a court of competent jurisdiction in an earlier proceeding;

(b) …[t]he current proceeding has the same parties – or their privies – as an earlier proceeding (i.e., mutuality);

(c) …[t]he cause of action in the prior action is not separate and distinct; and

(d) …[t]he basis of the cause of action in the current proceeding was argued or could have been argued in the prior action if the parties exercised reasonable diligence

(Bjarnarson v. Manitoba (1987), 1987 993 (MB QB), 38 D.L.R. (4th) 32, (Man. Q. B.), at para. 6).

[5] The Moving Parties further submit that the doctrine of abuse of process is similar to “res judicata but has evolved to prevent re-litigation even when the prior proceeding had different parties (i.e. mutuality is not required)”. They cite Toronto (City) v. C.U.P.E. Local 79, 2003 SCC 63, [2003] 3 S.C.R. 77, at para. 37 (“Toronto”), for stating that abuse of process has been applied “to preclude relitigation in circumstances where the strict requirements of issue estoppel…are not met, but where allowing the litigation to proceed would nonetheless violate such principles as judicial economy, consistency, finality and the integrity of the administration of justice.” The Supreme Court of Canada further stated that “the primary focus of the doctrine of abuse of process is the integrity of the adjudicative functions of courts” (Toronto). Other case law, not cited by the parties, confirms that abuse of process is “a flexible doctrine” and “its application will depend on the circumstances, facts and context of a given case” (Hanna v. Abbott (2006), 2006 27865 (ON CA), 82 O.R. (3d) 215 (C.A.), at para. 31).

[6] In 2012, Mr. Kovacs contracted to have work done by the Defendant, Mill Creek. Mr. Sparkes was the sole director and officer of Mill Creek. Ms. Allen provided bookkeeping services to Mill Creek through her own numbered company, the Defendant 947357 Ontario Inc.

[7] On June 26, 2015, Master Albert granted Mill Creek leave to discontinue its Lien Action. Mr. Kovacs’ Counterclaim continued. The Moving Parties argue that Mr. Kovacs could and should have added them as parties to the Counterclaim but did not.

[8] The Moving Parties argue that the Master continued the Counterclaim as an "action in contract" under the Rules and s. 63 of the Construction Lien Act, R.S.O. 1990, c. C.30 [“CLA”]. They argue that Mr. Kovacs was therefore entitled at that time to add Mr. Sparkes and Ms. Allen to his counterclaim for the Labour Fees Claim and that he should have done so.

[9] The Lien Action was commenced by Mill Creek under the provisions of the CLA.

[10] The CLA requires that the Lien Action be conducted in a summary manner.

[11] Mr. Kovacs, as the Defendant in the Lien Action, was permitted to counterclaim against Mill Creek only and not against the personal defendants.

[12] The Master awarded Mr. Kovacs damages for his Counterclaim.

[13] The award of the Master had to be confirmed. On a motion to oppose confirmation, the award of the Master was varied by Justice Mew. This motion was also made under the CLA.

[14] The Plaintiff argues that the issue in his Counterclaim was restricted to the amounts charged by Mill Creek to support its Lien Action against him. The issues considered by the Master did not include allegations of personal wrongdoing against the Moving Parties.

[15] He submits that the Moving Parties could not have been made parties to the Counterclaim, and that they had not, at the time of the discontinuance of the Lien Action, allegedly stripped the assets of Mill Creek. He argues this Action is therefore not an abuse of process and he is not estopped from making a claim against them in this Action. The issues against the Moving Parties have not been adjudicated by the Court and could not have been adjudicated by the Court. I reviewed the Master’s Reasons and agree with these submissions.

[16] The Plaintiff further argues that in his Counterclaim, the title of proceedings was still in the Lien Action. He could not have added the personal defendants.

[17] The Moving Parties argue that in this Action, Mr. Kovacs is attempting to relitigate his Labour Fees Claim (i.e., that Mill Creek failed to provide its employee labour at cost) from his Counterclaim in the Lien Action. In particular, they argue that the following claims against them in this Action are based solely on the Labour Fees Claim:

(a) negligent misrepresentation;

(b) fraudulent misrepresentation;

(c) conspiracy to defraud; and

(d) carrying out a contract in a dishonest and deceptive manner (also referred to by Mr. Kovacs as his claim for "bad faith").

They argue these claims are in paras. 3(a)-(g), and 23-63 of Mr. Kovacs' Fresh as Amended Statement of Claim and must be struck because the doctrine of res judicata applies and they are an abuse of process.

[18] The effect of continuing a counterclaim brought pursuant to the CLA, as "an action in contract" was addressed in Cornerstone Estates Ltd. v. Polaris Restorations Inc. (2001), 13 C.L.R. (3d) 174, at para. 3, a case relied on by the Moving Parties:

“In my view, I see no point whatsoever in requiring the action to continue to be subject to the procedural limitations provided in the Construction Lien Act simply because it was an action commenced under that Act. Furthermore, in the case where the action claiming a lien interest has been dismissed, for whatever reason, the court is precluded from granting a lien judgment…[i]t seems to me to be clear and obvious that if the action is ordered to continue as a personal action, that is, an action in contract, the Rules of Civil Procedure should thereafter apply.” [Emphasis added.]

[19] At paras. 4-5 of his endorsement adjudicating Mr. Kovacs’ Counterclaim, the Master held that:

“4) Several hearings for directions and motions were conducted in the reference and ultimately, on or about June 26, 2015, Mill Creek discontinued its action thereby causing the lien to expire. I ordered that the counterclaim may continue. Pursuant to 63 of the Construction Lien Act, R.S.O. 1990, c.C.30 the counterclaim continued as an action in contract.

5. On October 5, 2015 on motion brought by Kovacs I noted Mill Creek in default on the counterclaim, struck its defence and scheduled today’s motion for judgment. The issues on the motion are:

a) Did Kovacs pay Mill Creek more than the contractually agreed upon price? If so, quantify the overpayment.

b) Was any of Mill Creek’s work deficient? If so identify and quantify deficiencies rectified by RSI and by others.”

[Emphasis Added.]

[20] Did the Master order that the Action continue as a personal action under the Rules of Civil Procedure? Section 63 of the Construction Lien Act states:

63. Subject to paragraph 3 of subsection 36 (4) (sheltering), the court may award any lien claimant a personal judgment, whether the claimant proves the lien or not, upon any ground relating to the claim that is disclosed by the evidence against any party to the action for any amount that may be due to the claimant and that the claimant might have recovered in a proceeding against that party. R.S.O. 1990, c. C.30, s. 63.

[21] It is important to emphasize that at the time, Mr. Kovacs’ Counterclaim did not allege Mill Creek’s assets had been stripped to avoid judgment in the Counterclaim and such a claim could not have been raised because there was no judgment in favour of Mr. Kovacs’ against the Defendant Mill Creek. I find that the issues raised in this Action were not raised in the Lien Action. Further, the issues have not been adjudicated by the Court. From a review of Master Albert’s reasons, it is clear that the issue of fraud against the personal defendants was not addressed.

[22] The Moving Parties argue that even if Mr. Kovacs's allegations for fraudulent misrepresentation, conspiracy, and bad faith are "new", they are based on the exact same factual matrix and that all of the allegations made in the impugned paragraphs were either argued in the Lien Action (e.g., breach of contract, negligence, and misrepresentation), or could have been argued if Mr. Kovacs had exercised reasonable diligence. I do not accept this submission as there was no judgment against Mill Creek at that time. I do not find that the doctrine of res judicata applies in this case and I do not find that this Action is an abuse of process.

[23] For the above-noted reasons, I find that the Moving Parties have not met their burden of proving the claim should be dismissed.

Costs

[24] If the parties are unable to agree on costs, they may make brief written submissions to me no longer than three pages in length. The Plaintiff’s submissions are to be delivered by 12:00 p.m. on May 10, 2017, and the Defendant’s submissions are to be delivered by 12:00 p.m. on May 17, 2017. Any reply submissions are to be delivered by 12:00 p.m. on May 24, 2017.

Pollak J.

Date: May 2, 2017