THE MOTION

[1] The Hannas bring this motion seeking:

(a) An order amending their counterclaim to amend the title of proceeding to name as plaintiffs: Aqua Pools Ltd., Aqua Pool Ltd. and Leszek Zyluk (collectively the “Aqua Parties”); and

(b) To make various claims against the Aqua Parties.

[2] In the alternative, an order that the proposed counterclaim in this action proceed as a separate action against the Aqua Parties.

PRELIMINARY ISSUE

[3] As this is a Construction Lien Act (the “Act”) action, any interlocutory motion requires leave.

[4] As will be seen from the background, there are currently significant issues with this lien action which makes this motion necessary, in the sense that, it would be in the interests of the administration of justice that this motion be heard at this time rather than at trial.

[5] Leave is hereby granted.

THE PERSONAE

[6] Aqua Pool Ltd. (“Pool Ltd.”) is a corporation incorporated on February 19, 2003.

[7] Aqua Pools Ltd. (“Pools Ltd.”) is a corporation incorporated on June 17, 2016. It is important to note that the date of incorporation is AFTER the May 12, 2016 quotation provided to the Hannas for the construction improvement at issue.

[8] Leszek Zyluk (“Zyluk”) is the sole director and principal of Pools Ltd. and Pool Ltd.

[9] While the Royal Bank of Canada is a named defendant, it has not been served and, in any event, has no interest in the issues in this motion.

THE BACKGROUND

[10] In 2016, the Hannas sought to install a swimming pool at their home (the “Work”). The Hannas dealt with Zyluk throughout regarding the Work.

[11] On May 12, 2016, Pool Ltd. provided a quote to the Hannas for the Work.

[12] On July 4, 2016, a contract, on the letterhead of Pool Ltd., was executed by the Hannas and Pools Ltd.

[13] Whether there were subsequent amendments or new contracts for additional work between the parties, and which parties, cannot and need not be decided on this motion.

[14] There were numerous invoices for the Work, which invoices were generally from aquapoolltd@gmail.com (the “Pool Ltd. address”) but on Pools Ltd. letterhead. I say generally, because some invoices, while on Pools Ltd. letterhead, and from the Pool Ltd. address, had a signatory line for Pool Ltd. (for examples see the September 23, 2016, October 4, 2016 and March 23, 2017 invoices).

[15] Some of the interim payments cheques were payable to and were negotiated by Pools Ltd. Other interim payment cheques were payable to and were negotiated by Pool Ltd.

[16] Cash payments were also paid by the Hannas to Zyluk for the Work but there is no evidence who or which corporation deposited these funds.

[17] The Work came to a halt in or about September 2016.

[18] On November 2, 2016, Pools Ltd. registered a Claim for Lien under the Construction Lien Act for the amount of $73,995.04. The Claim for Lien was signed by Zyluk as the principal of Pools Ltd.

[19] On December 8, 2016, “Aqua Pools Ltd. also known as Aqua Pool Ltd.” commenced this lien action by issuing a Statement of Claim. Of note, paragraph 5 of the Statement of Claim alleges that the “Plaintiff” entered into the contract with the Hannas.

[20] On January 13, 2017, the Hannas delivered a Statement of Defence in this lien action. Of note, the Hannas admitted the allegation in paragraph 5 of the Statement of Claim. There was no counterclaim.

[21] On February 10, 2017, the Hannas commenced a separate action in Hamilton (CV-17-672) against “Aqua Pools Ltd. also known as Aqua Pool Ltd. and Leszek Zyluk” (the “First Hamilton Action”).

[22] Mr. Mullen, who represented the Aqua Parties, wrote to the Hannas’ counsel in the First Hamilton Action on March 8, 2017. Mr. Mullen took the position that the First Hamilton Action was duplicitous and stated:

“Please discontinue your Amended Statement of Claim against Aqua Pools and Mr. Zyluk immediately. If you wish to counterclaim in our lien action I will consent to your delivering an amended pleading in this regard.”

[23] Mr. Mullen’s letter goes on to explain why there is no personal liability of Mr. Zyluk to the Hannas. Contrary to the suggestion in Aqua Parties’ factum, the First Hamilton Action was not dismissed – it was discontinued.

[24] On May 1, 2017, Hannas’ counsel in the First Hamilton Action agreed to and on June 12, 2017 discontinued the First Hamilton Action. It is misleading to suggest that Hanna’s counsel agreed to “discontinue their action and that they would be advance [sic] their claim against Aqua Pools only as a counterclaim in the lien action”. There is simply no evidence that the Hannas’ counsel agreed not to proceed with its claim against Zyluk. I accept that the Hannas were only pursuing a claim against “Pools Ltd. also known as Pool Ltd.” rather than the two separate corporations (in addition to Zyluk).

[25] On consent, in July 2017, the Hannas amended their Statement of Defence to include a counterclaim against the Plaintiff – “Aqua Pools Ltd., also known as Aqua Pool Ltd.” The Plaintiff defended the Counterclaim.

[26] On April 24, 2018, the Hannas’ counsel wrote to Mr. Mullen seeking his consent to the amendment to the Statement of Defence and Counterclaim to include a claim against all the Aqua Parties, namely Pools Ltd, Pool Ltd. and Zyluk.

[27] Mr. Mullen refused to consent to amend the counterclaim to make the claims against all the Aqua Parties. I accept that this is somewhat different than what Mr. Mullen had consented to since the Hannas had now separately claimed against Pools Ltd. and Pool Ltd. as separate corporations.

[28] This motion was brought by the Hannas returnable on July 6, 2018. The motion came before Justice Bloom. The motion could not be heard that day and had to be adjourned to January 30, 2019. Justice Bloom made an order that “the Responding parties concede that any limitation period is not to be treated as running to the prejudice of the moving parties from and including today to and including January 30, 2019”.

[29] Because of the concern whether Justice Bloom’s order tolled the limitation period under the Limitations Act, the Hannas commenced a second Hamilton action (CV–18-67915) on December 28, 2018 against all the Aqua Parties.

[30] This motion was heard on January 30, 2019. Both counsel agreed to the continuance of Justice Bloom’s order tolling any limitation period until February 5, 2019.

THE PROPOSED AMENDMENT

[31] The Second Fresh as Amended Statement of Defence and Counterclaim claims against the Aqua Parties:

(a) Pools Ltd. and Pool Ltd. are separate corporations and should be shown as separate Plaintiffs in the Statement of Claim; and

(b) The claim against Zyluk is for breach of contract, negligence, negligent and fraudulent misrepresentation, unfair practices, registering an exaggerated and improper lien.

THE ANALYSIS

Adding/Changing plaintiffs in this Lien proceeding

Adding Zyluk

[32] The Act, in force at the time of the Work, provides as follows:

(1) A plaintiff in an action may join with a lien claim a claim for breach of contract or subcontract.

(2) A defendant in an action may,

(a) counterclaim against the person who named the defendant as a defendant in respect of any claim that the defendant may be entitled to make against that person, whether or not that claim is related to the making of the improvement;

(b) crossclaim against a co-defendant in respect of any claim that the defendant may be entitled to make against that person related to the making of the improvement.

[33] It is clear that this provision prohibits the type of amendment sought by the Hannas:

(a) Zyluk cannot be added by way of counterclaim as he is neither a plaintiff nor co-defendant in the lien action; and

(b) If, as the Aqua Parties now suggest, the plaintiff in the lien action is Pools Ltd., then Pool Ltd. also cannot be added by way of counterclaim. I am not persuaded that converting a one entity plaintiff into two separate entity plaintiffs is a “misnomer”. Besides, Pool Ltd. is not the lien claimant – Pool Ltd. did not register the Claim for Lien.

[34] The Hannas’ counsel relies on s. 57(2) of the Act which provides:

(2) Subject to section 54, the court may at any time add or join any person as a party to the action.

[35] I am not persuaded that general jurisdiction in s. 57(2) to add or join parties to a lien action gives this court jurisdiction to add either Zyluk or Pool Ltd. (as a separate corporate entity) as plaintiffs in this lien action given the specific limitations in s. 55(2). If the jurisdiction in s. 57(2) was as broad as suggested by the Hannas’ counsel, there would have been no need for the strict limitations in s. 55(2).

[36] Hannas’ counsel suggests that all of the Aqua Parties were contracting parties with the Hannas for the Work. Even if the Aqua Parties were the contracting parties for the Work, only Pools Ltd. is the entity who registered the Claim for Lien and is entitled to maintain the lien action as plaintiff.

Converting “Aqua Pools Ltd. also known as Aqua Pool Ltd.” to Two Separate Corporations

[37] Aqua Pools Ltd. is the entity and sole entity which registered the Claim for Lien. Pools Ltd. is not the named “Plaintiff” in this lien action.

[38] There is no doubt that “Aqua Pools Ltd. also known as Aqua Pool Ltd.” is not an entity known at law. There is no corporate or business registration in this name. There is no doubt confusion arises as to who the plaintiff is - is it Pools Ltd. or is it Pool Ltd.? For example, if an award is made in favour of the Defendants against “Aqua Pools Ltd. also known as Aqua Pool Ltd.”, against whom is the award enforceable? This confusion will continue unless addressed at some point.

[39] There are concerns that, by using "Pools Ltd. also known as Pool Ltd.", s. 9 of the Ontario Business Corporations Act may have been breached (in particular s. 9(1)(b)(i)(A)). Aqua Parties’ counsel suggests that Pools Ltd. was free to use whatever name it chose to use. That is clearly wrong.

[40] This is not a motion to strike “also known as Aqua Pool Ltd.” or to strike this entire lien action because the Plaintiff is not a known legal entity and any amendment would not be a “misnomer”. There are two possible outcomes to such a motion: the court might view the use of “Aqua Pools Ltd. also known as Aqua Pool Ltd.” as a minor irregularity which could be amended pursuant to s. 6 of the Act (see Gillies Lumber Inc. v. Kubassek Holdings Ltd. 1999 CanLII 3757 (ON CA), 1999 CarswellOnt 2160 (Ont. C.A.)) or the court might view the amendment as sufficiently substantive that the entire action be dismissed (see Brock Contracting v. Kosikowski 2018 ONSC 7618). I do not have to decide this issue as it is not before this court.

[41] Upon completion of the pleadings in the Counterclaim Action as described below, I urge the parties to agree to an amendment of the name of the plaintiff to remove "also known as Pool Ltd." without the need for a motion or incurring additional costs.

[42] The only motion before this court seeks to amend the title of proceedings to show the two separate corporate entities and add Zyluk and make claims against these legal entities.

[43] To grant the relief sought would result in Pool Ltd. becoming a separate corporate plaintiff in this lien action despite it not having registered a Claim for Lien. The purpose of the Act was to limit the plaintiff in lien actions to the lien claimant so that the summary procedure in the Act could be engaged for an expedited determination of any amount owed to a lien claimant. Allowing an amendment as proposed would defeat the purpose of the Act.

Conclusion on Amending the Counterclaim in this lien action

[44] I conclude that this court has no jurisdiction in this lien action to grant the relief sought, namely to permit the counterclaim to be amended to add as plaintiffs Pool Ltd. as a separated corporate entity and Zyluk.

Permitting the Counterclaim as a Separate proceeding against Pools Ltd., Pool Ltd. and Zyluk

[45] In a civil proceeding, the Hannas could advance their claim against Pools Ltd., Pool Ltd. and Zyluk. However, this is a lien action subject to the provisions of the Act.

[46] In addition to objecting to the proposed amendment because it adds Pool Ltd. and Zyluk in a lien action, the Aqua Parties oppose the counterclaim proceeding because:

(a) The Aqua Parties submit that the proposed amendment amounts to a withdrawal of an admission (namely, the paragraph 5 admission that the contract for the Work was with “Aqua Pools Ltd. also known as Aqua Pool Ltd.”); and

(b) The Aqua Parties submit that the proposed amendment should be denied as it discloses no reasonable or triable cause of action against Zyluk.

Withdrawal of Admission/Triable issue

[47] The Hannas dispute that the proposed amendment is the withdrawal of an admission. The Hannas submit they continue to accept the contract for the Work was with Pools Ltd. and Pool Ltd. but, because they are separate companies, they should be identified as separate companies.

[48] In my view, it is not entirely clear what the Hannas admitted to - was it Pools Ltd. with the rest of the excess and unnecessary wording or was it with an entity which doesn't appear anywhere in the documentation or was it Pool Ltd?

[49] It is hard to define what it is the Aqua Parties object to being withdrawn. Had the lien claimant properly named "Pools Ltd." as the plaintiff (as is clear from the Aqua Parties’ submissions on this motion), Aqua Parties submission may have had more substance to it. But the fault for the confusion both in the Statement of Claim and the admission was caused by the Aqua Parties, not the Hannas.

[50] If the Aqua Parties’ position was to prevail, then the plaintiff in this lien action would remain as presently described. The uncertainty and confusion in the title of proceedings cannot be allowed to remain and allowing Pool Ltd. in the title of proceedings as plaintiff in a lien action would be contrary to the Act.

[51] I am not persuaded that, in these highly unusual circumstances, the proposed amendment constitutes the withdrawal of an admission.

[52] In any event, I am satisfied that, even if the proposed amendment constituted a withdrawal of an admission, leave would be granted.

[53] Rule 51.05 provides that an admission in a pleading may be withdrawn on consent or with leave of the court. The courts generally do not permit the withdrawal of admissions unless the party seeking to do so can establish that the admission sought to be withdrawn can demonstrate a triable issue.

[54] The leading case on granting leave withdraw an admission under R. 51.05 is Antipas et al. v Coroneos et al., (1988), 1988 CanLII 10348 (ON SC), 26 C.P.C. (2d) 63 (Ont. H.C.) which was endorsed by the Court of Appeal in Szelazek Investments Ltd. v. Orzech, 1996 CanLII 490 (ON CA). The three part test is whether (i) the proposed amendment raises a triable issue; (ii) a reasonable explanation for the admission; and (iii) lack of prejudice that cannot be compensated in costs.

[55] This court would have granted leave in this case to withdraw the admission because:

(i) I find the proposed amendment raises triable issues. It is unclear from the documentation exactly which, if not some or all, of the Aqua Parties contracted with the Hannas for the Work. There is a triable issue whether the contract was with Pools Ltd., a company which did not exist at the time of the quotation or with Pool Ltd. who provided some invoices and received some payments or with Zyluk because of his direct dealings with the Hannas and alleged representations to the Hannas. I cannot conclude that the claims against Pools Ltd., Pool Ltd. and/or Zyluk are frivolous and without merit. As a result, I find there is a triable issue in this regard.

(ii) The Aqua Parties specifically take issue that there is no triable issue raised in the proposed claim against Zyluk. I disagree. Whether the claim against Zyluk will succeed at trial is not the test. All that is required is that the proposed claim against Zyluk raises a triable issue. Having reviewed the proposed claim against Zyluk, I am satisfied it discloses a triable issue. The Hannas only dealt with Zyluk. Zyluk received the “cash” paid for some of the Work. This confusion as to who the contracting party(s) with the Hanna was caused by Zyluk. The circumstances where the court will hold a director/principal personally liable are fact specific. See ScotiaMcLeod Inc. v. Peoples Jewellers Ltd. (1996) 1995 CanLII 1301 (ON CA), 129 D.L.R. (4th) 711 (Ont. C.A.) at page 720. An example where such personal liability was found is in Cornerstone Select Properties Inc. v. Matthews and Matthews v. Varcoe, 2018 ONSC 679. There are sufficient circumstances in the dealings between the parties that the claim against Zyluk might succeed. As a result, the Hannas have met this part of the test;

(iii) I am satisfied that the explanation for now alleging that the contracting party is Pools Ltd., Pool Ltd. and Zyluk arises, at least in part, from the confusion originated by the Plaintiffs’ own actions, namely, by issuing a claim with a plaintiff not known at law, a name possibly contrary to the Business Corporations Act, a name inconsistent with the dealings between the parties, and a name different from the party who registered the Claim for Lien. A further factor is that, at least as it relates to Zyluk, the Hannas commenced a separate action (the First Hamilton Action) shortly after the lien action was commenced where the same claims were advanced against Zyluk and the subsequent consent to permit the counterclaim against Zyluk in the lien action. The Hannas have provided a sufficient reasonable explanation to meet this part of the test; and

(iv) I find no prejudice to the Aqua Parties if the admission is withdrawn and the proposed amendment granted. The Aqua Parties knew of the proposed claim against Pools Ltd. and Zyluk within months of the commencement of the lien action. The claim against Pool Ltd. is essentially a mirror of the claim against Pools Ltd. Mr. Mullen consented to the claim in the First Hamilton Action being advanced in the counterclaim in the lien action. The claim against Pools Ltd., and Zyluk was known before the expiry of any limitation period. There is no other prejudice alleged. To the contrary, in these circumstances, unless the claim against Pools Ltd., Pool Ltd. and Zyluk is allowed to proceed by way of a counterclaim, albeit in a separate proceeding, there is potentially serious prejudice to the Hannas.

[56] As a result, considering the above factors, I conclude that the proposed amendments alleging claims against Pools Ltd., Pool Ltd. and Zyluk ought to proceed.

Should the Counterclaim Continue as a Separate Proceeding?

[57] Since the claim against Pools Ltd., Pool Ltd. and Zyluk ought to proceed but cannot continue as a claim or counterclaim in this lien action, the proposed claim must proceed by way of a counterclaim in a separate proceeding to be tried together or as the trial judge directs.

[58] Proceeding in any other manner, such as the Second Hamilton Action, could potentially give rise to a limitations issue in favour of Pools Ltd., Pool Ltd. or Zyluk.

[59] As a result, the most reasonable, efficient and equitable manner to advance the claim against Pools Ltd., Pool Ltd. and Zyluk is to permit the proposed amendment, then sever the counterclaim from the lien action and order that the counterclaim be tried in a separate action.

[60] If necessary, this court could have reinstated the First Hamilton Action. The court has jurisdiction to do so in certain circumstances. See Daniele v. Johnson, 1999 CanLII 19921 (ON DivCt). This would not have caused any prejudice to Pools Ltd., or Zyluk. Mr. Mullen, counsel for “Aqua Pools Ltd. also known as Aqua Pool Ltd.” was faced with a separate proceeding where claims were advanced against Pools Ltd., and Zyluk, wanted the First Hamilton Action discontinued and indicated he would consent to the counterclaim being amended to permit this claim to be advanced in the lien action. It is unknown why this consent was never forthcoming as it relates to Zyluk when the Hannas sought to amend the counterclaim. What is clear is that the amendment to the counterclaim Mr. Mullen agreed to, cannot be done in law.

[61] In addition, another reason for not reinstating the First Hamilton Action is that it would result in two proceedings, in two jurisdictions regarding the same subject matter with the potential for inconsistent findings and, would have in any event, not dealt with the confusing and potentially fatal error of the plaintiff’s name of “Pools Ltd. also known as Pool Ltd

[62] By allowing the counterclaim, severing the counterclaim, ordering that the counterclaim proceed as a separate action and order that the lien action and counterclaim by tried together or one after the other, achieves efficiency in the administration of justice in the just determination of the issues between the parties. See Rule 1.04(1).

Conclusion on the claim against Pools Ltd., Pool Ltd. and Zyluk

[63] The Hannas may proceed with their proposed claim against Pools Ltd., Pool Ltd. and Zyluk by way of the counterclaim but such counterclaim shall be severed from the lien action and tried together with the lien action or as the trial judge directs.

CONCLUSION

[64] The Counterclaim in this action shall be deemed amended as of this date, as proposed by the Hannas in this motion, and shall thereafter be severed from this lien action and tried as a separate action with the following assigned action number: CV-16–5411–CC (“Counterclaim Action”).

[65] The court orders that:

(a) The Hannas shall be deemed to have amended, as of this date, the counterclaim in accordance with the proposed amendment. The proposed amendment shall be filed within 10 days from today’s date;

(b) The counterclaim in this lien action shall be deemed to be severed from this lien action after the amendment has been made;

(c) The Registrar shall assign the counterclaim with the new action number CV-16-5411-CC. This Counterclaim Action is a separate proceeding;

(d) The Aqua defendants shall have 45 days to deliver a defence in the Counterclaim Action;

(e) The Hannas shall have 20 days to delivery any reply in the Counterclaim Action;

(f) Any productions and discoveries shall be common to both the lien action and the Counterclaim Action; and

(g) This Action and the Counterclaim Action shall be tried together or as the trial judge may direct. See s. 107(1) of the Courts of Justice Act.

[66] I leave it to the parties to deal with the title of proceedings in this lien action and whether the Second Hamilton Action should be discontinued. Given the Aqua Parties’ position that the contract for the Work was with Pools Ltd. (and that Pools Ltd. registered the Claim for Lien), it would appear appropriate for the parties agree to amend the title of proceedings in the lien action to remove “also known as Aqua Pool Ltd.” Further, it would appear that the Second Hamilton Action would be duplicitous once the pleadings in the Counterclaim Action have been closed.

COSTS

[67] Any party seeking costs shall serve and file written submission on entitlement and quantum within two weeks of the release of these reasons. Written submissions shall be limited to three pages, with attached Costs Outline and any authorities.

[68] Any responding party shall have one week thereafter to serve and file responding submissions. Written submissions shall be limited to three pages with any authorities relied on attached.

[69] There shall be no reply submissions without leave.

Ricchetti, J.

Date: February 4, 2019

COURT FILE NO.: CV-16-5411

DATE: 2019 02 04

ONTARIO

SUPERIOR COURT OF JUSTICE

BETWEEN:

Aqua Pools Ltd. also known as Aqua Pool Ltd.

Plaintiff

and -

Maged Hanna, Hanan Hanna and Royal Bank of Canada

Defendants

ENDORSEMENT

Ricchetti J.

Released: February 4, 2019

Aqua Pools Ltd. v. Hanna, 2019 ONSC 850

Case Summary

THE MOTION

PRELIMINARY ISSUE

THE PERSONAE

THE BACKGROUND

THE PROPOSED AMENDMENT

THE ANALYSIS

Adding/Changing plaintiffs in this Lien proceeding

Adding Zyluk

Converting “Aqua Pools Ltd. also known as Aqua Pool Ltd.” to Two Separate Corporations

Conclusion on Amending the Counterclaim in this lien action

Permitting the Counterclaim as a Separate proceeding against Pools Ltd., Pool Ltd. and Zyluk

Withdrawal of Admission/Triable issue

Should the Counterclaim Continue as a Separate Proceeding?

Conclusion on the claim against Pools Ltd., Pool Ltd. and Zyluk

CONCLUSION

COSTS

Judge

Counsel

Parties

Areas of Law

Fact Patterns

Issues

Statutory Provisions 3

Legal Tests 1

Legislation 1