COURT FILE NO.: CV-20-646094
DATE: December 17, 2021
SUPERIOR COURT OF JUSTICE - ONTARIO
RE: Fox Contracting Ltd. v. 133 King Street East Inc. and Workhaus Coworking Inc.;
BEFORE: ASSOCIATE JUSTICE C. WIEBE
COUNSEL: Parisima Zandi for Fox Contracting Ltd. ("Fox"); Ryan Kerr for Workhaus Coworking Inc. ("Workhaus"); Dina Peet for 133 King Street East Inc. ("133");
HEARD: December 13, 2021.
REASONS FOR DECISION
[1] Fox brings a motion for an order extending the time for service of the statement of claim in this action to January 31, 2022, or an order validating service. Both defendants oppose this motion. Workhaus brings a cross-motion for an order declaring the Fox claim for lien expired and requiring that it be vacated from title.
[2] The motion material contains affidavits from Kathleen Flanagan, director of financing at Fox, and Cara Shamess, the lawyer for Fox. The cross-motion material contains affidavits from Simma Sidlofsky, the senior manager at Northam Realty, the property manager for 133, and from Adrian Joaquin, the chief executive officer at Workhaus.
Background
[3] The following evidence does not appear to be in dispute. Workhaus is a tenant of the landlord 133 in commercial space located at 133 King Street East, Toronto. On December 16, 2019 Workhaus contracted with Fox to have Fox build a shared office working space on the leasehold premises. 133 agreed to contribute $352,600 to this project through the leasehold improvement provisions of the lease. Fox worked on three previous projects for Workhaus and was paid.
[4] Fox alleges it completed its work on the subject project on March 31, 2020, and that it is owed $194,689.37. Using its former lawyer, Bram Zinman, Fox registered a claim for lien on May 28, 2020 in that amount.
[5] On August 10, 2020 Ms. Flanagan emailed Mr. Joaquin stating that the next step was to perfect the lien by commencing a lien action and registering a certificate of action by the deadline of August 28, 2020. She asked whether that step could be avoided by having Workhaus "settle the account." Mr. Joaquin emailed back the same day stating that Workhaus was expecting to "close a deal soon" with a lender. He said that he "will keep you posted."
[6] Workhaus did not pay the account. On August 24, 2020 Fox commenced this action and registered a certificate of action, all with the intent of perfecting its lien. On August 25, 2020 Mr. Zinman advised Ms. Flanagan by email that he would be serving the statement of claim. Mr. Zinman did not serve the statement of claim.
[7] Ms. Flanagan swears that Workhaus "acknowledged" the claimed debt and wanted an "indulgence" until the fall of 2021 because of its financial difficulties due to the COVID-19 pandemic. Ms. Flanagan swears that, because of Fox's positive history with Workhaus, she granted the indulgence and did not pursue Mr. Zinman to move the action forward.
[8] According to Ms. Sidlofsky, on June 9, 2021 133 was notified of the existence of the claim for lien. It is not clear how this happened.
[9] On June 18, 2021, Fox hired its present lawyers. A Notice of Change of Lawyers was served on both defendants on June 18, 2021. Mr. Joaquin sent Ms. Flanagan an email on June 22, 2021 confirming that 133 did not like getting news of the claim for lien. Mr. Joaquin asked Ms. Flanagan to confirm by return email that Workhaus continues "treading water" financially, that the two of them, Workhaus and Fox, have been "in good standing" in the past and "have been in communication" about this issue, and that the two of them were "working to resolve this." Ms. Flanagan confirmed this information by return email on June 23, 2021.
[10] On July 12, 2021 Mr. Galati, lawyer for 133, wrote Ms. Shamess advising that 133 had not been served with the statement of claim. He asked for proof that service had taken place. Meanwhile, Ms. Shamess had difficulty getting Mr. Zinman to deliver the file. Ms. Shamess sent letters to Mr. Zinman on July 6, July 12, August 5 and August 10, 2021 seeking the file and confirmation that the statement of claim had been served. On August 13, 2021 Mr. Zinman promised Ms. Shamess' office that he would deliver the file. That did not happen despite follow-up emails and voicemail messages on August 26, September 9, September 10 and October 6, 2021, until October 8, 2021. Reviewing the file, Ms. Shamess found no evidence that the defendants had been served with the statement of claim. She served the statement of claim on November 4, 2021. She commenced the Fox motion on November 15, 2021 for a motion returnable December 13, 2021.
Motion to extend time for service
[11] It is well established that the factors to be considered on a motion to extend the 90-day time for service of the statement of claim in construction lien actions are the following: the length of the delay and whether a limitation period has expired; the explanation for the delay in serving the statement of claim and in bringing the motion to extend; and whether the defendants have been prejudiced by the delay in service; see MGI Construction Corp. v. 2273865 Ontario Inc and Frank Bosso 2015 ONSC 4716 at paragraph 12; see Petrasso v. Fuller, 2020 ONSC 7915 at paragraph 8.
[12] The issue of prejudice was not significantly disputed. The only prejudice argued by the defendants was the existence of the claim for lien itself. This position stems from the decision of Master Albert in MGI, op. cit. at paragraph 19. In his Petrasso decision at paragraph 17 Associate Justice Robinson found that the required prejudice should be more than just the presumed prejudice created by the claim for lien. He found that the prejudice should be the result of the delay in service. In Diamond Drywall Contracting Inc. v. Elderberry Enterprises Ltd., 2021 ONSC 1068 at paragraph 10, I agreed with Associate Justice Robinson on this point. I, therefore, do not accept the defendants' position on the issue of prejudice.
[13] The length of the delay is indeed lengthy in this case. There was a period of just over 11 months from the end of the 90-day time period for service of the statement of claim (November 24, 2020) to the actual service on November 4, 2021. This is less than the 16 months for the same period that existed in the MGI case where the plaintiff did not get an extension, but more than the 6 months in Diamond Drywall and the 6 weeks in the Petrasso case where the plaintiff succeeded in getting extensions. Delay in service is a much more serious thing in construction cases given the requirement in Construction Act, R.S.O. 1990, c. C.30 ("CA"), section 50(3) that a lien action "shall be as far as possible of a summary character."
[14] However, this case cannot, in my view, be determined by the length of the delay considered in isolation. The most significant factor in this case was the explanation for the delay established by Fox. The explanation given by Ms. Flanagan was she believed Mr. Zinman had served the Statement of Claim as he confirmed by email to her that he would do so. More importantly, Ms. Flanagan stated that Fox and Workhaus had a good relationship derived from the three previous contracts where Fox had done work for Workhaus and been paid, that Workhaus knew of the claim for lien and acknowledged the underlying debt, that Workhaus indicated that it intended to pay Fox's account by the fall of 2021 and was working with a lender to make that happen, that Workhaus was having considerable difficulty in this regard due to the ravages of the COVID-19 pandemic on its business, that Workhaus had asked Fox for an "indulgence" in pursuing the lien claim while Workhaus worked on getting Fox paid, and that Fox granted Workhaus this indulgence. It was because of the "indulgence," Ms. Flanagan stated, that she did not instruct Fox's lawyer, Mr. Zinman, to move the lien action forward. When Fox hired a new lawyer in June, 2021, the potential absence of service came to Fox's attention. This explanation was not contested by Workhaus in this motion.
[15] I find this explanation compelling, to use Master Albert's word in MGI. First, that Workhaus acknowledged the debt that underlies the claim for lien gives the claim for lien credibility. Second, Fox's action in holding back on the lien action to allow Workhaus to obtain the wherewithal to pay the acknowledged debt during the very challenging time of the pandemic is consistent with the philosophy underlying the CA as expressed in section 86(2). This is the subsection that prohibits a lien claimant from recovering costs resulting from failing to take the "least expensive course" of action. This is particularly the case where, as in this case, the lien is affixed to a leasehold interest that may be tenuous, and to a freehold interest that may secure only a fraction of the claim. Third, the actions of Workhaus rise to the level of issue estoppel. Workhaus essentially represented to Fox that Workhaus wanted Fox to suspend the lien action while Workhaus worked on its financing to pay the debt. Now suddenly Workhaus raises the 90-day service period defence that arose during that suspension to frustrate collection of the debt. In none of the decisions raised by the defendants was there this kind of an arrangement between the lien claimant and its payor.
[16] It was because of the compelling nature of this explanation that the bulk of the argument focused on whether it could justify an extension of the service period in relation only to 133. The argument was that 133 made none of the arrangements with and representations to Fox that Workhaus did. The argument was that Fox should have let 133 know of the existence of the claim for lien and of the indulgence in a timely way.
[17] On reflection, I do not accept that argument. First, Fox's contractual relationship was with Workhaus, the tenant, not with 133. There was no evidence that Fox had any knowledge of the investment 133 made in the project through the tenant improvement provisions of the lease. Therefore, it was reasonable, in my view, for Fox to focus its attention on Workhaus to settle the contractual debt, which is what it did. Second, by investing in the project indirectly through the leasehold provisions of the lease, the landlord took on the risk of arrangements the tenant might make with the lien claimant to get the work done and paid for, arrangements such as the indulgence. Third, Fox's indulgence benefitted 133. It spared 133 from having to pay legal services while the contracting parties worked at resolving the acknowledged debt and keeping the tenant alive. Fourth, there was no evidence that 133 was prejudiced by the delay in service. Finally, it is not right or fair to allow the landlord to escape accounting for any part of the unpaid and acknowledged debt when the landlord has benefitted from the work, a result which may happen if the lien is declared expired and Workhaus becomes insolvent. As a result, I find that the Fox explanation for the delay is compelling as it relates to 133 as well. I am not prepared to exempt 133 from my order.
[18] I should note that in the defendants' written submissions they challenged the explanation given by Fox for delaying the service for almost four months after July 12, 2021 when Mr. Galati emailed Ms. Shamess advising that 133 had not been served with the statement of claim. This issue was not raised in oral argument.
[19] I do accept the argument. The explanation from Ms. Shamess in her affidavit was that she waited until she could confirm the status of the service by examining the file, and Mr. Zinman steadfastly failed to deliver the file despite Ms. Shamess' efforts to have the file transferred. I accept that explanation as it is not unreasonable to confirm the status of the service by reviewing the file. It is not unheard of for corporate defendants to believe they have not been served when they have in fact been served, in which case the shoe would be on the other foot and the corporate defendant would have to move to extend the time for service of the statement of defence.
[20] Finally, I note that there was no evidence of the passage of a relevant limitation period during the period of the delay in service and the pendency of the motion.
[21] I have decided, therefore, to grant the Fox motion. I extend the period for service of the statement of claim to January 31, 2022.
Motion to declare lien expired
[22] Mr. Ryan conceded that if Fox succeeded on its motion, this motion would become moot. As a result, I dismiss the cross-motion.
Costs
[23] Fox did not want costs as it realizes that this motion was the result of its conduct and that this order is an indulgence in its favour. Ms. Peet confirmed that 133 did not seek costs.
[24] The only one seeking costs was Workhaus. Mr. Kerr filed a costs outline and asserted a claim of $5,261.29 arguing that Workhaus's resistance to the motion was reasonable given the length of the delay. I do not agree. Given the conduct of Workhaus in using the indulgence it received from Fox to try and undermine Fox's lien claim, I do not find Workhaus deserving of costs. I make no order as to costs.
DATE: December 17, 2021
ASSOCIATE JUSTICE C. WIEBE