Court File and Parties

COURT FILE NO.: CV-19-00630360-0000 / CV-20-00637827-0000 DATE: 20230411 SUPERIOR COURT OF JUSTICE - ONTARIO

B E T W E E N:

2675076 ONTARIO INC. Plaintiff/Defendant to Counterclaim

and

DANA PAUL GILMAN and JEEHEE JIA GILMAN Defendants/Plaintiffs to Counterclaim

Court File No. CV-20-00637827-0000

B E T W E E N:

DANA PAUL GILMAN and JEEHEE JIA GILMAN Plaintiffs

and

CESARE FAZARI, NW NORTHWOOD DEVELOPMENTS INC., CANNJOIN INNOVATION & ENTERPRISE INC., 2675076 ONTARIO INC., NEW NORTHWOOD DEVELOPMENTS INC., NEW NORTHWOOD CONSTRUCTION INC., EXPERIENCE MANAGEMENT INC., EXPERIENCE MANAGEMENT OP CORP. and 1564915 ONTARIO INC. Defendants

A N D B E T W E E N:

2675076 ONTARIO INC. Plaintiff by Counterclaim

and

DANA PAUL GILMAN and JEEHEE JIA GILMAN Defendants to the Counterclaim

BEFORE: VELLA J., Case Management Judge

COUNSEL: Mitchell Fournie, for Dana Paul Gilman and Jia Jeehee Gilman (CV-19-00630360 and CV-20-00637827) Ryan Petrovski, for 2675076 Ontario Inc. (CV-19-00630360) and Cesare Fazari, Cannjoin Innovation and Enterprise Inc., 2675076 Ontario Inc., New Northwood Developments Inc., New Northwood Construction Inc., Experience Management Inc., and Experience Management Op. Corp. (CV-20-00637827) Tamara Markovic, for NW Northwood Developments Inc. (CV-20-00637827)

HEARD: August 29, 2022 by videoconference

REASONS FOR DECISION

[1] I heard this motion in my capacity as the case management judge under r. 77 of the Rules of Civil Procedure, R.R.O. 1990, Reg. 194.

[2] The Moving parties, Dana Paul Gilman and Jeehee Jia Gilman, bring this motion to dismiss the claims brought by 2675076 Ontario Inc. (“267”) in two actions: the construction lien action bearing court file no. CV 19 00637827 (“Construction Lien Action”) and the counterclaim in CV 20 00637827 (“Civil Counterclaim”). Both the Construction Lien Action and the Civil Counterclaim seek identical relief and were ordered to be heard together by order dated November 5, 2020.

[3] For the reasons that follow, the construction lien will be vacated and the Construction Lien Action dismissed. The Civil Counterclaim will not be dismissed at this time, and 267 and Mr. Fazari will be given one last chance to answer the outstanding undertakings and advisements from the April 14, 2022 cross examination, failing which the Civil Counterclaim will be dismissed.

Background

[4] The proceedings essentially revolve around allegations by 267 of outstanding sums allegedly due under a construction/renovation contract relating to the Gilmans’ home. The Construction Management Contract was originally between the Gilmans and NW Northwood Developments and was signed in December 2017. Mr. Fazari was a partner of NW Northwood at the time this contract was entered into. He has since left NW Northwood. Under the terms of the Construction Management Contract, NW Northwood operated as a general contractor. The Gilmans would remit payments to NW Northwood for work done under its auspices by subcontractors. In addition, NW Northwood was entitled to receive a management fee in the equivalent of 15% of the total work ultimately invoiced. On May 27, 2019, NW Northwood assigned the Construction Management Contract to Cannjoin Innovation & Enterprise Inc. Cannjoin is controlled by the defendant, Mr. Fazari.

[5] Then, according to Mr. Fazari, Cannjoin further assigned the Construction Management Contract to his company, 267, on May 27, 2019. Of significance, the termination date of the Construction Management Contract was August 6, 2019. By the time of this further assignment, work was well underway at the Gilmans’ residence, municipally known as 11 Peebles Ave. in North York.

[6] A dispute arose when Mr. Fazari, on behalf of 267, advised the Gilmans in July 2019 that the total cost of the renovations had increased from approximately $1.7 million to $3.6 million. In response, the Gilmans demanded a full accounting of the work that had been completed to July 2019.

[7] Upon reviewing the documentation, the Gilmans concluded that 267 had incurred substantial unauthorized expenses. As a result, the Gilmans terminated the Construction Management Contract for cause on August 6, 2019.

[8] On September 6, 2019, 267 registered a construction lien on title to the Gilmans’ home. An affidavit sworn by Mr. Fazari was filed in support. That construction lien remains registered on title.

[9] In 2020, the Gilmans brought a civil action against 267 and others relating to damages arising from alleged negligent renovations (the Civil Action). They had to bring a civil action as some of the defendants are not parties to the Construction Lien Action. In response, 267 filed a statement of defence and counterclaim. 267 admits that its counterclaim is identical to the claims brought in its Construction Lien Action.

[10] Mr. Fazari was cross examined pursuant to s. 40 of the Construction Act, R.S.O. 1990, c. C.30, on February 28, 2020. At that cross examination, Mr. Fazari undertook to identify the invoices and other evidence supporting the amount 267 claims is owing by the Gilmans. He also undertook to account for the discrepancy between the initial amount 267 claimed was owing of $496,111.88 as at August 19, 2019, and the amount 267 was then claiming was owed for purposes of securing the construction lien, which was in the amount of $885,180.72. In his answers to undertakings, no such underlying documentation supporting the impugned expenses was provided. Rather, Mr. Fazari provided an excel spreadsheet entitled “Summary of Outstanding Amounts of 11 Peebles Avenue Projects” that he prepared. According to this spreadsheet, the amount owing had now increased to $1,005,737.54.

[11] On October 15, 2020, at the first case management conference, I ordered that the Lien Action and Civil Action would be heard together. Furthermore, I ordered that the defendants’ respective affidavits of documents be delivered (the Gilmans having already delivered their affidavit of documents) and that examinations for discovery be conducted in January 2021.

[12] Examinations for discovery were conducted in March 2021. At Mr. Fazari’s examination (as representative of 267) he provided several undertakings, many of which related to the subject documentation requested to substantiate the unpaid costs 267 alleges that the Gilmans owe under the Construction Management Contract. These were similar in nature to the undertakings he gave in February 2020 relating to production of the underlying documentation supporting 267’s claim for liquidated damages.

[13] On January 12, 2022, the Gilmans obtained a court ordered timetable which required Mr. Fazari and 267 to answer their undertakings and questions taken under advisement arising from the March 2021 examination for discovery by March 1, 2022. Notably, the questions taken under advisement consisted of all of the questions asked relating to the production and identification of the invoices, timesheets and documents supporting the amounts claimed in the lien stated to be in the amount of $885,180.72.

[14] On March 18, 2022, the Gilmans obtained an order requiring Mr. Fazari to answer the outstanding questions taken under advisement by March 25, 2022. The extension was granted as an indulgence to Mr. Fazari and 267 to give them one further chance to comply with the January 12, 2022 Order.

[15] Mr. Fazari’s counsel advised on March 24th that they would be late in delivering the answers to undertakings because Mr. Fazari was said to have been hospitalized. However, no evidence was adduced regarding whether Mr. Fazari had in fact been hospitalized and, if so, when and for how long.

[16] On March 28, 2022, Mr. Fazari delivered further answers to his undertakings arising from the March 2021 examinations for discovery. His response to the request to identify all invoices, timesheets and documents supporting the summary of costs outline in his August 19, 2019 Construction Cost Report was that all invoices had been provided. Furthermore, in response to the request to provide an itemized breakdown of the individual costs claimed in the Construction Cost Report, Mr. Fazari simply produced another copy of that same report.

[17] Mr. Fazari was examined with respect to his answers to undertakings and under advisements on April 14, 2022. Again, Mr. Fazari took all questions relating to the request for the supporting documents underlying the alleged incurred costs under his Construction Cost Report, the construction lien, and the Summary of Outstanding Amounts of 11 Peebles Ave Project document under advisement.

[18] As at the date of this hearing, 267 and Mr. Fazari have not produced any further answers to undertakings or questions taken under advisement, nor have they provided the court with any evidence of ongoing attempts to obtain the requested damages documentation other than Mr. Fazari’s bald statements made in his brief affidavit.

Issues

[19] There are two issues to be decided:

(a) Should the lien be vacated and the Construction Lien Action dismissed? (b) Should the Civil Counterclaim be dismissed?

Analysis

[20] The Gilmans move under r. 60.12 and s. 47 of the Construction Act to dismiss the Civil Counterclaim and Construction Lien Action, respectively, on the basis that Mr. Fazari has not yet produced many documents substantiating the amounts he and 267 claim are outstanding and, in the case of the Construction Act, has failed to advance that proceeding in a timely manner with the result that their title has been encumbered since 2019. They submit that 267 and Mr. Fazari have repeatedly breached timetables ordered by the court relating to various undertakings and have flouted the process through excuses that are not substantiated.

[21] Mr. Fazari does not deny the existence of these undertakings, or the fact that he has not produced the documents requested, but says that all of the documents substantiating the liquidated damages claimed have now been lost and he is having to reconstruct the paper trail by going to individual, non-party, subcontractors and service providers to obtain the supporting invoices and receipts. Mr. Fazari submits that he has been making diligent efforts to locate the documents and that he was not given enough time by the court to fulfil the undertakings given that the Gilmans ultimately asked many questions that resulted in numerous undertakings. He submits that he should be given more time.

[22] The interlocutory order in question is one I made dated March 18, 2022, requiring Mr. Fazari to deliver his undertakings on or before May 2, 2022. Mr. Fazari did not meet this deadline. However, it is not entirely his fault. Many of the outstanding undertakings were given at a continuation of his examination for discovery that was held on April 14, 2022, approximately 18 days before the deadline imposed by my Order. At that examination, Mr. Fazari provided 56 undertakings and 56 questions taken under advisement. Mr. Fazari blames the Gilmans for asking so many questions knowing that he only had a short window to provide his reply. However, it must be remembered that these questions arose from Mr. Fazari’s prior answers to undertakings and the lack of documentation provided at that time.

[23] There is no satisfactory reason provided by Mr. Fazari in the evidentiary record as to why he did not insist that his former partner, NW Northwood, deliver the documents in question before they were “recently lost” apparently by reason of a break down of the server. These documents largely go to the issue of proving the very amounts that are at the heart of 267’s claims in these proceedings. They ought to have been secured promptly through diligent perseverance and, if necessary, by applying to the court for an order mandating NW Northwood to deliver up these documents long before now. It is worth noting that the same lawyer represents all of the defendants, with the exception of NW Northwood. Also, there is no evidence before this court, despite the fact that Mr. Fazari had approximately 4 months since the April 2022 examination for discovery concerning his answers to undertakings, regarding any efforts Mr. Fazari and 267 may have made to comply. There is no proposal to comply either.

[24] In fact, counsel to Mr. Fazari’s former partner, who currently controls NW Northwood, denied that Mr. Fazari made any request for the subject documents in an email dated July 27, 2022 to the Gilmans’ counsel. NW Northwood also confirmed it did not have the back up invoices from the suppliers and subcontractors adding that, in its view, its server would not have had the entire file relating to the Gilman project in any event, as Mr. Fazari ran this project on his own computer system and kept hardcopies in his own binder. This email exchange is in the evidentiary record and directly contradicts Mr. Fazari’s sworn evidence.

[25] Perhaps most telling is the lack of evidence offered by 267 through Mr. Fazari’s affidavit evidence of any efforts actually made to attempt to obtain the third party invoices, receipts and documentation since he commenced the Construction Lien Action or filed the Civil Counterclaim. All the court has are Mr. Fazari’s bald statements in his affidavit that he has been and is making efforts. Not a single communication evidencing these alleged efforts was attached to his affidavit.

[26] Mr. Fazari’s excuse that the Gilmans asked too many questions at the last examination for discovery resulting in approximately 112 undertakings that could not reasonably have been answered within the four month time frame set by my Order also rings shallow. This is because many of the undertakings related to requests for the supporting documentation being relied upon by 267 in support of the alleged deficit, have been the general subject of requests and undertakings or under advisements since his first examination for discovery in March, 2021. The short deadline imposed by my Order reflected the reality that many of the documents requested have been outstanding from prior undertakings given by Mr. Fazari in 2020 and 2021 and which go to 267’s claim that it is owed substantial liquidated damages under the Construction Management Contract.

[27] Furthermore, having commenced the Lien Action and registered a lien against the Gilmans’ home in 2019, 267 was under a positive obligation to advance its claims within that action expeditiously. The fact that 267 would have to provide documents to substantiate the alleged additional expenses of the subcontractors and subtrades ostensibly paid by 267 under the Construction Management Contract to advance the Construction Lien Action would or should reasonably have been known to Mr. Fazari and 267 in 2019. It would have been reasonable to assume that diligent efforts to collect the subject documentation would have already been underway by 267 as a result of having obtained the order to register the lien in 2019, without the need to be asked for it in the context of the related Civil Counterclaim.

[28] In addition, no explanation has been provided in the evidence by or on behalf of 267 as to why it is that the amount of the claim has increased. Mr. Fazari has not explained why, at termination of the Construction Management Contract, 267 initially claimed a deficit of $496,111.88, under his Construction Cost Report dated August 19, 2019, whereas in his affidavit sworn in support of the construction lien, Mr. Fazari deposed that the amount owed was $885,180.72 for work completed as at the termination date, much less the further increased amount 267 now says is owing. This reflects an increase of more than 100% since the pre-litigation Construction Cost Report.

The Lien Action

[29] In order to obtain an order registering a construction lien against a property, the lien claimant only has to swear a declaration as to the outstanding alleged debt. This is to preserve the lien claimant’s ability to enforce the lien, if it is ultimately successful in its action. However, the corollary to this speedy remedy is that the lien claimant is required, under the Construction Act, to act with expediency and move the matter forward summarily. This is because in the meantime the property is encumbered by virtue of what is really a pre-judgment remedy.

[30] Section 47(1.1) of the Construction Act provides that the court may order the discharge of a lien and that the registration of a claim for lien and/or a certificate of action be vacated upon any “proper ground” and “subject to any terms and conditions that the court considers appropriate in the circumstances”.

[31] In GTA Restoration Group Inc. v. Baillie, 2020 ONSC 5190, at para. 45, the court confirmed that “ongoing procedural delays contrary to the summary procedure required” by the Construction Act and “non-compliance with court orders” are grounds that justify a discharge of the lien.

[32] Nova Concrete Inc. v. 2035211 Ontario Inc., 2022 ONSC 2391, at paras. 37-42, further supports this view noting that the Construction Act mandates the diligent and expeditious prosecution of lien actions.

[33] It is abundantly clear that 267 has failed to move this matter forward with expediency or summarily. It was 267’s positive obligation to assemble its case to support its claim for damages when it obtained and registered the lien on the Gilman’s property to secure its alleged debt.

[34] Accordingly, I am granting the relief requested by the Gilmans in relation to the Lien Action. The lien registered against their home bearing PIN No. 10540-0190 LT, municipally known as 11 Peebles Avenue, Toronto, Ontario, will be discharged and the Certificate of Action registered against this property is vacated. Furthermore, the Construction Lien Action is dismissed.

The Counterclaim by 267

[35] The Counterclaim seeks the same liquidated damages, but without the construction lien component.

[36] The Gilmans move to have the Civil Counterclaim dismissed on the basis that 267 and Mr. Fazari’s non-compliance with the production orders has been persistent, without justification, and has caused prejudice to them that cannot be compensated by an award of costs.

[37] The Gilmans move under r. 60.12 which provides that the court can stay the counterclaim, dismiss the counterclaim, or make such order as is just, for failure to comply with an interlocutory order.

[38] Rule 60.12 states:

Where a party fails to comply with an interlocutory order, the court may, in addition to any other sanction provided by these rules:

(a) stay the party’s proceeding; (b) dismiss the party’s proceeding or strike out the party’s defence; or (c) make such other order as is just.

[39] Rule 60.12 is discretionary. Courts are extremely reluctant to impose the extreme sanction of dismissing an offending party’s claims or defences by reason of breach of an interlocutory order, depending on the severity and nature of the breach and on explanations that may be offered by the offending party for its conduct.

[40] In Daci v. 1062204 Ontario Inc. O/A Auto Show Place, 2022 ONSC 448, at para. 39, this court observed that while the courts will be reluctant to dismiss an action without a hearing on the merits, there is an important public policy component in ensuring that interlocutory orders are obeyed as a matter of “ensuring the administration of justice and in upholding the integrity of the justice system”.

[41] In Koohestani v. Mahmood, 2015 ONCA 56, 124 O.R. (3d) 205, at paras. 58-62, the Court of Appeal set out a test for adjudicating r. 60.12 motions. The court must consider:

(a) the strength of the claim or defence; (b) the context of the default and whether, in this case, striking the counterclaim is a proportionate result, and (c) whether the default is the fault of the defaulting party’s lawyer.

[42] However, in Koohestani, the court, at para. 57, cautioned that striking a claim or defence is not the “remedy of first resort”.

[43] In terms of the first branch of this test, the strength of 267 and Fazari’s counterclaim is undermined by their own inability to obtain copies of invoices and/or paid receipts that demonstrates that the alleged charges by the various subcontractors have merit. Not one piece of evidence from a subcontractor or in documentary form (other than a self-serving litigation chart) has been adduced to support the liquidated damages claimed in the Civil Counterclaim.

[44] Regarding the second branch of the test, the court is to liberally construe r. 60.12 so as to promote a just determination of the civil proceeding on its merits, in its analysis as to what remedy, including an order striking the counterclaim, is proportionate to the breach.

[45] In this case, there has been a series of excuses by Mr. Fazari for his and 267’s inability to comply with the outstanding undertakings, including the failure to produce any of the many documents he alleges existed at one time, and may still exist today, to support his company’s claims. These excuses have been suspect, and Mr. Fazari has not provided evidence to support them. Indeed, his former partner has stated that contrary to Mr. Fazari’s sworn statement, he has not even been asked to produce the invoices and related documents.

[46] As for the third branch, there is no indication in the evidentiary record that any fault is attributable to Mr. Fazari and 267’s lawyers of record. Mr. Fazari is the one who provided the undertakings, and Mr. Fazari is aware that it is only he who can answer or attempt to answer those undertakings. Furthermore, it is 267’s burden to prove the liquidated damages it claims is owing by the Gilmans.

[47] Mr. Fazari submits that the draconian remedy of striking a claim without a consideration of the merits is only justified where “a litigant shows a wanton disregard for interlocutory orders and the Rules”: Drew v. Topple, 2021 ONSC 367. He submits that striking the Counterclaim would constitute “severe, disproportionate, and unnecessary relief”: Drew, at para. 48.

[48] In Drew, the court dealt with the defendants’ failure to produce documents in the possession of non-parties. The court declined to strike the statement of defence because their failure could be cured by obtaining orders to compel production of documents from the non-parties. However, in Drew, the defendants answered the requisite undertakings advising of their attempts to obtain the documents from the non-parties within five months of the examinations.

[49] Similarly, in Contechs Consulting Ltd. v. Pavaco Plastics Inc., in which the plaintiff sought to strike the statement of defence due to non-compliance with undertakings, the court observed that the defendant had made significant efforts to comply and the fact that some remained outstanding did not warrant the extreme remedy requested. The court provided the defendants with a last chance to comply without prejudice to the motion to strike being renewed if the remaining undertakings are not satisfied.

[50] Mr. Fazari has not provided any indication of his attempts to obtain the documents other than the alleged (disputed) recent request of NW Northwood, nor has he provided any plan to attempt to obtain those documents. He has not brought a motion to compel the production of the requested documents which he requires in any event to substantiate 267’s claim for liquidated damages.

[51] In light of the length of these proceedings, the persistent failure of Mr. Fazari and 267 to comply with undertakings, within the context of the very large number of undertakings that were asked of Mr. Fazari shortly before the deadline imposed by my timetable, I find that the appropriate remedy is to allow Mr. Fazari one last chance to fulfill the undertakings, recognizing that he has now had further substantial time to do so.

[52] Mr. Fazari and 267 have a further 30 days from today within which to fulfil the outstanding undertakings. If Mr. Fazari fails to do so, the Gilmans have leave to renew this motion. Furthermore, this order is without prejudice to the Gilmans bringing a motion for a summary determination of this matter on the merits, if so advised.

Costs

[53] The Gilmans will have 10 days to provide their cost submissions (the cost outline was uploaded to Caselines) and 267 and Mr. Fazari shall have 10 days thereafter to provide their responding cost submissions and cost outline. The respective submissions will not exceed three pages double spaced each and should be delivered to my judicial assistant.

Justice S. Vella

Date: April 11, 2023

COURT FILE NO.: CV-19-00630360-0000 / CV-20-00637827-0000 DATE: 20230411 ONTARIO SUPERIOR COURT OF JUSTICE BETWEEN: 2675076 ONTARIO INC. Plaintiff/Defendant to Counterclaim and DANA PAUL GILMAN and JEEHEE JIA GILMAN Defendants/Plaintiffs to Counterclaim Court File No. CV-20-00637827-0000 B E T W E N: DANA PAUL GILMAN and JEEHEE JIA GILMAN Plaintiffs and CESARE FAZARI, NW NORTHWOOD DEVELOPMENTS INC., CANNJOIN INNOVATION & ENTERPRISE INC., 2675076 ONTARIO INC., NEW NORTHWOOD DEVELOPMENTS INC., NEW NORTHWOOD CONSTRUCTION INC., EXPERIENCE MANAGEMENT INC., EXPERIENCE MANAGEMENT OP CORP. and 1564915 ONTARIO INC. Defendants A N D B E T W E E N: 2675076 ONTARIO INC. Plaintiff by Counterclaim and DANA PAUL GILMAN and JEEHEE JIA GILMAN Defendants to the Counterclaim

REASONS FOR DECISION Vella J. Released: April 11, 2022