Court File and Parties
Court File No.: CV-23-697863 Date: 2023 11 06
SUPERIOR COURT OF JUSTICE - ONTARIO
IN THE MATTER OF the Construction Act, RSO 1990, c C.30, as amended
RE: BACKYARD XP INC., Plaintiff - and - MIRELLA CESARIO-VALELA, VITO VALELA and CANADIAN IMPERIAL BANK OF COMMERCE, Defendants
BEFORE: Associate Justice Todd Robinson
COUNSEL: C. Neil, for the defendants, Mirella Cesario-Valela and Vito Valela L. Iantosca, for the plaintiff and the proposed third party, Garrison Creek Construction Inc.
HEARD: November 6, 2023 (by videoconference)
ENDORSEMENT
1The defendants, Mirella Cesario-Valela and Vito Valela (the “Owners”), seek leave to issue a third party claim against Garrison Creek Construction Inc. (“Garrison”). The Owners allege that Garrison is an alter ego, agent, and de facto plaintiff. The plaintiff/lien claimant, Backyard XP Inc. (“Backyard”) opposes the motion, and is supported by Garrison. I am dismissing the motion.
2This is not a summary judgment motion and I am not determining whether or not Backyard and Garrison are, in fact, alter egos. Based on the record before me, which I appreciate is pre-discovery, there is merit to the Owners’ position. Both corporations are admittedly related. Documentary evidence supports an active role by Garrison in the construction. For these and other reasons, the Owners intend to pursue a claim against Garrison for damages on the basis that it is the “puppet master” of Backyard.
3I understand the desire of the Owners to be judicially efficient in advancing their claims against Backyard and Garrison concurrently, particularly given the position of the Owners that the two entities are alter egos. The problem I face is that, in my view, the proposed claim against Garrison is not procedurally available under the Construction Act, RSO 1990, c C.30. The scheme of the Construction Act and its regulations does not permit a non-party to be added by way of counterclaim or by way of third party claim other than a claim for contribution or indemnity. That is not the claim proposed by the Owners against Garrison.
4This motion is brought under s. 4 of O Reg 302/18 under the Construction Act, which deals with third party claims in lien actions. The parties agree that leave of the court is required to issue a third party claim. That is expressly set out in s. 4(2).
5The case law provided on the applicable analysis is, in my view, unnecessary. The prerequisites to obtaining leave of the court are unambiguously set out in s. 4 of O Reg 302/18, which uses substantively the same language as s. 56 of the former Construction Lien Act (the “CLA”). Distilling s. 4 to its essential elements, there are three requirements for obtaining leave to issue a third party claim in a lien action, as follows:
(a) The motion must be on notice to the owner and all persons having subsisting preserved or perfected liens at the time of the motion (s. 4(2));
(b) The proposed claim must be for contribution or indemnity from the third party in respect of the claim against the party seeking to add the third party (s. 4(1)); and
(c) The court must be satisfied that the trial of the proposed third party claim will not:
(i) unduly prejudice the ability of the third party or of any lien claimant or defendant to prosecute a claim or conduct a defence; or
(ii) unduly delay or complicate the resolution of the action (s. 4(3)).
6Where leave to issue a third party claim is granted, the court has residual discretion in s. 4(4) to give directions as to the conduct of third party claims.
7On the first requirement, I am satisfied that the motion has been brought on notice to all required persons and parties. The Owners are moving and there are no other lien claimants. Although s. 4(2) does not strictly require that the motion be brought on notice to the proposed third party, it is good practice to do so. Backyard’s counsel also represents Garrison and have appeared today on its behalf. I deem Garrison to be on notice as well.
8On the second requirement, case law supports that the claim must be a true claim for contribution or indemnity, and not a veiled claim for damages: Lomax Realty Dev. Grp. Inc. v. New Foundations Dev. Co-op. Corp., 2016 ONSC 6276 at paras. 9-13; Wilson Cartage v. Carlisle, 2011 ONSC 1154 at para. 28.
9The Owners point to and rely on the decision in Art Nouveau Inc. v. Razumenko, 2011 ONSC 420, in which DelFrate J. granted leave for a third party claim against two individuals alleged by the defendants to be the true contracting parties. That case is at odds with the other case law before me. In my view, it does not assist the Owners. I say this for three main reasons.
10First, DelFrate J. granted leave for the third party claim nunc pro tunc. It thereby appears that the third party claim had already been issued at the time the motion was brought. It follows that DelFrate J. had the benefit of seeing the allegations pleaded against the third parties, which provided context for the assessment. I do not have the same benefit.
11Second, DelFrate J. does not refer to or discuss the statutory restriction of third party claims to claims for contribution or indemnity. It is unclear if the issued third party claim already fit within that requirement or, if not, whether the requirement was even raised or argued on the motion.
12Third, the defendants in Art Nouveau denied a contract with the plaintiff lien claimant and alleged that the contract was with the third parties. That is not the case here. There is no dispute that Backyard and Mr. Valela executed the contract. During cross-examination, Mr. Valela admitted that he signed the contract with Backyard. It is also conceded on this motion.
13For these reasons, I prefer the line of cases supporting that the claim must be a true claim for contribution or indemnity. In my view, that is consistent with the express requirements of s. 4 in O Reg 302/18.
14The Owners have not included a draft third party claim in their materials. During cross-examination of the Owners’ affiant, Vito Valela, questions on what relief would be sought against Garrison were refused. The materials are silent on the nature of the claim that the Owners want to advance against Garrison. I accordingly have no ability to determine if it is a claim for contribution or indemnity in respect of Backyard’s claim and, if so, on what legal or equitable basis Garrison would have liability to the Owners for Backyard’s claim.
15The Owners conceded in submissions that the purpose of the proposed third party claim is to advance the Owners’ claims against Garrison as a proper party. It is thereby not a true claim for contribution or indemnity within the meaning of s. 4 of O Reg 302/18. The statement of defence and counterclaim sets out the same allegations against Backyard and Garrison, essentially as alter egos, which give rise to the Owners’ damages claim. Based on the Owners’ submissions, the proposed claim against Garrison is the same claim being advanced against Backyard, for which a significant counterclaim has been advanced.
16Parties cannot be added to a lien action by way of counterclaim. The proper scope of a counterclaim is set out in s. 2(1)(a) of O Reg 302/18. It limits the scope of a counterclaim, by only authorizing a defendant to “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” (emphasis added). Put simply, the Owners may counterclaim against Backyard for any claim that they have against Backyard. They are not entitled advance their counterclaim against other parties.
17The extent of a valid third party claim in a lien action is circumscribed by s. 4 of O Reg 302/18. It contains no language giving me discretion to grant leave to issue a third party claim other than for contribution or indemnity. Similarly, there is no discretionary language in s. 2 permitting a counterclaim against a non-party. The record does not support any legally tenable claim by the Owners for contribution or indemnity against Garrison in respect of Backyard’s claim and, in any event, the Owners concede that is not what they are seeking.
18The above is sufficient to dismiss the motion. I thereby need not consider whether any party would be prejudiced or whether the proceeding would be unduly delayed or complicated by the trial of the third party claim.
19There may be judicial economies in having the Owners claims against Garrison tried concurrently with Backyard’s claim and the Owners’ defences. However, I must apply the Construction Act and its regulations as they stand. Procedurally, the Owners’ claims against Garrison must proceed in a separate action brought under the Rules of Civil Procedure, RRO 1990, Reg 194. The parties may then discuss whether Backyard’s lien action and the Owners’ non-lien action against Garrison should proceed in parallel and be tried together.
20For these reasons, the Owners’ motion is dismissed.
21Backyard has been successful in opposing the motion and is entitled to its costs. The parties been able to agree on costs in the amount of $4,300.00.
22I accordingly order as follows:
(a) The Owners’ motion is dismissed.
(b) The Owners shall pay to Backyard its costs of this motion, fixed in the amount of $4,300.00, including HST and disbursements, payable to Backyard’s lawyers in trust, payable within thirty (30) days.
(c) This order is effective without further formality.
Date: November 6, 2023 ASSOCIATE JUSTICE TODD ROBINSON