Overview
On December 19, 2023, the Superior Court released its Reasons for Costs Decision in Alfa Mechanical Inc. v Chang, 2023 ONSC 7167, in respect of a plaintiff’s motion for default judgment pursuant to Ontario’s Construction Act.[1]
This decision summarizes the law with respect to motions for default judgment in construction actions; costs in construction motions in general; and highlights yet-unresolved issues that will need to be addressed by a court in the future.
Background
The plaintiff sought a declaration, on notice, that it was entitled to its lien against the defendants’ interest in their property for $38,822.04, as well as personal judgment against the defendants for the same amount.. After the plaintiff brought the motion but before the return date, the parties agreed to an order setting aside the noting in default and permitting the defendants to deliver a defence, but they could not settle the issue of costs, which required the decision.
The plaintiff sought its partial indemnity costs of $4,025, including HST, plus $357.90 in disbursements, from costs thrown away from the noting in default and costs of the default judgment motion. The defendants were willing to pay costs thrown away from the noting in default, but opposed the costs of the motion.
The defendants had three arguments for why there should be no costs arising from the motion:
-
- the motion was improper since a lien cannot be validated by a motion for default judgment and personal judgment could have been obtained from the registrar;
- the motion was jurisdictionally and procedurally deficient; and
- the plaintiff effectively abandoned its motion when agreeing to resolve the motion by a consent order setting aside the noting in default.
Costs in a construction action
Generally, section 86 of the Construction Act and Rule 57.01[2] afford courts a wide discretion with respect to costs, and awards are intended to reflect what the court views as a fair and reasonable amount that should be paid by the unsuccessful parties, having regard to the expectations of the parties concerning the quantum of costs, rather than a purely mathematical calculation.
However, the considerations in section 86 of the Construction Act and Rule 57.01 generally flow from having determined rights on a motion and no such substantive determination was made here.
In this decision, Associate Justice Robinson agreed that. generally,where parties agree to a consent resolution of a motion “except for costs” and ask the court to decide costs, none should be awarded. The plaintiff submitted that the resolution came because there is a low bar to set aside a noting in default so the defendants were likely to obtain the relief sought in any event.
However, the threshold for setting aside a noting in default in a construction action, informed by section 5(3) of OReg 302/18[3], requires that a court “must be satisfied that there is evidence to support a defence.” There was no responding record and no evidentiary basis to find the defendants could or would meet the required (higher) threshold for an opposed motion to set aside the noting in default.
Robinson AJ, being unable to find that the plaintiff’s motion was necessary and likely to succeed, or that the defendants had a meritorious (or any) defence to the claim (since they did not file a responding record), could not then guess what motivated the parties to settle and deferred the issue of costs.
Obiter
There were no arguments and the court made no findings or determinations on the substantive merits of the motion. Nevertheless, the Court decided to address the various issues raised on this motion.
Can a lien be validated on a motion for default judgment?
Default judgment is expressly contemplated in section 5(5) of OReg 302/18.
Also, section 50(3) of the Construction Act states that lien actions are to be, as far as possible, of a summary character – requiring a trial to prove a lien in all cases, including where the defendant has been noted in default, would be contrary to the statutory requirement.
Section 50(2) of the Construction Act sets out that the regular rules of court apply except to the extent of any inconsistency with the Construction Act and its regulations – and there is nothing in the Construction Act to exclude the default judgment provisions in the Rules.
Robinson AJ, at paragraph 18 of the decision, was thus “unconvinced that it is inconsistent with the Construction Act to permit default judgment that includes validating a lien.”
Does an associate judge have jurisdiction to declare a lien valid?
In another of Associate Justice Robinson’s decisions, Strada Aggregates Inc. v YSL Residences Inc.,[4] a motion brought without notice in writing for monetary judgment, hecommented that “only a judge or s. 58 referee has authority to declare a lien valid under the Construction Act.”
However, Robinson AJ noted that based on the submissions made at this hearing, he was now unsure, and re-considered his comments in Strada wherein the plaintiff did not seek relief declaring the lien valid, and did not include submissions made on an associate judge’s jurisdiction to do so.
The reasons thus state that “I nevertheless now question the correctness of my unequivocal statement in Strada Aggregates that only a judge or s. 58 referee (including a reference associate judge) may validate a lien.”[5]
The question of whether an associate judge’s jurisdiction to validate a lien by way of a motion for default judgment, or even summary judgment, remains an open question, and will need to be addressed in a future case on a proper record, likely with submissions on the issue of jurisdiction.
Does an owner have a right to receive notice on a motion for default judgment in a construction action?
Where a lien action proceeds to trial, section 9(4) of OReg 302/18 under the Construction Act requires that notice of trial be served on various persons when the court fixes a date for trial. Where a lien continues to attach to the subject premises, that list includes the owner, any person with registered interest in the premises, execution creditors of the owner, and other lien claimants – even if they have been noted in default. The results of a lien being validated is that the lien claimant may be entitled to force a sale of the property and also becomes entitled to the benefit of various statutory priorities over the rights of others, including anyone with a registered interest in the premises.
The court in this decision was inclined to agree that a properly constituted default judgment motion must be on notice to the same parties entitled to notice of trial, all of whom are entitled to challenge the validity of a lien, but this must be definitively decided on another motion.
Conclusion
Associate Justice Robinson ultimately reserved the costs of the motion to be decided as costs of the action, and only granted costs thrown away from the noting in default of $651, including HST, which were the actual costs associated with the noting in default on a full indemnity basis (as appropriate for costs thrown away).
The defendants had offered to pay $1,000 in costs thrown away, but they did not file any responding materials or provide a position on the motion until the morning of the hearing, and as a result, Robinson AJ did not reduce the amount of costs thrown away.
The defendants had the benefit of not having to argue a default judgment motion or bring a motion to set aside the noting in default, and it would have been neither fair nor just to deny the plaintiff its costs thrown away from the noting in default.
Additionally, the issues of a declaration of the validity of a lien on a default judgment motion, the jurisdiction of an associate judge to do so, and the question of notice on a motion for default judgment in a construction action will need to be resolved in future proceedings as there was no determination herein.
Takeaways
The plaintiff complained of unfairness if it was denied costs as it is a small business pursuing a modest claim. However, the plaintiff did agree to resolve its motion knowing that the defendants were not agreeing to pay anything more than costs thrown away from the noting in default. As a result, the court exercised its discretion not to award any costs of the motion, although these could be claimed later as some of the materials would benefit the plaintiff later in the litigation.
In total, the parties were $3,731.90 apart – requiring this motion, which likely cost at least that much to prepare for, and which did not ultimately resolve the issue of the costs which are left to a later date. Not only does this not make economic sense (this could not be what the parties would have expected) but once again showcases that costs decisions are oftentimes not “fair and reasonable.”
This decision may also have the inadvertent effect of dissuading parties from settling “aside from costs” knowing that the court may order no costs at all, although the court would likely prefer that litigants settle their own disputes (including the issues of costs) to relieve our overburdened judicial system.
This decision is particularly interesting in that Associate Justice Robinson had the insight to recognize that his previous statement as to the jurisdiction of associate justices were premature, and was thus self-critical in clarifying that the law surrounding an associate judge’s jurisdiction to declare a lien valid is undecided and will require fulsome arguments in the future.
Should you have any questions, please reach out to a member of Miller Thomson’s Construction Litigation group.
[1] Construction Act, RSO 1990, c C.30 (the “Construction Act”)
[2] Rules of Civil Procedure, RRO 1990, Reg 194 (the “Rules”)
[3] Procedures for Actions under Part VIII of the [Construction] Act.
[4] 2020 ONSC 7034 (“Strada”).
[5] At para 21.
