XP INC. In Backyard
Factual Background
The factual background to Backyard was relatively sparse. The plaintiff,
The Superior Court's Decision
The Court began by noting that since this was a motion pursuant to Section 4 of
The Court also observed that reviewing the case law on seeking leave to issue a third party claim was unnecessary, as the Regulation had established the following essential requirements:
- The motion must be on notice to the owner and all persons having subsisting preserved or perfected liens at the time of the motion; and although not required, it is "good practice" to provide the proposed third party with notice.
- The proposed claim must be for contribution and indemnity from the third party in respect of the claim against the party seeking to add the third party; and
- The Court must be satisfied that the proposed third party claim would not:
- Prejudice the third party or any lien claimant or defendant's ability to prosecute or defend a claim; or
- Delay or complicate the resolution of the action.5
The Court found that the notice requirement (the first requirement above) had been met by the Owners in this case6, but ultimately dismissed the motion for failing to meet the second requirement of the Regulation. Specifically, the Court noted that the Owners had failed to tender evidence on the motion that the third-party claim was for contribution and indemnity, and in fact conceded that the proposed third party claim was not for contribution and indemnity.78
In that regard, previous case law is clear that third party claims under the Act must be for contribution and indemnity, and not merely utilized as a mechanism to seek damages from that third party.9 There was one existing
In any event, the Court also observed that the Regulation does not include any language that provides the Court with the discretion necessary to grant leave to issue a third party claim other than for contribution and indemnity, nor does it permit a counterclaim against a non-party.12 In essence, the applicable rules are clear in respect of the Regulation, and the Court could not stray from them.
Based on the foregoing, the Court dismissed the motion and observed that the Owners were required to bring a separate action under the Rules of Civil Procedure (the "Rules"). 13 It would only be at this point that the parties could then consider whether such an action could be tried parallel to, or together with, Backyard's claim against the Owners. 14
Analysis
Although a short decision, Backyard provides important takeaways for lien claimants and their counsel intending to bring third party claims in respect of matters to which the Act applies.
The first is that Section 4 of the Regulation operates similarly to Section 56 of the former Construction Lien Act[15], and in that regard acts as a complete code 16 with respect to the issuance of third party claims. This much was suggested by the Court's acknowledgement that it lacked discretion to grant leave to issue a third party claim in respect of issues other than strictly related to contribution and indemnity.17
Accordingly, construction industry litigants would be well advised to consider the nature of the third party claim prior to bringing a similar motion, as the Court will perform a substantive analysis of the claim itself and will dismiss a motion if it does not accord with the requirement that it be for contribution and indemnity,18 as well as other requirements of the Regulation.19 A proper claim of contribution and indemnity will be able to demonstrate that the third party caused or contributed to the lien claim,20 which may arise in contract or in tort.21
On the other hand, however, the Court's effort to distinguish inconsistent case law from the balance of relevant decisions arguably suggests that it might be possible to bring a motion for a third party claim that does not claim for contribution and indemnity, if such a motion (1) is preceded by the issuance of the third party claim (or if a draft claim is included as part of the motion materials), and (2) the evidence on the motion denies the existence of a contract between the defendant and the plaintiffs. On balance, we are respectfully of the view that the Court reasoning in Backyard is more persuasive, but on the other hand, the contrary case law remains valid law until such time as an appellate court determines otherwise.
The second is that there are limitations on counterclaims under the Act. On this point, the Court made it clear that the Regulation limits the scope of counterclaims to the person who named the party as a defendant.22 In that regard, the Act is somewhat narrower than the Rules, insofar as the latter is slightly more flexible to the extent that Rule 27.01(2) allows a defendant who counterclaims against a plaintiff to join (as a defendant to the counterclaim) any other person, whether a party to the main action or not, who is a "necessary or proper party" to the counterclaim. Parties would therefore be well-advised to bear this difference in mind when conducting proceedings under the Act.
Ultimately, the most practical recourse for defendants under the Act who seek to advance claims that are not for contribution and indemnity against third parties in actions, is to issue a separate action against the third party and bring a motion that the two actions be tried together.23 While this may be financially and administratively cumbersome on the parties and the court, it will remain the proper avenue of seeking recovery in the absence of any modification(s) to the Act and/or the Regulation to permit alternative approaches (including, potentially, those available under the Rules).
Footnotes
1. 2023 ONSC 6312. [Backyard]
2. RSO 1990, c C 30
3. Backyard, supra note 1 at para 1.
4. Ibid at para 4.
5. Ibid at para 5.
6. Ibid at para 7
7. Ibid at paras 14, 17, 18.
8. The third requirement of the test was not considered in this case.
9. Backyard, supra note 1 at para 8.
10.
11. Backyard, supra note 1 at paras 9-13.
12. Ibid para 17.
13. RRO 1990, Reg 194.
14. Backyard, supra note 1 at para 19.
15. RSO 1990, c C 30
16.
17. Backyard, supra note 1 at para 17.
18. Wilson Cartage v Carlisle, et al, 2011 ONSC 1154 at paras 25-28, 37 [Wilson];
19. Dean Construction Co v
20. Lomax, supra note 17 at para 13.
21.
22. Backyard, supra note 1 at para 16.
23. Ibid at para 19.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
Mr
Suite 1200
BC V6C 3L2
Tel: 604682 7474
Fax: 604682 1283
E-mail: dfarber@singleton.com
URL: www.singleton.com
© Mondaq Ltd, 2023 - Tel. +44 (0)20 8544 8300 - http://www.mondaq.com, source
