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Join the Party! Ontario Superior Court Clarifies the Construction Act’s Joinder Provisions

The Ontario Superior Court of Justice recently shone light on the appropriate use of joinder motions and third party claims under the Construction Act, R.S.O. 1990, c. C.30 (the “Construction Act”). In Magil Construction Canada v. JBelli Holdings, 2023 ONSC 1837,[1] the Court was faced with a number of intertwined procedural issues in connection with a claim for contribution and indemnity in a lien action. The court’s decision provides helpful guidance for parties seeking to navigate these claims – not just what should be done, but also what should be avoided.

Key Takeaways

  • Third party claims should only be issued after being granted leave; failing to comply with this procedural requirement of the Construction Lien Act may prejudice the ability of the claimant to prosecute their third party claim;
  • When a party to a third party action (or most other actions) undergoes an amalgamation, the resulting amalgamated entity is automatically engaged in the civil action and bound by its outcome; and
  • A limitations defence may not defeat a motion for joinder if the evidence on the motion does not demonstrate the action is clearly out of time and would cause undue prejudice or delay.

Background

Magil Construction Canada Inc. (“Magil”), a general contractor, commenced a lien action against Freshouse Foods Ltd. (“Freshouse”) and JBelli Holdings Inc. (“JBelli”) arising out of its contract with Freshouse to renovate a food processing facility which was owned by J Belli. In turn, Freshouse brought a counterclaim against Magil for breach of contract, negligence, and delay.[2]

A procedural irregularity followed. Magil filed a consent motion for leave to join Tri-Con Haid Concrete Finishing Ltd. (“Tri-Con”) as a third party, seeking to claim contribution and indemnity in respect of Freshouse’s counterclaim. However, only ten days later – and approximately two months before the Court even granted leave – Magil also brought a third party claim against Tri-Con.[3] To complicate matters, by the time the Court granted Magil leave to join Tri-Con, the company had amalgamated with others to form an entity named B-N-E Concrete Floors & Coatings Inc. (“BNE”).[4]

Some months later, Magil brought a further motion to join four additional companies as third parties: Mattina Mechanical Limited (“Mattina”), Sola Engineering Inc. (“Sola”), IFAB Engineering Partners Ltd. (“IFAB”) and Innocon Inc. (“Innocon”). While three of the proposed third parties did not oppose this motion, Innocon contested it.

Altogether, the Court was faced with three issues: first, whether to grant a motion to vary the Court’s earlier order to join Tri-Con as a third party; second, whether to grant Magil’s motion to amend the third party claim against Tri-Con to account for its subsequent amalgamation into BNE; and third, whether to grant leave to join Mattina, Sola, IFAB and Innocon as third parties.

Decision

Issue #1: Varying the order granting leave to join Tri-Con

With respect to the motion to vary the order to join Tri-Con as a third party, the court declined to grant the requested amendment.

Procedurally, it was unnecessary. The Court stated that although it was irregular for a third-party claim to be issued prior to the order granting leave to issue it, it was up to Tri-Con to challenge this irregularity—and it had not done so.[5]

Substantively, the plaintiff had failed to meet the requirements for the requested relief as articulated by the Ontario Court of Appeal in Render v. ThyssenKrupp Elevator (Canada) Limited, 2022 ONCA 512, which requires the moving party to specify which branch of rule 59.06 of the Rules of Civil Procedure it is relying on and “bring itself within that specific sub-rule”.[6] Rule 59.06 of Ontario’s Rules of Civil Procedure is a mechanism by which a party may (i) amend an order containing an “accidental slip or omission”, or (ii) set aside, suspend or carry into operation an order or obtaining other relief than that originally awarded. The plaintiff did not identify which of the subrules it was relying in and did not bring itself within either subrule in its materials.

Issue #2: Amending the third-party claim to reflect the amalgamation

The motion judge granted the motion to amend the third party claim as against Tri-Con to account for its amalgamation into BNE. The Court noted, however, that such an amendment is not technically required as section 179(e) of the Ontario Business Corporations Act, R.S.O. 1990, c. B.16 (the “OBCA”) specifically provides that an amalgamated corporation is deemed to be a party in any civil action involving a predecessor company.[7] As such, although granting the motion as the Court did would help make for a more “tidy” pleading, it was not required in order to legally engage BNE in the ongoing action.[8]

Issue #3: Joining Mattina, Sola, IFAB and Innocon as third parties

While three of the four proposed third parties did not oppose Magil’s motion to join them, Innocon challenged the motion on two grounds. Finding no merit in either argument, the Court granted Magil’s motion and joined all four parties to the third party action.

First, Innocon argued that since the original third party claim against Tri-Con was issued prior to the Court granting leave, this was a nullity – and, as a result, there was no valid pleading to which the proposed third parties could be added.[9] The motion judge, relying on section 56 of the Construction Act[10], noted that there was no requirement that parties could only be joined by amending existing pleadings.[11] Therefore, the Court held that this was irrelevant. Although there was a material procedural irregularity, it could not stand as the basis for Innocon’s argument to oppose the motion to join.

Second, Innocon argued that Magil’s claim against it was statute-barred pursuant to the Limitations Act, 2002, S.O. 2002, c. 24, Sched. B (the “Limitations Act”) because Magil’s claim was discoverable more than two years before its motion was filed.[12] Innocon pointed to two events which, in its view, gave rise to discoverability by Magil: a letter Magil had received from Freshouse about deficiencies in the property’s floor slabs; and, in the alternative, Magil’s receipt of Freshouse’s statement of defence and counterclaim in respect of the main action.[13]

The motion judge found, based on this evidence before them, the plaintiff’s claim was against Innocon for contribution and indemnity was not discovered. Interestingly, in his view, neither the letter nor the statement of defence and counterclaim was sufficient to constitute discoverability of the claim itself.[14]However, in rejecting Innocon’s limitations argument, the Court held that it was not required on this motion, nor permitted, to determine Innocon’s limitation defence; it needed only to determine whether Innocon’s joinder would occasion such prejudice or delay to the lien action that it ought not to be granted.

Specifically, in order for the Court to grant leave to join a third party, it must be satisfied that the trial of the third party claim would not: (i) unduly prejudice the ability of the proposed third party, the lien claimant and the defendant to prosecute a claim or conduct a defence; nor (ii) unduly delay or complicate the resolution of the underlying lien action.[15] Here, the Court held that neither ground was made out by Innocon, including because it did not adduce evidence to this point, nor make any specific written arguments in respect of it.

This finding may come as a surprise given existing jurisprudence on this issue. For instance, in Ekarte v GUPM, 2021 ONSC 2203, the Superior Court declined to add a third party because, among other reasons, the limitations period had expired over five years prior. However, the limitation period in that case was clearly expired and the proposed defendants led evidence to demonstrate documents relevant to their defence had been lost as a result, effectively demonstrating undue prejudice under s. 56 of the Construction Lien Act.

Conclusions

The Court’s decision provides some helpful reminders for construction industry stakeholders and counsel alike.

First, although the procedural irregularity of having the third party claim issued without leave was ultimately permitted as it was unopposed, counsel seeking to raise third party claims under the Construction Act should ensure they remain faithful to the required procedure. Failing to do so could be highly prejudicial, despite being allowed to stand in this unique decision.[16]

Second, when bringing or contesting a proposed joinder, parties should ground their arguments in the prospect of undue prejudice or undue delay. In the result, the motion judge agreed that there could be an issue with respect to the limitation period of Magil’s claim against Innocon, but nonetheless concluded that this was an issue for the ultimate trier of fact.[17] For the purposes of a joinder motion, the only question is whether the third party claim would be unduly prejudicial or cause undue delay to the underlying action. Since the Court effectively rejected the argument that a potentially statute-barred claim constitutes “undue prejudice” in this context, third parties being joined to a lien action may be unable to defeat a joinder motion on the basis of a limitations defence if the evidence on the motion does not establish the action is not clearly out of time and will cause undue prejudice or delay.

 

[1]Magil Construction Canada v. JBelli Holdings, 2023 ONSC 1837 (“Magil v JBelli”).

[2]Ibid at para. 9.

[3]Ibid at paras. 10-11.

[4]Ibid at para. 12.

[5]Ibid at para. 26.

[6]Render v ThyssenKrupp Elevator (Canada) Limited, 2022 ONCA 512 at para. 6.

[7]Magil v JBelli, supra at para. 32.

[8]Ibid at para. 33.

[9]Ibid at para. 37

[10] Section 56 of the Construction Act was repealed but was re-enacted as s. 4 of OReg 302/18.

[11]Ibid at para. 39.

[12]Ibid at para. 40.

[13]Ibid at para. 41.

[14]Ibid at para. 43.

[15]Ibid at para. 48.

[16]Magil v JBelli at para. 31.

[17]Ibid at para. 48.

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