To enforce a construction lien, a lienholder must commence an action against the appropriate defendants in the appropriate court. A defendant may be noted in default if it fails to defend the action. What costs are warranted if a noting in default is set aside? How does a default judgement affect the validation of a lien and notice requirements surrounding an action?

Courts have ruled that when the parties agree to set aside a noting in default, without making a determination as to costs, the plaintiff will be entitled to costs thrown away and not the costs of proceedings. courts have also suggested that a lien may be validated through default judgement and that motions for default judgment to validate liens should ideally be on notice to all affected parties.

Background

Alfa Mechanical (“Alfa”), filed a motion for default judgment against the Changs regarding a property in Toronto. Alfa sought to establish its right to a construction lien under the Construction Act, claiming a total amount of money which included a lien on the property and judgment against the defendants.

Alfa noted the Changs in default, but later, the parties agreed to set the noting in default aside after the default judgment motion had been filed. However, they could not agree on the issue of costs.

Alfa requested partial indemnity costs including HST and disbursements. These costs were for direct expenses incurred associated with the noting in default and the overall cost of the legal proceedings. The Changs were willing to pay only the costs associated with the noting in default objected to the broader costs of the proceedings.

What the Court Said

For the costs arising from the noting in default, the court agreed with The Chang’s assessment of reasonable costs and awarded Alfa their actual incurred expenses.

Regarding the costs associated with the motion itself, the court reasoned that since the parties had reached an agreement and there were no detailed arguments about the merits of the motion, it was not appropriate to speculate on what the outcome might have been and then assign costs to either party based on this.

Consequently, in this case, the court directed Alfa to pay the costs incurred due to the noting in default. The Changs were not required to cover any additional costs related to the proceedings or the default judgment motion. However, the court left the possibility for Alfa to claim these expenses later as part of the overall legal action costs open.

Default Judgment in Lien Actions?

The judge chose not to make a decision on the procedural and jurisdictional challenges put forward by the Changs, however, the judge did offer some insights to guide future cases on similar issues.

The Changs raised three main challenges to the default judgment motion:

1. They argued that the Construction Act does not permit the validation of liens through default judgments;
2. They questioned the jurisdiction of an associate judge in these matters; and
3. They advocated for the mandatory notification of parties who would normally be entitled to trial notices.

The court first expressed skepticism regarding the claim that liens cannot be validated through default judgments, citing specific sections of the Construction Act and related regulations that suggest the opposite might be true. Secondly, the court acknowledged that whether an associate judge has the authority to validate a lien through a default judgment motion is still a matter of debate. Finally, the judge stated that motions for default judgment involving lien validations should, ideally, be served with notice to all parties impacted, in a manner similar to trial notice requirements.

Takeaways

The court’s decision to not award costs for the default judgment motion indicates that when matters are resolved by consent, courts may be reluctant to award costs for steps taken. This underscores the need for parties to carefully consider what will happen with costs when agreeing to settle disputes.

The court's comments suggest default judgment could be used to validate a construction lien, but notice should be given to all parties affected by such a judgment. While notice to defendants noted in default may not normally be required, the additional onus of service on affected parties in a lien action places additional requirements on a lienholder.

Given the complexities of construction liens, it is always advisable to consult a lawyer in advance. Contact Anthony Burden in Field Law’s Calgary office, Ryan Krushelnitzky in the Edmonton office, or other members of Field Law’s Construction Group for assistance.

Link to Decision: Alfa Mechanical Inc. v. Chang, 2023 ONSC 7167