Executive Summary: Key Legal and Evidentiary Issues

• Timeliness and credibility of the appellant’s explanations for years of inactivity when seeking to set aside the striking of his defence and default.
• Sufficiency of the evidentiary record to justify rejecting the appellant’s claims of non-receipt of court documents and personal hardship as reasons for delay.
• Application of section 7 of Ontario’s Construction Act to landlord leasehold improvement advances as trust funds for a contractor’s benefit.
• Effect of default and a struck defence in deeming admitted the pleaded facts that establish breach of trust and personal liability of a person with effective control.
• Adequacy of the pleadings and invoices to prove the quantum of the trust breach without itemizing each landlord advance by date, amount, and recipient.
• Basis for imposing joint and several liability on the appellant alongside corporate co-defendants for the unpaid invoices and appellate costs.

Facts of the case

B.L.T. Construction Services Inc. (BLT) was retained to perform construction management services for two new pizza restaurants operated by Una Pizza Napoletana Inc. (Una) and Pizza Couture Inc. (Couture). BLT’s role involved supplying services and materials necessary to complete leasehold improvements for the restaurant projects. The appellant, Rocco Mazzaferro, was an officer and director of Una and was alleged to be a person with effective control over both Una and Couture. BLT carried out its work and issued invoices for the construction services and materials it supplied. Although cheques were issued at certain points, they were dishonoured for non-sufficient funds, and a significant balance of BLT’s invoices remained unpaid. At the same time, Una and Couture were alleged to have received leasehold improvement advances from their landlords that were intended to finance the restaurant build-outs that BLT was executing.
BLT commenced a civil action against Una, Couture, and several individuals, including Mazzaferro. BLT claimed that the leasehold improvement advances constituted trust funds under section 7 of Ontario’s Construction Act, because they were amounts received by the “owner” to be used in financing the improvements, which in this case were the construction works carried out by BLT. BLT alleged that those funds should have been used to pay BLT’s invoices but instead were appropriated or converted to purposes inconsistent with the statutory trust. BLT also alleged that the individual defendants, including Mazzaferro, were persons with effective control of the corporations and that they assented to, or acquiesced in, the misuse of the trust monies. On that basis, BLT sought to hold them personally liable for breach of trust in addition to the corporate defendants. BLT further advanced claims for unjust enrichment against the corporations, asserting that the companies had been enriched by the leasehold improvements while BLT bore the corresponding financial deprivation due to non-payment.
As the litigation progressed, one individual defendant, John Chetti, entered into a bankruptcy proposal, staying the proceedings against him. The court had earlier set a timetable for moving the action forward. Subsequently, counsel for the remaining defendants obtained an order removing himself from the record. After counsel’s removal, the defendants, including Mazzaferro, took no steps to comply with the timetable or to actively pursue or defend the case. In August 2023, given the prolonged inaction, the court struck the defences of the remaining defendants and later noted them in default. BLT then brought a motion for default judgment. The court convened case conferences and granted the defendants a final opportunity to participate, with a clear warning that failure to do so by a specific date would result in the default judgment motion being determined in writing. Despite this final chance, the defendants did not engage in a timely or effective manner.

Proceedings before the motion judge

Shortly before the default judgment motion was to be decided, there was an attempt by or on behalf of Mazzaferro to re-enter the litigation. A lawyer with whom he had consulted initially indicated he would participate in the motion but later clarified he had not been retained. In early 2024, new counsel for Mazzaferro contacted BLT’s counsel to state that he would bring a motion to set aside the order striking the defence, yet no motion materials were filed and no immediate procedural action followed. A case conference was scheduled for August 30, 2024 before the motion judge. Despite having been given notice, neither Mazzaferro nor his new counsel attended that conference. The motion judge nonetheless set deadlines for the filing of materials and directed that the order be sent to both the previously consulted lawyer and the new counsel. No prompt action was taken.
It was not until September 26, 2024 that Mazzaferro finally brought a motion to set aside the order striking his defence, requesting that his motion be heard together with BLT’s default judgment motion. In his supporting affidavit, he offered several explanations for his delay and non-participation. He claimed to have been unaware that his original counsel had been removed from the record, asserted that he had not received certain court orders because they were emailed to the wrong address, and said he had not received hard copies of prior motion materials. He also referred to the death of his mother-in-law and his wife’s ongoing illness as reasons for his inattention, though he did not provide detailed timelines, corroborating documents, or an explanation for why long periods of inactivity persisted well beyond those events.
On the substantive merits, Mazzaferro maintained that he had not been involved with Una or Couture since 2017. He asserted that he had sold his shares and resigned as a director and that he never received any funds arising from the restaurant construction. However, he did not produce documentation confirming a share transfer or resignation, nor did he offer any evidence explaining what became of the leasehold improvement advances or why BLT’s invoices remained unpaid. The motion judge applied the familiar factors for setting aside a default and a struck defence, including the length of delay, the adequacy and credibility of the explanations for non-compliance, the overall conduct of the party, the complexity and size of the claim, and whether there was an arguable defence on the merits.
The motion judge concluded that the litigation had been ongoing for years, that the explanations for delay were unsubstantiated and not credible, and that the claim itself was relatively straightforward and of modest monetary value, making the extended non-participation difficult to justify. On the issue of an arguable defence, the judge found that Mazzaferro had not provided evidence showing a lack of involvement in the development of additional restaurant locations, had not explained what happened to the leasehold improvement funds, and had not offered a rational basis to deny liability for breach of trust. Bare assertions of non-involvement and non-receipt of money, without corroboration, were insufficient. The motion judge therefore refused to set aside the orders striking the defence and noting him in default.

Construction Act trust and deemed admissions

Having refused to reinstate the defence, the motion judge dealt with BLT’s default judgment motion. Under the Rules of Civil Procedure, a defendant noted in default is deemed to admit the truth of all well-pleaded material facts in the statement of claim. In this case, that meant accepting as true that Una and Couture received leasehold improvement advances from their landlords to finance the improvements; that those amounts constituted trust funds under section 7 of the Construction Act for the benefit of BLT as contractor; that the funds were not used to pay BLT but were appropriated or converted to uses inconsistent with the trust; and that Mazzaferro, as a director and a person with effective control over the corporations, was aware of or acquiesced in the misuse of the trust funds.
Section 7 of the Construction Act formed the core statutory framework. It provides that all amounts received by an owner (other than the Crown or a municipality) that are to be used in financing an improvement, including leasehold improvement advances, constitute a trust fund for the benefit of the contractor. Where amounts become payable to the contractor, or where substantial performance has been reached, funds in the owner’s hands equal to those unpaid amounts also form a trust fund. The owner is the trustee of that fund and is prohibited from appropriating or converting any part of it to the owner’s own use or to any inconsistent use until the contractor is fully paid for the improvement.
BLT’s pleadings tied the quantum of the breach of trust to the value of the services and materials it supplied, as detailed in its invoices. The total of the unpaid invoices was $180,372.49. The claim alleged that the landlords’ advances were “in respect of all or a portion” of those services and materials. Once the defence was struck and default entered, the appellant could not contest that the landlords had advanced an amount equalling all of BLT’s work and services as set out in its invoices. In the absence of contrary evidence or any proper challenge, the motion judge concluded it was appropriate to treat the unpaid invoices as the measure of the trust funds that should have been applied to pay BLT but were not.
On that basis, the motion judge held Una, Couture, and the individual defendants, including Mazzaferro, jointly and severally liable to BLT for $180,372.49. In addition, the motion judge ordered that the defendants pay BLT costs of the motion and related proceedings. The decision underscored the policy behind the Construction Act’s trust provisions, which aim to protect contractors and subcontractors by ensuring that funds advanced to finance construction projects are not diverted to other uses before those who performed the work are paid. It also highlighted the personal exposure that can arise for individuals who exercise effective control over a corporation that receives and misuses trust funds.

The Court of Appeal’s decision

On appeal to the Court of Appeal for Ontario, Mazzaferro challenged two aspects of the motion judge’s decision: the refusal to set aside the order striking his defence and noting him in default, and the granting of judgment against him for $180,372.49 on a joint and several basis. The Court of Appeal, in reasons written by Pomerance J.A. with Zarnett and Sossin JJ.A. concurring, dismissed the appeal and upheld the lower court’s ruling.
On the procedural issue, the Court of Appeal reviewed the history of the litigation and endorsed the motion judge’s approach. The action had been protracted over several years. Apart from filing an initial statement of defence, Mazzaferro had done nothing to defend the action until very late in the process, and then only in a limited and inconsistent manner. The Court noted that he had been given several opportunities, including explicit warnings at case conferences, yet he and his counsel failed to attend or comply with deadlines. The appellate court agreed that his explanations—claims of non-receipt of documents, lack of awareness about counsel’s removal, and personal family hardships—were unsubstantiated and did not adequately account for the lengthy delay and prolonged inactivity. The motion judge’s refusal to set aside the striking of the defence and default was a discretionary decision, and the Court of Appeal found no basis to interfere, describing the appellant’s motion as effectively “too little, too late.”
On the substantive issue of liability and quantum, the Court of Appeal reaffirmed that a defendant in default is deemed to admit all well-pleaded material facts. Those deemed admissions, in this case, were sufficient to establish the existence of Construction Act trust funds, their misuse, and the appellant’s effective control and involvement in the breach. The appellant argued that BLT’s pleading was deficient because it did not set out in detail the exact amounts of each landlord advance, the dates of payment, and the specific recipients of each transfer. The Court rejected this contention, holding that, in context, the pleadings adequately set out the elements of breach of trust and supported the quantum.
The pleadings linked the trust funds to the total value of BLT’s services and materials as billed in its invoices, and alleged that the landlord advances were made in respect of all or a portion of those services. Because the appellant’s defence was struck, he was not in a position to contest that the landlords had in fact advanced an amount equal to the entirety of BLT’s invoiced work. As a result, the motion judge was entitled to regard the unpaid invoice total as the proper measure of the trust funds that were improperly not used to pay BLT. The Court of Appeal concluded that there was no error in fixing joint and several liability at $180,372.49.

Outcome and monetary award

The Court of Appeal dismissed the appeal in full, thereby confirming the motion judge’s refusal to reinstate the defence and the default judgment holding Mazzaferro jointly and severally liable for the unpaid invoices. In accordance with the parties’ agreement, the Court also ordered that costs of the appeal be paid by Mazzaferro in the amount of $6,543.84, all-inclusive. As a result, B.L.T. Construction Services Inc. emerged as the successful party, with the courts upholding a monetary award of $180,372.49 in its favour for the unpaid construction invoices, along with appellate costs of $6,543.84, for a total of $186,916.33 ordered in favour of BLT.