Executive Summary: Key Legal and Evidentiary Issues

• Legality of allowing late amendments to pleadings in a summary Construction Act proceeding without a formal motion for leave under s. 13 of the regulation
• Treatment of prior professional discipline and criminal convictions as credibility evidence without crossing into impermissible propensity reasoning
• Proof of civil fraud and fraudulent misrepresentation based on circumstantial evidence, “half-truths,” and adverse credibility findings about permit and approval status
• Characterization of the contractor’s conduct as a fundamental or substantial breach that went to the root of the planning and project management agreements
• Sufficiency of the trial judge’s reasons in dismissing the contractor’s lien and breach of contract claim, including findings that services rendered were without value
• Application of limitation periods to the fraud counterclaim, focusing on when the essential elements of the fraud were discoverable

Facts and contractual framework

The case arises from a failed residential development project in Smiths Falls, Ontario, involving an intended multi-unit build on Lanark Street. 1995636 Ontario Inc., carrying on business as 2B Developments (2B), was a development and project management company controlled by Lisa Bailey, with her daughter, Lindsay Blair, acting as a real estate developer for the company. 5010729 Ontario Inc., carrying on business as Astute Capital Corp. (Astute), was the corporation of social media influencer Ashley Shewchuk. Ms. Blair and Ms. Shewchuk met socially in 2018 and later decided to pursue real estate development opportunities together.

On February 12, 2021, the parties entered into two central agreements related to the Lanark Street project: a planning agreement and a project management agreement. Under these contracts, 2B agreed to provide project management, site supervision, and planning services for a residential development. Both agreements specified that work would start on June 1, 2021, and be completed by November 30, 2021, and they expressly stipulated that time was of the essence. The project concept, as understood by Astute, was the construction of two buildings comprising a total of 13 residential units on three adjacent lots that Astute later purchased on the corner of Lanark Street and Bolton Street.

To bring the project to fruition, 2B was responsible for obtaining the required planning approvals and a zoning by-law amendment from the municipality, including reconfiguring the lots for servicing and resolving a title issue. In the course of municipal discussions, the number of units proposed was reduced from 13 to 12 and ultimately to 10, and a 10-unit, two-building proposal was brought before the Committee of Adjustment. Despite Astute’s understanding that a multi-unit development would be constructed, the only building permit that was actually obtained on November 10, 2021, was for a duplex. On November 16 to 21, 2021, the foundation excavation on the site was carried out pursuant to this duplex permit.

Throughout the fall of 2021, 2B delivered multiple invoices to Astute for planning and project management work; some were paid, some remained outstanding. The relationship between the parties continued until February 2022, when Astute informed 2B that it would no longer proceed with the project. After terminating the project, Astute attempted to sell and market the property based on a 13-unit development concept. The central factual conflict was whether Astute had been led to believe, by 2B’s representations, that approvals and permits for a multi-unit development were already in place when in fact only a duplex permit existed and key approvals had not been secured.

Claims, counterclaims, and lien proceedings

Following the project’s collapse, 2B registered a construction lien on the property in the approximate sum of $450,000, which was later reduced by order to $195,204.41. 2B sued Astute, seeking payment of its allegedly unpaid invoices and enforcement of the reduced lien amount, claiming that Astute had breached the planning and project management agreements by unilaterally terminating the project.

Astute defended and counterclaimed, alleging that 2B had breached the contracts, had committed fraudulent misrepresentation, had filed an inflated lien, and that its conduct warranted damages in tort as well as exemplary damages. Astute’s theory was that 2B had misrepresented the status of municipal approvals and building permits, causing Astute to proceed under the false belief that a multi-unit development was approved or imminently constructible when only a duplex permit and more limited planning steps had actually been obtained.

Shortly before trial, the pleadings were amended. On March 21, 2024, Astute served an amended statement of defence and counterclaim that deleted some causes of action and added further details and allegations, including explicit pleadings of fraudulent misrepresentation. Given that Construction Act lien actions are meant to be of a summary character, and that s. 13 of O. Reg. 302/18 restricts interlocutory steps such as amendment of pleadings without leave of the court, counsel for both parties conferred on procedure. They ultimately agreed to the amended pleadings on both sides and decided to present them to the trial judge at the outset of the trial, together with supplemental affidavit evidence, without a formal motion, relying on their mutual consent and the court’s acceptance to satisfy the leave requirement.

The trial decision: fraud, repudiation, and lien dismissal

The summary trial was conducted before Justice H. McLean of the Ontario Superior Court of Justice. After seven days of evidence and submissions, the trial judge dismissed 2B’s action, discharged its lien, and granted Astute’s counterclaim. Damages of $325,375 were awarded against 2B for fraud related to the development project, although this damages award itself was not the subject of change in the appellate decision.

The trial judge’s reasons were anchored in a thorough credibility assessment of the key participants. He found that Ms. Blair was not a credible witness, and he drew adverse inferences from both her testimony and the broader evidentiary record. The court admitted evidence that Ms. Blair had past convictions for uttering forged documents and perjury, which it characterized as offences involving “moral turpitude” relevant to her reliability. Similarly, there was evidence that Lisa Bailey had lost her chartered accountant designation for misappropriating client funds. While the judge cautioned himself that such evidence was not determinative and should not be used purely as propensity evidence, he considered it relevant in assessing the weight and reliability of their evidence, particularly financial and project records that underpinned 2B’s claims.

Substantively, the judge found that fraud entered the relationship once 2B commenced construction under the duplex building permit while allowing Astute to believe it had approvals for a multi-unit development comparable to the original concept. The court rejected 2B’s explanation that the project was legitimately structured to begin as a duplex and later be expanded into a multi-unit build after additional approvals were obtained. Instead, the judge concluded that 2B’s portrayal of the duplex permit as a step toward a multi-unit project, and its assurances to Astute and third-party investors, were a “subterfuge.”

Applying the established test for civil fraud, the trial judge found that 2B, chiefly through Ms. Blair, had made statements and omissions that amounted to misleading half-truths about the status of approvals, permits, and the true nature of the construction. These representations were found to be false or reckless, made with the intention that Astute rely on them, and did in fact induce Astute to proceed with the project and to continue paying fees. The judge concluded that 2B did not perform its contractual obligations in an honest or reasonable manner, misled Astute into believing that a multi-unit apartment complex had been approved at the time construction started, and intentionally kept Astute “in the dark” through selective, incomplete emails and communications.

On the contract and lien issues, the trial judge accepted Astute’s position that it was 2B, not Astute, that fundamentally breached and repudiated the agreements. The evidence supported the conclusion that the original contract envisaged a multi-unit development, yet 2B obtained only a duplex permit and proceeded with excavation on that basis, while continuing to represent a multi-unit scenario. The zoning amendment application sought fewer units than 2B had promoted, carried no guarantee of approval, and even if successful, would not have allowed the project to be completed within the contractually required timeline, especially given that time was of the essence. The court concluded that the project management agreement was breached “to such extent that the subject matter of the contract could not be accomplished,” making it reasonable for Astute to terminate the contract without further notice.

The trial judge found that any services provided by 2B were effectively without value to Astute, given the misrepresentations and the ultimate failure of the project to match what had been promised. The court was not persuaded by 2B’s accounting evidence, work orders, or supporting documents, many of which were unsupported or unreliable in light of the adverse credibility findings. As a result, the judge denied 2B’s claim for unpaid fees, discharged its construction lien, and accepted Astute’s proof of loss sufficient to justify the damages award. The court also rejected 2B’s argument that the fraud-based counterclaim was out of time, holding that Astute discovered the essential elements of the fraud within the limitation period.

Appeal to the Divisional Court: procedural, evidentiary, and sufficiency challenges

2B appealed to the Ontario Superior Court of Justice, Divisional Court, where a panel composed of Justices Nakatsuru, O’Brien, and Smith heard the matter. The appellant advanced four principal grounds of appeal: that the trial judge erred in allowing amendments to pleadings without properly addressing the leave requirement under s. 13 of the regulation; that he wrongly admitted and relied upon inadmissible propensity evidence; that he misapprehended the evidence concerning fraud and intent; and that he failed to meaningfully analyze 2B’s own breach of contract and lien claim, resulting in inadequate reasons.

On the first ground, 2B argued that, given the summary nature of Construction Act lien proceedings, no interlocutory step—including amendments to pleadings—could be taken without leave of the court and proof that the step was necessary or would expedite resolution, as mandated by s. 13. 2B maintained that the trial judge failed to apply this test when he permitted Astute’s late fraud amendments at the start of trial and that his later nunc pro tunc order, which retroactively granted leave to both parties to file amended pleadings, compounded that error. 2B further claimed procedural unfairness in the denial of its subsequent motion (brought after changing counsel) seeking to strike the fraud amendments, adjourn the trial, conduct additional discoveries, declare a mistrial, and order a new trial.

The Divisional Court rejected these submissions. It found that both trial counsel and the trial judge were well aware of the requirements of s. 13. By consenting to the amended pleadings and presenting them jointly, counsel implicitly indicated that the s. 13 threshold—necessity or expeditiousness—was met. By accepting and working with the amended pleadings, the trial judge effectively granted leave, albeit without a formal motion or detailed reasons at that moment. From the entire record, including the fact that the amendments also removed some claims and thus narrowed the issues, the Divisional Court held there was a reasonable basis to conclude that the amendments were necessary and would expedite the resolution of the real controversy between the parties. The later nunc pro tunc order simply clarified the court’s initial intention and cured any technical irregularity. Even if a legal error had occurred, the appellate court considered it harmless and not productive of a substantial wrong or miscarriage of justice.

On the second ground, 2B contended that the trial judge used Ms. Bailey’s past professional discipline and Ms. Blair’s prior convictions as impermissible propensity evidence. The Divisional Court concluded otherwise. It held that this evidence was properly admitted and used for credibility and reliability assessments, not to infer that the witnesses were the sort of people likely to commit fraud. The trial judge explicitly recognized its limited purpose, and he had several independent reasons—such as Ms. Blair’s false testimony about the nature of the building permit under oath—to discount the appellant’s evidence.

Regarding the third ground, the appellate court found that 2B was essentially attempting to re-litigate the factual findings. The Divisional Court confirmed that the trial judge had correctly articulated the standard for civil fraud and that he was entitled to rely on circumstantial evidence and reasonable inferences, particularly in light of his adverse credibility findings. The assertion that the trial judge had improperly taken judicial notice that a building permit could not be amended was rejected; the impugned passages were interpreted as an evaluation of the project’s procedural strategy and feasibility, not as a legal presumption requiring expert testimony. No palpable and overriding error in the assessment or weighing of evidence was demonstrated.

On the fourth ground, 2B argued that the trial judge gave inadequate reasons on its own breach of contract and lien claim, and that he misapplied or improperly relied on the doctrine of fundamental breach, which 2B said had been effectively superseded in modern jurisprudence. The Divisional Court acknowledged the doctrinal debate but emphasized that, in this case, the key point was the factual finding that the contract’s core object—a timely multi-unit development—could not be accomplished because of 2B’s conduct. The judge concluded that the respondent had received no real benefit and that the project, as actually pursued, did not correspond to what had been bargained for. In those circumstances, the appellate court held that the trial judge was entitled to view termination as justified without requiring a detailed mitigation analysis. On the reasons question, the Divisional Court found that, when read as a whole, the trial reasons adequately explained why 2B’s claim failed, why the lien was discharged, and why any services rendered were treated as valueless to Astute, thus satisfying the functional requirement of enabling meaningful appellate review.

Outcome and award by the present court

The Divisional Court ultimately dismissed the appeal and upheld the trial judgment in all material respects. Astute remained the successful party both at trial and on appeal. In its own order, the present court—the Ontario Superior Court of Justice, Divisional Court—did not alter the trial-level damages but awarded Astute fixed costs of $35,000 on the appeal, payable by 2B. Thus, the only amount awarded by the present court itself was $35,000 in all-inclusive appeal costs in favour of Astute as the successful respondent.