Subcontractor’s Lien Rights May Be Terminated By The Contractor’s Abandonment

The construction and builder’s line statutes in Canada generally provide that a lien may be lost if an action is not commenced or a lien registered within a certain period of time within the “completion or abandonment” of the work. Usually, the word “abandonment” is applied to the party claiming the lien. But in Tervita Corp. v. ConCreate USL (GP) Inc., the Alberta Court of Appeal has held that the conduct of the other party to the construction contract may result in the contract being “abandoned”. In addition, the Alberta Court of Appeal held that more than one lien claim may be filed or registered for one lien. Both of these findings are significant for those engaged in construction disputes.

Background

Tervita was a subcontractor to ConCreate which had contracted with the owner. Tervita performed its last work in February 2012. In March and April 2012 a receiver was appointed for ConCreate and the receiver barred access to the site. In April 2012 Tervita filed its first lien. In July 2012, Tervita emailed the City’s consultant to say that its “contract was terminated with ConCreate prior to us being able to complete the work.” In July 2012, Tervita issued a Statement of Claim but it did not register a lis pendens against the land.

On October 2, 20121, the 180 day period for Tervita to register a lis pendens expired. On October 12, 2012, Tervita registered a second, identical lien. In November 1, 2012, a lis pendens was registered with respect to the second lien and the original Statement of Claim was amended to now refer to the second lien.

Decision of the Alberta Court of Appeal

The Alberta Court of Appeal held that the subcontract between Tervita and ConCreate was abandoned due to the conduct of ConCreate and its receiver, and that this fact was recognized by Tervita in its email of July 23, 2012 to the City’s consultant. The Court of Appeal held that the word “abandonment” includes abandonment by the party claiming the lien -in this case, Tervita – or by the general circumstances relating to the subcontract.

The Court of Appeal described the issues of subjective and objective abandonment as follows:

“In some cases a contract may be “abandoned” on an objective basis. The statute just requires abandonment, not necessarily abandonment by the lien claimant. Certainly a subjective abandonment by the lien claimant will be sufficient. However, when it becomes clear that the contract has been rendered un-performable by the conduct of either or both parties, by the actions of third parties, or as a result of external factors, the contract is essentially “abandoned”. Once it becomes impractical or impossible to perform the contract, no reasonable party would persist in saying they are “ready, willing and able” to continue performing……There comes a point in time when it is clear that the contract is at an end. That will also start the 45 days running. At some time between the date when ConCreate’s receiver posted guards and blocked access to the site, and the email of July 23, this contract was essentially abandoned.” (underlining added)

The trial judge had held that the subcontract had never been completed, that Tervita was always ready, willing and able to complete the work and that only in October 2012 did the City conclusively tell Tervita that it would not be allowed to complete the subcontract. Accordingly the trial judge held that the time to register the second lis pendens had not expired.

The Court of Appeal disagreed, finding that, by its email of July 232, 2012 Tervita had effectively admitted that the subcontract had come to an end and therefor the work was “abandoned”. It said:

“The test is when the lien claimant knew or should have known that the other party would not complete the contract. Once it would have been obvious to a reasonable contractor that the cessation of work caused by the receivership was not merely temporary, but represented a termination of the contract, the contract was effectively “abandoned”. An abandonment can occur without a formal communication from the other parties that the contract is terminated. Here the insolvency of ConCreate, the actions of its receiver in blocking access to the site, the discussion with the City about the possibility of doing the remaining work directly for the City, combined with the other surrounding factors, would cause a reasonable person to conclude that the contract was terminated. Tervita acknowledged that in its email of July 23. The fact that the City of Calgary might enter into a new contract for the same work was irrelevant to the ability to file a lien for the work done under the first contract.

….. To resolve this appeal, it is not necessary to determine exactly when the 45 days started to run. The contract had been abandoned, at the very latest, by the time of Tervita’s acknowledgment on July 23 that its contract had been terminated. In an objective sense, Tervita realized by that day that the cessation of work was not just temporary. The last day on which a lien could have been filed was approximately September 6, 2012, making the second lien ineffective.”

Notwithstanding tis finding that the time to file the second lien had expired, the Court of Appeal went on to find that the filing of a second lien is permissible. It said:

“Thus, the Act does not appear to preclude the filing of multiple liens. Since the lien right arises when the work commences, a subcontractor might theoretically file a separate lien at the end of each month, for all the work done that month and in all the previous months. If a statement of claim was subsequently issued later than 180 days after some of the early liens were filed, those liens would undoubtedly “cease to exist”. But it does not necessarily follow that all of the lien rights for early work that are also captured by later liens, or at the least those for work that is done later, would also “cease to exist”.

As noted, a liberal approach is to be taken in determining whether the claimant has lien rights. After that threshold is reached, a strict interpretation is required of the registration requirements. If it were not for the fact the second lien was filed after the passage of 45 days from the abandonment of the contract, that second lien would have been valid. The first “registered lien” had ceased to exist, but on a proper interpretation of the statute the underlying lien rights should not be taken to have been extinguished as well. If the lien claimant meets all of those requirements, a second lien that overlaps with the claims in a first lien is not per se invalid. On a proper interpretation, the expiry of the first lien does not undermine the fundamental validity of the second one.” (underlining added)

Discussion

The email from Tervita on July 232, 2012 seems to have doomed its later assertion that the subcontract had not been abandoned. But what if it had not written that email? Would its lien rights have continued for ever, since it was the contractor which precluded the subcontract from being completed? Probably not. At some point the objective facts would have established that the subcontract was abandoned even though the subcontractor wished to complete it.   The Court of Appeal appears to have been willing to find that the subcontract was not abandoned by reason of the appointment of the receiver for ConCreate, as long as there was a possibility that ConCreate’s receiver would continue with the contract and the subcontractor intended to do so.

There are a number of lessons to be learned from this decision. Contractors and subcontractors should be careful to determine whether the conduct of others on the site might be construed as an abandonment of the contract or subcontract. They should be careful when they, or others on the project, make definitive statements about whether the contract is abandoned. In either event, a lien claimant is well advised to immediately take all steps to preserve and protect the lien if the conduct on the project or statements of the parties on the project might lead to the conclusion that the contract or subcontract has been abandoned. Thus, if a party sends or receives a letter stating that the contract is terminated, then there is a distinct possibility that the contract is abandoned and immediate steps should be taken to register a lien.

Tervita Corp. v. ConCreate USL (GP) Inc. 2015 CarswellAlta 289, 2015 ABCA 80

Construction law – construction and builders’ liens – abandonment – time for registration of lien

Thomas G. Heintzman O.C., Q.C., FCIArb                                                                              May 16, 2015

www.heintzmanadr.com

www.constructionlawcanada.com

Are There Exclusive and Inclusive Definitions Of “Improvement” In The Lien Statutes?

The Saskatchewan Queen’s Bench recently considered the definition of the word “improvement” in the Builders’ Lien Act of Saskatchewan. In Propak Systems Ltd. v. Grey Owl Engineering Ltd., that court held that the lien statutes of some provinces, like British Columbia, contain “inclusive” definitions and others, like Saskatchewan’s, contain an “exclusive” definition that also requires a determination of the parties’ intention to make a permanent improvement. Applying this approach, the court held that storage tanks resting on a pad were not an improvement.

This decision was over-ruled by the Saskatchewan Court of Appeal: see Grey Owl Engineering v Propak Systems Ltd., 2015 SKCA 108, 2015 CarswellSask 612; and my article about this Court of Appeal decision dated November 1, 2015.

Background

Grey Owl was hired by a lessee of land to provide engineering services relating to the lands. Grey Owl hired Propak to install three storage tanks on the land. The tanks rested upon a pad. Propak was not paid and filed a lien. The question in the lawsuit was whether the tanks and pad were an “improvement” to the lands which could give rise to a builders’ lien.

Decision

The court held that the tanks and pad were not an improvement. However, it is the logic by which that result was reached that is interesting. The application judge held:

  1. The application judge held that at the “heart” of the issue was the following question: Is the statutory definition of “improvement” expansive in its meaning or exhaustive and restrictive?

The judge reviewed the lien statutes across Canada and concluded as follows:

“Courts have previously drawn a distinction between legislation that is “broad and inclusive” in its definition, and legislation that is “exhaustive and restrictive”. The British Columbia legislation, which the respondent seeks to rely on, has been characterized as inclusive, and thus, courts are more inclined to rule that the structures are improvements. In contrast, the legislation in Alberta, Ontario and New Brunswick has been characterized as exhaustive.”

The judge then concluded that the definition of “improvement” in the Saskatchewan Act is a restrictive and exclusive definition:

“British Columbia is the only province whose legislation does not include a specific exception to the definition. In this sense, it is much more broad and inclusive than other provinces, and the courts have accordingly held that broader instances of claims fall within the section. The Saskatchewan legislation does not share this feature. Although it may be more inclusive in terms of listing certain features that should be considered improvements, it also does contain an express exception for things that are “not affixed to the land or intended to become part of the land”. This feature is very similar to the legislative definitions found in the other proposed provinces which have been defined as exhaustive and restrictive….. It therefore appears to me that the inclusion of this exception in the Saskatchewan legislation strongly suggests that the definition is not broad and inclusive as suggested by the respondent.”

  1. The application judge also held that some lien statutes introduce an element of intention into the definition of “improvement”, particularly if the statute is of the “exclusive” type, while other provincial statutes do not. He said:

“Another distinction between the jurisdictions is the level of analysis devoted to the intention of the parties when determining whether something is an improvement. As the British Columbia legislation makes no provision for this in the wording of the statute, the courts have tended to base determinations of whether something in (sic) an improvement on the extent of affixation and duration of the object…Therefore, having determined that the Saskatchewan legislation is exhaustive, it must be determined whether the parties intended for the tanks to become affixed to the land or become part of the land.”

The judge then addressed the nature of the evidence relating to intention:

“[R]esort to prior case law seems to indicate that the threshold regarding ability to relocate the object is low. The threshold seems to be that as long as the object is capable of being moved, it indicates intention not to be affixed…..It is my view that based on the foregoing evidence in the matter at hand and in consideration of the related case law, the tanks were not intended to be permanently affixed and become an improvement, and I so find.”

The application judge then concluded as follows:

“The Saskatchewan legislation can most likely be characterized as “exhaustive” within the meaning of the case law. It expressly contains an exception to the definition of “improvement” and directs the Court to examine the intention of the parties in determining each matter. In order to determine whether the tanks in the matter at hand are improvements and, thus, be a thing capable of maintaining a builders’ lien, the Court must examine the intentions of the parties, including the degree of affixation and the ability of the tanks to be moved. Upon considering all of the material before me in this context, I have concluded that the tanks are not improvements within the meaning of the Act.” (underlining added)

Comments

The application judge has drawn a distinction between provincial lien statutes which are “inclusive” and those which are “exclusive”, and between lien statutes which are intention-based and those which are not. However, one has to question whether these distinctions are real or helpful. Virtually all of the definitions in the provincial lien statutes use the words “included” or “including”; certainly the B.C., Saskatchewan, New Brunswick and Ontario statutes quoted by the judge do so, albeit in different locations in the definition. Only the Alberta statute does not. All of these provincial statutes also use the word “intended”. In the absence of a clear indication that each province intended to adopt a different definition, one wonders whether it would be better to approach the definition of “improvement” from a consistent standpoint across Canada.

See Heintzman and Goldsmith on Canadian Building Contracts (5th ed.), chapter 16, part 4(a)(ii)

Propak Systems Ltd. v. Grey Owl Engineering Ltd. 2015 CarswellSask 91, 2015 SKQB 43

Building Contracts –Construction and Builders’ Liens – Definitions – Improvement

Thomas G. Heintzman O.C., Q.C., FCIArb                                           April 28, 2015

www.heintzmanadr.com

www.constructionlawcanada.com

Does Construction Insurance Apply To The Suppliers To The Project?

An important issue in construction projects is the identity of the persons covered by the insurance coverage which applies to the project. If one of the parties– say the owner or the contractor – takes out the insurance, does it cover subcontractors or suppliers? Typically the courts have been reluctant to find that the project insurance covers suppliers. And in Sable Offshore Energy Inc. v. Ameron International Corp., the Nova Scotia Supreme Court recently held that the construction insurance did not cover suppliers.

Background

Ameron was a supplier to the construction project. The Lloyds’ project insurance policy taken out for the project stated as follows with respect to “additional insureds”:

“Any other company…. including, but not limited to, project managers, contractors, sub-contractors of any tier or with whom the Insured(s) in (a), (b), or this paragraph (c) have issued a Letter of Intent or with whom the Insured(s) have entered into written agreement(s) or contract(s) in connection with the subject matters of Insurance, and/or any works, activities, preparations connected therewith which are included in the Insured values hereunder.

Also to include vendors and suppliers, in respect of contracts solely for supply of raw materials, but only in respect of physical loss or physical damage as may be covered under Section1 of policy wording relating to cargo transits covered hereunder.”

Ameron argued that as a supplier it had “entered into a written agreement or contract” with the insureds and therefore was an additional insured.

Decision

The application judge disagreed, for three reasons:

First, that submission would render the second part of the Additional Insured provision redundant: all suppliers would be covered by the first paragraph. Accordingly, suppliers were only entitled to the more limited insurance referred to in the second paragraph.

Second, a review of the decided cases led the application judge to the view that suppliers are not generally covered by project-related construction insurance policies. The court said:

“The purpose of project insurance in cases such as these is to provide coverage to those who work on the project. In my view, vendors and suppliers are not in the same position. They do not work on the project and are not participants in the construction of the project. This is recognized, I conclude, in the decisions to which I have just referred.”

Third, the background facts persuaded the application judge that suppliers were not intended to be covered by the facts. In addition, the contra proferentem rule was not useful since that rule has a “limited role” and was not applicable when the parties had actually negotiated the provision and when there was no ambiguity in the clause. In any event, Ameron was a stranger to the insurance contract and had no standing to apply the rule.

Commentary

This decision underlines how important it is to negotiate project insurance that each parties wants. This is especially so in the case of suppliers. The court will be reluctant to hold that project insurance is intended to cover suppliers unless that coverage is clear. If a supplier wants to be included within the insurance umbrella, it should ensure that that coverage is explicit.

The finding that Ameron did not have standing to submit that the contra proferentem rule applied seems rather odd. That rule is a rule of construction of contracts. It is used to interpret the contract whoever is relying on it. In particular, if it applies, then it applies against the person who prepared the contract, in this case the insurer. There does not seem to be a good reason why any party relying upon the contract should be precluded from relying upon that rule against the insurer, if the provision in question is ambiguous and the rule is otherwise applicable.

See Heintzman and Goldsmith on Canadian Building Contracts (5th ed.) at chapter 14, part 3

Sable Offshore Energy Inc. v. Ameron International Corp., (2013), 337 N.S.R. (2d) 10, 2013 CarswellNS 878 (N.S.S.C.)

Building Contracts – Suppliers – Insurance- Additional Insureds

Thomas G. Heintzman O.C., Q.C. FCIArb                                                                  May 3, 2015

www.heintzmanadr.com

www.constructionlawcanada.com