Case Review – Chandos Construction Ltd. v. Deloitte Restructuring Inc., 2023 ABKB 349

 

Lessons Learned

  1. Do not assume that because a closely-related matter is working its way through the appellate courts that the limitation period in your own matter is frozen. If you are legally capable of making a claim according to the law as it currently exists, the clock is running.
  2. In the case of filing a lien, “making a claim” requires fulfilling all of the requirements of the governing statute unless there is an agreement or order specifically to the contrary. Making a claim may include not just the filing of the lien but the filing of a supporting statement of claim. Only once those requirements are satisfied is it appropriate to tuck the matter away sine die.

Construction

When Capital Steel Inc. filed for bankruptcy in 2016, it claimed approximately $150,000 in unpaid invoices for structural and miscellaneous steel supplied to Chandos Construction Ltd., the general contractor responsible for developing a luxury riverside condominium in St. Albert.

Litigation

Deloitte Restructuring Inc., acting for the estate of Capital Steel, filed a builders’ lien, which was removed by payment into court by Chandos of a lien fund in the amount of Capital Steel’s claim.

There the matter rested for the next five years – adjourned sine die by consent order – until 2021, while the parties litigated a related question of contractual interpretation all the way to the Supreme Court of Canada. The outcome favoured Deloitte and, so armed, it renewed its lien claim.

Chandos protested that (i) any claim on the lien fund was barred by a limitations period unaffected by the appeal to the Supreme Court of Canada, and furthermore that (ii) section 49 of the Builders’ Lien Act required Deloitte to have filed a statement of claim for which the related bankruptcy proceedings were no substitute.

The Application Judge agreed with Chandos. Its victory in the contract dispute at the Alberta Court of King’s Bench had created a legitimate bar to Deloitte proceeding with the lien claim, which prevented the limitation period from running. However, when the Alberta Court of Appeal reversed in favour of Deloitte, that bar was removed. The Application Judge held that the limitation period began to run from the date of the Alberta Court of Appeal’s ruling, not the date when the Supreme Court of Canada affirmed that ruling.

Deloitte also argued, to no success, that the ongoing bankruptcy proceedings had amounted to the seeking of a “remedial order” (as defined by the Limitations Act) commenced within the limitations period. The Application Judge conceded that this was likely true, but of no relevance: a remedial order sought in a bankruptcy application had no effect on a lien application, however closely related the underlying facts.

Chandos prevailed, the lien was declared invalid, and the matter was appealled to the Alberta Court of King’s Bench, which affirmed the decision below.

Analysis

On appeal, it was mutually agreed that circumstances may align such that a statement of claim need not be filed to satisfy s. 49 of the Builders’ Lien Act, but the devil lay in the details.

Deloitte sought to rely on Driden, an ancient Alberta decision which holds that where parties have paid money into court (obviating the need for a lien), it’s open to the parties to ask the court to establish a suitable procedure for the dispute, which need not involve a statement of claim. Here, though, Deloitte did not actually make any such request of the court – the 2016 consent order merely punted on all questions of procedure via sine die adjournment.

Nor did the Court find that the consent order itself contained the provisions necessary to act as a substitute for a statement of claim: it neither explicitly expressed a claim, fulfilled the alternative requirements of s. 48 by establishing a process or procedure for resolving the dispute, nor contained any sort of explicit agreement regarding waiver or limitation of the parties’ rights under the BLA.

The Court concluded that a statement of claim pursuant to s. 49 was necessary in the circumstances – where there was no other agreement or order effectively dispensing with its application – and declared Deloitte’s lien invalid.

Case Review – Devlan Construction Ltd. v. SRK Woodworking Inc., 2023 ONSC 3035

 

Lessons Learned

Canadian courts and legislative bodies continue to promote efficient lien claims and protect them from the gravitational pull of pre-trial litigation sprawl, and this case represents another such milestone in that effort: in Ontario, breach of trust claims may not be joined with lien claims.

Construction

In March 2019, Devlan Construction Ltd. contracted SRK Woodworking Inc. to supply and install millwork at a middle school in the historical town of Ancaster, now part of the city of Hamilton, Ontario. By September 2019 the business relationship between Devlan and SRK was in ashes, with Devlan claiming substantial deficiencies and that SRK had abandoned the work, and SRK alleging that it had been locked out and that it had even been prevented from collecting its tools from the site.

Litigation

SRK filed a lien, and in January 2020 additionally filed a statement of claim naming Devlan and Devlan’s only known officer and director, Thomas Anderson, alleging among other things a breach of trust by Devlan and Anderson. To SRK’s surprise, Anderson had died two weeks before the statement of claim was filed, and had been replaced at Devlan by four new directors.

SRK applied to amend its statement of claim to name the four new directors, and in the same motion asked that its lien claim and trust claim be joined into one action.

The difficult question facing the motion judge was whether Ontario’s 2017 Construction Act permitted the joinder of a lien claim and a trust claim. Its predecessor, the 1983 Construction Lien Act, certainly did not, but the 2017 Act and its regulations had repealed the section explicitly barring them without inserting any new statutory language expressly permitting them, as it had in fact done for breaches of contract.

In February 2022, the request for joinder was allowed by the motion judge, conflicting with two decisions in December 2021 and January 2022 by a justice of the same court that joinder of trust claims remained prohibited.

Consternation ensued, and that interlocutory decision became the subject of the present appeal before a three-judge panel of the Ontario Superior Court.

Analysis

The Court acknowledged that the Construction Act and its regulations “could be clearer” on the point in question, and that there are reasonable policy arguments to be made for both positions: on the one hand, not permitting joinder creates a duplicity of actions, but on the other, it undermines the goal of expedited lien proceedings to roll them into litigation involving an expanded range of parties and legal issues, and a proportionately extensive pre-trial process.

The Court observed, though, that its purpose was not ultimately to decide a question of policy but a question of law, that question being what the Construction Act requires.

While the Construction Act does not directly prohibit joinder of claims in a construction lien proceeding, it provides special processes for liens, which the Court concluded would have required – at a minimum – that any supposedly implicit discretion to order joinder would be subject to the overriding objective of maintaining the integrity of the explicitly legislated special process designated for liens.

Even more decisively, however, the Court returned to the fact that the Act’s regulations specifically permit joinder of lien claims with claims for breach of contract, which the Court interpreted to mean that all other types of claim not specifically named are ineligible for joinder, including trust claims: there is no judicial discretion for such a joinder at all, and any such claims contained within a lien action are obliged to be struck.