Case Review – Homes by DeSantis (Lake) Inc. v Sutton Forming Inc., 2023 ONSC 2628

 

Lessons Learned

  1. Preparation to dispute payment to a contractor should focus on ensuring that claims made by the owner agree with the owner’s documentary record regarding value received, including documents generated by their construction manager.
  2. Motions in lien litigation are of a deliberately summary nature, and a summary judgement of one or more matters in dispute may occur in the course of a motion even if not formally sought by either party.
  3. In a lien involving a stipulated-price contract, the owner/developer cannot prevent payment of subcontractors from the holdback funds.

Construction

Homes by DeSantis (Lake) Inc. is the owner and developer of the Grimsby condo project AquaZul Waterfront Condominiums, a mid-rise complex built on the Lake Ontario shore. In December 2017, DeSantis contracted concrete-forming services and materials from Halton Forming, which subcontracted the work to Sutton Forming, Inc.

In July 2019, DeSantis’ construction manager certified that the project was over 95% complete, triggering an obligation to make a payment to Halton by DeSantis. The developer refused to pay, alleging deficiencies, causing Halton to default on its payment to its subcontractor Sutton in the amount of approximately $1.1 million.

Litigation

Between October and November, Sutton registered and perfected its lien, and the registered lien claims of Sutton’s sub-sub-contractors were sheltered under Sutton’s perfected lien pursuant to the Construction Act.

In August 2020, Sutton notified DeSantis that the minimum undisputed holdback was sufficient to satisfy the claims of Sutton’s sub-sub-contractors, and funds were ultimately released for five of the six sub-sub-contractors, excepting Pilosio, an Italian scaffolding, formwork and shoring company.

DeSantis’s refusal to release funds to Pilosio led to a motion to confirm the correct amount of the holdback and to oblige DeSantis to pay Pilosio’s claim from it, which the motion judge ordered, as well as finding that the correct amount of the holdback was approximately $638,000.

Analysis

DeSantis appealed both the amount of the holdback and the order to pay Pilosio.

Holdback Types

In determining the questions on appeal, the Court cited the 2009 Superior Court decision Urbacon Building Groups Corp. v. Guelph (City), which held that the Construction Act creates two holdback obligations: the basic holdback of 10% of the contractual value of services and materials supplied, and the additional holdback of “any additional amount owed by the payor to the contractor on the contract which was performed.”

The distinction between the two types of holdback is critical, the court in Urbacon observed, because an owner is entitled to set off claims against a contractor in calculating the overall obligation, but set-off claims cannot be applied to reduce the owner’s obligation below the amount of the basic holdback.

Evidence of Value

The Court found that the motion judge had correctly cited and followed Urbacon, and approved of the motion judge’s use of the July 2019 completion certificate issued by DeSantis’s construction manager to assess the total value of the contract and derive from that the correct holdback figure.

Further, the Court noted that the motion judge was entitled to reject “bald assertions” by DeSantis respecting the holdback calculation and that the failure of DeSantis to amend the July 2019 payment certificate in the time and manner allotted by the contract to do so supported an inference that the payment certificate was a credible statement of the value of materials and services provided.

Summary Judgement

DeSantis next argued that the motion judge had in effect granted an unapplied-for summary judgement on a contested claim by DeSantis regarding deficiencies by Halton’s sub-subcontractors. The Court supported the motion judge, who had relied on s. 67 of the Construction Act (procedure should “as far as possible be of a summary character”) and Urbacon’s interpretation of s. 67: “the holdback provision, along with the rest of the Act, is designed to protect the subcontractors at the lower end of the pyramid from the hardship of litigation delay. There is no reason for subcontractors with clear entitlement to wait until the issues between the major parties are completely disposed of.”

Setting Off Against Subcontractors

The Court added that in this context – a stipulated-price contract – DeSantis had no actionable interest in the accounting between Halton and its subcontractor(s). Any dispensation to subcontractors was in fact a credit to DeSantis against whatever balance was ultimately deemed to be owing by DeSantis to Halton itself. A deficiency claim by DeSantis affects release of the holdback to Halton. Unless Halton also asserts a deficiency claim “down the ladder” against its own subcontractors, the DeSantis deficiency claim does not affect the eligibility of the subcontractors to receive holdback funds.

Case Review – 2708320 Ontario Ltd. cob Viceroy Homes v. Jia Development Inc., 2023 ONSC 2301

 

Construction

2425 Bayview Avenue in North York is situated in the middle of one of Toronto’s most desirable neighbourhoods. A previous developer of the site obtained approvals and permits for the construction of townhomes and underground parking before selling it to a second developer, Urbancorp Inc., which performed the demolition, excavation, and foundation work before becoming insolvent in 2016.

CB Bridle Path Inc. acquired the land, sold half-ownership to Jia Development Inc., and allowed the project to remain dormant until early 2022, when Bridle Path entered into a conditional sale agreement to offload its interest to a man named Biao Liu. Before the sale actually closed, Jia Development and Liu hired Viceroy Homes and authorized it to begin construction immediately.

Unfortunately, Liu ultimately chose not to conclude the sale. Viceroy Homes sought to partner with Jia Development in Liu’s stead, but was turned down, a decision that upset Viceroy’s principal. The same day, Viceroy sent Jia ten invoices totalling an astounding $3.7 million.

Jia duly rejected the invoices and the next day Viceroy filed a lien, claiming it had performed work consisting of “demolition of existing buildings, excavation, removal of debris, repair and completion of foundation, framing materials” over the course of a mere 39 days – including work that had in some cases, such as the demolition, already been performed in 2016 by somebody else.

Litigation

Litigation proceeded refreshingly briskly. Two months after filing the lien, Viceroy commenced an action, and two months after that its principal was cross-examined. On the first day he admitted that Viceroy had not actually performed all of the work described in the ten invoices supporting the lien, and on the second day he refused to answer any questions.

Bridle Path and Jia Development each filed a motion pursuant to section 47 of the Construction Act, which in its latest form permits a lien to be discharged if it’s frivolous, vexatious, and an abuse of process (as opposed to the old wording that such an accusation would previously have fallen under, “any other proper ground”).

Analysis

While the Court determined that the old version of the Construction Act applied, it found no material difference in application to the case at bar, but did take the opportunity to clarify the process to be followed in a section 47 motion. The moving party must prove that there is no triable issue as to the basis on which the lien is sought to be discharged, both parties must put their best foot forward in terms of evidence, with a particular onus on the lien claimant, and the court is entitled to presume that both parties have in fact presented their best evidence.

The Court also confirmed the standard definitions of the terms in question:

“Frivolous” is used to describe an action that is so highly unlikely to succeed that it is apparently devoid of practical merit.

“Vexatious” includes actions that obviously cannot succeed and that are brought for an improper purpose.

“Abuse of process” is a flexible doctrine that gives the court the inherent power to prevent the misuse of its process in a way that would be manifestly unfair to a party to the litigation before it, or would in some other way bring the administration of justice into disrepute.

In the circumstances, the Court had no trouble concluding that Viceroy’s lien claim had been made for the improper purpose of forcing an agreement to Viceroy’s joint venture proposal or functioning as an act of reprisal for not doing so, and vacated the lien on April 5, 2023.

Case Review – On Point Ltd. v. Conseil des Écoles Catholiques du Centre Est et al., 2023 ONSC 1341

 

Lessons Learned

1. Contrary to Inesco, a 1986 decision of the Ontario Superior Court, school portables can constitute a lienable improvement in the right circumstances – despite being “inherently impermanent” additions to land.

2. Given modern engineering proficiency, whether a good is permanently affixed to the land is a less-decisive consideration than it used to be – a surprising number of seemingly-permanent goods can now be removed from one location and installed elsewhere. As long as there is a substantial attachment, consideration of the value and utility of the good to the land takes considerably higher priority than it once did.

Construction

The Conseil des écoles catholiques du Centre-Est (“CECCE”) is Ontario’s largest French-language school board, teaching 21,000 students over an area covering more than 35,000 square kilometres, including the city of Ottawa.

In July 2019, CECCE hired Ty Corporation (“TyCorp”) to construct and install 14 school portables (small buildings located on school grounds, installed on a stilt foundation and capable of being relocated, used as classrooms when the capacity of the main school building overflows). Time was of the essence because the original contractor had failed to deliver and now the new school year was only two months away.

TyCorp only managed to complete 10 of the 14 portables. CECCE terminated TyCorp’s contract and partially withheld payment, TyCorp in turn failed to fully pay its subcontractors, and the liens flew.

Litigation

One of the liens was filed by OnPoint Ltd., which had been subcontracted to construct the portables on the grounds of École Paul-Desmarais. A new permanent wing was eventually to be added to the school to accommodate the increase in enrollment, at which time it was intended that the portables would be removed.

CECCE moved for summary judgement against OnPoint, arguing that portables – being merely temporary solutions to fluctuating student populations – are not improvements within the meaning of Ontario’s Construction Act and thus are not eligible to be liened.

OnPoint argued in turn that not only were the portables substantially attached to the land, but that installing portables, which are intended to extend the normal economic life of the land, constitutes capital repair and thus falls within the meaning of an improvement under section 1 of the Construction Act.

Analysis

Whether an object qualifies as an improvement is a delightfully complicated subject filled with counterintuitive conclusions, perhaps illustrated best by the Ontario Court of Appeal’s seminal 2007 decision Kennedy Electric, in which an assembly line constructed to manufacture Ford F-150 trucks was held not to constitute an improvement despite covering 100,000 square feet, weighing 500,000 tons and being connected to the building by nearly 3,000 bolts.

Since then the Act’s definition of an improvement had changed, and with much of the jurisprudence now of questionable applicability, the Court supplemented its analysis with external aids to clarify whether a portable was fish or fowl under the Act, including both textbooks and transcripts of the legislative hearings held during passage of the amendment of the Act.

The Court began its analysis with a nod to Kennedy Electric – which remains good law on the point that whether or not a person is entitled to a lien is to be strictly construed – but found that OnPoint had a right to lien the portables.

The Court focused in particular on the Act’s definition of an improvement as, inter alia, “essential to the normal or intended use of the land”, analogous to the Black’s Law Dictionary definition as “a valuable addition to a property…amounting to more than mere repairs or replacement, costing labor or capital and intended to enhance its value…or adapt it for new or further purposes.”

The portables certainly qualified, the Court observed, being essential to accommodate an increase of student population.

The Court also distinguished previous case law, particularly Inesco, that had seemingly disqualified portables and prefabricated structures from lien entitlement. “If a structure is manufactured with no particular end destination in mind,” the Court wrote, “it is considered a chattel that can be moved around at will. However, lien rights will exist where the structure is manufactured for specific land or in respect of a specific construction project.”

The Court then turned to the consideration of whether a supplied good is a permanent addition to the land on which it’s installed. This, the Court held, is an important factor but not decisive, especially in the context of modern engineering methods that enable a remarkable number of goods to be uninstalled and removed from a site.

Finally, the Court concluded that the heavy-duty nature of a portable’s construction weighed in favour of its status as an improvement, including the need for considerable preparation of the underlying earth, a concrete foundation that is not removed when the portable is relocated, the use of heavy-duty “hurricane anchors” to secure the portable to the foundation, and the wiring of the portable into the school’s electrical system.

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.

Case Review – High Performance Energy Systems Inc. v. Halifax (Regional Municipality), 2023 NSCA 16

 

Lessons Learned

No decision better demonstrates the bow wave of unnecessary destruction and expense that expands in the wake of emotionally-fuelled squabbling. It destroys viable contracts and viable businesses, and in this case led to 14 years of litigation, the outcome of which should have been apparent before the first pleading was filed.

Construction

In September 2007, the municipal government of Halifax contracted High Performance Energy Systems to design and construct cooling and heating systems for Alderney Gate, a building that houses municipal government offices, a public library, and the Halifax Transit ferry terminal.

The fixed-price contract between Halifax and High Performance stipulated that upon substantial completion by High Performance, a 20-year capital lease agreement would come into effect through which High Performance would operate and maintain the retrofits and advanced energy system.

By February 2009, High Performance’s work on the project had effectively halted due to “hopeless” financial disputes between its three principals, whom a lower court found had engaged in an internal quarrel marked by “dubious” and “outrageous” tactics while neglecting the critical legal and accounting problems facing the company.

Its major customers became exasperated with the results. When the three principals found themselves bickering over responsibility for the work stoppage in front of Julian Boyle, the municipal engineer serving as Halifax’s municipal liaison with High Performance, he was aghast at the implied state of the company and told them they were like “[c]hildren playing in the playground…and arguing about whose ball it is”. Boyle demanded that High Performance immediately employ a project manager as they had been contractually obligated to do.

When no project manager materialized and work did not recommence, Halifax notified High Performance that it was in default of the contract a month later, in March 2009, was advised of High Performance’s insolvency in April, and terminated the contract in May. Halifax completed construction itself over the course of the next year at a cost of about $700,000.

Shortly after termination, two of the principals submitted a trio of invoices on behalf of High Performance for a total of $3,681,620, an “astonishing” amount that implied a claim by High Performance that it had achieved substantial completion, even in the face of the work stoppage and contract termination, and that contained hundreds of thousands of dollars of entries for unauthorized extras.

Litigation

By June 2009, subcontractors of High Performance had filed liens seeking payment of outstanding invoices from High Performance to the cumulative tune of approximately $202,000.

A year later, in July 2010, High Performance and two of its principals filed an application against the third, James Bardsley, seeking relief for shareholder oppression pursuant to the Companies Act (RSNS 1989, c 81), including permission for the two principals to bring a derivative action in the name of High Performance against Halifax to pursue any claims arising from the Alderney Gate contract.

In November 2010, an interim application judge – noting that the parties disagreed over whether the contemplated action contained a valid claim, and thus whether it was in the interest of High Performance to pursue – denied that particular request in order to preserve the status quo until a decision could be rendered when the main application was heard.

However, the interim application judge did take steps to settle the chaos inflicted by the ongoing quarrel by ordering:

  1. the appointment of a chartered accountant to prepare financial statements;
  2. the imposition of duties to co-operate with the accountant;
  3. appointment of an auditor;
  4. the imposition of duties to cooperate with the auditor; and
  5. a freeze on all payments to directors, including salary and for expenses incurred before the order, excepting trade payables, non-director employee salaries, and expenses approved unanimously by the directors.

All three principals defaulted on the order almost immediately, much to the ire of the main application judge:

Bardsley engaged in outrageous tactics again…Mr. Stewart and Mr. Beaini engaged in unfair tactics against Mr. Bardsley, tactics that were violations of the very order they had obtained. The chartered accountant appointed by the court was unable to complete his work. No audit was ever done. To this day, the principals have no understanding of the serious impediment financial disorganization caused to their venture.

Analysis

Receivership & Summary Judgement

PricewaterhouseCoopers was appointed receiver for High Performance in September 2013, and in January 2015 High Performance commenced a crossclaim against the municipality of Halifax in the subcontractors’ builders’ lien action, seeking contribution and indemnity from Halifax for any damages payable to the subcontractors.

A motion judge subsequently granted a summary judgement allowing Halifax’s limitations defence against a claim of contractual breach, dismissing High Performance’s claim against Halifax on the basis of unjust enrichment, and striking out High Performance’s defence.

Court of Appeal

High Performance found no greater sympathy at the Court of Appeal.

The limitations issue arose from a delay of more than five years before High Performance filed its claim against Halifax. High Performance attempted to argue that its “corporate incapacity” due to the internal war that had raged between its principals kept the limitations period from running, which the Court treated exactly as courts typically treat arguments unsupported by authority, never previously recognized at law, and advanced by a party clearly running a deep deficit in terms of equity.

Regarding the motion judge’s decision to strike the High Performance statement of defence (which alleged that Halifax might bear some responsibility to pay the $202,000 claimed by the subcontractors High Performance had hired), the Court of Appeal clarified that there were no material facts in dispute that might have established any such responsibility on the part of Halifax: there was no direct contract between the subcontractors and Halifax, and High Performance had already acknowledged the amounts claimed by the subcontractors were valid.

The Court likewise affirmed the motion judge’s decision to bar High Performance from claiming unjust enrichment. The Court clarified that the unjust enrichment claim had not been dismissed because of limitations issues, but rather because a contract existed: unjust enrichment was not even sufficiently viable to subject to a limitations analysis because the contractual breach provides a reason for the enrichment that precludes equitable relief. To wit, the following passage from Caglar v Moore, 2005 CanLII 39871 (ONSC), which the Court quoted:

Where there exists a contract under which parties are governed, and one party gains by a breach of the same, that party is not truly enriched, because the breaching party takes that gain subject to its liability for breach of contract. If the other party does not sue within the time set out in the Limitations Act, then, without more, there is a juristic reason for the gain because the breaching party is entitled to rely on the intended limitation.

However, unjust enrichment was not developed simply to provide an alternative remedy to that offered by the contract, without more. Otherwise, the remedy would impact directly on the rights of all parties to rely on the normal limitation period for breach of contract.

…

Allowing the claim for unjust enrichment in this case would mean that every time a limitation period for breach of contract expires, a plaintiff can rely on unjust enrichment, since the very nature of time limitations results in a benefit to one party and deprivation to the other. As a result, not only would the statutory laws creating limitations of action be circumvented, but the whole area of contractual damages would be undermined. The contract was a juristic reason for any enrichment in the case at bar, given that notice was contemplated by it, and the limitation period for an action for the breach has expired.

Case Review – Avli BRC Developments Inc. v. BMP Construction Management Ltd., 2023 ABCA 147

 

Lessons Learned

  1. Take advantage of the intended efficiencies of builders’ lien procedure by cooperating with other lienholders and the court to streamline filings and applications.
  2. If registering a lien against condominium common property – which will be the vast majority of work performed on a typical condominium building – register a lien against the certificates of title for all of the condominium units.
  3. If attempting to invalidate a lien, assert prejudice and provide evidence of that prejudice.

Construction

Avli BRC Developments Inc. owns land in the trendy inner-city Calgary neighbourhood of Inglewood, on which it began developing an apartment-style condominium in 2019. Avli contracted BMP Construction Management Ltd. to act as construction manager, and BMP entered into multiple subcontracts for work and materials.

In October 2019, after construction on the condo apartment was underway, Avli registered its condominium plan with the Land Titles Registrar, at which point Avli’s ownership of the land converted from a single certificate of title to separate certificates of title for the individual condo units, each of which contained a partial interest in the common property. The registration also created a numbered condominium corporation to manage the common property pursuant to the Condominium Property Act, but Avli did not appoint a board of directors for it as is also required by the Act.

Preliminary Litigation

A month later, the relationship between Avli and BMP soured over allegations of deficiencies. BMP invoices went unpaid, construction stopped, and BMP in turn failed to pay the invoices of subcontractors and suppliers.

Predictably, the liens flew from all quarters, including a lien registered by a sub-sub-contractor. Avli brought an application pursuant to section 48 of the Builders’ Lien Act (since then, replaced by the Prompt Payment and Construction Lien Act, RSA 2000, c P-26.4) and by November 2020 had obtained an order allowing it to post security in the form of lien bonds in exchange for the removal of the liens from title.

Proceedings complicated and duplicated. Some parties had filed the statements of claim and certificates of lis pendens within the 180 days required by the Builders’ Lien Act. Others had not and their liens ceased to exist, which prompted a successful application by Avli for (i) a declaration that those liens were not valid and (ii) a proportionate reduction in the amount of the lien bond they’d posted as security.

Of those liens that remained, most had been filed under separate statements of claim. Some parties had successfully applied for an order declaring their liens valid, some had not, and of those who had not, Avli contested the validity of some. By the time the matter was heard before a master in April 2021, the issues had expanded to also include multiple applications for declarations of a valid lien, multiple applications for summary judgment by some but not all subcontractors against one or both of Avli and BMP, and the issue of whether an interim or final payment could be made from the lien fund to the subcontractors, resulting in no fewer than eighteen court files before the master presiding at the hearing.

Initial Hearing

Procedure

Master Robertson acting as application judge (Avli BRC Developments Inc. v. BMP Construction Management Ltd., 2021 ABQB 412) began his analysis by observing that section 50 of the Builders’ Lien Act should have prevented this procedural situation, as it states that “all persons named as parties in the statement of claim and all registered lienholders are parties to the proceedings”, including – in his interpretation – proceedings under section 48 for removal of a lien: “that is,” Master Robertson wrote, “each lienholder is a party to every other lienholder proceeding.  Each lien claimant should be entitled to obtain a certificate of lis pendens in the first action commenced by any lien claimant on the project.”

The master regretfully observed that because no established practice existed to facilitate this intent of the Builders’ Lien Act, “everyone usually starts their own lawsuit”. He directed that all further applications relative to the Inglewood condo project be brought under the action commenced by the originating section 48 application only, since that action contained the lien funds posted by Avli.

Liens Against the Additional Sheet

The major material issue at the hearing was the validity of certain liens containing errors, real or apparent, including several filed only against the additional condominium sheet without naming any specific condo unit.

As explained by Master Robertson, per the Condominium Property Act Regulation the Registrar may add additional “sheets” to a condominium plan to record any prospective or possible future endorsement, registration, memorandum, or notification that might be applied to the plan, including a lien.

A lien registered on the additional sheet is deemed to be also registered against the certificate of title for each unit by the Condominium Property Act, but only if the work/materials were supplied “on the request of [the] corporation”.

Therein the rub: Avli had never appointed a board of directors for the condo corporation, and only the board of directors of the condo corporation is entitled to order work be done on the condo’s common property, not the owners of the individual units. This encompasses effectively all of the work in question, pointed out Master Robertson, since the reality is that except for items like interior unit paint, most of a condo apartment is composed of common property:

The roof is common property. The walls (other than interior partitions) are common property. The entrances and elevators are common property. The hallways are common property. The walkways leading to the entrances are common property. The demising walls separating the units are common property.

Avli argued that the work it requested was in its capacity as developer, not on behalf of the condo corporation, and that since Avli owned every unit through its individual title once the plan was registered, liens against Avli needed to be applied against every individual unit to be valid.

Master Robertson observed that the Condominium Property Act does not excuse the developer from further responsibilities for the construction of the project once the condo plan is filed, and concluded that in the absence of an appointed board of directors, one of those responsibilities must have been for Avli to act in the role of an interim board: the absurd alternative was that for the month after the filing of the condo plan where construction continued, everyone on site, including Avli as owner of all of the units, was trespassing on common property and performing unauthorized work.

Consequently, Master Robertson determined that the corporation must be found in the circumstances to have fully ratified and adopted all of the terms of the construction contract between Avli and BMP, in effect requesting that the work be completed and giving validity to liens against Avli filed via the additional sheet.

Other Lien Errors

Master Robertson noted that apart from the requirement that an actual registration occur, failure to follow any of the requirements of the Builders’ Lien Act regarding how a lien is to be registered does not necessarily invalidate it: substantial compliance is enough so long as no prejudice arises to (e.g.) an owner, contractor, subcontractor, or mortgagee from the failure. Even then, the lien is only invalidated to the extent that the person impacted is actually prejudiced by the failure.

Avli advanced no evidence suggesting that it had actually been prejudiced by any of the concerns it had raised about irregular registration.

Master Robertson reflected on the reality that builders’ liens are often registered by the subcontractors themselves without the assistance of lawyers, as was in fact the case for some of the lien claimants before him, and none of the documents a subcontractor typically receives (e.g. a purchase order, contract, change order, etc.) will normally disclose the legal description of the property. Ascertaining the correct legal description is made even more difficult after a condominium plan has recently been registered, since a claimant against all of the common property and units must then try to find out how many units there are in total, and on which units the claimant actually worked or provided materials for.

Since all of this must be done within 45 days of the work’s abandonment or completion, a deadline for which the proper calculation is itself not always obvious, Master Robertson explains that the Builders’ Lien Act was intentionally written to accommodate some error. In the case at bar, some of those errors included one subcontractor naming the condo corporation instead of Avli as the owner of the interest claimed against and two others only registering their lien claims against a single unit, even though almost all of their work was actually on the common property.

Master Robertson clarified that it does not count as prejudice for the purpose of substantial compliance that Avli would have less money remaining in the lien fund, since that is a natural consequence of any use of substantial compliance to cure an error in a lien filing: prejudice only occurs where someone was misled and did anything to their detriment in consequence, and noting again the lack of evidence of prejudice to Avli by that definition, declared the liens in question valid.

Master Robertson concluded with a cautionary note that if there had hypothetically been a sale of the project to pay the lien claims or if the lien fund had been inadequate and a pro-rata payout had occurred, prejudice against the other lien claimants would likely have reduced what otherwise would have been recovered by a correctly-executed lien filing.

Court of Appeal

Master Robertson’s decision was upheld by the chambers judge on appeal and has now been upheld by the Court of Appeal. The appellate decision’s general tone and its repeated mention of the deferential standard of review suggests the affirmation was not a perfectly enthusiastic endorsement, and that had the facts on the record been even slightly different, the appeal may very well have had a different outcome.

The Court makes its preference clear that in similar cases in the future where the subject of the lien is work against condominium common property, parties file liens against title to all individual condo units, not a single unit or only the sheet. Out of an abundance of caution the Court allows that a lien claimant may also wish to register their lien against the additional sheet, but relying solely on such a filing is neither advised nor straightforward in terms of its impact on the resolution of the lien dispute.

 

Case Review – A.G. Clark Holdings Ltd. v. 1352986 Alberta Ltd., 2023 ABQB 219

 

Lessons Learned

  1. An affidavit’s attention to detail, backed by thorough documentary evidence in its accompanying exhibits, provides courts with the confidence to settle lien claims summarily. Choosing not to do the same with one’s own affidavit when defending a lien claim is to live dangerously.
  2. Favourable evidence reviewed by the court may prove persuasive even if it’s not formally found to be necessary to resolve the matter – or even ruled admissible.
  3. It never hurts for your expert to have the opportunity to critique the opposing expert’s work in your expert’s own report. If it’s your expert’s work that’s been savaged by their counterpart, leaving the documentary record in that condition is a risk, to put it mildly.

Facts

The owner of a historical Edmonton building hired Clark Builders to renovate it into the Redleaf Canada Presentation Centre, which involved an envelope replacement, a new roof structure, and new cladding. In other words, the building “was basically demolished and replaced.” Major mechanical and electrical elements were added to the scope of the work during the course of construction.

In accordance with the terms of the contract, Clark Builders issued monthly invoices from August 2009 to June 2011 for its services as construction manager. The building’s owner, 1352986 Alberta Ltd. (“135 Alberta Ltd.”), paid for all amounts invoiced until October 31, 2010. However, invoices from November 2010 to June 2011 totalling $475,350.80 went unpaid – 135 Alberta Ltd. alleged delay, unnecessary expense, and poor construction quality.

Clark Builders registered a builders’ lien in March 2011 against both the fee simple estate of 135 Alberta Ltd. and the leasehold interests of three corporations who had filed a caveat against the lands in question – Clark Builders claimed that those three lessees and the owner, 135 Alberta Ltd., had collectively either requested or benefited from the services of Clark Builders.

Procedural skirmishing consumed the next nine years, eventually culminating in an application in November 2020 by Clark Builders pursuant to s. 53 of the Builders Lien Act for a judgment declaring its liens valid in the amount of the outstanding invoices.

As that application ground through the system, the Builders Lien Act became obsolete with the entering into force of the Prompt Payment and Construction Lien Act in August 2022 – the Court observed that this case is likely to be one of a decreasing number settled using the old legislation.

Law

The Court’s canvas of the applicable law began by noting that Section 49(6) of the Builders Lien Act provides that “[t]he procedure in adjudicating on the claims shall be of a summary character, so far as is possible, having regard to the amount and nature of the liens in question and the enforcement of them at the least expense.”

Regarding the affidavit obliged to be filed in support of the application, the Court observed that while it was often referred to by parties as “an affidavit proving lien”, the legislation does not suggest the lienholder must “prove” the lien, but rather must provide detailed particulars of it, which precedent suggests will require “at the very least”:

  1. A statement that the lien claimant did the work or supplied the materials;
  2. Disclosure of who requested the work and materials (which would be especially important if the owner did not make the request directly);
  3. Sufficient particulars about the work or materials to allow the owner to make a reasoned judgment about payment;
  4. Finally, if there are pleadings, the affidavit should, ideally, address the issues raised in the defence.

The Court’s reflections on the case law to date emphasized the summary, expeditious nature of builders’ lien actions, which existed “[l]ong before case management was the practice in Alberta, long before the Alberta [Rules] of Court contained a provision for summary trial,” and which implied that while Rule 7.3 of the Rules of Court does not apply, the modern principles of summary judgment certainly do, foremost that:

[t]here will be no genuine issue requiring the trial when the judge is able to reach a fair and just determination on the merits on a motion for summary judgment. This will be the case when the process (1) allows the judge to make the necessary findings of fact, (2) allows the judge to apply the law to the facts, and (3) is a proportionate, more expeditious and less expensive means to achieve a just result.

The Court further cautioned against using outdated language about summary judgment to describe the suitability of a lien claim for expeditious resolution:

Observations made in earlier decades such as “[…that a] lien claim will not be dismissed or adjudicated before a proper trial of the action except in the clearest of cases [or that this] court cannot weigh the evidence and make final determinations…” are no longer the proper approach to summary dispositions.

Analysis

The Court found that the affidavit sworn by Greg Asselin, the project manager of Clark Builders, which was not challenged via questioning, was comprehensive and sufficient to satisfy the onus of proof on Clark Builders as lienholder to establish that its liens were valid in the amount of the outstanding invoices.

In doing so, it considered and dismissed the competing affidavit evidence provided by Ming Ying, the representative of 135 Alberta Ltd., which the Court criticized for not putting its best foot forward. Specifically, the Court found that it contained insufficient evidence to challenge the Clark Builders affidavit, e.g. this unfavourable comparison between the two:

Ming Ying deposes in paragraph 6 regarding completion of the interior office space: “Significant costs to complete that work were incurred ($55,268.00) which 1352986 Alberta Ltd regards as improper since these were to be included in the original budget amount.” Notwithstanding the exact number stated, no records are provided to show what those costs were for. On the other hand, Mr. Asselin’s evidence on the updated scope of work and budget set out in his June 14, 2011 letter attached as exhibit J to his affidavit confirms that the Owner “would supply flooring, interior doors, frames and hardware, PVC windows, millwork …”.

Expert Reports

After the filing of the application, the parties also exchanged expert reports regarding the value of the work performed by Clark Builders, and the experts were questioned on their reports. The Court noted that in the context of a Builders Lien Act summary procedure, which is intended to be carried out expeditiously and at the least expense, the use of expert reports to determine the validity of the liens was unusual and their admissibility was not automatic.

Ultimately, the Court concluded that in this instance the expert reports were helpful, but not necessary, to come to a satisfactory summary conclusion on the matter: the non-expert affidavits were sufficiently dispositive for the Court to declare the existence of a debt owed by the 135 Alberta Ltd. to Clark Builders in the amount of the outstanding invoices, being $475,350.80 plus GST, plus interest as defined in the construction management contract, plus costs of the application and action.

The lessees, by virtue of their caveat registered with respect to a leasehold interest in the lands owned by 135 Alberta Ltd., were not a party to the construction management contract but found to have liability for the lien registered against their leasehold interest in the amount of the outstanding invoices plus GST and interest.

Whether the Court’s remarks reflect the complete reality of the persuasive value of the duelling expert reports is questionable. The Court’s written decision describes the conclusions of the expert reports at length, including passages in which the expert for Clark Builders, writing with the benefit of the expert report for 135 Alberta Ltd., appears to have demolished the latter on several key points, e.g. the failure of 135 Alberta Ltd.’s expert to account for the difference in the cost environment between 2009 and 2011. Although the Court may not have formally taken that into account in the course of coming to its conclusion, it nonetheless seems to have made a substantial impression, and perhaps assisted the Court in confidently concluding that the matter was fit for summary resolution.