A Subcontractor Recovers Against The Owner In Unjust Enrichment

A subcontractor who fails to register a construction lien faces an uphill battle in asserting a claim in unjust enrichment against the owner. That is because the owner will rely upon its contract with the contractor for any benefit that the owner has obtained from the subcontractor’s work. The owner will also assert that there is no equitable reason to grant an unjust enrichment remedy to a subcontractor who could have asserted a construction lien remedy but failed to do so.

Sometimes, however, the subcontractor’s unjust enrichment claim fits within the narrow opening between the owner’s contractual and construction lien defences, and N.K.P. Painting Inc. v. Boyko 2016 CarswellOnt 7332, 2016 ONSC 3016 was such a claim.


The owner contracted with the prime contractor for the refurbishment of the corridors of the building. The prime contractor retained NKP as the subcontractor to supply painting and wallpapering material. During the project, the owner issued progress payments to the general contractor, less the applicable statutory holdback. NKP completed its work and invoiced the prime contractor. A total of $28,928.00 was not paid by the prime contractor to NKP, and the prime contractor became insolvent. Neither NKP nor the prime contractor registered liens. The owner held back a total of $23,893.74 under the prime contract.


The Superior Court judge held that there “is no reason to deny the appellant access to the common law remedy of unjust enrichment because it did not avail itself of potential statutory remedies,” as long as the ingredients of the unjust enrichment remedy were satisfied.

The court found that the owner had retained the 10 percent holdback, and that there was no claim against that holdback for deficiencies. While there was evidence of a claim by another subcontractor, there was no evidence about the status or disposition of that claim and no evidence to suggest that anything other than the full amount of the holdback remained available and under the control of the owner.

The court therefore concluded that “it would appear clear that [the owner] has been enriched in the sense that it has received 100% of the benefit of the invoiced renovation work performed but has only paid 90% of the invoiced amounts” and that “the enrichment corresponds to the efforts of NKP through the renovation work performed for which it has received no compensation.”

The court then considered the third element in the claim for unjust enrichment, namely whether there was a juristic reason for the benefit and corresponding deprivation. While that juristic reason may be a contract, that reason could only apply:

“where the party advancing the claim for unjust enrichment is a party to the contract, as is the party against whom the claim is advanced. On the facts of the case before me, that would require a contract between NKP and [the owner]. There is no such contract. In other words [the owner’s] enrichment and NKP’s deprivation did not arise in the context of a contract between these two parties…I therefore conclude that there is no established category of juristic reason to deny recovery to the Appellant.”

The court then considered the reasonable expectations of the parties and public policy and found that neither factor should deprive NKP from a remedy in unjust enrichment:

“In my view it cannot have been within the reasonable expectation of the parties that [the owner] would receive a 100% benefit of renovation work invoiced, including NKP’s efforts, while paying only 90% of the cost of those efforts. [The owner’s] statutory obligation to retain the holdback has expired and had expired at the time of trial. There was no legal requirement at trial for [the owner] to retain the funds by way of holdback, nor did [the owner] retain any legal entitlement to those funds….The purpose of the holdback funds is to represent a potential source of funds from which to compensate unpaid providers of service and materials to the improvement of a property. It is remedial in nature….Thus [the owner] could not reasonably have expected to retain the funds and indeed were it to do so it would represent a windfall.”

The court held that the owner’s enrichment was the amount of the holdback held by the owner, and granted judgment for that amount in unjust enrichment in favour of the subcontractor.


The court arrived at a fair result but, it is submitted, the court’s conclusion is incorrect that a contract must be between the claimant and the defendant before it can be a defence to a claim in unjust enrichment.

There are many cases in which a contract has been held to be a defence to an unjust enrichment claim even though the contract was not between the unjust enrichment claimant and defendant. In most cases, the contract was between the defendant and a third party. For example, if an owner enters into a prime contract with a contractor and pays the contractor in full, including the holdback, then that prime contract is a juristic reason why the owner should not have to pay the subcontractor, which has been unpaid by the contractor but has not filed a construction lien. Requiring the owner to pay twice is not fair, either from a contract or construction lien perspective.

There are even some cases in which the contract between the claimant and a third party has been held to be a juristic reason for the claimant being denied an unjust enrichment remedy against the defendant. For example, a subcontractor has been denied an unjust enrichment remedy against an owner due to the subcontract between the subcontractor and contractor. However, unless the claimant has been paid in full under the subcontract, it is harder to justify that conclusion since there seems to be no good reason why the owner should be entitled to rely upon a subcontract to which it is not a party as a juristic reason for not paying the unpaid subcontractor.

However, the present case fits within the crack between the owner’s juristic reason defences, both based upon its prime contract with the contractor and upon the construction lien regime. The work under the prime contract had been entirely completed but the owner had not paid out the holdback under that contract. So there was no juristic reason under that contract why it should not be compelled to pay the holdback to the subcontractor.

And under section 8 of the Construction Lien Act, the holdback was held in trust “for the benefit of subcontractors and other persons who have supplied services or materials to the improvement who are owed amounts by the contractor…”. Therefore, even though the subcontractor had not filed a lien, there was a good juristic reason why the owner should pay to the subcontractor the monies in its hands that were due under the prime contract.

The validity of the subcontractor’s unjust enrichment claim extended to the amount held back by the owner, not the amount which the subcontractor had not been paid by the contractor. Payment of the former amount did not penalize the owner under the prime contract nor over-stretch the statutory trust fund remedies, while payment of the latter amount would have.

Another fact to note in this case is that the prime contractor’s trustee in bankruptcy did not assert a claim to the holdback. Accordingly, whether such a claim could have been asserted, in view of the trust fund provisions of the Construction Lien Act, was not considered.        

See Heintzman and Goldsmith on Canadian Building Contracts, 5th ed., chapter 10, part 4.

N.K.P. Painting Inc. v. Boyko 2016 CarswellOnt 7332, 2016 ONSC 3016

Building contracts – construction and builders’ liens – unjust enrichment – juristic reason defence

Thomas G. Heintzman O.C., Q.C., LL.D. (Hon.), FCIArb                                   August 20, 2017





Recommendations To Amend Ontario’s Construction Lien Act

On April 30, 2016, a Report was delivered to the Ontario Government proposing amendments to the Ontario Construction Lien Act. This report may, in whole or in part, soon be implemented by the Ontario Legislature. For this reason, those engaged in the construction industry or construction litigation in Ontario must immediately become familiar with the recommendations.

There are 100 Recommendations in the report. They can be divided into seven parts:

  1. Amendments to the general provisions relating to the existence, protection and preservation        of liens;
  2. Summary procedures in lien actions;
  3. Construction Trusts;
  4. Prompt Payment;
  5. The introduction of Interim Adjudication in construction projects;
  6. Sureties;
  7. Technical Amendments.

There are 30 recommendations in the report relating to Summary Procedures and Interim Adjudication. Those recommendations concern the dispute resolution mechanisms for construction claims. While those recommendations are important, this article will concentrate on the recommendations relating to the existence and enforcement of lien claims, that is, the recommendations which affect the actual project, short of dispute resolution.

Those involved in the construction projects should be aware of all the important recommendations. They are listed in the Summary in Chapter 13 of the Report. That chapter indicates the page of the report where each individual recommendation is discussed, so the reader can then go back and review the Context, Stakeholder’s Views and the Analysis and detailed Recommendations of the authors of the Report with respect to each Recommendation.

The following are the Recommendations for changes to the Construction Lien Act that I consider to be particularly important or contentious, other than those in the Summary Procedures, Interim Adjudication and some of the Technical Recommendations. I have not included any of the Recommendations that the present provisions of the statute remain unchanged, only those where a change is recommended. The numbers of the Recommendations shown below are the actual numbers of the Recommendations in the Report.

The full Report may be viewed by googling Striking the Balance: Expert Review of Ontario’s Construction Lien Act, or at: https://www.attorneygeneral.jus.gov.on.ca/english/about/pubs/cla_report/


            Improvement and Capital Repairs

1-2.The definition of “improvement” should be amended to refer to “any alteration or addition to the land and any capital repair to the land”.

“Capital repair” includes all repairs intended to extend the normal economic life or to improve the value and productivity of the land, or building, structure or works on the land, but not maintenance work performed in order to prevent the normal deterioration of the land or building, structure or works on the land and to maintain them in a normal functional state.


  1. The definition of “owner” should be amended to provide for multiple owners on public-private partnership projects (“AFP projects”) involving a project manager (“Project Co”) so that Project Co is included as an owner (along with the Crown) and Project Co is responsible for maintaining holdbacks.


  1. The definition of “price” should be amended to include direct out-of-pocket costs of extended duration. However, “price” should exclude damages for delay.

Whether cost arising from delay may be part of a lien claim has been an issue in many cases. This recommendation is that they should not. It may be particularly contentious as it relates, not to clarifying the statute, but to a substantive issue upon which the views of owners and contractors may differ.


  1. Municipal lands should not be subject to a court-ordered sale. Lien claims against a municipality should be “given” by delivery of notice of the lien to the municipality, and not registered.

Preservation, Perfection and Expiry of Liens

  1. The time period for preservation of a lien under section 31 of the Act should be extended to 60 calendar days, commencing as currently stipulated by the Act.
  1. Termination should be added to the list of events that triggers the commencement of the time limit for preserving a lien.
  1. The Act should prescribe a mandatory form of Notice of Termination or Abandonment to be published specifying a date upon which a contract has been abandoned or terminated.

These two provisions may be contentious due to the legal nature of the “termination” of contracts. If the contract contains a termination clause and that clause is activated, there should be no difficulty, but a so-called “termination” may occur due to repudiation by one party. The report appears to proceed on the basis that the repudiation itself gives rise to termination, and that the termination is of the entire contract. However, under contract law the “termination” arising from repudiation is a termination of the obligation of continued performance, and that termination only occurs when the repudiation by one party is accepted by the other party. The factual existence of repudiation and acceptance may well be in dispute. In addition, the contract is not “terminated” in law, and remains in existence for dispute resolution purposes. All of these factors will require careful legislative drafting in the adoption of this recommendation.

  1. The time period for perfection under section 36(2) of the Act should be increased to 90 days from the last day upon which that lien could have been preserved.

Under this recommendation and Recommendation 9, the total time to preserve and perfect a lien would now be 150 days.

Exaggerated Claims

  1. Section 35 of the Act, which imposes penalties for exaggerated claims, should be amended to replace the concept of “grossly inflated” liens with the concept of “wilfully exaggerated” liens, refocussing the threshold at a more sensitive level. As well, the court should be given the discretion to discharge a claim for lien in whole or in part if on a balance of probabilities it is established that the claim is frivolous, vexatious, or an abuse of process.
  1. The court should be allowed to find, where there is wilful exaggeration, that the lien claimant is liable for any damages incurred as a result of the exaggerated claim, including bond premiums, costs, and, where the court considers it just, the lien amount should be reduced by an amount up to the amount of the difference between the wilfully exaggerated amount and the actual amount of the lien claim; provided that a defence of good faith should be available to the lien claimant.


  1. After registration, the common elements in condominium buildings should have a single PIN that is subject to a lien, and the interests of all owners should be subject to this lien.
  1. Notice of lien should be given to the condominium corporation and the unit owners by way of a prescribed form.
  1. Condominium unit owners should be able to post security proportionate to their share of the lien to have the lien vacated.


20. Section 20(2) should be removed from the Act and liens should not be required to be preserved on a lot-by-lot basis.

Landlord and Tenant

  1. For improvements to leasehold properties, lien claims should attach to the interests of the tenant named in the lease and to the interest of the landlord if the landlord funded the improvement through a cash allowance or otherwise required the improvement; provided that the landlord’s liability should be limited to any deficiency in the holdback.
  2. Section 39 of the Act should be amended to allow lien claimants to obtain from landlords, tenants, and secured lenders all relevant information about the lease, the lender’s security, the funding available from the landlord and lender, and the state of accounts.

Holdback and Substantial Performance

  1. Section 2(1) of the Act should be amended to provide that a contract is substantially performed when the improvement or a substantial part thereof is ready for use or is being used for the purposes intended and if it is capable of completion at a cost of no more than 3 percent of the first $1,000,000.00 of the contract price, 2 percent of the next $1,000,000.00 of the contract price, and 1 percent of the balance.
  1. Section 2(3) of the Act should be amended to provide that “a contract shall be deemed to be completed and services or materials shall be deemed to be last supplied to the improvement when the price of completion, correction of a known defect or last supply is not more than the lesser of (a) 1 percent of the contract price; and (b) $5,000”.
  1. The Act should be amended to provide for the mandatory release of holdback, but not the mandatory early release of holdback; that is to say, “may” should be revised to “shall” in sections 26 and 27 of the Act. The owner should be required to publish a notice of non-payment/set-off to interdict the obligation to pay where the owner, in good faith, intends to assert a set-off in relation to the contract.
  1. The Act should be amended to permit partial release of holdback on either a phased or annual basis, if provided for in the construction contract entered into by the parties, subject to a significant monetary and time-based threshold in the case of annual release.
  1. The Act should be amended to allow for the segmentation of holdback for projects involving clearly separable improvements.
  1. There should be no provision for mandatory early release of holdback for design consultants in respect of services supplied up to the commencement of construction; but the Act should permit the designation of a design phase for the purposes of phased release of holdback.
  1. The Act should be amended to allow for deferral agreements to be entered into between owners and contractors provided that such agreements are for the purpose of allowing certification and publication of substantial performance, subject to an appropriate threshold.
  1. The current holdback scheme should be supplemented by allowing the replacement of cash holdback with a Letter of Credit or a demand-worded Holdback Repayment Bond.

Construction Trusts

43. The Act should be amended to require that a trustee must follow specific statutory requirements in relation to trust fund bookkeeping similar to that applied in the New York Lien Law, including the following:

  • If a trustee deposits trust funds they are to be deposited in the trustee’s name;
  • The trustee is not required to keep the funds of separate trusts in separate bank accounts or deposits provided that his books and records of account clearly show the allocation to each trust of the funds deposited in the general account;
  • The trustee must keep separate books for each trust for which it is trustee (and if funds of separate trusts are in the same bank account, the trustee is to keep a record of such account showing the allocation to each trust of deposits and withdrawals); and
  • The books and records of each trust must show specifically articulated particulars with respect to assets receivable, assets payable, trust funds received, trust payments made with trust assets and any transfers made for the purpose of the trust.

Promptness of Payment

47. A prompt payment regime should be legislated in Ontario and it should apply to both the public and private sectors. Prompt payment should be implemented by creating a statutory scheme to be implied into all construction contracts that do not contain equivalent terms.

The introduction of a prompt payment regime may be one of the most contentious Recommendations as the interests of owners and contractors are not necessarily aligned on this issue. In addition, a prompt payment regime is often intended to address a “pay when paid” clause, and such a clause and its effect and enforceability are themselves contentious issues.

48. The prompt payment regime should apply at the level of the owner-general contractor, general contractor-subcontractor, and downwards, and the legislation should provide a mechanism for general contractors to notify subcontractors of non-payment by owners, with reasonable particulars, and to undertake to commence or continue proceedings necessary to enforce payment so as to defer their payment obligations.

  1. The trigger for payment should be the delivery of a proper invoice; provided that certification for payment (if there is certification for payment provided in the contract) must follow submission.
  1. As between:
  • The owner and general contractor a 28 day payment period should be applied, that is triggered by the submission of a proper invoice.
  • The general contractor and subcontractor, a further 7 days from receipt of payment from the owner would be permitted.
  1. Parties should be free to contract in respect of payment terms, but that if they fail to do so, monthly payments should be implied.
  1. Payers should be permitted to deliver a notice of intention to withhold payment within 7 days following receipt of a purported proper invoice and that the notice of intention to withhold must set out the quantum of the amount withheld and adequate particulars as to why that amount is being held back. Undisputed amounts should be paid. Also, the right to withhold should relate only to the contract at issue.
  1. A payer should continue to be able to set off all outstanding debts, claims or damages but that the right of set off not extend to set-offs for debts, claims and damages in relation to other contracts.

The proposed exclusion of set-offs for debts, claims and damages relating to other contracts is a very material change from the present statute.

54. Mandatory non-waiveable interest should be required to be paid on late payments at a rate of the greater of the pre-judgment interest rate in the Court of Justice Act or the contractual rate of interest.

The removal of any discretion not to award interest is a departure from the usual authority that a court has to not award interest.

55.  A right of suspension of further work should arise after an adjudication determination has been rendered and a payer has refused or failed to comply with the adjudicator’s determination.

56. The Act should require disclosure to all subcontractors that they are bidding on a project with a milestone-based payment mechanism.

Surety Bonds

45, 46 and 79. The Act should be amended to require broad form surety bonds to be issued for all public sector projects. The form of such surety bonds should be developed in consultation with the Surety Association of Canada, and once finalized they should become Forms under the Act.

  1. The Act should be amended to require sureties to pay all undisputed amounts within a reasonable time from the receipt of a payment bond claim.
  1. A Regulation to the Act should be promulgated to embody a surety claims handling protocol, and that such surety claims handling protocol be developed in consultation with the Surety Association of Canada.

Technical Amendments

  1. The Act should be clarified to confirm that the following irregularities may be cured so long as no prejudice is caused to other parties.
    • Failure to correctly name the owner and or person to whom materials and services were supplied;
    • Minor errors in the legal description; and
    • Inserting an owner’s name in the wrong part of a statement.

This recommendation would permit the court to relieve against mistakes in the lien claim relating to the name of the owner or lien claimant which under present case law are not correctable under section 6 of the Act.

  1. Separate forms (available electronically and physically) should be implemented: one to release a lien, one to discharge a lien or certificate of action, and one to vacate the registration of a claim for lien or certificate of action.
  1. Modifications should be made to the requirements of section 32(2) of the Act to incorporate the legal description, including PINs and specific municipal address (es); and in the case of a lien to be given (i.e. where the lien does not attach to the land), the name and address of the person(s) to whom a claim for lien must be given.

Notice of Liens

  1. The definition of “written notice of a lien” should be amended to provide further particulars as to service and a form of written notice of lien should be added to the regulations.

This recommendation will clarify the present case law relating to what amounts to the delivery of notice of a lien.

  1. Section 44 should be amended to provide for the posting of security to vacate a written notice of lien. And the withdrawal of a “written notice of lien” should also be in a prescribed form.
  1. Section 39 should be amended to clarify what type of information the person making the request is entitled to and, in particular, what constitutes a “state of accounts” under section 39(1)1.iii, and should include: the value of the work done, the amount paid, the amount held back pursuant to the Act, the balance owed, and leasehold information.
  1. The amount of security that to be posted to vacate a lien under section 44(1) should be amended to include the total of the full amount claimed as owing in the claim for lien and the lesser of 25% or $250,000 of the amount of the lien claim as security for costs.
  1. Letters of Credit with reference to International Commercial Conventions should be accepted as security, provided the Letter of Credit is unconditional, the International Commercial Convention is written into the terms of the credit, and it is accepted by a bank listed under Schedule I of the Bank Act, S.C. 1991, c. 46. Sched. 1 operating in Ontario.

This recommendation should clear up the contentious case law about what security is acceptable under the International Commercial Conventions.


  1. When a mortgagee makes a loan for the purpose of financing both land acquisition and the construction of an improvement, the mortgagee should be required to identify the amount intended for the acquisition of land and the amount intended for the improvement(s) to and/or on the land in mortgage documents.

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

Building contracts –construction and builders liens –amendments to Ontario’s Construction Lien Act

Thomas G. Heintzman O.C., Q.C., LLD (Hon.), FCIArb                         May 1, 2017




This article contains Mr. Heintzman’s personal views and does not constitute legal advice. For legal advice, legal counsel should be consulted.

Is The Charge Or Lien Against The Holdback Separate From The Lien Against The Land?


In the recent decision in Brook Construction (2007) Inc. v. Blackwood Contractors Ltd, the Newfoundland and Labrador Court of Appeal held that the charge against the holdback under s.12(5) of the Newfoundland and Labrador Mechanics’ Lien Act (the NL Act) is the same as, and “parasitic” to, the lien against the land.

Accordingly, since the subcontractor did not have a lien against the land – because the land was owned by the Crown – the subcontractor also did not have a lien against the holdback held by the owner.

The British Columbia Court of Appeal arrived at the opposite result in its 2003 decision in Shimco Metal Erectors Ltd. v. Design Steel Constructors Ltd.

In that decision, the B.C. Court of Appeal held that under s. 4(9) of the B.C. Builders Lien Act (the BC Act), the lien against the holdback is a separate and distinct lien and might be asserted even though the subcontractor had not commenced an action within the time to assert a lien against the land.

Can these decisions be rationalized? What is the law on this subject in the other provinces?

Reasoning of the Newfoundland and Labrador Court of Appeal

In Brook Construction, the majority of the Newfoundland and Labrador Court of Appeal arrived at its decision for the following reasons:

  1. Section 12(5) of the NL Act, which creates the charge upon the holdback, starts with the words “Where there is a lien under section 6”. In the view of the majority of Newfoundland and Labrador Court of Appeal:

“Section 6 is the provision that creates the statutory lien. Without its operation, there would be no claim on the land benefitted by the work. The right to the lien on the holdback is parasitic upon the existence of a lien on the benefitted land.” (underlining added)

  1. The NL Act does not contain a trust fund section. Accordingly, the rationale for imposing a charge against the holdback is not as persuasive in Newfoundland and Labrador as it is in provinces, such as New Brunswick, in which a trust fund provision exists. In provinces like New Brunswick, the trust fund section was introduced into the lien statute precisely because the charge upon the holdback was dependent on the lien against the land. So in Newfoundland and Labrador, where there is no trust fund section, the parasitic nature of the charge upon the holdback must be recognized.
  1. Accordingly, since Crown land is not subject to a lien in Newfoundland and Labrador, a lien against the holdback cannot arise if the building is on Crown land.

The majority of the Newfoundland and Labrador Court of Appeal also held that, even if a charge against the holdback could arise under the NL Act, the subcontractor was obliged to sue the Crown which held the holdback. Even if (contrary to the majority’s conclusion) the lien against the holdback might otherwise exist, that lien was discharged since the subcontractor did not sue the Crown.

Justice Welsh dissented. He held that the combined effect of sections 5 and 12(5) of the NL Act is that the Crown is subject to that Act. This conclusion flowed from the exception to lien rights stated in those sections for roads and highways. That exception in the NL Act necessarily meant that Crown land was otherwise subject to the Act. Due to this conclusion, Justice Welsh did not determine whether the holdback charge is a separate or a “parasitic” lien.

Neither the majority nor minority of the Newfoundland and Labrador Court of Appeal referred to the decision of the BC Court of Appeal in the Shimco case.

Reasoning Of The BC Court Of Appeal

In Shimco, the BC Court of Appeal arrived at the opposite conclusion to that reached by the majority of the Newfoundland and Labrador Court of Appeal, for the following reasons:

  1. Sub-section 4(9) of the BC Act states that “a holdback required to be retained under this section is subject to a lien under this Act. “ The sub-section does not say “the lien under the Act.” The use of the words “a lien” suggests that the lien against the holdback is different than the lien against the land created by section 2.
  1. If the lien against the holdback was dependent on the lien against the land, then the second part of sub-section 4(9) would not have been necessary or inserted. That part reads: “…each holdback is charged with payment of all persons engaged, in connection with the improvement, by or under the person from whom the holdback is retained.”
  1. The lien against the holdback is of a different nature and potentially benefits a different group of persons than the lien against the land.

The lien against the holdback is a monetary and trust remedy. That lien is for the benefit of all persons who have improved the land and applies to all persons, including the owner or contractor, who hold a holdback under the project.

The lien against the land is a real estate remedy and applies to the owner.

When the owner acts as its own contractor, the lien against the land could have different consequences than the lien against the holdback: there will be as many holdbacks as there are contractors because there will be a separate holdback under each contract, but all of the subcontractors will have a lien against the land irrespective of which contractor engaged them.

  1. Sub-section. 8(4) of the BC Act reinforces the existence of a separate lien upon the holdback. That sub-section states as follows:

“8(4) Payment of a holdback required to be retained under section 4 may be made after expiry of the holdback period, and all liens of the person to whom the holdback is paid, and of any person engaged by or under the person to whom the holdback is paid, are then discharged unless in the meantime a claim of lien is filed by one of those persons or proceedings are commenced to enforce a lien against the holdback.” (underlining added)

The underlined words acknowledge that there is a separate lien against the holdback which is not otherwise extinguished if a timely action to enforce the lien against the holdback is commenced.

  1. There is nothing awkward or impractical about the conclusion that the holdback lien is different than the lien against the land. Subject to the other provisions of the Act, owners and contractors holding amounts falling within the lien regime can (so far as the holdback lien is concerned) pay them out until an action is commenced to enforce the holdback lien. While, under the holdback lien provision, the subcontractors under a particular contractor will have to share the holdback with all subcontractors who have commenced actions to enforce their holdback lien, and not just with those who have preserved and protected their lien against the land, there is nothing inherently unfair in that result.


It seems inherently impracticable to have different regimes across Canada for the holdback charge or lien. It also seems unlikely that the provincial legislatures intended to have different regimes. However, each provincial lien statute must be individually interpreted to determine whether the holdback charge or lien stands or falls with the lien against the land. Until the Supreme Court of Canada considers this issue or provincial legislatures make the holdback lien provision uniform across Canada, different holdback lien regimes may continue to exist.

The Supreme Court of Canada did consider the charge against the holdback in Westeel-Rosco Ltd. v. South Saskatchewan Hospital Centre, 1976 CarswellSask 114, [1977] 2 S.C.R.. There, the Supreme Court held that a waiver of the lien did not constitute a waiver of the holdback charge, but only of the lien against the land. The waiver read as follows:

do hereby renounce and waive any right, which …….. have or may have to any lien for work done, services rendered or to be rendered, or materials supplied or to be supplied, for or in connection with the building now in course of construction upon the said land hereinafter described and any and all right to register a claim of Lien against the said land or building,…” (underling added)

Despite the apparent all-inclusive wording of the underlined words, the Supreme Court held that this waiver did not affect the holdback charge, only the lien against the land. Does this holding suggest that the holdback charge and the lien against the land are separate encumbrances? This decision was not referred to in either the Brook Construction or Shimco decisions.

In this state of affairs, what regime will be held to apply in provinces other than B.C. and Newfoundland and Labrador?

It should be first noted that the BC Act is the only provincial lien statue in which the relevant section (section 4(9) in the BC Act) states that the holdback is subject to a “lien” on the holdback. That sub-section then states that “each holdback is charged” with payment of all persons engaged on the improvement. In the other lien statutes, the relevant section states that the holdback is subject to a “charge” on the holdback. This wording may distinguish the BC Act from all the other lien statutes. However, In Brook Construction, the Newfoundland and Labrador Court of Appeal referred to the holdback charge as a “lien against the holdback”, so this distinction in the statutory wording between “charge” and “lien” may not be significant.

The result arrived at in BC may most likely apply in the Northwest Territories, Nunavut and the Yukon where the holdback lien is stated to be “In addition to all other rights or remedies given by this Act.” It might also apply in Manitoba where the holdback lien section states that a person who has “a lien” has “a charge” on the holdback, thereby using the “a lien” wording upon which the BC Court of Appeal relied. In some provinces, such as New Brunswick, the definition section states that “lien” means “a lien created by this Act”, thereby possibly introducing the concept that there is more than one lien created by the Act. Other lien statutes, such as Nova Scotia and Ontario, use the words “the lien”, suggesting that there is only one lien, of which the holdback charge is a part. In those provinces or territories which do have a trust fund section in their lien statute, it may also be more likely to be found that the holdback charge is a self-standing charge.

The issue of whether the holdback charge or lien is a separate lien or a lien dependant on the lien against the land, has a number of consequences.

First, if the project involves land against which no lien may be asserted, then if the holdback lien is dependent on the lien against the land, no holdback lien can be asserted for that project unless the legislation provides to the contrary. That is what the majority of the Newfoundland and Labrador Court of Appeal held in Brook Construction.

Section 16(3) of the Ontario Act deals with this situation by providing that where “the lien” does not attach to the land (because the Crown is the owner or the land is a public street or highway owned by a municipality or a railway right of way), the lien constitutes “a charge” on the holdback, and section 34(1)(b) then provides for the preservation of the lien –so far as the charge on the holdback – by notice to the owner of the land, rather than registration of the lien.

A similar provision to section 34 of the Ontario Act is found in other provincial lien statutes. In Newfoundland and Labrador, it is found in section 22(5) of the NL Act, which reads as follows:

(5) Where there is no lien on the land by virtue of section 5, a person who is asserting a claim under subsection 12(5) for work done or materials placed or provided shall give written notice of his or her claim to the owner, to every person in whose hands sums are retained under section 12 to which his or her claim may relate and to the municipal authority in whose area of authority the land is situated within 30 days after the completion or abandonment of the work or the placing or providing of the materials.

The majority of the Newfoundland and Labrador Court of Appeal in Brook Construction referred to section 22(5) in support of its conclusion that the owner must be sued in order for the holdback charge to be operative. However, section 22(5) did not apply to the case since section 5 precludes a lien in respect of public streets, roads and highways, not other Crown land as was involved in that case (a school). The underlined words recognize that a holdback charge may exist when the improvement is to a public street, road or highway even if there is not a lien against the land.

Second, if the holdback lien is dependent on the continued existence of the lien against the land, then unless the lien legislation provides otherwise the lienholder may have to protect the holdback lien by registering the lien against the land, and may have to preserve the lien against the land by starting an action (and include the owner as a party). If this is the situation, a person seeking to enforce the charge against the holdback will not be able to ignore the lien registration and preservation stages.

Furthermore, if the holdback lien is not dependant on the lien against the land, there is the further question of whether the holdback lien action must be commenced within the time specified in the provincial lien statue, or the time provided in the general limitations statute for the commencement of a civil action. Logically, it would seem to be the latter, but that might cause real problems for the cash flow on a construction project.

In Shimco, the plaintiff had registered a lien and started its action within the one year period provided in the BC Act for the commencement of an action in relation to a lien against the land, but had failed to register a certificate of pending litigation within that one year period with the result that the Land Title Office had removed its lien claim of lien from the title to the property. Nevertheless, the BC Court of Appeal held that the holdback claim was valid.

See Heintzman and Goldsmith on Canadian Building Contracts, 5th ed., chapter 16, part 5

Brook Construction (2007) Inc. v. Blackwood Contractors Ltd., 2015 CarswellNfld 100, 47 C.L.R. (4th) 1 (N.L.C.A.)

Shimco Metal Erectors Ltd. v. Design Steel Constructors Ltd., 2003 CarswellBC 649, 2003, 23 C.L.R. (3d) 163 (B.C.C.A.).

Construction and Builders’ Liens –Lien against the hold back – whether the holdback lien is a separate lien from the lien against the land

Thomas G. Heintzman O.C, Q.C., FCIArb                             October 2, 2016



This article contains Mr. Heintzman’s personal views and does not constitute legal advice. For legal advice, legal counsel should be consulted.



Lien For Work Done Before The Certificate Of Substantial Completion And Payment Of The Major Lien Fund Does Not Attach To The Minor Lien Fund


In Chandos Construction Ltd. v. Twin Peaks Construction Ltd., a Master of the Alberta Court of Queen’s Bench has held that a lien for work done prior to the filing of a certificate of substantial completion and payment of the major lien fund does not attach to the minor lien fund.


Chandos was the general contractor and Twin Peaks was the structural steel supplier and installer on the project. Chandos posted a certificate of substantial performance and delivered it to the owner. At that time, and within 45 days afterwards, no relevant lien was registered. The owner paid to Chandos the 10% holdback up to the date of the issuance of the certificate of substantial performance. The owner retained $45,000 being 10 % of the remaining final cost of construction, which under the Alberta lien statute is the minor lien fund.

After that, Twin Peaks registered a builders’ lien. Almost all of the work referred to in the lien related to work done prior to the date of substantial performance.

Chandos asserted that Twin Peaks no longer had a valid lien claim. It said that Twin Peaks failed to file a lien claim referable to its work done before the issuance of the certificate of substantial completion, and accordingly its lien claim for that work no longer existed. It asserted that Twin Peak’s lien claim for that work did not “migrate” to the minor lien fund.

The Alberta Builders’ Lien Act

Sections 18 to 27 of the Alberta Builders’ Lien Act (the Act) create a major and minor fund regime. Under section 18, the major lien fund provides security for the payment of liens up to the date of substantial completion by requiring the owner to withhold 10% of the value of the work and materials provided to the lands in question. Under section 23, the minor lien fund provides security for the payment for work done after that date by requiring the owner to retain 10% of the value of the work and materials after the date of the issuance of the certificate of substantial completion. .

In sections 34 and following, the Alberta Act contains the normal regime for the registration of builders’ liens. Section 41 provides that the time for the registration of the lien expires 45 days after the last material or work is furnished or completed or the contract is abandoned.

Decision Of The Alberta Queen’s Bench

Master Robertson of the Alberta Queen’s Bench held that Chandos’ view of the operation of the Act was correct. He held that:

  1. “A builder’s lien is initially against the interest of the owner in the land, but if the owner pays the lien funds the owner is required to retain into court, then there is a claim against the funds, which stand in place of the land.”
  1. “Pursuant to section 25, an owner is not liable for more than the total of the major lien fund and the minor lien fund. If the owner follows the requirements of the Act, there is no further claim to be had against the owner’s land or the fund.”
  1. The Act deals “with the major lien fund and the minor lien fund as two separate funds, but the basic concept remains the same: once the owner has paid the major lien fund properly to the general contractor, no liens having been filed within 45 days of the applicable date, then the major lien fund is gone. So long as the owner still has that money in his hands, the liens attach the land until funds are paid into court in place of the land.”
  1. “Therefore, a lien properly registered within 45 days of completion or abandonment is properly registered, and if it is done after the 45 days following the date of the certificate of substantial performance, but the owner has not yet paid the major lien fund to the general contractor, then it still attaches it. That is the effect of section 18(3)(b), section 23(2) and section 23(5). But if the money has been paid, there is nothing to attach.” (emphasis added)
  1. While the subcontractor may no longer have a lien claim, it still has its contractual claim against the contractor and, possibly, a trust claim under Section 22 of the Act.

The Master made the following declaration:

Accordingly, I declare that the lien claimed by Twin Peaks is not a valid claim against the minor lien fund to the extent that it claims for work done and material supplied before the date of issuance of the certificate of substantial performance.


This decision is a helpful clarification of the operation of the Alberta Act. That Act does not expressly resolve the timing issue between the two regimes: the major and minor fund regime, and the regime relating to the registration of liens against the land.

The Master effectively held that the proper interpretation of the Act must coordinate the two regimes. The Act must mean that, even though a claim is registered in a timely fashion in relation to the completion or abandonment of the contract, a claim against the major lien fund comes to an end when the 45 day period expires after the issuance, posting and deliverance of a certificate of substantial performance, and the owner pays the monies held by it in the major lien fund. The only sensible interpretation is that the lien claim against the land for work done to that date must also expire at the same time. Otherwise, the whole purpose and operation of the major lien fund would be frustrated. In these circumstances, a lien for that work cannot survive and attach to the minor lien fund. That fund exists to deal with lien claims after that date.

Chandos Construction Ltd. v. Twin Peaks Construction Ltd., 2016 CarswellAlta 987, 2016 ABQB 296

Construction and builders’ liens – major and minor lien funds –expiry of liens against the land

Thomas G. Heintzman O.C., Q.C., FCIArb                                   September 11, 2016



This article contains Mr. Heintzman’s personal views and does not constitute legal advice. For legal advice, legal counsel should be consulted.


Contract Claim In Lien Action May Be Continued Even If Not Set Down Within Two Years: Saskatchewan Court Of Appeal


In Livingston v. Span West Farms Ltd, the Saskatchewan Court of Appeal recently held that, when a lien claimant includes a claim for contract monies owing and remaining unpaid, but fails to set the lien action down for trial within the statutory period – so that the lien portion of the action must be dismissed – the claimant may still proceed with the contract portion of the claim.

The Saskatchewan Court of Appeal arrived at this conclusion even though section 55 of the Saskatchewan Builders’ Lien Act (the Act) refers to “the action” in relation to the lien claim and requires the action to be set down for trial within two years of being commenced.

The Legislation

Section 55 of the Act reads as follows:

“Subject to subsection (2), a lien, for which an action has been commenced, expires where an action in which that lien may be realized is not set down for trial within two years of the day the action was commenced.

(2) The court may extend the time mentioned in subsection (1).

(2.1) An order pursuant to subsection (2) extending the time for commencing an action may be registered as an interest in the Land Titles Registry.

(3) Where a lien has expired under subsection (1), the court shall, on application, make an order dismissing the action if there is no other registered claim of lien at the time of the application, otherwise the court shall make whatever order it deems appropriate for continuation of the action.” (underling added)

Decision of the Saskatchewan Court of Appeal

The court noted that an application to extend the time to set the action down for trial pursuant to s. 55(2) may be made after the two year period has expired. That issue had been decided by the same court in Axcess Capital Partners Inc. v. Allsteel Builders(2) Ltd., 2015 SKCA 33, 383 D.L.R. (4th) 334.

In the present case, the court concluded that the contract or debt claim did not fall within Section 55 for the following reasons:

  1. The Act should be interpreted in a broad and liberal fashion in favour of lien claimants.
  1. Section 55 is within the part of the Act dealing with lien claims. It should be interpreted to apply to the claim for the lien itself, not to the portion of the action dealing with the claim for the amount owed to the claimant arising from the contract itself, nor to trust fund claims. The court said:

“Third, s. 55 is found in Part V of the Act, which deals solely with the expiry, registration and discharge of liens. None of the provisions in that Part refer to the trust remedies created by the Act or to a supplier’s common law rights in contract. The trust remedies created by the Act and a supplier’s common law right to sue for breach of contract are both remedies, which exist separate and apart from the lien remedies created by the Act. They are not dependent upon the lien for their existence and, thus, the lien’s expiration or discharge should have no effect on the pursuit of those claims. Absent clear language, a supplier’s right to pursue those remedies should not be tied to the enforceability of the lien.”

  1. The claimant could have brought the contract claim in a separate action, in which case section 55(3) of the Act would not apply to that claim. Section 89 of the Act allows the contract claim to be brought in a lien claim. Accordingly, the claimant should not be prejudiced, in respect of its contract claim by bringing it in the lien claim.

In concluding, the court said:

“Section 55(1) refers to a lien “for which an action has been commenced,” thus the entire section easily lends itself to the word “action” being interpreted to mean a cause of action relating only to a lien.”

Accordingly, the Court of Appeal set aside the motion judge’s dismissal of the debt claim.


This decision is consistent with decisions in some but not all of the provinces. The decision appears to apply to both contract claims and trust fund claims and clarifies the law in Saskatchewan and perhaps for other provinces having similarly worded lien statutes.

Livingston v. Span West Farms Ltd., 2016 CarswellSask 152, 2016 SKCA 33, 263

Construction and builders liens – contract claim– time for setting action down for trial

Thomas G. Heintzman O.C., Q.C., FCIArb                             August 28, 2016



This article contains Mr. Heintzman’s personal views and does not constitute legal advice. For legal advice, legal counsel should be consulted.

Unlicensed Architect Cannot File A Legal Hypothec: Quebec Court of Appeal

In Urbacon Architecture inc. c. Urbacon Buildings Group Corp., the Quebec Court of Appeal has recently held that an architectural firm that was unlicensed in the Province of Quebec is not entitled to file a legal hypothec, the Quebec law equivalent of a construction or builders lien. The court so found notwithstanding the cross-Canada reciprocal arrangements that allow architectural firms from one province to become licenced in another. It so held because the architectural firm, which was registered in Ontario, had not taken the steps to become licensed in Quebec. This decision raises issues about the status of the unlicensed architects and other professions under the construction and lien legislation in other provinces or under building contracts generally.


Urbacon Architecture was an architectural firm that was licensed to practice architecture in Ontario. It did not employ any Quebec architects but its sole shareholder had been licensed in Quebec between 1968 and 1984.

Urbacon Buildings entered into a contract with Bell Canada for the design and construction of a building. The principal of Urbacon Buildings was the son of the principal of Urbacon Architecture. Originally the building was to be built in the Ottawa region, but finally the building was built in Gatineau, Quebec. That building contract stipulated that Urbacon Architecture would be the consultant.

In the preliminary stages of the project, Urbacon Architecture prepared architectural, structural, electrical and mechanical drawings. The drawings were then approved by architectural and engineering firms in the province of Quebec.

Due to its dis-satisfaction with the work that had been done, Urbacon Buildings terminated its dealings with Urbacon Architecture. Urbacon Architecture demanded payment for its work from Bell Canada, and when it was not paid it filed a legal hypothec in the province of Quebec. Urbacon Buildings applied to the Quebec Superior Court for an order setting aside the legal hypothec and that order was granted. The Court of Appeal upheld that decision.

Articles 2724 (2) and 2726 of the Quebec Civil Code

Articles 2724(2) and 2726 of the Quebec Civil Code read as follows:

  1. 2724. Only the following claims may give rise to a legal hypothec:

(2) claims of persons having taken part in the construction or renovation of an immovable;

  1. 2726. A legal hypothec in favour of the persons having taken part in the construction or renovation of an immovable may not charge any other immovable. It exists only in favour of the architect, engineer, supplier of materials, workman and contractor or subcontractor in proportion to the work requested by the owner of the immovable, or to the materials or services supplied or prepared by them for the work. It is not necessary to publish a legal hypothec for it to exist.

In the application of these articles, Urbacon Architecture argued that the court should have regard to the reciprocity agreement between the architectural profession in Quebec and those in other provinces of Canada, known as the l’Accord sur le commerce intérieur and the l’Accord de commerce et de coopération entre le Québec et l’Ontario.

Decision of the Quebec Court of Appeal

The Court of Appeal held that the statutory regulation of the architectural profession in Quebec is for the protection of the public and a matter of public order. Articles 2724 and 2726 contain extraordinary protections for architects and others to recover their fees and other amounts due to them in respect of a building project. Accordingly, those articles should be strictly interpreted. If unregistered firms could use those provisions to recover their fees, then the protection of the public would be undermined. For these reasons, the word “architect” in Article 2726 should be interpreted to refer only to a firm that is registered as an architectural firm in Quebec.

The court did not accept the argument of Urbacon Architecture based upon the interprovincial accords between the architectural professions in Canada. The court did not agree that the licensing of a non-Quebec firm under those accords was simply an “administrative” formality.” Rather, having failed to register as an architectural firm in Quebec, Urbacon Architecture, and any other non-Quebec firm that did not become licenced in the province of Quebec, was simply not entitled to the benefits accorded to the architectural profession in Quebec, including Articles 2724 and 2726.


Two aspect of this decision are notable.

First, in its decision the Court of Appeal did not refer to two more recent decisions of the Supreme Court of Canada dealing with the issue of illegality of contracts. The most recent Supreme Court decision that the Court of Appeal considered was the 2001 decision in Fortin v. Chretien. Since then, the Supreme Court has decided KRG Insurance Brokers (Western) Inc. v. Shafron, [2009] 1 S.C.R. 157 and Transport North American Express Inc. v. New Solutions Financial Corp., [2004] 1S.C.R. 249. In those decisions, the Supreme Court has tended to alleviate against the harshness of the traditional doctrine of illegality of contracts. Presumably, the Quebec Court of Appeal considered that those cases from common law provinces did not affect its interpretation of articles of the Quebec Civil Code or the particular amendments to the statutes relating to building contracts and legal hypothecs in Quebec.

Perhaps, also, the Court of Appeal was of the view that the present case did not deal with the alleged illegality of a contract –but rather the alleged unenforceability of a statutory right or privilege. But the Court of Appeal did refer to and rely upon Fortin v. Chretien, which was concerned with the alleged illegality of a contract made by a non-licensed person (a former lawyer). The Court of Appeal did not analyze the exact inter-relationship, if any, between the doctrine of illegality of contracts, and the unenforceability of statutory rights and privileges.

Second, one wonders about the limits and application of this decision. Will it be applied to construction and builders lien statutes outside Quebec, so as to invalidate liens filed by professionals, or indeed any firm, that are not properly licensed in the applicable province? Could it have an effect upon building contracts, so that if a professional firm is not registered in the applicable province, then its functions as “architect” or “engineer” under a contract will be invalidated if the firm is not properly registered?

See Heintzman and Goldsmith on Canadian Building Contracts, 5th ed., chapter 1, part 3(c) and chapter 16, part 4(a)(i()II.

Urbacon Architecture inc. c. Urbacon Buildings Group Corp., 2016 CarswellQue 2972, 2016 QCCA 620

Building contracts –legal hypothecs, and construction and builders liens –illegality

Thomas G. Heintzman O.C., Q.C., FCIArb                                     May 29, 2016



This article contains Mr. Heintzman’s personal views and does not constitute legal advice. For legal advice, legal counsel should be consulted.


General Lien Provision Inapplicable If Main Contract So Provides: Ontario Court Of Appeal

A construction and builders lien claimant may, in some circumstances, file a general lien. The general lien allows the claimant to claim a lien over a number of properties to which it has supplied services or materials.

Section 20(2) of the Ontario Construction Lien Act (the Act), unlike the lien statutes in other provinces, enables the parties to contract out of the general lien provisions. But the question remains: who may contract out of those provision: the owner and the contractor with whom the owner contracts, or the contractor and a subcontractor or supplier? And if it’s the former, is that contract binding on the subcontractor or supplier?

The Ontario Court of Appeal has recently answered these questions in Yorkwest Plumbing Supply Inc. v. Nortown Plumbing (1998) Ltd.. The Court of Appeal held that the owner and general contractor may contract out of the general lien provisions, and their agreement is binding on the subcontractor or supplier.

The statutory provisions

Section 20 of the Act states as follows:

  1. (1) Where an owner enters into a single contract for improvements on more than one premises of the owner, any person supplying services or materials under that contract, or under a subcontract under that contract, may choose to have the person’s lien follow the form of the contract and be a general lien against each of those premises for the price of all services and materials the person supplied to all the premises.

(2) Subsection (1) does not apply and no general lien arises under or in respect of a contract that provides in writing that liens shall arise and expire on a lot-by-lot basis.(underlining added)

The Background

Nortown entered into contracts with two owners to carry out plumbing work on houses being built on subdivisions owned by each owner. Each contract stated that liens under the Act were to arise and expire on a lot-by-lot basis. One of the contacts also stated that for the purposes of the Act, “each individual unit (lot or building) on which the Contractor performs Contract Work shall be considered as comprising a separate contract.”

Yorkwest contracted with Nortown to supply plumbing equipment to each project. The agreement was oral and that agreement did not address any matter relating to Yorkwest’s entitlement to a general lien nor did the parties have any discussions about that matter.

Yorkwest registered a general lien against each subdivision within the applicable time from its last supply of materials to each project. Yorkwest did not allocate the amount of materials it had supplied to the individual lots in the subdivisions, but rather claimed the full amount owing to it by Nortown against the remaining, unsold lots of each project.

Nortown became insolvent. The owners paid the amount of liens into court and discharged the liens, and then sought summary judgment dismissing the lien claim on the basis that Yorkwest was not entitled to a general lien because the owners’ contracts with Nortown stated that all liens were to arise and expire on a lot-by-lot basis. Both the motion judge and the Divisional court agreed with the owners, and the issue was then appealed to the Court of Appeal.

Decision of the Ontario Court of Appeal

The Court of Appeal agreed with the courts below for the following reasons:

  1. The legislative history of the sub-section (2) demonstrated that the sub-section was adopted to address problems that owners had faced in obtaining mortgage financing, due to the general lien section. The legislative history showed that the intent of the sub-section was to allow the owner, and the contractor with whom the owner contracted, to agree that the general lien provision would not apply. That intention could not be achieved unless it was that agreement, not a subcontract or supply agreement, which was the operative agreement under both sub-section (1) and (2).
  1. On a plain reading of the two sub-sections, the “contract” in s. 20(2) must be the contract between the owner and the contractor. The Court of Appeal said:

“That is because it is only that contract that can be the “single contract” referred to in s. 20(1), which allows the general lien to arise and to be applicable to each of the premises for the price of all services and materials that the lien claimant provided to all of the premises. Because s. 20(2) provides that no general lien arises “under or in respect of” the “lot-by-lot” contract with the owner of the multiple lots, no one who claims a lien under that contract or in respect of that contract can claim a general lien.”

  1. Giving effect to Yorktown’s submission would re-create the mischief that s. 20(2) was intended to address. It would allow the subcontractor or supplier to file a general lien even if the owner and contractor had opted out of the general lien provision. It would therefore force the general lien’s impact onto the remaining lots held by the owner, thereby adversely impacting the owner’s financing.
  1. It was not unfair to impose this result on subcontractors and suppliers because they were capable of using, s. 39(1)(1) of the Act to ask the owner or contractor whether their contract provides in writing that liens will arise and expire on a lot-by-lot basis.

The Court of Appeal refused to grant the alternative relief sought by Yorktown.

First, Yorktown asked that its general lien be treated as excessive liens under section 35 of the Act. The Court of Appeal said that to do so would undermine sub-section 20(2). It would allow the subcontractor to achieve the very result that the amendment was intended to prevent.

Yorktown also asked for its claim against the owners to be amended to include claims for unjust enrichment and quantum meruit. The Court of Appeal refused to permit this amendment due to the wording of section 55 of the Act. That section permits a line claimant to also make a claim for breach of contract. Yorktown made no such contract claim against the owners. Moreover, section 55 does not mention claims in unjust enrichment or quantum meruit, so that section cannot be used to join those sorts of claims in the lien action. The Act was intended to provide a summary means for dealing with lien claims, and introducing equitable claims into lien actions would not promote that objective.


Normally, lien statutes are interpreted as having the legislative purpose of protecting lien claimants. In this case, however, the amendment to section 20 of the Ontario Act was demonstrably enacted for the protection of the owner and to facilitate financing by the owner. With that purpose in mind, an interpretation that undermined that purpose was not acceptable.

This decision also shows that, while the court will generously protect the lien claimant’s fundamental rights enshrined in the Act, it will restrictively interpret the Act at the edges so as not to interfere with the rights of other parties. Here, once the interpretation of sub-section 20(2) showed that the general lien was not available, the court was not willing to use the procedural provisions of the Act to protect the lien claimant. Since this was the first time that the court had considered whether subcontractors and suppliers had to agree to a waiver of the general lien provision, the court might have, on a one-time basis, allowed the liens to be treated as excessive liens. But the court was not willing to make that accommodation.

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

Yorkwest Plumbing Supply Inc. v. Nortown Plumbing (1998) Ltd., 2016 CarswellOnt 6411, 2016 ONCA 305

Building contracts – construction and builders liens – general lien – amendment of lien claim – combining lien claim with unjust enrichment claim

Thomas G. Heintzman O.C., Q.C., FCIArb                                     May 8, 2016



This article contains Mr. Heintzman’s personal views and does not constitute legal advice. For legal advice, legal counsel should be consulted.



Trust Fund Obligations Continue After A Lien Bond Is Filed: Supreme Court Of Canada

The Supreme Court of Canada recently released its highly anticipated decision in Stuart Olson Dominion Construction Ltd. v. Structal Heavy Steel. The court has held that the trust fund obligations on a construction project did not terminate when the contractor filed a bond in respect of the subcontractor’s lien.

This decision is of fundamental importance to building contracts and construction projects. It means that, even after posting a bond for a subcontractor’s or supplier’s goods and services, an owner and contractor must continue to hold and pay funds due in respect of the construction project to those who are entitled to those funds down the payment chain. They cannot rely upon the bond as discharging that obligation.

Those sympathetic with the contractor’s position may assert that piling the trust fund obligation onto the owner or contractor once a lien bond has been filed is burdensome and unfair. However, the Supreme Court held that enforcing trust fund obligations in addition to the lien rights fortifies and strengthens the whole statutory regime.


Stuart Olson Dominion Construction Ltd. (then known as Dominion Construction, and referred to herein and in the judgment as Dominion) was the general contractor for the construction of a new football stadium for the University of Manitoba. Structal was its structural steel subcontractor. Structal filed a builder’s lien against the property. Dominion filed a lien bond for the amount of Structal’s lien claim. Structal approved the bond and vacated its lien. Dominion continued to receive progress payments from the Owner. Structal asserted that Dominion was still required to comply with the trust provisions of the Act even though a bond had been provided for its lien. Dominion refused to make further payments to Structal and maintained that it had a set-off against the monies claimed by Structal, that there was no breach of trust, and that Structal was fully secured by the lien bond.

Structal notified the owner that it should withhold a $3.5 million payment from Dominion or it would bring a claim against if for violation of the trust provision of the Act. The owner then required Dominion to bring an application in the Manitoba Court of Queen’s Bench seeking a declaration that it had satisfied its trust obligations to Structal. If that order had been granted, then the owner could have used those withheld monies to pay other trust claimants and then other creditors. Structal then filed its own motion requiring full payment of its past-due invoices, without deduction or set-off, upon Dominion receiving the funds from the Owner.

The motion judge held that the filing of the lien bond extinguished the trust obligations of Dominion under the Manitoba Builders’ Liens Act (the Act or BLA). The Court of Appeal reversed this decision, holding that the subcontractor’s right to enforce a statutory trust was entirely separate from its right to file a lien claim, and that the subcontractor was entitled to enforce both rights even though a lien bond had been provided to secure the lien claim.

Decision of the Supreme Court of Canada

The Supreme Court recognized that there were two preoccupations of the construction industry at stake in this case:

First, ensuring payment of contractors and subcontractors; and

Second, encouraging liquidity in the flow of funds during the job.

The question in the present case was whether protecting the first preoccupation, by enforcing the trust claim, would interfere with or jeopardize the second, the flow of funds during the project. The Supreme Court found no such interference or jeopardy. Indeed it found that enforcing the trust fund provisions in this situation would enhance, while not enforcing whose provisions would undermine, the purpose of the statute:

“The purpose of the statutory trust was articulated by the Manitoba Court of Appeal in Provincial Drywall: “The trust provisions are designed to help assure that money payable by owners, contractors and subcontractors flows in a manner which is in accord with the contractual rights of those engaged in a building project and it is not diverted out of the proper pipeline”……Finding that a trust claim is extinguished by filing a lien bond would undermine this purpose. A lien bond merely secures a contractor’s or subcontractor’s lien claim rather than satisfying it through payment and it does not extinguish the owner’s or contractor’s obligations under the statutory trust. The filing of a lien bond has no effect on the existence and application of the trust remedy.” (paras. 40-41)

The court noted that this conclusion is consistent with the word “all” which is used twice in section 4(3) of the Act. That subsection requires that the contractor not divert trust funds for its own use until all subcontractors have been paid all amounts owing to them.

The court noted that in Manitoba, the trust provisions were formerly contained in The Builders and Workers Act, while the lien provisions were found in The Mechanics’ Liens Act. In the statutes of Manitoba 1980-81, the two statues were repealed and incorporated into the Act. But, as the court said, “the legislature did not expressly delineate how the lien and trust provisions were to interact in situations such as this case, where both remedies are pursued at the same time by a contractor or subcontractor.” Accordingly, while Dominion submitted that the trust fund provision was a secondary mechanism designed to protect lien rights and provided no wider protection, the court found no basis for that submissions: “The trust remedy originated in a statute that did not provide a lien mechanism and it was not altered to limit its applicability when both were incorporated into the BLA. Rather, both remedies exist independently.” (para. 35)

The court also noted that the two provisions contain different rights and affect different persons:

“The lien provisions do not impose obligations on contractors or subcontractors with respect to funds received. Trust funds, on the other hand, cannot be appropriated for other purposes until all subcontractors, all persons who have supplied materials or services have been paid (s. 4(3)(a)). Moreover, pursuant to s. 16 no lien can encumber the interest of the Crown, a Crown agency, or a municipality. There is no similar exclusion with respect to the trust provisions of the Act (see s. 3(1)).” (para. 32)

The court accordingly concluded:

“Nothing in the BLA suggests that the lien and trust provisions do not remain as two separate remedies. This is not to deny that a contractor or subcontractor may have both a lien and trust claim and that the funds sought under each remedy may be the same. But this does not change the fact that the claimant has access to both of these remedies.” (para. 38)

The court then addressed Dominion’s submission that the filing of the lien bond terminated the subcontractor’s trust fund rights. It rejected that submission for two reasons.

First, it held that if Dominion’s submission were correct, then if the subcontractor’s lien action failed (because, for instance, it had filed the lien claim late), then the subcontractor would also lose its trust fund rights. That result was clearly not envisaged by the legislation which contemplates that the two remedies may be independently asserted.

Second, the court rejected Dominion’s submission that maintaining the separate enforceability of the trust fund and lien claims would result in double payment of the subcontractor when the owner provides a lien bond and also has trust funds or is receiving trust funds from the owner. It did so by making two points.

First, a lien bond is not payment to the subcontractor, but only a promise of payment by the bonding company if the subcontractor succeeds in its lien action.

Second, the decision to obtain a lien bond, rather than pay the trust monies into court, is one for the contractor or owner to make. While that choice may result in double security, it does not result in double payment:

“There may be circumstances where a contractor will choose to maintain double security where there are lien and trust claims for the same work, services, or materials, by acquiring a lien bond while still holding trust funds. However, a contractor can avoid double security by paying cash into court pursuant to s. 55(2) instead of depositing a lien bond……..So long as the trust funds themselves are deposited with the court, the funds are secure and the trust has not been breached….A lien bond involves only an assurance that the surety will pay the amount of any lien judgment should the lien defendant fail to do so. The bond does not constitute security for the trust claim and does not result in the protection of the actual trust monies at issue. An owner, contractor, or subcontractor who chooses to file a lien bond with the court instead of depositing the funds at issue must maintain the trust fund in addition to the bond.” (paras. 46-47)

The court concluded with the observation that:

“Dominion chose to provide security by way of a lien bond rather than payment of funds into court. It is true that it paid premiums for that bond which are not recoverable, but that is simply the cost of the security which it chose to provide. Structal will not receive double payment.” (para. 49)


There are many interesting points to discuss about this decision, but here are a few:

  1. It is important to remember that, assuming that the owner pays the monies on the project in accordance with its statutory obligations, the owner will only be liable for the holdback. In Manitoba, the owner’s holdback is 7.5 percent of the monies due under the main contract, and in Ontario and most other provinces the holdback is 10 percent. So normally, by its lien the subcontractor is seeking to protect its right to that holdback in the owner’s hands. However, the trust provisions apply to any monies due on the project up and down the pipeline of payment. So if the contractor’s position had been upheld, that would have dramatically limited the trust fund rights of subcontractors, sub-subcontractors and suppliers.
  1. In some provinces, such as Alberta and Ontario, the subcontractors all share in the monies paid into court or protected by security such as a lien bond, even if those monies or that security are initially paid or provided to take one particular lien off the title to the property. In Saskatchewan, it is only the lien claimant whose lien is discharged by payment into court or by provision of security who is entitled to the money in court or other security, and in Manitoba, New Brunswick and Prince Edward island the lienholder whose lien is discharged by the payment into court or provision of other security has a first charge on those monies or security. So, the argument that a lien bond is not payment, and far from it, is even stronger in the former provinces than the latter.
  1. The Supreme Court noted that, In Manitoba the lien provision and the trust fund were in different statutes as recently as 1981. In other provinces, such as Ontario, the lien and the trust fund provisions have been in the same lien statute for a long time. The Supreme Court noted that the legislative history in Manitoba supported its conclusion that the lien rights and trust fund rights are entirely separate, and that accordingly the trust fund rights are not eliminated by the provision of a lien bond. However, it seems unlikely that this distinction will make any difference in interpreting these lien statutes. The reasoning of the Supreme Court about the distinction between lien rights and trust fund rights appears to apply to all those provincial statutes.
  1. Trust fund rights start at different levels in different provincial statutes. In some provinces, they start at the owner’s level. Thus, in Manitoba, monies received by the owner that are to be used in the financing of the improvement, or are in the hands of the owner and payable to a contractor on the basis of a certificate of a payment certifier, are trust funds. In Ontario, the trust fund remedy was first introduced at the contractor level in 1942, and expanded to the owner level in 1969. The regime in Nova Scotia and Saskatchewan is similar to the present regime In Manitoba and Ontario. In other provinces, such as Alberta, the trust fund starts at the contractor level, and it is monies received by the contractor after a certificate of substantial completion has been issued that are trust funds for the benefit of persons who have performed work or provided services on the project. This difference may have been very material in the present case. If the trust fund obligation only commenced if and when the monies were paid to the contractor Dominion, then Structal may have had no right to give notice to the owner and demand that the trust fund rights be adhered to at that level. If that is so, then there may be “leakage” in the payment pipeline at the owner’s level in some provinces that this decision will not address. One wonders whether, in those provinces where the trust fund remedy starts at the contractor level, the legislation should be amended to move that remedy to the owner level for the sake of consistency across Canada and to ensure that the payment pipeline applies to all levels of the project.
  1. An underlying but unstated issue in this case was whether the imposition of the subcontractor’s trust fund rights, in addition to its lien rights against the land or the lien bond, would be unfair, or commercially unreasonable by interfering with the flow of funds during the construction project. In the absence of proof of those sort of circumstances, the wording of the statute showed that the subcontractor was entitled to assert both rights. The owner and contractor were not able to show such unfairness or commercial unreasonableness. On the face of the court’s judgment, there is nothing to indicate that they sought to show that the flow of funds would be interfered with or jeopardized; and the court found that the monies due under the main contract could be paid into court so that no double payment would occur. The court was not impressed by any unfairness arising from paying a premium for the lien bond rather than paying the money into court. That was simply a business, cash flow and financing decision for the contractor. In the result, there was no commercial unreasonableness to the subcontractor’s assertion and, in the court’s view, much to support it in terms of keeping the monies due on the project in the payment pipeline.

See Heintzman and Goldsmith on Canadian Building Contracts, 5th ed. Chapter 16, parts 4(m) and 6.

Stuart Olson Dominion Construction Ltd. v. Structal Heavy Steel, 2015 SCC 43

Construction and builders’ liens – trust fund provisions – lien bonds

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



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.


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)


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



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.


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.


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)


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