Holding Pattern: Alberta Awaits Prompt Payment and Adjudication Regime

Provincial legislatures across Canada are finally heeding the call from industry to implement prompt payment and adjudication regimes. As of the writing of this post however, only Ontario’s Construction Act [1]RSO 1990 c C.30 has in-force prompt payment and adjudication provisions. Elsewhere in Canada, legislatures are at various stages of implementation. In Alberta, Bills 37 and 62 introduced amendments (and then revised those amendments) to the Builders’ Lien Act,[2]RSA 2000 c B-7 to introduce prompt payment and adjudication – amendments so significant, that the Builders’ Lien Act will be renamed to become the Prompt Payment and Construction Lien Act (the “PPCLA“). The authors have previously written regarding the PPCLA and the introduction and passing of Bills 37 and 62 here and here, respectively.

July 1, 2021 was the anticipated proclamation date for the PPCLA when Bill 37 was introduced in October 2020.[3]Protecting jobs in the construction industry – October 21, 2020 – YouTube This ambitious timeline gave industry only a few months to prepare for the substantial changes brought about by the new legislation. Unfortunately, the line between ambition and folly is often best perceived in hindsight, which appears to have been the case here. Following what the Minister’s office describes as “overwhelming feedback from stakeholders”, the July 1, 2021 effective date has come and gone without the PPCLA having been proclaimed into force, and without an alternate effective date being announced.

As of the writing of this post, industry stakeholders continue to engage with the government over the details of how this new legislative framework will operate in practice. Those details are anticipated to be fleshed out in the PPCLA‘s  yet-to-be-released regulations.

In addition to requiring the finalization of the regulations, the PPCLA will require the Minister to appoint an authorized “Nominating Authority” who will be empowered to appoint adjudicators to decide disputes subject to the adjudication regime. As of the date of this blog post, only the ADR Institute of Canada (ADRIC), in collaboration with the Royal Institute of Chartered Surveyors (RICS), has publicly announced an intention to submit a bid to become a Nominating Authority. An ADRIC-RICS Nominating Authority does not appear to be in a position to appoint adjudicators until at least 2022 however, when it has had an opportunity to qualify adjudicators according to its standards.[4]https://adric.ca/construction-adjudication/construction-adjudication-training/  It therefore appears unlikely that the PPCLA will be able to be proclaimed until at least spring 2022.

In the meantime, contracts or subcontracts entered into before the PPCLA is in force will continue to be subject to the existing provisions of the Builders’ Lien Act, subject to the yet-to-be-released regulations.[5]See Bill 37 s.26, PPCLA s. 74

For more information regarding the major consequences of the PPCLA, not just for the construction industry, but for any industry that is involved directly or indirectly in the buying, selling, drilling, mining, developing, maintaining or financing of land in Alberta, please see our team’s presentation that can be accessed here.

We will continue to monitor the progress of the PPCLA and other prompt payment and adjudication regimes across the country, and will provide further updates as they become available.

References

References
↑1 RSO 1990 c C.30
↑2 RSA 2000 c B-7
↑3 Protecting jobs in the construction industry – October 21, 2020 – YouTube
↑4 https://adric.ca/construction-adjudication/construction-adjudication-training/
↑5 See Bill 37 s.26, PPCLA s. 74

Can A Construction Lien Be Based On A Pre-Incorporation Contract?

Construction Lien Claims  –  Pre-Incorporation Contracts

What happens when a pre-incorporation construction contract is made in the name of a company which does not do the work, and then the construction lien is filed in the name of the company that was later incorporated and did the work?

That was the situation faced by the Alberta Court of Appeal in Canbar West Projects Ltd v. Sure Shot Sandblasting & Painting Ltd.  The Court held that the lien was valid and, furthermore, that the contract had been effectively adopted by the company that did the work.

A company known as Can-West Projects Ltd entered into a contract with Sure Shot  to construct facilities on land owned by a company related to Sure Shot.  The problem was that Can-West was not then incorporated, and when the principals behind it went to incorporate the company, they found that the name was taken. So they incorporated a company by the name of Canbar West Projects Ltd. and that company registered the name “Can-West Projects” as a trade name.  After it was incorporated, the rest of the work was done by Canbar West Projects Ltd and it registered the lien.

The trial judge held that Canbar did not have a valid lien because it had not entered into the contract, and that Canbar had not adopted the contract made in the name of Can-West.  The Court of Appeal of Alberta reversed both of these findings.

First, the Court of Appeal held that, so far as the lien was concerned, it did not matter that the contract was not in the name of Canbar.  The entitlement to a lien arises from three elements:

–         the owner requests the work

–         the claimant does the work

–         and the work improves the value of the land

The lien does not arise from the existence of a contract.  Indeed a contract with the owner will not exist between the owner and a sub-contractor and yet sub-contractors can file liens.  Here, Canbar had done the work, at least from the date of its incorporation; and the land had been improved.  The mere fact that the contract had been made with a contractor under another name did not mean that the owner had not requested the work to be done.  In effect, the trial judge had incorrectly used principles relating to the making of contracts when the issue related to construction liens.

Some of the work had been done before Canbar’s incorporation.  As to that work, the Court of Appeal referred to section 15(3) of the Alberta Business Corporations Act, which deals with pre-incorporation contracts.  The Court held that Canbar had adopted the contract made in the name of Can-West, in two ways.

First, the name on the contract was very similar to the name of the company as incorporated.  In this circumstance, the contract can be said to have been made “in its name” within the subsection.  As the court said, “minor variations in name surely must be included with respect to contracts made in the name of a then non-existing corporation.”

Second, the contract was made “on behalf of” the company within the meaning of the subsection. The principals intended to incorporate a company, to use the Can-West name and to have it perform the work, and they only adopted another name because that name was taken.  The company in fact adopted and performed the contract and the owner took no objection to the company doing further work after they knew that the lien was filed in the name of CanBar.

On the latter point, the trial judge had held that the existence of another, totally unrelated, company having the Can-West name disentitled CanBar from adopting the contract.  The Court of Appeal disagreed. The other Can-West company did no work on the project and did not file the lien.  That company was totally irrelevant to the issue.

This decision is a reminder of two important principles.  One relates to construction liens. Construction liens are a creature of statute, not contract law.  They protect those who improve lands, by virtue of that improvement and not by virtue of a contract. The owner must request the work or materials, but the lien arises from the request and the subsequent improvement, not a contract.

The second principle relates to pre-incorporation contracts.  Adoption of such a contract can, under the legislation, occur “by any act or conduct signifying [the corporation’s] intention to be bound”, but only as long as the original contract was made in its name or on its behalf.  Those involved in pre-incorporation contracts should make both elements very clear, both that the contract was made in the future corporation’s name or on its behalf, and also that there is a clear adoption of the pre-incorporation contract, by an express corporate resolution or contract or other express written document to that effect.  Absent that sort of clarity, pre-incorporation contracts can lead to litigation.

See Goldsmith and Heintzman, Canadian Building Contracts (4th ed.) at Chapter 1, para 1(a)(ii) and Chapter 11, para 2(a)(iii).

Construction Lien  –    Pre -incorporation Contracts:

Canbar West Projects Ltd v. Sure Shot Sandblasting &Painting Ltd., 2011 ABCA 107  https://bit.ly/mmCQ7h

Construction Liens: Two Thorny Issues: Can non-lienable work be sheltered? Can off-site work be liened?

In John Barlot Architect Ltd. v. 413481 Alberta Ltd, the Alberta Court of Appeal has recently dealt with two thorny issues relating to a consultant’s services and construction liens: Can a lien shelter non-lienable work?  And can a consultant’s services provided to one project be liened on a second project if they were also used on the second project?

The plaintiff architect undertook three kinds of services to the owner defendant, and filed a lien for those services when its contract was terminated and it was replaced as the architect on the project.

First, it provided rezoning, subdivision and development services for the project.

Second, the architect did some work for a Sales Centre for the project, and that work was properly the subject of a lien.

Third, the architect submitted plans to the owner which were actually plans that had been previously prepared to construct another building in another location.  The owner used those plans to develop cost estimates.  The plaintiff architect claimed that the work to prepare these plans was also protected under its lien.

The Alberta Court of Appeal applied prior judicial authority in Alberta and held that the services relating to rezoning, subdivision and development were not sufficiently connected to the construction to constitute an “improvement” to the land.  Therefore, the lien was improperly filed in respect to that work.

The Court also confirmed the trial judge’s finding that the plans for the other project were not in fact connected to the owner’s project because they were not seen or used by the replacement architect.  The plans which the plaintiff architect had prepared were different and “too far removed from the intended construction process” to support a lien.

Most importantly, the Alberta Court of Appeal arrived at two further legal conclusions.  First, the Court held that even if the evidence of the plaintiff architect was accepted and the plans for the other building and the plans for the present project were similar, the plans for the other building were “not prepared ‘in respect of’ an improvement intended to be constructed on the subject land”.   Accordingly, while the plaintiff might have a claim in contract against the owner for the work in relation to those plans, the plaintiff had no lien rights.   That conclusion means that work prepared for a first project and site but useable on a second project and site cannot, as a matter of statutory interpretation, give rise to lien rights in relation to the second project.

Second, the Court held that the valid lien for the Sales Centre work could not shelter the rezoning, subdivision and development work. The Court noted that there was little authority on the proposition that a valid lien in respect of some work could shelter other non-lienable work.  However, it concluded that such a proposition was inconsistent with the whole scheme of the Act.  The word “improvement” cannot be interpreted to include the words “plus any related work not in respect of the improvement”.  That proposition would also play havoc with the application of the words “price of the work” and the hold back and trust fund provisions of the Act.  The owner and others receiving money on the project would never know what amount of non-lienable work was to be included in the hold back and trust funds.  In addition, a contractor or supplier which had delivered a small amount of lienable work or supplies but a large amount of non-lienable work would be unfairly preferred over one who had provided no lienable work or supplies.

Two important conclusions can be drawn from this decision.  First, the sections of the Construction and Builders’ Lien Acts are highly integrated.  Each provision depends on the others. Changing the impact of one section may change the impact of other sections. The Alberta Court of Appeal concluded that expanding lien rights to protect work on other projects, or other non-lienable work, would stretch the Act unfairly and unworkably.

Second, the decision also shows that the Construction and Builders’ Lien Acts provide uncertain protection for “soft services” such as those provided by consultants.  Originally, those services were not protected by some of these Acts, probably because the connection to the actual improvement of the land was thought to be indirect and debatable.  When they are protected, courts will be careful not to expand the net of lienable consulting services to those which do not directly relate to the improvement to the lands.

Building Contract – Consultant- Construction Lien – Improvement- Sheltering:  

John Barlot Architect Ltd. v. 413481 Alberta Ltd, 2010 ABCA 51 (CanLII)    https://bit.ly/gMvCma

www.constructionlawcanada.com                                                                                                                                                                       March 20, 2011

Unjust Enrichment

Unjust Enrichment–Construction lien action:  A supplier cannot assert an unjust enrichment claim against an owner, particularly if the contractor has asserted a construction lien claim.  The contract between the owner and the contractor is a juristic reason for the unjust enrichment claim being disallowed, and the absence of any dealings between the owner and the supplier and the purposeful decision by the supplier not to participate in the lien action contradict the assertion of any reasonable expectation that the supplier would have a claim in unjust enrichment: Barrie Trim v. Heath et al, 2010 ONSC 2107. See CBC, Chapter 4, part 4.

Unjust Enrichment-Construction lien action:  If a construction lien claim is struck down because the claim does not meet the technical requirements of the Construction Lien Act, a personal claim in unjust enrichment may be made if it arises out of the same circumstances as the lien: Juddav Designs Inc. v. Cosgriffe, 2010 ONSC 6597  https://bit.ly/ibs1TD

Unjust Enrichment-Construction lien action

Unjust Enrichment-Construction lien action:  If a construction lien claim is struck down because the claim does not meet the technical requirements of the Construction Lien Act, a personal claim in unjust enrichment may be made if it arises out of the same circumstances as the lien: Juddav Designs Inc. v. Cosgriffe, 2010 ONSC 6597