Citation and Court Information

CITATION: Yorkwest Plumbing Supply Inc. v. Nortown Plumbing (1998) Ltd. et al., 2014 ONSC 5655

DIVISIONAL COURT FILE NO.: 570/13, 571/13

DATE: 20141008

ONTARIO

SUPERIOR COURT OF JUSTICE

DIVISIONAL COURT

MARROCCO ACJ, SACHS AND MACKINNON JJ.

BETWEEN:

YORKWEST PLUMBING SUPPLY INC. Appellant

– and –

NORTOWN PLUMBING (1998) LTD., INTRACORP PROJECTS (MILTON ON THE ESCARPMENT) LTD., AND THE BANK OF NOVA SCOTIA PARTY Respondents

-and-

YORKWEST PLUMBING SUPPLY INC. Appellant

-and-

NORTOWN PLUMBING (1998) LTD., BURL 9 DEVELOPMENTS LIMITED, AND SUNDIAL HOMES (BURL 7) LIMITED Respondents

COUNSEL:

John Lo Faso, WA. McLauchlin and Edward W Lynde, for the Appellant

Theodore B. Rotenberg, for the Respondent IntraCorp Projects Ltd.

Karey Anne Dhirani and James M. Wortzman, for the Respondents Burl 9 Developments Limited and Sundial Homes (Burl 7) Limited

HEARD: September 11, 2014

Reasons for Decision

MARROCCO A.C.J.S.C.:

[1] These two appeals were heard together. They raise the same legal issue. Resolution of one resolves the other. These appeals concern the correct interpretation of section 20(1) and (2) of the Construction Lien Act and as such the standard of review is correctness.

[2] The Bank of Nova Scotia did not participate in these appeals. Proceedings against the bank were discontinued some time ago. Proceedings against Nortown Plumbing (1998) Ltd. were stayed because Nortown made an assignment in favour of its creditors. As a result in proceeding 1388/12 the parties were Yorkwest Plumbing Supply Inc. vs. IntraCorp Projects (Milton on the Escarpment) Ltd.; in proceeding 1390/12 the parties were Yorkwest Plumbing Supply Inc. vs. Burl 9 Developments Limited and Sundial Homes (Burl 7) Limited.

[3] In each appeal the respondents had successfully moved for summary judgment. Both summary judgment motions were heard by the same motions judge on the same day.

[4] I will distinguish between the two matters where necessary by referring to one as the IntraCorp Projects proceeding and the other as the Burl 9 Developments proceeding.

[5] Nortown Plumbing (1998) Ltd. (“Nortown”) was a Contractor for plumbing services for new homes in two residential subdivisions: one subdivision was owned by Burl 9 Developments Limited (“Burl 9 Developments”) and the other was owned by IntraCorp Projects (Milton on the Escarpment) Ltd. (“IntraCorp Projects”).

[6] Yorkwest Plumbing Supply Inc. (“Yorkwest”) supplied Nortown with plumbing materials which were used in new homes built in both subdivisions. Yorkwest was a Subcontractor to Nortown in both subdivisions.

[7] The contracts between Nortown and Burl 9 Developments and Nortown and IntraCorp Projects were written; the subcontract between Yorkwest and Nortown was oral.

[8] The written contracts were entered into on August 4, 2009 (Burl 9 Developments) and February 3, 2011 (IntraCorp Projects). The written contracts are slightly different. Both provide however that claims for liens pursuant to the Construction Lien Act arise and expire on a lot-by-lot basis. The oral subcontract between Yorkwest and Nortown does not contain such a term.

[9] Materials were supplied by Yorkwest although there was an issue concerning the calculation of the 45 day lien preservation period set out in section 36 of the Construction Lien Act. Yorkwest asserts that, pursuant to the requirements of a general lien, it properly preserved its right by registering a lien within 45 days of the last delivery of supplies to the last lot. IntraCorp asserts that no general lien applies to its contract with Nortown and that Yorkwest did not properly preserve its right to specific liens on the individual lots within the 45 day period of last supply to each lot.

[10] Nortown made an assignment in favour of its creditors on January 3, 2012 and a Receiver was appointed.

[11] Yorkwest registered a General Claim for Lien on February 3, 2012 against each subdivision lot in the IntraCorp Projects and Burl 9 Developments subdivisions. In other words Yorkwest registered a claim for the entire sum it was owed by Nortown against each unsold lot in both subdivisions. Yorkwest did not register a lot-by-lot lien: i.e. a specific individual lien claim on each lot based on material supplied to that specific lot.

[12] On February 9, 2012 IntraCorp Projects vacated Yorkwest’s claim for lien by paying approximately $60,000 into court.

[13] It is the respondents’ position the learned motion judge’s decision to grant summary judgment thereby denying Yorkwest’s right to a general lien should be affirmed. Before the learned motion judge the respondents successfully claimed that the general lien claim ought to be entirely discharged and their money returned to them because there was a term in both written contracts which provided that liens arose and expired on a lot-by-lot basis and that this term made it impossible for a general lien to arise.

[14] The respondents also maintain that the appellant’s general lien cannot be cured by an amendment. This issue is resolved in the respondents’ favour by Leo P. Abrams and Sons Ltd. v. MacDonald Homes Inc. (Trustee of), 1996 2970 (ON CA), [1996] O.J. No. 664, 38 C.B.R. (3d) 250 (Ont. C.A.) at paras. 4 and5 and Gillies Lumber Inc. v. Kubassek Holdings Ltd. 1999 3757 (ON CA), [1999] O.J. No. 2692, 176 D.L.R. (4th) 334 (Ont. C.A.) at paras. 40, 41, 43 and 48.

[15] Section 14 of the Construction Lien Act creates lien rights only for a single property. Where the property is a subdivision, which is the case in these appeals, section 14(1) requires that a person who supplies plumbing materials to any lot in that subdivision for an owner, contractor or subcontractor has a lien upon the interest of the owner in the particular lot supplied.

[16] Section 14 does not permit a general lien.

[17] Section 20(1) of the Construction Lien Act is a statutory exception to section 14 because it permits a general lien under the circumstances set out in that subsection.

[18] When dealing with a subdivision, a general lien avoids the problem of allocating services or materials to each house or structure when the claimant attempts to preserve its lien. A general lien also permits extension of the 45 day lien preservation period to the last day services or materials are supplied to any one of the houses or structures described in the contract.

[19] Section 20(1) of the Construction Lien Act creates this exception in specific circumstances, namely where:

• The owner of the property has entered into a single contract for improvements on more than one premises it owns; and

• The person claiming the general lien has supplied services or material under that contract or under a subcontract under that contract.

[20] Specifically, section 20 provides as follows:

• 20 (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. R.S.O. 1990, c. C.30, s. 20 (1).

• 20(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. R.S.O. 1990, c. C.30, s. 20 (2).

[21] In such a situation the person who supplied the services or materials may choose to have a general lien against each of the premises improved.

[22] There is, however, an opportunity to contract out of section 20(1). Section 20(2) of the Construction Lien Act provides that 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.” As previously stated, the contracts with which we are concerned contain such a provision.

[23] Section 20(2) of the Construction Lien Act makes no reference to a subcontract. The appellant submits that as a result section 20(2) only applies to contracts. The appellant submits that under the earlier Mechanics’ Lien Act, the word “contract” was not defined and as a result was interpreted to include subcontracts with unanticipated negative consequences. It submits this approach was specifically rejected by the Ontario Legislature when it enacted the current Construction Lien Act.

[24] The appellant points out that in the Construction Lien Act the words contract, contractor, subcontract and subcontractor are defined terms. As a result, the appellant submits, the legislature deliberately distinguished between contracts and subcontracts when it enacted the current Construction Lien Act and to maintain this distinction this Court should not apply section 20(2) to subcontracts.

[25] In this way, the appellant asks this Court to conclude that the omission of the term “subcontract” from subsection 20(2) signifies that the lot-by-lot agreement in the contracts between Nortown and Intracorp and between Nortown and Burl 9 do not operate so as to preclude the appellant, as Nortown’s subcontractor, from a general lien.

[26] The effect of the appellant’s submission is that the absence of the word subcontract in section 20(2) of the Construction Lien Act means that subcontracts cannot provide for a lot-by-lot exception to the availability of a general lien because section 4 of the Construction Lien Act provides that any agreement, by a supplier of services or materials, that the Construction Lien Act and its remedies do not apply is void.

[27] Thus, if accepted the appellant’s submission would create in a subcontractor an independent right to a general lien that cannot be waived. Under the earlier Mechanics’ Lien Act a general lien could be claimed only by a contractor and only in respect of the supply of materials. The appellant’s position, if sustained, would mean that a subcontractor not only has a right to a general lien but also that it has that right regardless of the contract between the Owner of the property and its Contractor.

[28] In the case of L. Di Cecco Co. v. Ace Lumber Ltd. 1963 4 (SCC), [1963] S.C.R. 110, the Supreme Court of Canada expressed a caution about the creation of lien rights. In that case a subcontractor engaged to do concrete work contracted for the rental of certain construction equipment. The subcontractor became bankrupt and the two companies which had rented the construction equipment to the subcontractor filed lien claims for the unpaid rent. The lien claims were rejected by the Master but allowed with a dissent by the Court of Appeal. The Supreme Court of Canada allowed the appeal and restored the decision of the Master. In its reasons at page 114 the Supreme Court approved the following statement from the dissenting judgment of Kelly J.A.: “The lien commonly known as the mechanics’ lien was unknown to the common law and owes its existence in Ontario to a series of statutes, the latest of which is R.S.O. 1960, c. 233. It constitutes an abrogation of the common law to the extent that it creates, in the specified circumstances, a charge upon the owner’s lands which would not exist but for the Act, and grants to one class of creditors a security or preference not enjoyed by all creditors of the same debtor; accordingly, while the statute may merit a liberal interpretation with respect to the rights it confers upon those to whom it applies, it must be given a strict interpretation in determining whether any lien-claimant is a person to whom a lien is given by it.”

[29] The structure of the Construction Lien Act does not support the appellant’s interpretation. According to section 22(1) of the Construction Lien Act, each person paying money pursuant to a contract or subcontract must retain a 10% holdback until all liens that may be claimed have expired or until there has been a payment into court. Pursuant to section 23 of the Construction Lien Act, an owner is personally liable for the holdback. Section 31 of the Construction Lien Act describes the time period after which a construction lien expires and the holdback can be released. In other words, a claim for lien is secured to the extent of the holdback.

[30] If the appellant’s position is correct, the owner could not release the holdback to a contractor on a lot-by-lot basis because an unpaid subcontractor could subsequently register a general lien on any unsold lots in the subdivision for an amount equal to what remained unpaid for services and materials supplied to all lots. The ability to contract out of a general lien conferred by section 20(2) of the Construction Lien Act would be virtually meaningless.

[31] The appellant’s submission re-creates the mischief which the Ontario Legislature sought to avoid when section 20(2) was inserted into the Construction Lien Act. In a Compendium of Background Material prepared for the Ontario Legislative Assembly at the time that the Mechanics’ Lien/Construction Lien Act was amended in 1983 the following appears at pages 3-4:

Section 20 of the Act now provides for a general lien against each of the several properties involved where single contract is entered into for improvements on more than one premises.

In the house-building sector of the construction industry, section 20 has had the effect of generating unnecessary paperwork and associated costs. Lenders are not providing mortgages where there are general liens because the general lien results in a potential total loss of security on the last few houses of the group. As each house subject to a lien is sold the value of the general lien must be realized from those remaining. Therefore, the holdback for the whole contract must be secured by the remaining houses. Where only a few houses remain to be sold, the potential deficiencies in the owner’s holdbacks on the contract would exceed the value of the remaining properties. Legislation controlling lending limits would not permit institutional lenders to lend under these circumstances.

As a result, a number of legal devices have been used by builders to prevent general liens from arising, e.g. separate corporate existence for the owner and for the builder; separate contracts for each house. These legal devices generate unnecessary costs without benefit to the supplier of services or materials. To avoid this waste, a new subsection has been added to section 20.

The subsection to be added provides that a general lien does not arise where the contract provides in writing that lien shall arise and expire on a lot by lot basis.

[32] In the case of Brian T. Fletcher Construction Company Ltd. v. 1707583 Ontario Inc., [2009] O.J. No. 2049, 80 C.L.R. (3d) 143, (Ont. S.C.) Master Albert was called upon to decide whether Brian T. Fletcher Construction Company Ltd. was entitled to a general lien under section 20 of the Construction Lien Act. In the course of interpreting section 20, Master Albert made the following observation: “Section 20 of the Act relieves a lien claimant from the 45 day period within which to preserve a lien where the contractor supplies services or materials to multiple premises for the same owner under a single contract. In such cases the lien rights for all of the services and materials supplied to all of the premises do not expire until the date by which the lien rights in respect of the last of the premises to be completed expires. A subcontractor’s right to claim a lien flows from the general contractor’s entitlement” (para. 16).

[33] In the factual context of these appeals the Contractor’s entitlement is clear. Pursuant to section 20 (2) of the Construction Lien Act, Nortown had no right to a general lien.

[34] Master Albert’s interpretation and her finding that a subcontractor’s right to claim a lien flows from the general contractor’s entitlement is reinforced by the wording of section 20(1) of the Construction Lien Act. Specifically, the section provides that “any person supplying services or materials under the contract or under a subcontract under that contract may choose to have the person’s lien follow the form of the contract…” (Emphasis added).

[35] The interpretation proposed by the appellant would lead to confusion. A written contract exists which appears to preclude general lien holder rights but those rights are restored as soon as the Contractor enters into a contract with a subcontractor.

[36] The interpretation proposed by the appellant means general lien holder rights would be available to all subcontractors regardless of the contract between Owner and Contractor. In the context of these appeals, this would have the result that all lots in both subdivisions were subject to general lien claims. If this is correct, it is difficult to understand why section 20(2) of the Construction Lien Act was enacted. It is difficult to understand why only the Contractor can give up general lien holder rights and why the legislation was drafted in such a way that a Contractor’s surrender of those rights is virtually ineffective when the legislature could have simply stated that subcontractors have a right to a general lien and relied upon section 4 of the Construction Lien Act to preserve it.

[37] The appellant submits that the subcontractor would not know that a lot-by-lot exception had been written in to the contract between the owner and the contractor. Section 39(1) of the Construction Lien Act appears to be a complete answer to this submission. Immediately after Yorkwest supplied its first faucet to either of these projects it was entitled to require IntraCorp Projects or Nortown to disclose a variety of information. Significantly, one such piece of information was whether the contract entered into by those companies provides in writing that liens shall arise and expire on a lot-by-lot basis as provided for in section 20(2). Yorkwest could then govern itself accordingly.

[38] In response to the observation that, if a subcontractor can never give up its right to a general lien, an owner developing a subdivision can never avoid the possibility of a general lien, the appellant urged that such a result was preferable because it would protect “the little guy.”

[39] There are other ways a supplier can protect itself. According to the evidence, Nathan Shiff, an owner of Nortown, approached Yorkwest in September 1995 to obtain plumbing supplies on credit. Yorkwest refused to provide credit because Mr. Shiff had operated a company known as Nortown Plumbing Ltd. which failed to pay its suppliers and tradespeople. Yorkwest agreed to supply Mr. Shiff on a COD basis.

[40] After carrying on business on a COD basis for approximately three years, Mr. Shiff told Yorkwest that he had incorporated a new company, Nortown Plumbing (1998) Ltd., and asked for terms. Yorkwest provided Mr. Shiff with credit of $25,000 and then gradually increased this limit.

[41] During the time it was doing business with Nortown, Yorkwest was advised by other customers that Mr. Shiff was submitting unreasonably low bids for new contracts. In late 2011 Yorkwest learned that Nortown was not paying its suppliers. After Nortown made an assignment in favour of its creditors, Yorkwest apparently learned for the first time that Aviva Shiff, Nathan Shiff’s daughter-in-law, was a secured creditor of Nortown. Yorkwest is an unsecured creditor of Nortown. Nathan Shiff’s daughter-in- law’s security interest would have to have been registered in order to be effective.

[42] I refer to this evidence simply to indicate that Yorkwest had considerable information about Nathan Shiff before and after extending credit. The decision to provide credit was a business decision which turned out to be ill-advised.

[43] The interpretation urged by the respondents has the benefit of certainty. The subcontractor’s lien rights are not eliminated. Rather its lien rights are specific and must be preserved on a lot by lot basis. As indicated earlier a subcontractor has the right to information very early on about the existence of a lot by lot exception and therefore will know very early on how to properly register and preserve its lien rights.

Can the appellant’s claim continue as a claim for breach of contract, unjust enrichment and quantum meruit?

[44] The appellant submitted that its claim should be permitted to continue its action on the basis of a breach of contract. The appellant also described its claims against IntraCorp Projects and Burl 9 Developments as claims for unjust enrichment and quantum meruit.

[45] [44] Section 55(1) of the Construction Lien Act provides that a plaintiff in an action may join a claim for breach of contract or subcontract with a lien claim.

[46] [45] Section 55 (1) permits the lien claimant to advance a claim based on services performed and acknowledged as received even if the contract for the provision of those services is ultimately not proven. Section 55 (1) permits the appellant to include a claim based upon a contract even if it turns out that the appellant is unable ultimately to prove the contract. Section 55 prevents personal injury or unrelated tort claims from being advanced in a lien claim because lien claims are intended to be summary in nature.

[47] The appellant did not plead a contract with either IntraCorp Projects or Burl 9 Developments. The appellant did not plead a breach of contract by those persons. The affidavit of Gabrielle Pizzardi provided in response to IntraCorp Projects and Burl 9 Developments motions for summary judgment does not suggest that IntraCorp Projects or Burl 9 Developments contracted with the appellant.

[48] Yorkwest’s claims of unjust enrichment and quantum meruit in its statement of claim are not based on any pleading that there was a contract between the appellant and IntraCorp Projects or the appellant and Burl 9 Developments.

[49] Allowing the appellant to join claims for unjust enrichment or quantum meruit unrelated to contracts between the appellant and those persons, amounts to a refusal to apply the plain wording of section 55 (1).

[50] Of course, it is possible to advance claims for unjust enrichment or quantum meruit in the absence of a contract. However, such claims cannot be joined with a lien claim due to the wording of section 55 (1) of the Construction Lien Act.

[51] Accordingly the appellant’s claims for unjust enrichment and quantum meruit cannot be joined with this lien claim and there will be no order permitting this action to continue as a claim for breach of contract, unjust enrichment or quantum meruit.

Leave to appeal the costs order of the learned motions Judge

[52] Yorkwest sought leave to appeal the costs order of the learned motion Judge. Yorkwest maintained on the hearing of this matter that it had not appreciated that a costs order was going to be made based upon the Bills of Costs provided at the conclusion of the argument of the summary judgment motion.

[53] Leave to appeal the costs order is refused. The appellant did not request the opportunity to make costs submissions to the Motion Judge before Her Honour’s order was finalized.

Conclusion

[54] When the contract between the Owner and Contractor states that liens shall arise and expire on a lot by lot basis, section 20(2) of the Construction Lien Act extinguishes all general lien holder rights for the Contractor and all subcontractors under or in respect of that contract.

[55] The order of the learned Motion Judge dismissing Yorkwest’s actions, discharging Yorkwest’s general liens, directing the Accountant of the Superior Court of Justice to remit payment to IntraCorp Projects and Burl 9 Developments of the security it posted and ordering Yorkwest to pay costs in the amount of $22,276.14 inclusive of disbursements and taxes is affirmed.

[56] These appeals from the decision of the learned motion Judge are dismissed with costs.

[57] If the parties cannot agree upon the quantum of costs for this appeal, written submissions concerning costs not exceeding five pages may be submitted by both parties within three days of the release of these reasons.

MARROCCO A.C.J.S.C.

SACHS J.

MACKINNON J.

Released:

CITATION: Yorkwest Plumbing Supply Inc. v. Nortown Plumbing (1998) Ltd. et al., 2014 ONSC 5655

DIVISIONAL COURT FILE NO.: 570/13, 571/13

DATE: 20141108

ONTARIO

SUPERIOR COURT OF JUSTICE

DIVISIONAL COURT

YORKWEST PLUMBING SUPPLY INC. Appellant

BETWEEN:

NORTOWN PLUMBING (1998) LTD., INTRACORP PROJECTS (MILTON ON THE ESCARPMENT) LTD., AND THE BANK OF NOVA SCOTIA PARTY Respondents

NORTOWN PLUMBING (1998) LTD., BURL 9 DEVELOPMENTS LIMITED, AND SUNDIAL HOMES (BURL 7) LIMITED Respondents

REASONS FOR JUDGMENT

Released: 20141008