Court File and Parties
DIVISIONAL COURT FILE NO.: DC-18-1077
DATE: 20191220
ONTARIO
SUPERIOR COURT OF JUSTICE
DIVISIONAL COURT
GLITHERO, D.L. CORBETT and FAVREAU JJ.
B E T W E E N:
SCEPTER INDUSTRIES LTD.
Bruce R. Jaegar, for the Appellant
Applicant
- and -
GEORGIAN CUSTOM RENOVATIONS INC.
Gregory Dimitriou, for the Respondent
Respondent
Heard at Oshawa: June 18, 2019
REASONS FOR DECISION
D.L. Corbett J.
[1] The appellant, Scepter, appeals from the decision of De Sa J., declaring that its construction lien expired before its claim for lien was registered. For the reasons that follow, the appeal is allowed and the decision below is set aside.
Background Facts
[2] Scepter, as general contractor, supplied services and materials to the respondent, Georgian, which was the owner of the lands on which the improvement was located, and which contracted directly with Scepter.
[3] A dispute arose between Scepter and Georgian over Scepter’s work. Georgian did not pay Scepter for a substantial portion of the work performed. Georgian was unhappy with the quality of some work and non-completion of other work by Scepter.
[4] Scepter and Georgian tried to resolve their differences in discussions between October 2015 and April 2016. These discussions reached an impasse on April 18, 2016. Scepter registered its claim for lien on June 28, 2016.
[5] The motions judge found as facts that the contract between Scepter and Georgian was not completed[^1] and that it was not abandoned by Scepter.[^2] The motions judge found, however, that Georgian’s notice of termination of the contract triggered the running of the deadline for Scepter to file its claim for lien. On this basis, he concluded that the claim for lien was out of time, and he ordered the claim for lien discharged and the security posted to bond the lien off title returned to Georgian.
Jurisdiction and Standard of Review
[6] An appeal from the final decision of a judge under the Construction Lien Act lies to this court.[^3] The standard of review is correctness on questions of law and palpable and overriding error on questions of fact.[^4] There are no disputed material facts in this case: the appeal turns on questions of law to which a correctness standard of review applies.[^5]
Expiry of Contractor Liens under the Construction Lien Act
[7] Subsection 31(2) of the Construction Lien Act provides:
… the lien of a contractor,
(b) for services or materials supplied to the improvement… expires at the conclusion of the forty-five day period next following the occurrence of the earlier of,
(i) the date the contract is completed, and
(ii) the date the contract is abandoned.[^6]
[8] Subsection 2(3) of the Act defines when a contract is “completed”:
For the purposes of this Act, a contract shall be deemed to be completed… when the price of completion… is not more than the lesser of,
(a) 1 per cent of the contract price; and
(b) $1,000.[^7]
[9] The motions judge found that 2% of the contract work remained to be completed and that therefore the contract was not “completed” within the meaning of the Act. This finding is not challenged on appeal.
[10] The motions judge found that “when a payer expressly indicates its intention to end the contract and the contractor remains unpaid, section 31(2)(b) of the Act would require a claimant to pursue its Lien expeditiously.” The motions judge did not explain how the language of s.31(2)(b) can be construed to require, generally, that a claim for lien be pursued “expeditiously”.
[11] The motions judge also held that “[i]n my view, a payer terminating the contract constitutes “abandonment” of the contract for the purposes of the Act”.[^8] He cited two cases in support of this proposition. In my view neither of these cases goes so far as did the motions judge.
[12] In the first, Homewood Development Inc. v. 2010999 Ontario Inc., Master Albert stated as follows:
The Construction Lien Act provides at section 31 that a contractor’s lien must be registered within 45 days of completion or abandonment. Homewood did not complete the job so the 45 day period begins from the date on which Homewood abandoned the job, either by leaving with no intention of returning or by reason of 201 terminating its services prior to completion….[^9]
[13] The learned Master cites no authority for this proposition, other than s.31 itself.
[14] Master Albert’s statement of the test must be read, however, from the context of the case she was deciding, and it is clear that she does not mean that “abandonment” arises solely by the unilateral act of the owner purporting to terminate the contract. The Master found as follows:
a. Homewood registered its claim for lien on May 13, 2009 (para. 170).
b. The lien was properly preserved if Homewood abandoned the project on or after April 23, 2009 (para. 172).
c. Homewood’s last item of work on the project was invoiced on March 22, 2009.
d. Homewood did further work on the project at least as late as April 15, 2009.
e. On April 28, 2009, the owner wrote to Homewood demanding that it return to complete certain work, failing which it would terminate the contract and retain other contractors to complete the work. This likely followed negotiations about payment.
The Master then concluded:
I find that Homewood maintained its intention to complete the project until discussions over payment broke down. That was either April 28, 2009 when 201 issued its first lawyer’s letter or May 12, 2009 when 201 formally terminated Homewood’s services. Either way, Homewood’s lien was preserved… in time.[^10]
[15] So, in addition to being unsupported by authority, the Master’s statement of the law – as regards termination being a form of contract abandonment – is unnecessary to the result. Put another way, the Master could just as easily have found: “assuming without deciding that contract termination could constitute forced abandonment of the contract by contractor, even on this analysis the contract was not abandoned before April 28th….”
[16] The Master did not consider whether a contract was abandoned on a notice of termination if discussions aimed at resolving the conflict were ongoing. Rather, she found that it was only after these discussions had broken down that a formal termination notice was sent. In other words, the Master considered the entire matrix of circumstances to determine whether, objectively, it was clear that the contractor would not be resuming work on the project.
[17] Similar considerations arose in the Alberta case of Tervita Corp. v. ConCreate USL (GP) Inc.[^11] In that case the lien claimant was under subcontract for work on a municipal improvement. The contractor went into partial receivership, the receiver blocked access to the work site, and the subcontractor filed a lien. More than two months later, the subcontractor communicated with the City for the purpose of entering into a contract directly with the City to complete the work. That did not happen. The subcontractor filed its statement of claim in respect to its lien. Then, 180 days after it had filed its lien, the subcontractor failed to obtain a lis pendens in respect of its lien (a step required under Alberta lien legislation). The lien claimant then filed a second claim for lien, for the same work that was the subject-matter of the first claim for lien.
[18] In Ontario, in this fact situation, the lien claimant would be foreclosed from filing a second claim for lien for the same work as the first claim for lien.[^12] The lien would have been lost when the claimant failed to perfect the lien within the prescribed period of time. Apparently there is no similar provision under Alberta lien law.
[19] The Alberta Court of Appeal found that the second lien had been registered too late after abandonment of the contract. In so concluding, it held:
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 that 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.
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. [The lien claimant] acknowledged that in its email of July 23….
The time to file the lien starts running when the lien claimant knew or ought to have known that the other contracting party would not complete (i.e. had “abandoned”) the contract.[^13]
[20] The proposition that there is both a subjective and an objective test for contract abandonment strikes me as a useful approach, but the focus must still be on the contractor: in my view it is necessary that the lien claimant be the person to “abandon” the contract. “Once it becomes impractical or impossible to perform the contract, no reasonable party would persist in saying that they are “ready, willing and able” to continue performing”, is another way of saying that, where the parties have reached an impasse in their discussions aimed at resolving their conflict, then the contract may be considered to have been abandoned by the contractor. But this is different from saying that the owner may, itself, force abandonment by sending a notice of termination of the contract.
[21] This does not render the application of the Construction Lien Act impractical. Payment and performance disputes are common on construction sites. Hard bargaining is the norm. Resolution is usually the best solution for all concerned. As argued by the appellant, it is often an end to negotiation when a contractor files a lien. Negotiations often continue in the face of threatened contract termination, and often continue after formal notice of termination has been given. A contractor, acting reasonably, may still be ready, willing and able to complete a contract after receiving a formal notice of termination, and in some cases the parties will resolve their differences and carry on together with the project after such a notice has been given.[^14]
[22] The motions judge put his mind to the state of mind of the appellant and found that it had not abandoned the contract. That is, he found that appellant was still ready, willing and able to complete the contract. On the record, the appellant did not consider that it had reached an impasse with the owner in resolution discussions, and on the record this position was objectively reasonable. On these facts, it cannot be said that the appellant “knew or ought to have known that the [owner] would not complete”, even though a termination notice had been sent.
[23] The respondent placed considerable weight on the contractual provisions entitling it to terminate the contract – provisions to which both parties agreed. These provisions bear on an objective analysis of whether the contractor abandoned the project, but they do not change the focus of the analysis from the central question: whether the contract was abandoned by the contractor. Notice of termination by owner is but one fact to be taken into account in the court’s analysis as to whether the contract had been abandoned. The motions judge found that the contractor had not abandoned the contract, despite the notice of termination, and this finding is well supported on the record.
[24] The motions judge commented in a footnote that his decision did not deprive the appellant of recourse to secure its claim:
… obviously where a lien has expired, a litigant has other mechanisms to secure a claim. If there are concerns regarding a defendant’s ability to satisfy a claim, a litigant can obtain a certificate of pending litigation, an interim preservation order, or an injunction. These mechanisms can be used to preserve the claimant’s interest in the subject property.[^15]
This statement is obiter dicta and is wrong. A lien claimant, as such, has no interest in the land, other than its claim for lien. The Construction Lien Act provides a complete code for securing the price of services and materials provided to an improvement, and the alternative remedies proposed by the motions judge are not available to a lien claimant if its lien has expired.[^16]
[25] I agree with the respondent that the motions judge’s obiter dicta does not, itself, bear on the correctness of his decision on the “abandonment” issue. But it does reflect on the practicalities of this issue. Prior to the amendments adding “termination” to s.31(2) of the CLA, parties negotiated in light of the provisions of the Act, and an owner could threaten termination or purport to give formal notice of termination without prompting the filing of a claim for lien, while continuing settlement discussions with the contractor. With the amendment to the Act, owners understand that a formal notice of termination will likely prompt claims for lien, given that there are no other practical ways for a contractor to secure its lien. In this case, the contractor relied upon the text of s.31(2) and longstanding practice under the Act to continue settlement discussions, and did not register its claim for lien until the parties were at an impasse. On the motions judge’s findings of fact, the contractor’s conduct was objectively reasonable. In all these circumstances, the contract had not been abandoned.
[26] I would allow the appeal, dismiss the owner’s motion to discharge the claim for lien and to cancel the lien security. The respondent shall pay costs of the appeal to the appellant in the agreed amount of $5,500.
___________________________ D.L. Corbett J.
I agree: ___________________________ Glithero J.
I agree: ___________________________ Favreau J.
Released: December 20, 2019
DIVISIONAL COURT FILE NO.: DC-18-1077
DATE: 20191220
ONTARIO
SUPERIOR COURT OF JUSTICE
DIVISIONAL COURT
Glithero, D.L. Corbett and Favreau JJ.
BETWEEN:
Scepter Industries Ltd. Appellant
- and -
Georgian Custom Renovations Inc. Respondent
REASONS FOR DECISION
D.L. Corbett J.
Released: December 20, 2019
[^1]: Reasons for Decision, para. 27. [^2]: Reasons for Decision, paras. 28 and 31. [^3]: Construction Lien Act, RSO 1990, c. C.30 (the “CLA” or the “Act”), s.71(1). [^4]: Housen v. Nikolaisen, 2002 SCC 33, [2002] 2 S.C.R. 235. [^5]: Lipesei v. Trafalgar Insurance Co., [2006] OJ No. 748, paras. 5-8 (Div. Ct.). [^6]: CLA, s.31(2). The portions of this provision that have not been included in the quotation refer to situations where there is a certificate or declaration of substantial performance, and do not apply in this case. [^7]: CLA, s.2(3). [^8]: Reasons for Decision, para. 34. [^9]: Homewood Developments Inc. v. 2010999 Ontario Inc., [2013] OJ No. 3018, para. 171, per Master Albert. [^10]: Homewood Developments Inc. v. 2010999 Ontario Inc., [2013] OJ No. 3018, para. 179, per Master Albert. [^11]: Tervita Corp. v. ConCreate USL (GP) Inc., [2015] AJ No. 204 (CA). [^12]: CLA, s.48. [^13]: Tervita Corp. v. ConCreate USL (GP) Inc., [2015] AJ No. 204, paras. 12, 15 and 16 (CA). [^14]: This was changed by legislation that came into effect on July 1, 2018: Construction Lien Amendment Act 2017, SO 2017, c.24, s.26, which changed the test under s.31(2) to when the contract is “completed, abandoned or terminated”. [^15]: Reasons for Decision, para. 32, n.2. [^16]: I would not foreclose arguments in a proper case that there may be circumstances where a lien claimant is able to satisfy the test for other forms of relief, but not on the basis that it has a meritorious but expired claim for lien.