COURT FILE NO.: CV-23-697926 DATE: 2024 11 20
Superior Court of Justice - Ontario
IN THE MATTER OF a reference under rule 54 of the Rules of Civil Procedure, RRO 1990, Reg 194 and s. 58 of the Construction Act, RSO 1990, c C.30, as amended
RE: 35 MERCER LIMITED, Plaintiff - and - INTACT INSURANCE COMPANY and THE GUARANTEE COMPANY OF NORTH AMERICA, Defendants
BEFORE: Associate Justice Todd Robinson
COUNSEL: C. Holder, for the lien claimant, Desco Plumbing and Heating Supply Inc. M. Tamblyn and J. Siemon, for the owner, 35 Mercer Limited F. Souza, for the contractor/lien claimant, Urban Integrated Group Inc. R. Prestayo, for the lien claimant, Brunco Insulation Ltd. N. Maragna, for the lien claimant, 1086289 Ontario Inc. o/a Urban Electrical Contractors (observing) A. Flesias, for the lien claimant, Elgin Sheet Metal Supplies Inc. (observing) N. Sandhu, for the lien claimant, Flocor Inc. (observing) K. Eccleston, for the lien claimants, Independent Electric Supply Inc. and Independent Mechanical Supply Inc. (observing) I. Ozier, for the lien claimants, Next Plumbing & Hydronics Supply Inc. and Noble Corporation (observing)
HEARD: November 12, 2024 (by videoconference)
Reasons for Decision (Application of s. 87.3 of the Construction Act)
[1] This is a reference involving multiple lien and non-lien actions arising from the construction of the Nobu Residences condominium complex in Toronto. In the lien actions, there is some disagreement over proper application of the transition provisions in s. 87.3 of the Construction Act, RSO 1990, c. C.30. Specifically, at issue is whether the Construction Act as it read on June 29, 2018 – i.e., the former Construction Lien Act (the “CLA”) – continues to apply to the improvement. This special hearing was convened as a motion hearing to decide the issue, which directly impacts timeliness of certain liens and next steps in several lien actions subsumed in this reference.
[2] Having considered the evidence before me and the arguments made, I find that the CLA continues to apply to the subject improvement and, accordingly, all liens arising from it.
Analysis
[3] Disputes on the project gave rise to numerous liens at various levels of the construction pyramid. In the course of this reference, a vetting committee was struck to review and report on quantum, lienability, and timeliness of the subtrade and supplier liens. After vetting those liens, the vetting committee reported, among other items, that timeliness of seven liens could not be confirmed for various different reasons.
[4] The liens of Desco Plumbing and Heating Supply Inc. (“Desco”), Baaron Group Inc. (“Baaron”), Independent Electrical Supply Inc. (“Independent Electrical”), Flocor Inc. (“Flocor”), Cantrio Concept’s Inc. (“Cantrio”), HTS Engineering Ltd. (“HTS”), and Elgin Sheet Metal Supplies Inc. (“Elgin”) are directly impacted (or potentially impacted) by my decision on whether the CLA continues to apply. It will bear on whether several of their liens were properly preserved and will impact how validity of the remaining liens will be argued in this reference.
[5] The transition provisions in s. 87.3 operate such that all liens arising from contracts (and subcontracts) in respect of the same “improvement” are subject to the same version of the Construction Act: Caledon (Town) v. 2220742 Ont. Ltd. o/a Bronte Construction, 2024 ONSC 4555 (Div Ct) at para. 26; Crosslinx Transit Solutions Constructors v. Form & Build Supply (Toronto) Inc., 2021 ONSC 3396 at paras. 4 and 23; DNR Restoration Inc. v. Trac Developments Inc., 2023 ONSC 1849 at paras. 37-38.
[6] Only the primary transition provisions in ss. 87.3(1) and (2) of the Construction Act are implicated by this motion. They state as follows:
Transition Continued application of Construction Lien Act and regulations
87.3 (1) This Act and the regulations, as they read on June 29, 2018, continue to apply with respect to an improvement if,
(a) a contract for the improvement was entered into before July 1, 2018;
(b) a procurement process for the improvement was commenced before July 1, 2018 by the owner of the premises; or
(c) in the case of a premises that is subject to a leasehold interest that was first entered into before July 1, 2018, a contract for the improvement was entered into or a procurement process for the improvement was commenced on or after July 1, 2018 and before the day subsection 19 (1) of Schedule 8 to the Restoring Trust, Transparency and Accountability Act, 2018 came into force. 2018, c. 17, Sched. 8, s. 19 (1).
Same
(2) For greater certainty, clauses (1) (a) and (c) apply regardless of when any subcontract under the contract was entered into.
[7] There is no leasehold interest in this case, so the operative transition clause is s. 87.3(1)(a) or (b), namely whether there was a contract was entered into or a procurement process was commenced for the improvement before July 1, 2018. As I previously held in Crosslinx, supra, at paras. 4 and 24, the date of a subcontract has no relevance in determining which version of the legislation applies to an improvement. No challenge has been raised to what constitutes the “improvement” at issue in this reference.
[8] Commencement of a procurement process is defined in s. 1(4) of the Construction Act. It provides that a procurement process is commenced on the earliest of the making of (a) a request for qualifications; (b) a request for quotation; (c) a request for proposals; or (d) a call for tenders. Those four terms are not defined in the act, but do have a particular meaning in the construction industry. Regardless, interpretation of those terms is not at issue on this motion.
[9] Desco argues that the current Construction Act ought to be found to apply. The owner, 35 Mercer Limited (“Mercer”), the contractor, Urban Integrated Group Inc. (“UIG”), and a lien claimant, Brunco Insulation Ltd. (“Brunco”), all take the position that the CLA properly continues to apply. The remaining parties to this reference have taken no position.
[10] Limited evidence is before me addressing factual matters relevant to the transition provisions. The sole evidence before me is a single affidavit sworn by Josh Zagdanski, the Vice President of Mercer. It was prepared by Mercer in May 2023 and filed with the court in support of an order vacating the liens of UIG based on the CLA continuing to apply. Prior to this hearing, all parties were afforded an opportunity to file any additional evidence that they deemed necessary to decide the transition dispute. None of the lien claimants or other parties to the reference did so. The evidentiary record for deciding application of s. 87.3 of the Construction Act in this reference is thereby limited to Mr. Zagdanski’s affidavit.
[11] Josh Zagdanski’s affidavit outlines that Mercer began the procurement process for the condominium construction in 2017, which he states was done “by retaining consultants and requesting quotations from trades for various aspects of the construction of the Project.” Mr. Zagdanski’s affidavit specifically identifies negotiations with the proposed shoring trade, Anchor Shoring & Caissons Ltd. (“Anchor”), which he says took place in spring 2018. Appended to the affidavit is a copy of Anchor’s letter dated April 11, 2018 for the shoring work, which Mr. Zagdanski states is a quotation. That letter states it is Anchor’s “confirmation of contract amount for proposed shoring required at the 15-35 Mercer Street Project”. It is undisputed to be in respect of the project at issue. I am satisfied that the document is a quotation. That characterization is not disputed and the letter has not argued to be anything else.
[12] Mr. Zagdanski’s affidavit does not directly address the dates of any contracts being entered into for the improvement, but instead speaks only to the timing of a procurement process. In its totality, the affidavit and exhibit support that a request for quotation or a request for proposal had occurred for the improvement by no later than April 11, 2018. There is no other evidence on a procurement process before me.
[13] Desco raises several arguments in support of why I should find that the Construction Act applies to the improvement and the liens. I have distilled them as follows:
(a) Mr. Zagdanski’s affidavit is deficient, since it provides no evidence on the prime contract between Mercer and UIG, which was entered into on April 16, 2020, and the date of the contract should be the starting point in assessing transition before looking to a procurement process;
(b) any decision on the transition provisions impacts lien claimants and if the vacating motions been brought on notice to the lien claimants, then they could have made arguments on transition at that time;
(c) the onuses implicated by s. 87.3 for providing the date(s) relevant to deciding transition is “murky”, since there is no clear onus on the owner or contractor to advise subcontractors of those dates;
(d) in deciding the transition issue, the court should fairly consider delays between an initial procurement process and a contract being entered into for the improvement, notably events such as the COVID-19 pandemic; and
(e) in the circumstances of this improvement, there is no downside to finding that the Construction Act applies.
[14] I reject these arguments for the following reasons.
[15] First, I am not convinced that evidence on the prime contract is always required. Desco points to my decision in Crosslinx and the significance that I placed on the prime contract. However, that case turned on its facts. Crosslinx did not involve a dispute over the date of a procurement process. The date of a contract for the improvement and the date of a procurement process for the improvement are separate transition provisions in s. 87.3(1)(a) and (b). I appreciate that the contract clause is first and the procurement process clause is second, but the structure of s. 87.3(1) looks for the earliest date. Given the requirement for full and frank disclosure on an ex parte motion, it may have been advisable for Mercer to also put forward evidence on the prime contract between Mercer and UIG, but I do not accept that the failure to include such evidence renders the affidavit “deficient”.
[16] Second, the context in which Mr. Zagdanski’s affidavit was tendered is important. It was prepared to support Mercer’s position that only $50,000 was required for security for costs to vacate each of UIG’s liens pursuant to ss. 44(1) and (2) of the CLA, as opposed to the greater amount of security for costs that would have been required under the current language of s. 44(1) of the Construction Act. Accepting that the affidavit evidence supported that the CLA continued to apply on the vacating motion was not dispositive of the transition issue.
[17] The same issue was before me in Mobilinx Hurontario Contractor v. Edge1 Equipment Rentals Inc., 2023 ONSC 5885. In that case, a contractor moved ex parte to declare a particular subcontractor’s lien expired in reliance on my disposition of a prior vacating order. In the context of the vacating motion, I had accepted and approved security calculated under s. 44(1) of the CLA based on evidence of a procurement process tendered to address s. 87.3 of the Construction Act. I declined to grant the requested ex parte declaration of expiry and dismissed the contractor’s motion without prejudice to moving again on further and better evidence or on notice to the lien claimant.
[18] In dismissing the motion, I held that decisions on ex parte vacating motions about the transition provisions are not binding. Vacating motions brought without notice are interlocutory in nature and not intended to definitely resolve rights (para. 15). I equated an ex parte vacating order sought based on s. 44(1) of the CLA as being more in line with an order under s. 44(2) of the Construction Act, which permits the court to make a vacating order based on security “of an amount that the court determines to be reasonable in the circumstances to satisfy the lien” (para. 16).
[19] I remain of the same view. I accordingly afforded all parties to this reference with an opportunity to tender any new evidence that they felt was relevant to deciding the transition issue. It was thereby open to Desco (or others) to tender evidence on the prime contract between Mercer and UIG or evidence to challenge Mr. Zagdanski’s affidavit. None was filed.
[20] Third, I am unconvinced that there is anything “murky” in the Construction Act about who bears the obligation to seek out the facts relevant to s. 87.3 as they relate to timely preservation and perfection of liens. It is the lien claimant.
[21] A contractor and certainly an owner often cannot reasonably know every subtrade and supplier who performs work or supplies materials on a project. That is particularly true on larger construction projects where there are multiple tiers of contract and subcontract streams, as is the case here. In my view, it would be patently unfair to hoist on the owner and contractor the obligation of ensuring that all subtrades and suppliers are made aware of when a procurement process was commenced or when a contract was entered into, so long as there is a statutory mechanism by which a lien claimant may obtain that information itself. That mechanism is found in s. 39 of the Construction Act.
[22] Pursuant to s. 39(1) of the Construction Act, any person having a lien or who is the beneficiary of a trust under Part II of the Construction Act is entitled to require an owner or contractor to provide information on contracts, procurement processes, the state of accounts under a contract, and other information. Specifically, a subtrade or supplier on a construction project may request that the owner or contractor confirm “the names of the parties to the contract, the date on which the contract was entered into and the date on which any applicable procurement process was commenced”. A response to a s. 39 request for information must be provided within no more than twenty-one days. Accordingly, making a request for information under s. 39 of the Construction Act triggers a positive obligation on the owner or contractor receiving the request to confirm the dates relevant to application of the transition provisions in s. 87.3 of the Construction Act.
[23] Desco submits that, if the CLA applies, then s. 39 of the CLA does not entitle a lien claimant to the extent of information now obtainable under the amended s. 39 of the Construction Act. That is true. The former s. 39 had a narrower scope that did not include information on the date on which a contract was entered into or a procurement process was commenced for the improvement. Nevertheless, in my view, making a request for information under s. 39 of the Construction Act would elicit a response that relayed the owner’s or contractor’s position on application of s. 87.3. For example, a response by an owner or contractor that the information sought under s. 39 of the Construction Act is not properly requested because s. 39 of the CLA still applies would itself relay their position on operation of s. 87.3.
[24] I accept that an owner or contractor may not respond to the s. 39 request for information, in which case a subcontractor may have no actual knowledge of the dates of procurement or contracts needed when considering s. 87.3. However, should that happen, a lien claimant is not left without recourse. It may simply opt preserve its lien on the basis that the CLA applies (as Desco did). It may also move before the court under s. 39(6) to compel compliance with the unanswered request for information. Alternatively, if the preservation or perfection deadline is missed, then relief could be sought under s. 39(5), which provides that a person failing to provide the information or access to information as required by s. 39(1), or knowingly or negligently misstates that information, is liable for any damages suffered as a result.
[25] Ultimately, a lien claimant’s actual knowledge of the date of a procurement process or a contract for the improvement is not material in assessing operation of s. 87.3. Nothing in the Construction Act supports that a lien claimant may avoid operation of s. 87.3, and thereby have extended preservation and perfection deadlines, because they had no actual or reasonable knowledge of the timing of procurement process being commenced or a contract being entered.
[26] Fourth, s. 87.3 of the Construction Act must be interpreted and applied by the court based on the language as drafted by the legislature. In deciding which version of the act applies, nothing in the language of s. 87.3 permits me to consider delays between an initial procurement process and contracts being entered into or prejudice to an owner, contractor, subcontractor, or other person. It is thereby irrelevant whether there has been delay or if there is, on the facts of a particular case, no “downside” to finding that a particular version of the act applies. They are not factors.
[27] I accept Desco’s argument that the legislative drafters very likely did not anticipate the COVID-19 pandemic when drafting the language of s. 87.3. However, they may well have contemplated project delays between procurement and contracting. What the legislature did or did not consider is not before me.
[28] I note that the standard vacating order signed in Toronto Region requires that the lien claimant (and its lawyers, if known) be served with the vacating order and the receipt from posting the lien security into court. Subrule 37.14(1)(a) of the Rules of Civil Procedure, RRO 1990, Reg 194, which applies in lien actions, permits a person affected by an order obtained on motion without notice to move to set aside or vary the order. It is accordingly open to any lien claimant whose lien is vacated on the basis that the CLA continues to apply to bring a motion to set aside the order or to vary it and require additional security.
[29] In this case, Desco was evidently aware that its lien had been vacated based on security calculated in accordance with s. 44(1) of the CLA. Although I have no evidence of whether or when the vacating order was served on Desco, as the reference associate judge, I have the pleadings in all lien actions. When perfecting its lien, Desco’s statement of claim specifically acknowledges the vacating order and the quantum of lien security posted, which evidently includes only $50,000 in security for costs.
[30] It was open to Desco to move to set aside or vary the order vacating its lien. Not doing so did not preclude Desco from arguing its position at this hearing. However, the availability of that option undercuts Desco’s position that it was precluded from advancing potentially relevant arguments about COVID-19 interruption and project delay at (or at least around) the time that vacating motions were brought. I have, in any event, rejected those arguments for the reasons outlined above.
[31] Case law has consistently held that the lien created by the Construction Act is an extraordinary remedy. It is a special statutory right and protection for those supplying services and materials to an improvement that would not otherwise exist. Lien claimants are afforded a secured interest in the property or statutory holdback funds on a construction project simply by virtue of being a person supplying the services and materials required for construction. The lien provides a lien claimant with the right to recover from an owner even in the absence of any privity of contract. In my view, it properly falls on a lien claimant, and no other party, to make necessary inquiries to ensure proper and timely preservation and perfection of their lien.
Disposition
[32] For the foregoing reasons, I find and declare that, by operation of s. 87.3(1)(b) of the Construction Act, the CLA and its regulations continue to apply to the subject improvement and all liens arising from it.
Additional Directions
[33] Given my finding above and the report of the vetting committee, the liens of Independent Electrical, Flocor, and Cantrio would appear to have been preserved beyond the 45-day preservation period set out in s. 31 of the CLA. Desco’s lien appears to have been perfected beyond the 45-day perfection period set out in s. 36 of the CLA. There are also additional potential timeliness implications for the liens of Baaron, HTS, and Elgin.
[34] There is a pending holdback distribution motion in December 2024 and a subtrade/supplier claim hearing in February 2025. Prior to those hearings, the affected lien claimants, Mercer, UIG, and any other parties to those lien actions should be discussing the impact of my finding on advancing the lien claims as well as appropriate next steps in each of those lien actions.
ASSOCIATE JUSTICE TODD ROBINSON DATE: November 20, 2024