CITATION: Devlan Construction Ltd. v. SRK Woodworking Inc., 2023 ONSC 3035

DIVISIONAL COURT FILE NO.: 131/22

DATE: 20230523

ONTARIO SUPERIOR COURT OF JUSTICE DIVISIONAL COURT

D.L. Corbett, Sutherland and O’Brien JJ.

BETWEEN:

DEVLAN CONSTRUCTION LTD.

Robert J. Kennaley and Darcia Perry, for the Appellant

Appellant

– and –

SRK WOODWORKING INC.

Jarvis K. Postnikoff, for the Respondent

Respondent

HEARD at Toronto by ZOOM: November 3, 2022

REASONS FOR DECISION

D.L. Corbett J.

[1] This is an appeal from the decision of Harper J. finding that a claim for breach of trust may be joined with lien claims in a lien proceeding under the Construction Act, and additional consequential relief (2022 ONSC 1038).

[2] The Construction Lien Act (the “CLA”), first enacted in Ontario in 1983 to replace the Mechanics Lien Act, provided statutory claims (among other things) for construction liens and for breaches of trust created by the Act.[^1] As quoted below, the CLA provided that trust claims could not be joined in a lien claim action.

[3] Substantial amendments were made to the CLA in 2017, pursuant to which the Act was re-named the Construction Act (the “Act”). Among these amendments was repeal of the prohibition on joining trust claims with lien claims under the Act.

[4] In 2019, Ontario promulgated regulations under the Act. In the wake of these changes several issues have arisen:

(a) may trust claims now be joined with lien claims in proceedings under the Act?

(b) if the answer to (a) is yes, what principles apply to adjudicate disputes about whether a trust claim should be joined with a lien claim in a particular case?

[5] In extensive reasons, Harper J. found that trust claims may now be joined with lien claims, and he granted an order permitting such joinder in this case and granted additional consequential relief arising from his joinder order.

[6] For the reasons that follow, I would allow the appeal and grant an order striking the trust claims in this construction lien proceeding.

Discussion

[7] Section 50(2) of the Construction Lien Act provided, prior to amendment in 2017:

A trust claim shall not be joined with a lien claim but may be brought in any court of competent jurisdiction.

[8] Section 55(1) of the Construction Lien Act provided, prior to amendment in 2017:

A plaintiff in an action may join with a lien claim a claim for breach of contract or subcontract.

[9] In 2017 amendments to the Act, both ss. 50(2) and 55(1) were removed. Subsequently, s.55(1) was re-enacted in O. Reg. 302/18, s. 3(2), and not as a provision in the Act itself:

A plaintiff may, in an action, join a lien claim and a claim for breach of a contract or subcontract.

[10] The motion judge reviewed these changes as well as documents related to the amendments made to the Act, including recommendations made by the Attorney General in a report entitled Striking the Balance, and Hansard records from the Standing Justice Committee that reviewed proposed amendments to the Act, in which various stakeholders, industry specialists and legal organizations testified that permitting joinder of lien and trust claims was “a long overdue change”. The motion judge considered arguments to the contrary based on the new “prompt payment” provisions of the Act but concluded that any resulting inconsistency did not apply in the case at bar, to which the prompt payment provisions do not apply.

[11] The motion judge’s decision had the effect of overruling two prior decisions of Associate Justice Wiebe: Damasio Drywall v. 2444825 Ontario Limited, 2021 ONSC 8398 and 6628842 Canada Inc. v. Topyurek, 2022 ONSC 253. In Damasio Drywall, at para. 8, the Associate Justice found that the Legislature’s decision not to include a provision in the amended Act permitting joinder of trust claims leads to a conclusion that such claims are not permitted:

The new CA maintains the mandate in section 50(3) of the new CA that the procedure of a lien action must be “as far as possible of a summary character.” If the Legislature intended to allow trust claims to be joined with lien claims, it should have stated so explicitly, given this mandate and the nature and complexity of a trust claim. It did not.

The Associate Justice then considered permissive joinder of contract claims included in the Regulation. The Associate Justice concluded that permissive joinder of contract claims, by implication, precluded permissive joinder of trust claims: otherwise, the Regulation would have identified both contract and trust claims as matters that can be joined with lien claim proceedings. The Associate Master applied this reasoning subsequently in his decision in Topyurek.

[12] The motion judge considered the Associate Justice’s reasoning in Damasio Drywall and Topyurek and declined to follow it.

Analysis

[13] The Act and regulations, read together, could be clearer on the point raised in this appeal, which is an important practice point in construction litigation.

[14] On the one hand, requiring separate trust proceedings will lead to duplication in the small proportion of cases where both claims need to be pursued. On the other hand, it does not serve the goal of expedited lien proceedings to have lien and trust claims both asserted in lien proceedings, thus expanding the range of parties, of contended issues, and of documentary and oral discovery. There are policy arguments on both sides of the issue. A median position could be adopted, where trust claims would not be advanced in lien proceedings as a rule but could be joined in the discretion of the court. Nuanced “contextual” solutions, such as a median approach, carry with them a built-in disadvantage – providing a further issue on which the parties may engage in litigation.

[15] The issue on appeal, however, is not a question of the wisest policy choice to be made. The question is: what do the Act and the Regulations provide?

[16] Two points are established by the current Act. First, the current Act neither permits nor prohibits joinder of claims in a construction lien proceeding. The Act does provide for recourse to the Rules of Civil Procedure in respect to procedural matters that are not addressed by the Act and Regulations, and the Rules of Civil Procedure do establish principles of mandatory and permissive joinder of claims.[^2]

[17] Second, the Act provides special processes for construction lien proceedings. In respect to permissive joinder of claims, one factor that would have to be taken into account in the court’s exercise of discretion respecting permissive joinder is whether the claim sought to be added may be suitably litigated using the process followed in construction lien claims.

[18] However, one must also consider the Regulations. Initially, the Regulations said nothing about joinder. Thus, upon amendment of the Act, it would seem that joinder of claims – any claims – was governed by the principle of joinder reflected in the Rules of Civil Procedure – and a contested issue of joinder should be addressed pursuant to those Rules.

[19] When O. Reg. 302/18 came into effect, however, the situation changed. Effective in 2019, pursuant to the Regulation:

A plaintiff in an action may join with a lien claim a claim for breach of contract or subcontract.

This provision would not be required if permissive joinder is available pursuant to the Rules of Civil Procedure. By expressly permitting joinder of contract and subcontract claims, by implication the Regulation precludes joinder of other claims: this provision ousts the application of the Rules of Civil Procedure in respect to joinder of claims, given the express language of s.50(2) of the Act:

Except to the extent that they are inconsistent with this Act and the procedures prescribed for the purposes of this Part, the Courts of Justice Act and the rules of court apply to actions under this Part (emphasis added).

[20] The motions judge found that the joinder provision in the Regulation is ultra vires. With respect, I do not agree with that conclusion. The Act contemplates that Regulations may be promulgated “governing procedures that apply to [construction lien] actions” and joinder rules are squarely within that mandate.[^3] In authorizing such Regulations, the Legislature has conferred legislative authority on the Lieutenant Governor in Council in respect to matters of procedure. Of course, the legislature retains the authority to establish procedures, and to the extent that it does so, the Lieutenant Governor in Council may not enact a Regulation inconsistent with the Act. But the Act is now silent on joinder of claims. The joinder provision in the Regulation is not inconsistent with that silence.

[21] One of the benefits of conferring authority to the Lieutenant Governor in Council on matters of procedure is flexibility and responsiveness. The Legislature has many pressing and important priorities. Time on the legislative docket is scarce. Similarly, the Rules of Civil Procedure are, themselves, a Regulation, and can be amended without burdening the Legislature’s attention.[^4] Indeed, if the joinder provision in the Regulation were ultra vires, the result would be that joinder in construction lien proceedings would be governed by the Rules of Civil Procedure, a Regulation, and would be subject to amendment of those Rules.

[22] I conclude that the Regulation precludes joinder of claims in a construction lien proceeding, other than contract and subcontract claims.

[23] I appreciate the arguments to the contrary stated by the motion judge. The express prohibition on joinder of trust claims has been repealed and has not been reintroduced in the Regulation. One might infer that, as a result, the Legislature intended that trust claims could now be joined with construction lien claims. However, that line of reasoning conflicts with the principle of statutory interpretation set out in the Legislation Act that precludes construing a current provision on the basis of prior versions of the legislation. One is supposed to be able to divine the meaning of a statute by reading the statute, and not by reading every version of the statute that has been in effect. Further, reading the Act as a whole, one can infer an intention on the part of the legislature to leave the issue of joinder to be addressed in the Regulations.

[24] In addition, as stated by the Associate Judge in Damasio Drywall, the Act is as far as possible a summary procedure and the adding a breach of trust claims to breach of contract claims would result in adding further issues that would significantly complicate the narrow issues of breach of contract in a lien action that undoubtedly increase documentary production, examinations for discovery, the number of parties and issues to be tried that would undoubtedly increase the cost of the proceeding and length of trial.

[25] If I am wrong in my reading of the Act and the Regulation, this error may be easily remedied. The Regulation can be amended to address joinder of trust claims expressly. However, in the absence of such a provision, in light of the purpose and language of the Act and the Regulation, I conclude that joinder of trust claims in a construction lien action is not permitted.

Disposition

[26] The appeal is allowed, the order of the motion judge is set aside, and in its place shall issue an order striking the claims of breach of trust and striking the action as against the trust defendants. If costs are not agreed, then the parties may seek further directions from the court.

_______________________________ D. L. Corbett, J

I agree: _______________________________

Sutherland J.

I agree: _______________________________

O’Brien J.

Date of Release: May 23, 2023

CITATION: Devlan Construction Ltd. v. SRK Woodworking Inc., 2023 ONSC 3035

DIVISIONAL COURT FILE NO.: 131/22

DATE: 20230523

ONTARIO

SUPERIOR COURT OF JUSTICE

DIVISIONAL COURT

D.L. Corbett, Sutherland and O’Brien JJ.

BETWEEN:

Devlan Construction Ltd.

Appellant

– and –

SRK Woodworking Inc.

Respondent

REASONS FOR DECISION

D.L. Corbett J.

Date of Release: May 23, 2023

[^1]: Mechanics Lien Act, RSO 1980, c. 261; Construction Lien Act, 1983, SO 1983, c.6.

[^2]: Construction Act, s. 50(2); Rules of Civil Procedure, Rule 5.

[^3]: Construction Act, s. 88(1)(l).

[^4]: RRO 1990, Reg. 194.