Supreme Court of Canada

Beaufort Realties et al. v. Chomedey Aluminum, [1980] 2 S.C.R. 718

Date: 1980-11-12

Beaufort Realties (1964) Inc. (Defendant) Appellant;

and

Belcourt Construction (Ottawa) Limited (Defendant);

and

Chomedey Aluminum Co. Ltd. (Plaintiff) Respondent.

1980: June 11; 1980: November 12.

Present: Laskin C.J. and Ritchie, Beetz, Estey and McIntyre JJ.

ON APPEAL FROM THE COURT OF APPEAL FOR ONTARIO.

Contracts—Construction contract—Mechanics' liens—Subcontractor, by contract, waived mechanics' lien rights—After contractor failed to pay advances due under the contract, subcontractor treated the contract as at an end and filed a lien against the title to the property—Whether or not subcontractor bound by waiver of mechanics' lien rights—The Mechanics' Lien Act, R.S.O. 1970, c. 267, s. 5(1).

Respondent, by written contract, agreed to supply, install and generally complete the aluminum windows and glass and glazing work for an apartment building project being constructed by defendant Belcourt for and on behalf of the appellant. The contract included a clause (Article 6) whereby the subcontractor waived all privileges or rights and all liens or rights of lien then existing or that might exist as against the building and the land for work done or materials supplied under contract by it or those working under it. When Belcourt failed to pay the advances due under the contract, the respondent filed a mechanics' lien against the title of appellant's property.

This was an appeal from a judgment of the Court of Appeal for Ontario which allowed an appeal from a judgment of the Divisional Court and affirmed the judgment of the trial judge. The Court of Appeal found that Article 6 was an exclusionary clause and that the Suisse Atlantique line of authorities applied, notwithstanding s. 5(1) of The Mechanics' Lien Act, with the result that as a matter of construction Article 6 ceased

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to bind the respondent upon its informing the appellant and Belcourt of its election to treat the contract as at an end.

Held: The appeal should be dismissed.

The Court agreed with the concurrent findings of the Ontario courts that Belcourt's refusal to make progress payments constituted a fundamental breach of contract and that Article 6 of this contract constituted an exclusionary or exception clause. The Court also concurred in the approach adopted by the Ontario Court of Appeal—that the same considerations applied as those which governed the House of Lords in Photo Production Ltd. v. Securicor in holding that the question of whether an exclusionary clause was applicable where there was a fundamental breach was to be determined according to the true construction of the contract. The terms of s. 5(1) of The Mechanics' Lien Act were not effective to foreclose the respondent for all time from asserting its right to the lien by reason of the fact that it has "signed" the waiver. The Court adopted the conclusion of the Ontario Court of Appeal—and the reasons leading to it—that the Legislature must be taken to have intended that the fate of an exclusionary clause be inextricably tied to the fate of the contract of which it formed part. Considering the fundamental breach by the contractor (Belcourt Construction (Ottawa) Limited), in the context of the contract as a whole the true construction to be placed on Article 6 was that the waiver contained therein ceased to bind the respondent upon its having communicated to the appellant its election to treat the contract as at an end.

Suisse Atlantique Société d'Armement Maritime SA v. N.V. Rotterdamsche Kolen Centrale, [1967] 1 A.C. 361; Photo Production Ltd. v. Securicor Transport Ltd., [1980] 1 All E.R. 556, referred to.

APPEAL from a judgment of the Court of Appeal for Ontario[^1], allowing an appeal from a judgment of the Divisional Court and affirming the judgment of the trial judge. Appeal dismissed.

Russell Kronick and Robert Steinberg, for the defendant, appellant.

William J. Simpson, Q.C., and Charles T. Hackland, for the plaintiff, respondent.

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The judgment of the Court was delivered by

RITCHIE J.—This is an appeal brought by leave of this Court from a judgment of the Court of Appeal of Ontario which allowed an appeal from a judgment of the Divisional Court and affirmed the judgment of the learned trial judge.

The circumstances giving rise to this appeal, together with a summary of the judgments rendered in the Ontario courts, are conveniently and accurately described in the agreed statement of facts which is filed as a part of the case on appeal in this Court and reads as follows:

1. By a written Contract dated April 19th, 1974 ("the contract"), entered into between the Respondent and the Defendant Belcourt Construction (Ottawa) Limited (hereinafter referred to as "Belcourt"), the Respondent agreed to supply and install, and generally to complete, the aluminum windows and glass and glazing work contract for the apartment building project known as The Lord Mountbatten Apartments then being constructed by the Defendant Belcourt for and on behalf of the Appellant.

2. The contract included the following clause:

   "ARTICLE 6. The Subcontractor hereby waives, releases and renounces all privileges or rights or privilege, and all lien or rights of lien now existing or that may hereinafter exist for work done or materials furnished under this Contract, upon the premises and upon the land on which the same is situated, and upon any money or monies due or to become due from any person or persons to Contractor, and agrees to furnish a good and sufficient waiver of the privilege and lien on said building, lands and monies from every person or corporation furnishing labour or material under the Subcontractor.

   In addition to the requirements as set forth hereinabove, the Subcontractor agrees to waive to the extent of one hundred percent (100%) of the final contract amount, any privilege, lien and right of preference which he may have or which he hereafter may have upon the aforesaid building and/or the land upon which it is constructed as a result of or in connection with work to be done or materials to be supplied by him, and moreover that he holds and will hold the Owner and Contractor harmless and indemnified from and against a registration against the said property of any privilege, lien or right of preference by or on behalf of any person, firm or corporation perform-

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ing work or supplying materials under authority derived from him, and, if and when so required by the Contractor, he will obtain and deliver to the said Contractor, releases from any such privileges, liens or rights of preference signed by such persons, firms or corporations.

Subcontractor also agrees to waive all liens and to execute any waiver of liens that may be required by the mortgage company or mortgagee."

3. By reason of the failure of Belcourt to pay the advances due under the contract, the Respondent filed a Mechanics' Lien against the title to the property owned by the Appellant in December of 1974. The subsequent action was tried before His Honour Judge Fogarty at Ottawa on the 17th, 18th and 19th days of December, 1975 and on the 15th, 16th and 17th days of March, 1976.

4. The learned Trial Judge held in his reasons for Judgment dated the 12th day of October, 1976, that Belcourt, by its refusal to make the progress payments as they fell due, committed a fundamental breach of the contract which justified the Respondent in treating it as at an end. The learned Trial Judge further held that Article 6. constituted an exclusionary clause and Belcourt, by reason of the fundamental breach, was precluded from relying on it. Accordingly, the Respondent was granted personal Judgment as well as a lien upon the property in the amount of the Judgment plus costs.

5. The Judgment of the learned Trial Judge was appealed to the Divisional Court by the Appellant herein and Belcourt, which Court, by Judgment dated March 16th, 1978, allowed the appeal in part and held that the Respondent was not entitled to a lien against the lands and premises of the Appellant herein by reason of Article 6. of the said contract. The Divisional Court upheld the personal Judgment in favour of the Respondent against Belcourt and affirmed the learned Trial Judge's finding that the said Defendant had fundamentally breached its contract with the Appellant (Dupont J. dissenting on the latter issue).

6. The Judgment of the Divisional Court was appealed by the Respondent to the Court of Appeal of Ontario on the issue of whether a waiver of lien rights (Article 6.) could be later invalidated by Belcourt's fundamental breach of contract. The Court of Appeal, by Judgment dated the 14th day of March, 1979, allowed the Appeal and affirmed the Judgment of the learned Trial Judge on this point. Madam Justice Wilson, speaking for the Court, held that Article 6. of the contract is an exclu-

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sionary clause to which the Suisse Atlantique line of authorities applies, that this is so notwithstanding the provisions of Section 5(1) of The Mechanics' Lien Act, and further that as a matter of construction the waiver clause (Article 6.) ceased to bind the Respondent upon the communication by the Respondent to the Appellant herein and Belcourt of its election to treat the contract as at an end.

7. The Appellant herein was granted leave to Appeal to this Honourable Court, by Order dated the 18th day of June, 1979.

The provisions of s. 5(1) of The Mechanics' Lien Act, R.S.O. 1970, c. 267, to which fuller reference will be made hereafter read as follows:

5. (1) Unless he signs an express agreement to the contrary and in that case subject to section 4, any person who does any work upon or in respect of, or places or furnishes any materials to be used in, the making, constructing, erecting, fitting, altering, improving or repairing of any land, building, structure or works or the appurtenances to any of them for any owner, contractor or subcontractor by virtue thereof has a lien for the price of the work or materials upon the estate or interest of the owner in the land, building, structure or works and appurtenances and the land occupied thereby or enjoyed therewith, or upon or in respect of which the work is done, or upon which the materials are placed or furnished to be used, limited, however, in amount to the sum justly due to the person entitled to the lien and to the sum justly owing, except as herein provided, by the owner, and the placing or furnishing of the materials to be used upon the land or such other place in the immediate vicinity of the land designated by the owner or his agent is good and sufficient delivery for the purpose of this Act, but delivery on the designated land does not make such land subject to a lien.

The reference to s. 4 has no application in the present circumstances.

It will have been noted that the parties are agreed as to the effect of the judgment of the Court of Appeal whereby it is accepted that article 6 of the contract is an exclusionary clause (sometimes referred to in the authorities as an "exception" or "limitation" clause) "to which the Suisse Atlantique line of authorities applies". The refer-

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ence there made to the case of Suisse Atlantique v. N.V. Rotterdamsche Kolen Centrale[^2]. The reasons for judgment of the members of the House of Lords in that case have caused a not inconsiderable difference of opinion among judges in England and in this country, and the question of the effect of a fundamental breach of contract by one party on the operation of an exclusionary clause such as clause 6 of the present contract remained a matter of debate in some quarters until the case of Photo Production Ltd. v. Securicor which was finally decided in the House of Lords in February 1980 and is to be found reported in [1980] 1 All E.R. 556. I should state at this juncture that I am in agreement with the concurrent findings of the Ontario courts that Belcourt's refusal to make progress payments constituted a fundamental breach of the contract.

Stated bluntly, the difference of opinion as to the true intent and meaning of their Lordships' judgment in the Suisse Atlantique case centered around the question of whether a rule of law exists to the effect that a fundamental breach going to the root of a contract eliminates once and for all the effect of all clauses exempting or excluding the party in breach from rights which it would otherwise have been entitled to exercise, or whether the true construction of the contract is the governing consideration in determining whether or not an exclusionary clause remains unaffected and enforceable notwithstanding the fundamental breach. The former view was espoused by Lord Denning and is illustrated by his judgment which he delivered on behalf of the Court of Appeal in the Photo Production case (supra), which is described by Lord Wilberforce in his reasons for judgment in that case in the House of Lords where he said, at p. 559:

It is first necessary to decide on the correct approach to a case such as this where it is sought to invoke an exception or limitation clause in the contract. The approach of Lord Denning MR in the Court of Appeal was to consider first whether the breach was 'fundamental'. If so, he said, the court itself deprives the party of the benefit of an exemption or limitation clause…

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Lord Denning MR in this was following the earlier decision of the Court of Appeal, and in particular his own judgment in Harbutt's Plasticine Ltd v. Wayne Tank and Pump Co Ltd, [1970] 1 All ER 225, [1970] 1 QB 447. In that case Lord Denning MR distinguished two cases: (a) the case where as the result of a breach of contract the innocent party has, and exercises, the right to bring the contract to an end; and (b) the case where the breach automatically brings the contract to an end, without the innocent party having to make an election whether to terminate the contract or to continue it. In the first case Lord Denning MR, purportedly applying this House's decision in Suisse Atlantique Société d'Armement Maritime SA v NV Rotterdamsche Kolen Centrale [1966] 2 All ER 61, [1971] 1 AC 361, but in effect two citations from two of their Lordships' speeches, extracted a rule of law that the 'termination' of the contract brings it, and with it the exclusion clause, to an end. The Suisse Atlantique case in his view—

'affirms the long line of cases in this court that when one party has been guilty of a fundamental breach of the contract …and the other side accepts it, so that the contract comes to an end …then the guilty party cannot rely on an exception or limitation clause to escape from his liability for the breach.'

See (Harbutt's case [1970] 1 All ER 225 at 235, [1970] 1 QB 447 at 467. He then applied the same principle to the second case.

My Lords, whatever the intrinsic merit of this doctrine, as to which I shall have something to say later, it is clear to me that so far from following this House's decision in the Suisse Atlantique case, it is directly opposed to it and that the whole purpose and tenor of the Suisse Atlantique case was to repudiate it. The lengthy, and perhaps I may say sometimes indigestible speeches of their Lordships, are correctly summarised in the headnote [1967] 1 AC 361 at 362—

'(3) That the question whether an exceptions clause was applicable where there was a fundamental breach of contract was one of the true construction of the contract.'

That there was any rule of law by which exception clauses are eliminated, or deprived of effect, regardless of their terms, was clearly not the view of Viscount Dilhorne, Lord Hodson or myself. The passages invoked for the contrary view of a rule of law consist only of short extracts from two of the speeches, on any view a minority. But the case for the doctrine does not even go so far as that. Lord Reid, in my respectful opinion, and I recognise that I may not be the best judge of this

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matter, in his speech read as a whole, cannot be claimed as a supporter of a rule of law.

It has been concurrently found by the learned trial judge and the Court of Appeal that article 6 of this contract constituted an exclusionary or exception clause and Madam Justice Wilson adopted the same considerations as those which governed the House of Lords in the Photo case in holding that the question of whether such a clause was applicable where there was a fundamental breach was to be determined according to the true construction of the contract. I concur in this approach to the case.

It was further contended on behalf of the appellant that the terms of s. 5(1) of The Mechanics' Lien Act were effective to foreclose the respondent for all time from asserting its right to the lien by reason of the fact that it had "signed" the waiver. In this regard I adopt the following passage from the judgment of the Court of Appeal:

While I agree that the waiver of lien clause is an exclusionary clause in that it has the effect of excluding the appellant from the right to a lien which he otherwise would have had under the statute, it is not an exclusionary clause in the sense that it sets limits on the liability of the respondent Belcourt for breach of the contract. It is not, in other words, one of those exclusionary clauses which must be resorted to in order to determine whether there has been a breach at all or the extent to which there has been a breach. It does not modify the obligation or restrict the liability of the party in default: it deprives the party not in default of an additional remedy. Does the Suisse Atlantique line of authorities apply to such an exclusionary clause?

Clearly these authorities cannot apply if as a matter of statutory interpretation of s. 5(1) of The Mechanics' Lien Act the mere signing of the agreement by the person otherwise entitled to the lien defeats his lien rights for all time by statute. If this is so, a fundamental breach of the agreement has no effect on the waiver.

Even although s. 5(1) used the word "signs", I cannot think that the legislature intended to make the mere fact of signing conclusive of a party's lien right. I think the legislature has assumed that the agreement he has signed is enforceable against him by the other contract-

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ing party. It is more difficult to ascribe an intention to the legislature where the agreement he has signed is initially enforceable against him and subsequently ceases to be so. I have concluded, however, that s. 5(1) should not be construed as foreclosing the lien irrespective of the fate of the contract. It seems to me that the legislature could not have intended to introduce such disparity into the position of the contracting parties i.e. that one party could be assured that, irrespective of the non-performance by him of any of his contractual obligations, the other party's waiver of lien would continue to bind him. At least I think it would take very clear language to effect that result. In so concluding I am not unconscious of the policy consideration referred to by Linden, J. in his reasons in Shill-Brand, namely that there is a public interest in waivers being able to be relied upon. I think, however, that if this had been the prevailing public interest in the mind of the legislature, it might not have put the waiver of lien into a contractual context at all but rather prescribed a statutory form. By putting the waiver into a contractual context I think the legislature must be taken to have intended that its fate be inextricably tied to the fate of the contract of which it forms a part.

Like Madam Justice Wilson, and having particular regard to the judgment of the House of Lords in the Photo Production case, supra, I am satisfied that, considering the fundamental breach by the contractor (Belcourt Construction (Ottawa) Limited), in the context of the contract as a whole the true construction to be placed on article 6 is that the waiver therein contained ceased to bind the respondent upon it having communicated to the appellant its election to treat the contract as at an end.

For all these reasons I would dismiss this appeal.

The respondent is entitled to its costs throughout.

Appeal dismissed with costs.

Solicitors for the defendant, appellant: Goldberg, Shinder, Shmelzer, Gardner & Kronick, Ottawa.

Solicitors for the plaintiff, respondent: Binks, Chilcott & Simpson, Ottawa.

[^1]: (1979), 24 O.R. (2d) 1, (1980), 97 D.L.R. (3d) 170.

[^2]: [1967] 1 A.C. 361.