Brock Contracting v. Kozikowski, 2018 ONSC 7618

Court File and Parties

Court File No.: CV-18-136150 Date: 2018-12-19 Ontario Superior Court of Justice

Between: Brock Contracting Plaintiff/Responding Party – and – Piotr Kozikowski and Katarzyna Kozikowski Defendants/Moving Parties

Counsel: Bhupinder Nagra, for the Plaintiff/Responding Party Paul Hancock, for the Defendants/Moving Parties

Heard: December 13, 2018

Reasons for Decision

CHARNEY J.:

Introduction

1This motion is brought by the defendants, Piotr Kozikowski and Katarzyna Kozikowski (the Kozikowskis), to discharge the claim for lien and vacate the certificate of action registered by the plaintiff, Brock Contracting, on the ground that Brock Contracting is a corporation that did not contract with the Kozikowskis and did not perform any work, and was therefore not entitled to register a lien on the property under s. 14(1) of the Construction Act, R.S.O. 1990, c. C.30 (formerly the Construction Lien Act).

2The defendants’ motion is brought under s. 47(1) and (1.1) of the Construction Act, which authorizes the Court to discharge a lien or vacate the registration of a claim for lien on any proper ground. A motion brought under s. 47 is akin to a summary judgment motion brought under Rule 20 of the Rules of Civil Procedure, and both parties are required to put their best foot forward and lead the best evidence with respect to the validity of the lien claim: Butko v. Ratayeva, 2015 ONSC 1102, at para. 28; Dalcor Inc. v Unimac Group Ltd., et al, 2016 ONSC 299, at para. 30.

3The plaintiff has brought a cross-motion for an order to amend the Statement of Claim to reflect the full name of the plaintiff as “Brock Contracting, a Division of 2624310 Ontario Limited”, and, in the alternative, an order to add Liza Zollner as a plaintiff to continue the action in her personal name.

4The defendants’ motion raises three inter-related issues:

(a) Whether an entity with a valid lien preserved and perfected a lien against the property. (b) Whether there was a valid assignment of lien rights from Brock Contracting S.P. to Brock Contracting Corp. (c) Whether any misidentification of the lien holder is a minor error or irregularity that can be cured by the application of s. 6 of the Construction Act.

Facts

5The following facts are not in dispute:

6On June 26, 2017, the Kozikowskis entered into a fixed price contract with a sole proprietorship operated by Liza Zollner under the registered business name Brock Contracting (Brock S.P.) for the construction of the Kozikowskis’ home in Stouffville, Ontario (the Property).

7March 12, 2018 was the last day any material and/or labour was supplied to the Property. The reasons why the worked stopped that day are not relevant to the issues raised in this motion.

8Neither Brock S.P. nor Liza Zollner registered a claim for a lien or certificate of action against title to the Property.

9On March 8, 2018, 2624310 Ontario Ltd. was incorporated. Liza Zollner was identified as the Secretary and Administrator of the new corporation.

102624310 Ontario Ltd. registered the business name Brock Contracting (Brock Corp.) on March 15, 2018, three days after the last work was supplied to the Property.

11On April 18, 2018, Brock S.P. cancelled its business name.

12On April 25, 2018, a lien against the Property was registered on title by “Brock Contracting”.

13A Certificate of Action and Statement of Claim were issued on June 11, 2018. The plaintiff is identified as “Brock Contracting” and the Statement of Claim indicates that the “plaintiff is a company in the Province of Ontario”.

14There is no dispute that the defendants’ construction contract was with Brock S.P. and that Brock Corp. did not exist when the contract was signed on June 26, 2017.

15There is no dispute that Brock S.P. no longer existed when the lien against the property was registered on April 25, 2018.

16There is no dispute that either Liza Zollner, or Brock S.P. prior to the cancellation of its business name on April 18, 2018, could have registered the lien against the Property.

17There is no dispute that the lien was registered by Brock Corp.

18There is, however, one important dispute in this case: did Brock S.P. assign its lien rights to Brock Corp. prior to the registration of the lien by Brock Corp.? The defendants assert that there was no such assignment in writing; the plaintiff asserts that there was such an assignment and that there is no requirement that it be in writing.

Analysis

19The defendants argue that under a combination of ss. 14(1) and 73 of the Construction Act, only a person who has supplied services or materials to the improvement is entitled to a lien unless the lien rights are assigned in writing.

20Section 14(1) of the Construction Act provides:

A person who supplies services or materials to an improvement for an owner, contractor or subcontractor, has a lien upon the interest of the owner in the premises improved for the price of those services or materials.

21Section 73 of the Construction Act provides:

The rights of a person having a lien may be assigned by an instrument in writing and, if not assigned, upon the death of the person pass to the person’s personal representative.

22Where a business name is registered under the Business Names Act, R.S.O. 1990, c. B.17, a lien claimant’s construction lien and certificate of action registered under the business name are valid: S & L Mechanical Plumbing & Heating v. 6176666 Canada Ltée, 2011 ONSC 1701. Accordingly, the defendants do not dispute that either Liza Zollner or Brock S.P., prior to the cancellation of it business name on April 18, 2018, could have registered the lien against the Property.

23The lien was not, however, registered by either Liza Zollner or Brock S.P.; Brock S.P. no longer existed when the lien was registered on April 25, 2018.

24The lien was registered by Brock Corp., and it is a basic principle of corporate law that a corporation is a separate legal entity. See: Salomon v. A. Salomon & Co., [1897] A.C. 22 (H.L.), at para. 50:

The company is at law a different person altogether from the subscribers to the memorandum and, though it may be that after incorporation the business is precisely the same as it was before and the same persons are managers, and the same hands receive the profits, the company is not in law the agent of the subscribers or a trustee for them. Nor are the subscribers as members liable in any shape or form, except to the extent and in the manner provided in the Act.

25It is clear that, subject to s. 73 of the Act, Brock Corp. did not have the right to register a lien pursuant to s. 14(1) of the Construction Act since it was not a party to the contract and supplied no services or materials to the project.

26The plaintiff argues that Brock Corp. is the continuation of Brock S.P., and that any contracts signed by Brock S.P. have been assigned to Brock Corp. This includes the lien rights held by Brock S.P. The plaintiff sees the change from sole proprietorship to corporation as a mere technicality, and argues that s. 73 permits, but does not require, that lien rights “be assigned by an instrument in writing”.

27The change from sole proprietorship to corporation may be a “technicality”, but it is a technicality with important legal consequences.

28I reject the plaintiff’s argument that assignment in writing is not mandatory under s. 73 of the Construction Act. The ordinary grammatical meaning of s. 73 is that any assignment of lien rights must be in writing. The permissive “may” in that section applies to the words “be assigned”, not the words “by an instrument in writing”. The court has no discretion to authorize an assignment that is not in writing.

29This conclusion is, in my view, consistent with the modern approach to statutory interpretation, which requires the court to consider the words of the section in their entire context, with regard to the ordinary and grammatical meaning, and in harmony with the scheme of the Act, the object of the Act, and the intention of the legislature: Rooney v. ArcelorMittal S.A., 2016 ONCA 630, at paras. 39 and 62.

30As explained by the Divisional Court in K.H. Custom Homes Ltd. v. Smiley, 2015 ONSC 6037, at para. 2:

The CLA creates substantive claims and security for claims that operate in parallel with traditional contract claims. The CLA supplements, rather than replaces, contract claims.

31Many of the statutory requirements of the Construction Act are mandatory, and the courts have no discretion to relieve from failure to follow these mandatory requirements. Failure to follow the requirements of the Construction Act may defeat the lien claim, but will not interfere with the contract claim: K.H. Custom Homes Ltd., at paras. 4, 5 and 21.

32There is no evidence that the lien rights of Brock S.P. were assigned in writing, nor does the affidavit evidence filed on behalf of the plaintiff suggest that the assignment was made in writing.

33The next question is whether the error in naming Brock Corp. rather than Brock S.P. is a minor error or irregularity that can be cured by s. 6 of the Construction Act. That provision was amended on December 12, 2017. As the contract at issue in this case was entered into prior to July 1, 2018, the Construction Act, as it read immediately before the July 1, 2018 amendments applies (s. 87.3). Immediately before July 1, 2018, s. 6 provided:

Minor errors, irregularities

6 (1) No certificate, declaration or claim for lien is invalidated by reason only of a failure to comply strictly with subsection 32 (2), 33 (1) or 34 (5) unless, in the opinion of the court, a person has been prejudiced as a result, and then only to the extent of the prejudice suffered.

(2) Minor errors or irregularities to which subsection (1) applies include,

(a) a minor error or irregularity in,

(i) the name of an owner, a person for whom services or materials were supplied or a payment certifier,

(ii) the legal description of a premises, or

(iii) the address for service; and

(b) including an owner’s name in the wrong portion of a claim for lien.

34Section 6 of the Act is not a general curative provision – s. 6(1) references a failure to comply with three specific provisions: sections 32(2), 33(1) and 34(5). These three subsections provide:

32 (2) Every certificate or declaration made or given under this section shall include,

(a) the name and address for service of the owner and of the contractor;

(b) the name and address of the payment certifier, where there is one;

(c) a short description of the improvement;

(d) the date on which the contract was substantially performed;

(e) a legal description of the premises, including all property identifier numbers and addresses for the premises; and

(f) if the lien does not attach to the premises, the name and address of the person or body to whom a copy of the claim for lien must be given under section 34.

33 (1) Upon the request of the contractor, the payment certifier on the contract may determine whether a subcontract has been completed, and, if the payment certifier so determines, shall certify the completion of the subcontract in the prescribed form; alternatively, the owner and the contractor may jointly make the declaration and certify completion in the prescribed form.

34 (5) Every claim for lien shall set out,

(a) the name and address for service of the person claiming the lien or, in the case of a claim on behalf of a worker by a workers’ trust fund, the name and address of the trustee;

(a.1) the name and address of the owner of the premises and of the person for whom the services or materials were supplied;

(a.2) the time within which the services or materials were supplied;

(b) a short description of the services or materials that were supplied;

(c) the contract price or subcontract price;

(d) the amount claimed in respect of services or materials that have been supplied; and

(e) a description of the premises,

(i) where the lien attaches to the premises, sufficient for registration under the Land Titles Act or the Registry Act, as the case may be, or

(ii) where the lien does not attach to the premises, being the address or other identification of the location of the premises.

35The Ontario Court of Appeal considered an earlier (pre-2017) version of s. 6 of the Act in the case of Gillies Lumber Inc. v. Kubassek Holdings Inc.; 176 DLR (4th) 334. At that time s. 6 provided:

Minor irregularities

6. No certificate, declaration or claim for lien is invalidated by reason only of a failure to comply strictly with subsection 32 (2) or (5), subsection 33 (1) or subsection 34 (5), unless in the opinion of the court a person has been prejudiced thereby, and then only to the extent of the prejudice suffered.

36The majority in Gillies Lumber held that section 6 of the Construction Lien Act could not be applied to cure errors of substance. Rather, section 6 provides relief from failure to comply strictly with procedural requirements and only in respect of minor or technical defects.

37Two majority opinions were written in Gillies Lumber. Borins J.A. concluded, at para. 36, that “the focus of s. 6 is procedural… the purpose of s.6 is to relieve against minor errors or omissions in the preparation of certain stipulated documents and forms under the Act.”

38Borins J.A. stated, at paras. 41 and 43:

Properly read, s.6 creates a limitation on the court’s general powers, found in s.47(1), to invalidate the registration of a claim for lien or a certificate of action, for failure to comply strictly with those provisions of the Act incorporated in s.6. As such, s.6 is remedial, and relieves against certain irregularities…

In considering this appeal it is well to keep in mind that the Act must be strictly construed in respect to persons entitled to the benefit of a lien under it.

39Similarly, McMurtry C.J.O. concluded, at para. 60, “that s. 6 only applies to defects that are minor or technical in nature”. He stated, at paras. 55 and 56:

In my opinion, a court may only apply section 6 of the Act to cure defects that are merely minor or technical in nature. I come to this conclusion based on the plain meaning of the words of the section, the history of the provision, and the purpose of the Act.

I agree with Borins J.A. that the focus of s. 6 is on procedure, and the application of section 6 is therefore limited to cases involving a failure to comply with certain procedural requirements of the Act. This finding is consistent with the section’s use of the word “comply”, and with the section’s express limitation that the provision applies only to failures under certain provisions of the Act, all of which are procedural in nature.

40While the heading of the pre-2017 s. 6 referred to “minor irregularities”, those words did not appear in the pre-2017 version of the section itself. This appears to be one factor that led Laskin J.A., in his dissenting opinion, to infer, at para. 17, that s. 6 should not be “limited to technical, trivial or minor errors”. See also: Govan Brown & Associates Limited v. Equinox 199 Bay Street Co. et al, 2014 ONSC 3924, at para. 50.

41The absence of the words “minor irregularities” was rectified in the 2017 amendments with the addition of ss. 6(2), which, confirms that ss. 6(1) is intended to apply only to “minor errors or irregularities”.

42An example of a minor error or irregularity in the identification of the lien claimant is found in Stubbe’s Precast Commercial Ltd. v. King & Columbia Inc., 2018 ONSC 995. In that case the court held, at para. 23, that inserting the suffix “Ltd.” instead of “Inc.” in the name of the lien claimant was “one of those cases contemplated by the curative provision of s.6 of the Act”. In that case the use of “Ltd.” rather than “Inc.” did not change the identity of the entity that registered the lien. Either suffix may identify a corporation: Business Corporations Act, R.S.O. 1990, c. B.16, s. 11(1).

43Similarly, in G.C. Rentals Ltd. v. Falco Steel Fabricators Inc., 2000 CarswellOnt 1040, [2000] O.J. No. 1055 (Div. Ct.), the court held that if the lien holder is incorrectly named in the statement of lien, the lien holder could use the curative section to correct its name. The court described the error in that case as a “misnomer”, and held that the relief sought fell within the spirit of s. 6 of the Construction Lien Act. The Court stated, at para. 11:

The amendment sought by the lien claimant did not involve substituting a new party but merely correcting the plaintiff’s name…What occurred was a misdescription of the lien claimant’s name.

44In my view s. 6 of the Act cannot be used to cure the invalid lien in this case. This is not a case, like Stubbe’s Precast or G.C. Rentals, in which a minor, inconsequential error in the name of the corporation was used to describe the lien claimant. In this case, the wrong entity registered the lien. The lien was registered by a corporation that did not have lien rights on the date of registration. The sole proprietorship that had lien rights was discontinued prior to the registration of the lien. This was not simply a “misdescription” of the lien claimant’s name, and the court cannot use s. 6 to substitute a new or different party. This is not a minor error or irregularity.

45Section 6 of the Act does not apply to a failure to comply with s. 14 of the Act. Thus, an error with respect to the identity of “the person who supplies services or materials to an improvement for an owner” cannot be cured by recourse to s. 6.

Conclusion

46Based on the foregoing analysis, the defendants are entitled to an order under s. 47(1) of the Act discharging the plaintiff’s claim for lien and vacating the plaintiff’s certificate of action.

47Only the lien claim is dismissed, and the plaintiff’s contract claim against the defendants is unaffected by this decision. My reasons with respect to the assignment of lien rights under s. 73 of the Construction Act are not intended to address the question of whether any other contractual rights were assigned or transferred from Brock S.P. to Brock Corp. outside of s. 73 of the Act, and I have made no findings in that regard.

48The defendants have consented to the plaintiff’s cross-motion to amend the Statement of Claim. As such, leave is granted to the plaintiff to amend the Statement of Claim to reflect the full name of the plaintiff as “Brock Contracting, a Division of 2624310 Ontario Limited”, and to add Liza Zollner as a plaintiff.

49If the parties cannot agree on costs, the defendants may serve and file costs submissions of not more than 3 pages, plus costs outline and any offers to settle, within 25 days of the release of this decision, and the plaintiff may serve and file responding submissions on the same terms within 15 days thereafter.