The sheltering rights under the Construction Lien Act are fundamental protections for contractors, subcontractors and suppliers on a building project. But the definitions of what circumstances give rise to protected sheltering are somewhat vague.  One question is whether the liens of “superior” contractors or suppliers can shelter under an action commenced by an “inferior” contractor. In other words, when a contractor hires a subcontractor or supplier, can the contractor shelter its lien under the claim of the subcontractor or supplier? It may seem odd that the word “shelter” could apply to a contractor in relation to a subcontractor hired by the contractor, and that the subcontractor’s lien could provide shelter for the contractor’s lien. But that was recently held to be valid sheltering in the decision of Master Wiebe of the Ontario Superior Court of Justice in The State Group Inc. v. Quebecor World Inc. and 4307046 Canada Inc.

Background

The applicant, Kemp was a contractor on a project in which 4307046 was the owner. The project included a modification of an existing building and the construction of a new building.  The project was an owner-supervised project in which Kemp acted as a sort of general contractor and supervised other contractors, including Cee Elevator Services Ltd. (“Cee”) and George and Asmussen Limited (“GAL”).

Kemp sought to shelter its lien upon the perfected liens of Cee and GAL. The 90 day period for the perfection of the Kemp lien started to run on January 15, 2008.  So a lien which was perfected between January 15, 2008 and April 15, 2008 in relation to the same lands could potentially shelter the Kemp lien.  The purported perfection of the Cee and GAL liens took place within this time period. So those liens could potentially shelter the Kemp lien.

Reasons of the Court

Master Wiebe said that under section 36 of the Ontario Construction Lien Act the work of the lienholder (being Kemp) seeking to shelter its lien must be in respect to the same alterations, additions and repairs as the work of the lienholders, being Cee and GAL, under whose claim Kemp sought to shelter. The court also noted the Act does not require that “the work of the sheltering liens was in fact connected to the work of the sheltered lien.”  In the court’s view, such a requirement “smacks too much” of the proposition that sheltering must be “vertical”, a proposition which was essentially overturned by the Divisional Court in Sesco Ltd. v. Life Centre Non-Profit Housing Corp. (Ajax), (1998) 37 O.R. (3d) 764, 38 C.L.R. (2d) 66 (Div. Ct.; leave to appeal dismissed 1998 Carswell Ont 1430) (“Sesco”) . There is no need to establish a commonality of “services and materials,” as long as the work was “in respect of the same improvement.”   Master Wiebe said:

“I do not see how a party that supervises the work of the lien claimants under whose liens it purports to shelter can be doing its work on anything other than the same improvement.  To rule otherwise, would lead to the rather bizarre conclusion that the supervision of the work is somehow divorced from the work that is supervised to such an extent as to render them separate improvements.  This is not how the CLA section 36(4) was meant to be interpreted.”

Comments

Section 36(4) (b) of the Ontario Construction Lien Act states that a “sheltered claim for lien is perfected only as to the defendants and the nature of the relief claimed in the statement of claim under which it is sheltered.”  In Sesco, at first instance, Justice Ferguson held that the practical effect of second part of clause (b) was that the claim in the sheltering lien action had to refer to work claimed in the lien seeking to be sheltered.  He held that a lien could not be sheltered under a lien claim in another chain of work and payment on the project (which was the situation in Sesco), at least when that lien claim made no claim in respect of the work referred to in the lien sought to be sheltered.

In that decision, Justice Ferguson said:

 “I agree…that for practical purposes a lien seeking shelter can probably find it only under a perfected lien advanced by someone higher in the same payment stream.”  (emphasis added)

With Justice Ferguson’s decision having been over-turned, the court in State Group v Quebecor has now found that a circumstance is covered under the sheltering section which Justice Ferguson thought would not be covered, namely the sheltering by a higher lienholder under a lienholder’s claim lower in the payment scheme. So, not only is it not necessary that the sheltered lien be in the same payment stream as the sheltering claim (as held in Sesco).  In addition, within the same payment stream a lower claim can provide shelter for a higher lien.

As a result, the remedial reading of the Act in Sesco has resulted in much broader application of the sheltering provisions of the Ontario Act.

See Heintzman and Goldsmith on Canadian Building Contracts, 4th ed., Chapter 11, part 2(f)

The State Group Inc. v. Quebecor World Inc. and 4307046 Canada Inc. 2013 ONSC 2277, 2013 CanLII 19660 (ON SC).

Building Contracts  -  Construction and Builders Liens  -  Validity of liens  –  Sheltering

Thomas G. Heintzman O.C., Q.C., FCIArb                                                                                                               June 25, 2013

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