A construction and builders lien claimant may, in some circumstances, file a general lien. The general lien allows the claimant to claim a lien over a number of properties to which it has supplied services or materials.

Section 20(2) of the Ontario Construction Lien Act (the Act), unlike the lien statutes in other provinces, enables the parties to contract out of the general lien provisions. But the question remains: who may contract out of those provision: the owner and the contractor with whom the owner contracts, or the contractor and a subcontractor or supplier? And if it’s the former, is that contract binding on the subcontractor or supplier?

The Ontario Court of Appeal has recently answered these questions in Yorkwest Plumbing Supply Inc. v. Nortown Plumbing (1998) Ltd.. The Court of Appeal held that the owner and general contractor may contract out of the general lien provisions, and their agreement is binding on the subcontractor or supplier.

The statutory provisions

Section 20 of the Act states as follows:

  1. (1) Where an owner enters into a single contract for improvements on more than one premises of the owner, any person supplying services or materials under that contract, or under a subcontract under that contract, may choose to have the person’s lien follow the form of the contract and be a general lien against each of those premises for the price of all services and materials the person supplied to all the premises.

(2) Subsection (1) does not apply and no general lien arises under or in respect of a contract that provides in writing that liens shall arise and expire on a lot-by-lot basis.(underlining added)

The Background

Nortown entered into contracts with two owners to carry out plumbing work on houses being built on subdivisions owned by each owner. Each contract stated that liens under the Act were to arise and expire on a lot-by-lot basis. One of the contacts also stated that for the purposes of the Act, “each individual unit (lot or building) on which the Contractor performs Contract Work shall be considered as comprising a separate contract.”

Yorkwest contracted with Nortown to supply plumbing equipment to each project. The agreement was oral and that agreement did not address any matter relating to Yorkwest’s entitlement to a general lien nor did the parties have any discussions about that matter.

Yorkwest registered a general lien against each subdivision within the applicable time from its last supply of materials to each project. Yorkwest did not allocate the amount of materials it had supplied to the individual lots in the subdivisions, but rather claimed the full amount owing to it by Nortown against the remaining, unsold lots of each project.

Nortown became insolvent. The owners paid the amount of liens into court and discharged the liens, and then sought summary judgment dismissing the lien claim on the basis that Yorkwest was not entitled to a general lien because the owners’ contracts with Nortown stated that all liens were to arise and expire on a lot-by-lot basis. Both the motion judge and the Divisional court agreed with the owners, and the issue was then appealed to the Court of Appeal.

Decision of the Ontario Court of Appeal

The Court of Appeal agreed with the courts below for the following reasons:

  1. The legislative history of the sub-section (2) demonstrated that the sub-section was adopted to address problems that owners had faced in obtaining mortgage financing, due to the general lien section. The legislative history showed that the intent of the sub-section was to allow the owner, and the contractor with whom the owner contracted, to agree that the general lien provision would not apply. That intention could not be achieved unless it was that agreement, not a subcontract or supply agreement, which was the operative agreement under both sub-section (1) and (2).
  1. On a plain reading of the two sub-sections, the “contract” in s. 20(2) must be the contract between the owner and the contractor. The Court of Appeal said:

“That is because it is only that contract that can be the “single contract” referred to in s. 20(1), which allows the general lien to arise and to be applicable to each of the premises for the price of all services and materials that the lien claimant provided to all of the premises. Because s. 20(2) provides that no general lien arises “under or in respect of” the “lot-by-lot” contract with the owner of the multiple lots, no one who claims a lien under that contract or in respect of that contract can claim a general lien.”

  1. Giving effect to Yorktown’s submission would re-create the mischief that s. 20(2) was intended to address. It would allow the subcontractor or supplier to file a general lien even if the owner and contractor had opted out of the general lien provision. It would therefore force the general lien’s impact onto the remaining lots held by the owner, thereby adversely impacting the owner’s financing.
  1. It was not unfair to impose this result on subcontractors and suppliers because they were capable of using, s. 39(1)(1) of the Act to ask the owner or contractor whether their contract provides in writing that liens will arise and expire on a lot-by-lot basis.

The Court of Appeal refused to grant the alternative relief sought by Yorktown.

First, Yorktown asked that its general lien be treated as excessive liens under section 35 of the Act. The Court of Appeal said that to do so would undermine sub-section 20(2). It would allow the subcontractor to achieve the very result that the amendment was intended to prevent.

Yorktown also asked for its claim against the owners to be amended to include claims for unjust enrichment and quantum meruit. The Court of Appeal refused to permit this amendment due to the wording of section 55 of the Act. That section permits a line claimant to also make a claim for breach of contract. Yorktown made no such contract claim against the owners. Moreover, section 55 does not mention claims in unjust enrichment or quantum meruit, so that section cannot be used to join those sorts of claims in the lien action. The Act was intended to provide a summary means for dealing with lien claims, and introducing equitable claims into lien actions would not promote that objective.

Discussion

Normally, lien statutes are interpreted as having the legislative purpose of protecting lien claimants. In this case, however, the amendment to section 20 of the Ontario Act was demonstrably enacted for the protection of the owner and to facilitate financing by the owner. With that purpose in mind, an interpretation that undermined that purpose was not acceptable.

This decision also shows that, while the court will generously protect the lien claimant’s fundamental rights enshrined in the Act, it will restrictively interpret the Act at the edges so as not to interfere with the rights of other parties. Here, once the interpretation of sub-section 20(2) showed that the general lien was not available, the court was not willing to use the procedural provisions of the Act to protect the lien claimant. Since this was the first time that the court had considered whether subcontractors and suppliers had to agree to a waiver of the general lien provision, the court might have, on a one-time basis, allowed the liens to be treated as excessive liens. But the court was not willing to make that accommodation.

See Heintzman and Goldsmith on Canadian Building Contracts, 5th ed., chapter 16, part 4(e)

Yorkwest Plumbing Supply Inc. v. Nortown Plumbing (1998) Ltd., 2016 CarswellOnt 6411, 2016 ONCA 305

Building contracts – construction and builders liens – general lien – amendment of lien claim – combining lien claim with unjust enrichment claim

Thomas G. Heintzman O.C., Q.C., FCIArb                                     May 8, 2016

www.heintzmanadr.com

www.constructionlawcanada.com

This article contains Mr. Heintzman’s personal views and does not constitute legal advice. For legal advice, legal counsel should be consulted.