Constructive trust claims are a natural for construction projects. Unpaid subcontractors and suppliers may have improved the land owned by or secured to the owner or mortgagee. But they may have a worthless claim against a bankrupt contractor and may have let the time for filing a construction lien claim pass by. In these circumstances an unjust enrichment claim with a constructive trust remedy may be their last hope.

But what is the limitation period for a constructive trust claim?  In McConnell v. Huxtable, the Ontario Court of Appeal recently held that it is ten years and not the normal two years.  If that limitation period is available for constructive trust claims arising from unjust enrichment, then a lengthy period is available for subcontractors and suppliers to assert claims arising from a building project.

The Decision

The decision arose from a family law dispute. Ms. McConnell and Mr. Huxtable lived together for about 14 years. During that time, Mr. Huxtable bought several houses with his money. When the couple parted, Ms. McConnell knew that she had a potential claim for unjust enrichment and constructive trust. But she did not start her claim until five years later, after the two year limitation period in the Ontario Limitations Act, 2002 had expired but well within the 10 year limitation period in section 4 of the Ontario Real Property Limitations Act.

Ms. McConnell commenced a claim for unjust enrichment in which she asserted a constructive trust remedy over Mr. Huxtable’s houses. Mr. Huxtable brought a summary judgment motion to dismiss the action on the ground that it was commenced outside the two year limitation period in the Limitations Act, 2002. The Court of Appeal agreed with the motion judge that the proper limitation period for the claim was the ten year limitation period in the Real Property Limitation Act.

Section 2(1) of the Limitations Act, 2002 states the Act applies to claims other than those governed by other specific statutes, including the Real Property Limitations Act. Section 4 of the latter statute applies to “an action to recover land or rent” or to “a right to make entry or distress”.  Mr. Huxtable’s argument was that the Real Property Limitations Act applies to claims relating to adverse possession, that the word “recovery” means that the person asserting the claim must have once had possession or title to the land and that a constructive trust claim does not fall within section 4.  The Court of Appeal rejected those arguments and held that the statutory history showed that the legislature intended to leave all claims in relation to land outside the new Limitations Act, 2002, including constructive trust claims.

The Implications of the Decision

This decision may have far reaching implications. The Court of Appeal held that its decision was not based upon the fact that Ms. McConnell’s claim was a family law claim. The court made it very clear that its ruling applies to any claim in relation to land, including a claim for constructive trust arising from unjust enrichment. Conversely, it held that a claim that seeks only monetary compensation falls within the two year limitation period in the Limitations Act, 2002, including a claim for unjust enrichment.  And a proceeding that asserts both a claim against land and a monetary claim falls within the ten year limitation period in section 4 of the Real Property Limitations Act. 

Constructive claims to land may be important for family law but they are equally important for construction law because the potential claimants – subcontractor and suppliers – improve the land involved in the construction project and they can claim that it is unjust if the owner or mortgagee is benefited and they are unpaid.  However, unjust enrichment claims in the construction industry will run into two obstacle: the building contract with the contractor and the construction lien legislation. Both those legal regimes provide a justification for the owner or mortgagee benefiting from the improvement to the land. So if the owner or mortgagee has paid the proper amount to the contractor and withheld the proper amount under the construction lien legislation, it will be difficult for the subcontractor or supplier to successfully assert an unjust enrichment claim.

But there can be circumstances in which such a claim could be made. For instance, in Atlas Cabinets & Furniture Ltd. v. National Trust (1990), 38 C.L.R. 106, the mortgagee assured a subcontractor that it would be paid if it continued to work on the project, even though the contractor was in serious financial condition. After the mortgagee foreclosed on the property, the British Columbia Court of Appeal held that the subcontractor was entitled to a constructive trust remedy over the property, although a monetary remedy was found to be sufficient and was awarded. Based on McConnell v. Huxtable, the limitation period for asserting this sort of constructive trust claim may be much longer than the normal two year limitation period.

McConnell v. Huxtable, (2014), 118 O.R. (4th) 561.

Building contracts  –   unjust enrichment  –   constructive trust  –   limitation period

Thomas G. Heintzman O.C., Q.C., FCIArb                              May 1, 2014

www.heintzmanadr.com

www.constructionlawcanada.com