Tag Archives: Construction Lien Act

An “Interest”ing Decision – A contractual interest claim gone wrong

Posted on by

What an awful Blog post title. My apologies.

The Decision of Madame Justice Pierce in 1188710 Ontario Ltd. v. Gartner, 2012 ONSC 6110 (CanLII) is a good reminder of how judges trying to do perceived justice between parties sometimes finds the law bent (or worse – disregarded) in favour of perceived justice.

The facts of the case aren’t particularly remarkable – contractor does work, owner takes issue with various things and doesn’t pay all invoices, contractor liens, lawsuit follows.  Same old story.  Sometimes the contractor comes out on top and sometimes it is the owner that prevails.  In this case, Pierce J. interpreted the agreement between the contractor and the owners and the evidence that was presented at trial almost entirely in favour the contractor.

The two aspects of the Decision that prompted me to write this short post are:

  1. Pierce J. found a contractual entitlement to interest and awarded the contractor interest at 5.5% per annum; and
  2. Pierce J. declared that the contractor has a lien against the Defendants’ property for an amount that includes the interest that she found to be owing.

Contractual Interest

If Pierce J. had just addressed the issue of interest as one of damages (the contractor’s losses based on interest the contractor had to pay on its line of credit or to its own suppliers) rather than as interest and if the contractor had presented better evidence on this point, I don’t think there would be an issue.  However, because Pierce J. expressly found that there was no agreement as to interest (see paras 37 & 40), I think she should have been foreclosed from awarding contractual interest.  Nonetheless, she (wrongly in my view) reasoned that a contractual obligation to pay invoices within a specified time implied an agreement to pay interest if payment was not made within that time (see para 44).  If Pierce J. were right on this, it would effectively mean that every contract that obliges a party to pay contains an implied agreement to pay interest if payment isn’t made.  I don’t think that this is the law and I don’t think this accords with longstanding jurisprudence that parties should, as a general rule, be held to their bargains – if the contractor had wanted to negotiate a contractual entitlement and rate of interest, he could easily have done so.

The next part is that there seemed to be some very loose (it seems to have been given just in oral testimony at trial) evidence that the contractor had suffered some sort of losses based on having to dip into his line of credit and charges from his own suppliers as a result of the owner not paying all of his invoices (see para 100, for example).  It was this evidence that Pierce J. used to determine the rate of “interest” that the contractor should be entitled to (5.5% was the contractor’s rate on his line of credit…so Pierce J. somehow made that the contractual rate of interest “agreed to” between the contractor and the owner).  I wouldn’t be so offended by this had Pierce J. just characterised the amount payable as damages rather than interest.  However, even then, the problem would be that she found as a fact that, “Unfortunately, there is no evidence about how much [the contractor] had to draw on his line of credit for this project, or how much interest he paid.”  In effect, she awarded damages in the absence of any evidence of the proven quantum of those damages.

I think that there should have been found to be no agreement as to interest and so only pre-judgment interest payable to the contractor pursuant to the Courts of Justice Act.  Further, should Pierce J. have been inclined to find a breach of an obligation to pay on the part of the owner, she could have still found damages to have resulted from the breach but she should have then found (on the evidence described by the Decision) that the contractor did not adduce sufficient evidence to support his claim and then awarded no damages on the basis that quantum had not been proven.  Instead we are left with, in my view, a bad Decision (on this point) that could come back to haunt other litigants arguing this sort of contractual interest dispute.

Lien for Interest

On the second point, section 14(2) of the Construction Lien Act expressly says that, “No person is entitled to a lien for any interest on the amount owed to the person in respect of the services or materials that have been supplied by the person, but nothing in this subsection affects any right that the person may otherwise have to recover that interest.”  As such, Pierce J. erred in law by including the interest she awarded the contractor in the declared amount of the lien she declared the contractor to have over the owner’s lands.  The interest should have been included in the money judgment but should not have been included in the value of the lien.

Legistative Amendment Required – Posting security to clear a “common element” related lien from an individual condominium unit should be easier

Posted on by

I recently learned that, when it comes to securing the release of a construction lien for work done to the common elements from an individual condominium unit by paying security into Court, the Ontario Construction Lien Act and the Ontario Condominium Act don’t play particularly well together.  The problem is that neither piece of legislation has a clear and express mechanism for the owner of a condominium unit to pay money into Court as security to clear title to the unit where a construction lien attaches to the unit but arises from work done to the common elements of the condominium corporation.

Where the work is done to an individual unit (i.e. a kitchen renovation) and the construction lien is registered against that unit, section 44(1) of the Construction Lien Act provides a simple mechanism for the owner to clear title (to sell or refinance, for example).  However, the Construction Lien Act provides no such simple mechanism where the work was done to the common elements (i.e. a roof replacement or elevator repair) and the contractor and its subcontractors have registered the full value of their alleged liens against title to all of the units comprising the condominium corporation.

I had occasion to argue this issue in Court recently and cobbled together an argument using:

  • sections 11, 13, 14, 18(2), and 23(6) of the Condominium Act;
  • sections 44(2) and 44(4) of the Construction Lien Act; and
  • the Decision of Master Polika in Associated Mechanical Trades Inc. v. Kurzbauer, [2008] O.J. No. 4688 (S.C.J.)

to argue that the proper amount to be posted as security to clear title to individual units should be the unit’s proportionate share of the lien (determined by the unit’s interest in the common elements as established by the declaration) and that same proportion of the unit owner’s potential exposure to the security costs contemplated by section 44(1) of the Construction Lien Act.  The lawyer opposing my motion had a couple of different theories of what security my client ought to post in relation to each unit.  At the end of the day, Mr. Justice Reilly agreed with my argument.  However, if the legislation – either the Condominium Act or the Construction Lien Act – were amended to provide a clear mechanism to address this problem, costly Court hearings such as the one I recently argued could be avoided and it could be as simple to clear title by positing security for condominium units as it is under section 44(1) for non-condominium properties.

On a closing note, the B.C. legislature seems to have recognized this need and provided a solution.  The B.C. equivalent of Ontario’s Condominium Act is the Strata Property Act and its equivalent of Ontario’s Construction Lien Act is the Builders Lien Act.  Under the Strata Property Act, Division 5 of Part 5 (sections 86-90) plus section 166 provides what is pretty much a complete mechanism for an owner of an individual strata lot to remove a builders lien arising from work to common property upon payment into Court of the strata lot owner’s proportionate share of the lien.  I can’t see any good reason why the Ontario legislature shouldn’t follow suit to enact similar provisions in Ontario since this seems to be the combined, though not clearly articulated, intent of sections 11, 13, , 14, 18(2), and 23(6) of the Condominium Act and sections 44(2) and 44(4) of the Construction Lien Act.

“Recent” amendments to the Ontario Construction Lien Act

Posted on by

In the age of Twitter and electronic media, it’s old news by now (the last of the amendments came into force last summer) but, in the interest of one-stop-shopping, I figured I ought to throw up a brief post summarizing the “recent” amendments to the  Construction Lien Act.

Definition of “improvement”

The definition of  “improvement” at section 1 of the Construction Lien Act has been amended and now expressly includes the installation of industrial, mechanical, electrical or other equipment on the land where the equipment is essential to the normal or intended use of the land.

It will be very interesting (for construction law nerds like myself, anyway) to see how far the courts will go in extending lien rights to installed equipment.  See my other post on this here.

Condominiums

Under this amendment (new section 33.1 of the Construction Lien Act), condominium developers will be required to publish notice of their intention to register the condominium declaration in accordance with the Condominium Act in a construction trade newspaper (the Daily Commercial News) five to fifteen days prior to registration.

This amendment will provide unpaid persons having liens notice of the pending registration of the condominium declaration so that they can preserve their lien rights before the lands and premises are legally divided into separate condominium units and title is transferred to homebuyers.

Prior to the registration of the declaration, the condominium improvement can be liened in the normal manner, even if the work of the person having a lien is to parts of the project which, after registration of the declaration, will be common elements. This amendment will provide an opportunity to avoid the much more expensive and time consuming requirement of liening the common elements of a condominium after the declaration has been registered.

Check out one of my colleague’s comments on this change here.

Affidavit of Verification

Prior to these amendments (to sections 34 and 40(1) of the Construction Lien Act), a claim for lien had to be verified by an Affidavit of Verification which was typically sworn by the lien claimant. In an effort to keep pace (or at least not fall out of sight) with the new(ish) electronic registration system for land titles documents, verifying a claim for lien by Affidavit will no longer be required.

Also, instead of cross-examining the deponent of the Affidavit of Verification, the lien claimant, the agent or assignee of the lien claimant, or a trustee of the workers’ trust fund (as the case may be) will be subject to cross examination.

Sheltered Liens

Under these amendments (to sections 44(9) and 47(2) of the Construction Lien Act), a lien claimant whose lien is sheltered under a certificate of action that has been vacated from title by Court Order will still be able to proceed with an action to enforce its sheltered lien as if the Order to vacate had not been made.

These amendments were introduced to facilitate the vacating of liens by Court Order while, at the same time, protecting the rights of sheltered lien claimants.

Still waiting to see what the Court does with the new definition of “improvement” under the Construction Lien Act?

Posted on by

In 2010, the Ontario Legislature passed the Open for Business Act, 2010, which included several changes to the Construction Lien Act.  When I learned of the coming amendments, the one that interested me the most was an amendment to the definition of what is an “improvement” under the Construction Lien Act.

In 2007 (and under the former definition), the Ontario Court of Appeal upheld a trial judge’s ruling that the transporter and installer of a 100,000 square-foot, 500,000 ton automotive assembly line (built off-site, disassembled, transported, reassembled on-site, and fastened to the building with 2,000 to 3,000 bolts) did not have lien rights, because the installation of the assembly line did not fall within the old definition of an “improvement” as it was “portable”.  The Court of Appeal refused to interfere with the trial judge’s finding that the assembly line was portable and the appeal was dismissed.  I’m not kidding. (See Kennedy Electric Limited v. Dana Canada Corporation, 2007 ONCA 664 (CanLII) and Kennedy Electric Ltd. v. Rumble Automation Inc., 2004 CanLII 47787 (ON S.C.)).

The construction industry (and more than a lawyer or two) was surprised by the Court’s interpretation and so too, it seems, did the Ontario Legislature disapprove because the definition of “improvement” at section 1 of the Construction Lien Act was amended to now expressly include the installation of industrial, mechanical, electrical or other equipment on the land/building/structure/works where the equipment is essential to the normal or intended use of the land/building/structure/works.

This amendment came into force in October, 2010 and I’ve been keeping an eye on the reported caselaw but have yet to see a decision that gives a meaningful interpretation to the new definition and that tests the boundaries of what sort of “other equipment” might constitute an improvement and what “essential to the normal or intended use” means. At one extreme, the new definition could be interpreted to extend to, for example, dishwashers or water softeners installed in homes. At the other extreme, the Courts might be more conservative and the new definition might be fairly narrowly applied to large scale, purpose built equipment (like the equipment in the Kennedy Electric case).  It’s something to think about.  As soon as I see something on this, I’ll put something up here.