An imperfect pleading (apparently) still perfects a construction lien

ScalesA Decision (arising from a motion to have a construction lien discharged and security posted returned) in 984499 Ont. Inc. v. 1159337 Ont. Inc. et al. was released by the Ontario Superior Court of Justice on July 2, 2013, and we are – yet again – reminded how forgiving the Ontario courts can be when a lien claimant has arguably failed to comply with some ostensibly fundamental aspect of the Construction Lien Act.

The facts are (whittled down) as follows:

The Plaintiff (a general contractor for a hotel renovation) was unpaid and preserved its lien by registering a construction lien within the required time.  The owner posted security with the Court in order to vacate the lien from title and the lien claimant commenced an action.  However, the action commenced by the Plaintiff did not:

    • expressly seek to enforce a construction lien – against the security in Court or against the land;
    • mention the lien claim registered on title, the vacating order, the monies paid into court or perfection of the lien; and
    • mention or plead the Construction Lien Act at all other than to plead reliance on the trust provisions of the Construction Lien Act.

The Defendant (owner) brought a motion for a ruling that the construction lien had not been perfected in accordance with the Construction Lien Act because the Statement of Claim was not in the nature of an action to enforce the lien as is required by section 36(3) of the Construction Lien Act and that it could not be an action to enforce a lien because it pleaded the trust provisions of the Construction Lien Act and section 50(2) says that an action to enforce a lien and a trust claim shall not be joined together.

Mr. Justice Whalen dismissed the motion and, relying on Rules 1.04(1) and 26 of the Ontario Rules of Civil Procedure, allowed the Plaintiff to “cure” or “fix” the Statement of Claim to effectively bring it in compliance with the Construction Lien Act.

My own view is that this Decision is wrong and, like other similar Decisions, is in stark contrast to what I think is a better line of cases in B.C. (under its fundamentally very similar Builders Lien Act) which hold that lien legislation, while being remedial, creates an extraordinary remedy (it allows one party to encumber the property of another before judgment and creates priorities between creditors, etc) that is strictly a creature of statute and so the legislation must be interpreted strictly and the court has no discretion to depart from the express statutory requirements.  I have little doubt that if 984499 Ont. Inc. v. 1159337 Ont. Inc. et al. had been decided in B.C., the Defendant’s motion would have succeeded.  See, for example, Nita Lake Lodge Corp. v. Conpact Systems (2004) Ltd., a 2006 Decision of the Supreme Court of B.C. in which a $300K+ lien was extinguished solely because the lien claimant failed to properly name the company with which it had contracted and from which it claimed to be owed money.

While, the Ontario Construction Lien Act contains a curative provision at section 6, it does not apply to pleadings and is not so broad as to convert a Statement of Claim that does not seek to obtain or enforce a construction lien into one that does.  Similarly, this wasn’t a case where there was some poorly drafted paragraphs but it was still, in substance, a claim to enforce a construction lien as required by the Construction Lien Act such that a Rule 26 amendment could improve the pleading or fix some minor flaws.  Rather, it was an action that did not plead material facts to support a finding of a lien or claim a lien as a remedy and so the Plaintiff, in my view, had not perfected its lien as required by section 36 of the Construction Lien Act and the lien should have been discharged and the security returned to the owner.

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Ontario Court of Appeal finds that the decisions of Tarion’s inspectors are “judicial decisions”

The Ontario Court of Appeal  released  Metropolitan Toronto Condominium Corporation No. 1352 v. Newport Beach Development Inc. earlier this week.  It’s an interesting case and may actually provide some useful jurisprudence in litigation involving defects and claims under the Ontario New Home Warranties Plan Act (ONHWPA).

The facts are nicely summarized at the outset of the Decision as follows:

2] The respondent Metropolitan Toronto Condominium Corporation No. 1352 (“Metro 1352”) manages a luxury condominium project in Etobicoke near the shore of Lake Ontario. It alleges that the project has two major construction defects. It claims that the sanitary sewer system was not built properly, causing toilets in the condominium units to overflow and the units themselves to flood with sewage. It also claims that a systemic failure of the exterior cladding over the project, called the exterior insulated finish system (“EIFS”), has caused water penetration in the condominium units.

[3] Metro 1352 sought compensation for these two defects under the Ontario New Home Warranties Plan Act, R.S.O. 1990, c. 0.31 (the “Act”). The administrator of the Act, the respondent Tarion Warranty Corporation, denied compensation. Instead of appealing Tarion’s decisions to the Licence Appeal Tribunal, as it was entitled to do, Metro 1352 started this litigation. It has sued Newport, the vendor and declarant of the project; Canderel, a developer related to Newport; Spampinato, an officer of Canderel; Enersys Engineering Group Ltd. and Eric Pun, the engineers on the project; and Tarion. It has asserted causes of action for breach of statutory warranty, negligence, breach of fiduciary duty and breach of contract. The engineers have been noted in default. The other defendants have not delivered a statement of defence.

[4] On its Rule 21 motion Newport asked for various forms of relief, but principally for an order dismissing the action on the ground that the litigation is an abuse of process. Newport argued that Tarion’s decisions denying warranty coverage could only be reviewed by an appeal to the License Appeal Tribunal. Either the doctrine of issue estoppel or the rule against collateral attack prevented Metro 1352 from re-litigating its claim by a civil action. The motion judge, Corrick J., disagreed and dismissed the motion in its entirety.

[5] On its appeal Newport raises three issues, which I put in the form of questions:

(1) Did the motion judge err by failing to dismiss Metro 1352’s claims relating to defects in the sanitary sewer system and the EIFS, both against Newport and Tarion, as an abuse of process?

(2) Did the motion judge err by failing to dismiss the claim for breach of warranty for defects in the sanitary sewer system on the ground that they do not constitute a major structural defect under s. 13(1)(b) of the Act?

(3) Did the motion judge err by failing to dismiss the claim for defects in the EIFS on the ground that the claim was a new cause of action added by amendment to the statement of claim after the expiry of the limitation period?

One of Newport’s arguments in relation to the first question above was that the doctrine of “issue estoppel” should – Metro 1352 having already been provided determinations by Tarion that the defects were not compensable under the ONHWPA – prevent Metro 1352 from suing Newport in Court over those very same issues.

In analyzing Newport’s argument regarding issue estoppel, one of the things that the Court of Appeal had to consider was whether Tarion’s decisions were “judicial” decisions.  To my surprise and horror (OK…not horror, near horror), the Court of Appeal disagreed with the motion judge and ruled that the decisions of Tarion’s inspectors are “judicial” in nature.

I obviously don’t know whether any of the learned judges hearing this appeal have personally gone through the process of a Tarion inspection and of finding out what Tarion deems “warranted” or “not warranted” via its Warranty Assessment Report process. I also don’t know what evidence the learned judges had before them in terms of what the inspectors do (process, rules, policies) and what sort of education and training they have.  That said, in addition to representing clients involved in disputes with Tarion, I’ve been through several Tarion inspections myself  and  “judicial” is not a word that comes to mind when I consider how the Tarion inspectors handled my claims.  In my own experience, the Tarion inspectors that determined what was deemed warranted and what was deemed not warranted:

  • Communicated regularly with both me and the builder in the absence of the other before (and after) issuing the Warranty Assessment Report, making the process far from open and transparent. Both sides can feed the inspector information without the other side necessarily knowing about it and there is, therefore, no way to know what information is being provided and what sort of verification is being done.
  • Did not hold anything that could reasonably be considered a “hearing”.
  • Don’t allow third/non-parties to be present during the inspection. If it is “judicial” or adjudicative in nature, why wouldn’t an owner or builder be permitted to have a lawyer or an expert, for example, present?
  • Adhered rigidly and inflexibly to Tarion’s “Construction Performance Guidelines” which are a useful but, in my view, imperfect and incomplete set of “guidelines”.  There is not much “judicial” analysis involved in robotically applying “guidelines” as though they are infallible and carry no exceptions.
  • Did not have any legal training.
  • Ignored large amounts of information provided to them (such as manufacturer’s installation instructions that had not been followed by our builder).  None of this showed up anywhere in our Warranty Assessment Reports and when I asked about it at the inspection, I was told by one of the inspectors that he “hadn’t looked at it”.
  • Didn’t bring a ladder or binoculars or have any way of “inspecting” second story exterior deficiencies for which they had ample and complete notice were to be assessed.  If the inspectors are tasked with inspecting deficiencies and then making a “judicial” determination regarding same, how can they possibly do so if they show up and don’t have any manner of even looking at the alleged deficiency?
  • Didn’t take note of most things either party said during the inspection. While I don’t think a detailed transcript should be required, when few notes are taken one is left to wonder how much information is actually making it onto “the record”.

At the end of the day, I think that the outcome (and most of the analysis) in this Decision is correct so it may be that not much turns, in practice, on this aspect of the Decision.  It just strikes me – as I expect it might strike many who have had the experience of actually going through the Tarion conciliation inspection and assessment process – that to call Tarion’s internal decision making process “judicial” is inaccurate and diminishes truly judicial decision making.  Just because an animal has a bill, webbed feet, and lays eggs, doesn’t necessarily mean it is a platypus.

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

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.

Two recent Court Decisions affirming that the Ontario New Home Warranty Plan is for the protection of new home buyers

The courts in Ontario have held, on a number of occasions, that the Ontario New Home Warranties Plan Act (“ONHWPA”) is legislation established to protect and provide additional remedies to buyers of new homes.  These Decisions have normally arisen in the context of disputes between homeowners on one side and their builder and Tarion on the other.  Two interesting Decisions recently came down from the Ontario Court of Appeal that have, albeit in a completely different context, affirmed that the ONHWPA is remedial, consumer protection legislation. The first of these Decisions is Tarion Warranty Corporation v. Boros, 2011 ONCA 374 (CanLII) (leave to appeal to the Supreme Court of Canada refused) and the second is Tarion Warranty Corporation v. Kozy, 2011 ONCA 795 (CanLII).  In both cases, the issue before the Court of Appeal was whether the homebuilders were “builders” under the ONHWPA such that they were caught by the registration (and other) requirements of the legislation.

From a residential builder’s perspective, these cases are primarily of significance because there is now clear and strong authority that the ONHWPA can’t be circumvented or avoided by simply leaving a small portion of construction out of the contract for the buyer to complete.

From a homeowner’s perspective, there are two noteworthy things about these cases:

  1. I believe that this is the first time the Ontario Court of Appeal has so clearly and unequivocally affirmed that the ONHWPA is remedial consumer protection legislation and that it is to be interpreted broadly and liberally as such; and
  2. Under the circumstances of these cases, it appears to have been Tarion, not new homeowners, arguing for this purposive, broad, and liberal interpretation of the ONHWPA.

It will be very interesting to see what the courts do with this purposive, broad, and liberal interpretation of the ONHWPA (and Tarion’s corresponding purpose and obligations) when a good case comes along within which to test and question how Tarion assesses and handles homeowners’ claims regarding deficiencies and “unauthorized substitutions”.  Having read many, many License Appeal Tribunal and court Decisions, I’ve yet to see one that gives a comprehensive and satisfactory treatment on this important aspect of the warranty.

“Recent” amendments to the Ontario Construction Lien Act

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.