Introduction
The Construction Lien Act, R.S.O. 1990, c. C.30 (the “CLA”) underwent substantial revisions (often referred to as lien modernization) on July 1, 2018 and was renamed the Construction Act, R.S.O. 1990 c. C.30 (the “Act”).
In terms of the transition from the CLA to the Act, section 87.3(1)(a) of the Act states that the predecessor act (the CLA) will apply if, “a contract for the improvement was entered into before July 1, 2018.” Given subsections 87.3(1)(b) and 87.3(1)(c) under the Act (and the temporal considerations and independent conjunctive language contained therein), it is also important, when assessing which version of the lien legislation applies, to consider when the procurement process for the project (if applicable) was commenced and whether the improved premises are subject to a leasehold interest.
In a recent case before the Ontario Superior Court of Justice, DNR Restoration Inc. v. Trac Developments Inc., 2023 ONSC 1849 (“DNR Restoration”), the Court was tasked with (amongst other things) applying the transition rule found in section 87.3(1)(a) of the Act. With subsections 87.3(1)(b) and 87.3(1)(c) not at play, the Court in DNR Restoration confirmed that the CLA continues to be applicable to an improvement if the first contract for that improvement was executed prior to July 1, 2018.
Background
On March 23, 2018, the project owner, Trac Developments Inc. (“Trac”), entered into a contract with Wilkinson Construction Services Inc. (“Wilkinson”) for Wilkinson to serve as Trac’s construction manager (not at risk) in the construction of a residential condominium project in Toronto, Ontario. There were several components to the subject project.
Later, on November 1, 2019, Trac entered into a contract with DNR Restoration Inc. (“DNR”) for the provision and installation of formwork and rebar caps.
The project encountered numerous delays, prompting DNR to submit a delay claim related to the sudden collapse of one component of the condominium development, specifically the collapse of the church façade on November 6, 2020.
On March 2, 2022, Trac replaced Wilkinson with Clark Construction Management Inc. as the project’s construction manager.
In addition to the project delays, payment issues arose between DNR and Trac. The parties were unable to resolve these issues and DNR delivered a formal notice of default letter in relation to Trac’s non-payment of the DNR delay claim and a March draw (which March draw was thereafter paid by Trac).
After delivering a formal notice of work suspension on July 25, 2022 and given that the parties were unable to agree on a path forward to finish applicable work, DNR suspended its work on August 1, 2022.
In response to DNR’s suspension of work, Trac terminated the contract between them on August 17, 2022.
On September 27, 2022, DNR registered a construction lien in the amount of $2,501,259.86. Subsequently, DNR purported to perfect the lien by commencing an action on December 23, 2022 (after DNR’s lien was vacated and after a case management conference was held to timetable Trac’s motion seeking an order to discharge the DNR lien on timeliness grounds, or in the alternative, reducing the security posted for the DNR claim for lien).
In particular, Trac brought a motion before Associate Justice Wiebe requesting the Court to declare that DNR’s lien had expired due to DNR’s failure to preserve its lien “in time.” The issues for determination before Associate Justice Wiebe in respect of Trac’s motion were:
- whether the Act applied, as opposed to the CLA;
- whether the DNR claim for lien was registered out of time; and
- whether the security posted to vacate the DNR claim for lien should be reduced and, if so, by what amount.
Findings
To begin with, the Court was tasked with determining which version of the lien legislation applied – the CLA or the lien regime under the new Act?
The Court in DNR Restoration reminds construction stakeholders of the importance of understanding a project’s pyramid and privity lines between stakeholders on a construction project and the importance of considering the definitions under the legislation. Section 1 of the Act defines “contract” to be a contract between an owner and a “contractor.” Section 1 defines “contractor” as a party who enters into an agreement with the owner to provide “services or materials.”[1]
Additionally, the Court in DNR Restoration reminds construction stakeholders of the need to prove a lienable supply in prosecuting a lien claim and that an improvement is the entirety of the project. With respect to the issue of lienability, the Court stated that pure construction managers like Wilkinson, who offer services without supplying materials, possess lien rights on par with other parties involved in providing services and materials for the improvement and are thus contractors under s. 87.3(1)(a).[2]
More specifically, DNR Restoration confirms that the concept of “improvement” in section 87.3(1)(a) is not tied to and limited by the concept of “a contract.” To the extent that there are other/multiple contractors on a given project, their qualification as a contractor performing a lienable supply might influence the temporal variable and transition rules with respect to which version of the lien legislation applies in relation to other contracts and contractors concerning the same project. In DNR Restoration, Associate Justice Wiebe stated: “Where a contract is narrower than the scope of the improvement, and there are other contracts for the improvement, the only logical interpretation to be given to section 87.3(1)(a) is that the first contract will determine which version of the [lien legislation] will apply to all contracts for the improvement.”[3]
DNR’s counsel relied on Crosslinx Transit Solutions Constructors v. Form & Build Supply (Toronto) Inc., 2021 ONSC 3396 (CanLII) (“Crosslinx”) in support of the position that the subject transition rule applies to each “contract,” rather than uniformly across all contracts, even if the contracts pertain to the same project. On this basis, while the CLA would govern Wilkinson and its subcontractors, it would not govern DNR’s contract as that was executed after July 1, 2018.
The Court in DNR Restoration disagreed with this argument and concluded that counsel for DNR had “misread” the Crosslink decision. In Crosslinx, a subcontract was entered into after July 1, 2018, but the prime contract was entered into before July 1, 2018. In Crosslinx, Associate Justice Robinson concluded that the date of the prime contract governs which version of the lien legislation applies.
Considering Associate Justice Robinson’s decision in Crosslinx, Associate Justice Wiebe concluded that in situations where there are multiple contracts pertaining to an improvement, and the scope of each individual contract is more limited than the overall improvement, the date of the first contract will determine which version of the legislation applies. Further, Associate Justice Wiebe agreed with Associate Justice Robinson’s statement that s. 87.3 of the Act “applies consistently to all persons involved in the same improvement.”[4]
Associate Justice Wiebe concluded that since the first contract (with Wilkinson) was entered into before July 1, 2018, all subsequent contracts (including in respect of DNR) fell under the CLA. As a result, DNR was required to preserve its lien on or before 45 days from the date of “completion or abandonment” (as there was no published Certificate of Substantial Performance).
For DNR’s lien to expire due to a failure to preserve its construction lien in time, the Court would have to find that DNR abandoned the contract on or before August 13, 2022. Associate Justice Wiebe restated the legal principle regarding abandonment, affirming that abandonment takes place “when there is a cessation of work and either an intention not to complete the contract or a refusal to complete the contract,” including “when an owner terminates a contract.” Associate Justice Wiebe also confirmed that the moving party in respect of a motion under section 47 of the CLA must prove that there is no triable issue, including no issue of credibility as to the basis on which the lien is sought to be discharged.
Based on the evidence before the Court, Associate Justice Wiebe concluded that Trac did not establish that there was no triable issue regarding the expiration of the DNR lien. Rather, the Court concluded that there were legitimate concerns regarding the timeliness of the lien, which in the Court’s opinion required a trial.
Conclusion
Construction industry stakeholders, including project owners and contractors, should consider the contractual relationships at play in any given project and review their project circumstances and project agreements (contracts or subcontracts) in light of this decision to determine if they are governed by the CLA or the Act. This determination may impact their rights and obligations, including, but not limited to: rules in respect of holdback release dates; rules in respect of section 39 demands for information; and, applicable timelines in respect of the preservation and perfection requirements regarding claims for liens. Miller Thomson’s Construction Litigation Group is here to assist with construction law matters under both the CLA and the Act, including providing guidance on the application of the Act’s transition rules under section 87.3.
[1] DNR Restoration Inc. v. Trac Developments Inc., 2023 ONSC 1849 (CanLII) [DNR Restoration] at para 28.
[2] Ibid at para 29.
[3] DNR Restoration, supra note 1 at para 33.
[4] DNR Restoration, supra note 1 at para 37.
