In Chandos Construction Ltd. v. Deloitte Restructuring Inc (the “Chandos Decision”), the Alberta Court of Appeal (the “ABCA”) recently considered whether an insolvent lien claimant was barred from enforcing its lien due to the potential expiry of the applicable limitation period.[1] This decision raises important issues for Alberta construction litigators, regarding the commencement of limitation periods in lien proceedings and, specifically, what qualifies as a claim to “seek a remedial order” within the meaning of section 3(1) of the Limitations Act.[2]
Factual and procedural background
Capital Steel Inc. (“Capital Steel”) was a subcontractor to Chandos Construction Ltd. (“Chandos”) on a project for the construction of a condominium in St. Albert named “The Botanica.” Capital Steel filed an assignment in bankruptcy on September 8, 2016, and Deloitte Restructuring Inc. was appointed as its trustee.
On October 26, 2016, the trustee filed a builders’ lien on behalf of Capital Steel in the amount of $150,720.58. On November 8, 2016, the parties entered a Consent Order (the “November 2016 Consent Order”) to discharge the lien upon Chandos’ payment of $165,801.44 into court.[3] The November 2016 Consent Order predates the template form of order published by the courts for the payment of security to discharge a lien, and includes the following wording:[4]
- This Order shall be filed as the Originating pleading in this Action.
- The applicant is granted leave to pay into this Honourable Court the amount of $165,801.44. …
- The Registrar of the Northern Alberta Land Registration District shall [discharge the lien on payment into court].
- Any interested party may apply to this Honourable Court to:
- dispute the validity and amount of the Lien;
- dispute the liability of the Applicant to the Respondent;
- determine a lesser amount of the Security or to set the lien fund; or
- set off any amount against the Security where set off is otherwise permitted by law.
- The determination of the issues between the parties is adjourned sine die.
At this stage, the focus of the litigation shifted to a disagreement over the amount of money Chandos might owe to Capital Steel, primarily based on the interpretation of a contractual clause providing that Capital Steel would forfeit of a portion of the subcontract price in the event that it was, among other things, assigned into bankruptcy. The significance of this issue, as described by the ABCA, was that if the clause was enforceable, “the amount owed by Chandos to Capital Steel, and thus the amount protected by the lien, was de minimis or even “nil”.” [5]
On March 6, 2017, the trustee brought an application for advice and direction regarding the enforceability of the clause. The chambers judge found the clause to be enforceable; however this decision was overturned on appeal in January 2019.[6] The ABCA’s ruling on this issue was later upheld by the Supreme Court of Canada (the “SCC”) in October 2020.[7]
In May 2021, the trustee filed an application in Capital Steel’s bankruptcy proceedings seeking an accounting from Chandos regarding the estimated completion costs and the value of outstanding warranty items.[8] Chandos argued that the issue should be determined in the lien proceedings that were commenced by the November 2016 Consent Order, and the judge directed that the issue be heard by a Master in Chambers.[9]
In September 2021, the trustee filed an application in the lien proceedings seeking a declaration that the lien was valid and requesting payment of the funds held in court pursuant to the November 2016 Consent Order.[10] Chandos brought a cross-application, seeking the return of some or all of the funds paid into court on the basis that the limitation period for commencing proceedings in connection with Capital Steel’s lien had expired.[11] The Master in Chambers held that the trustee’s application was brought after the two-year limitation period had expired and dismissed the application.[12] The trustee’s appeal of the Master’s decision was subsequently dismissed by the judge in chambers.[13]
The trustee then appealed the judge’s decision to the ABCA, arguing, among other things, that the limitation period did not begin to run until at least the ABCA’s decision in January 2019 and that, in any event, the “Action” initiated by the November 2016 Consent Order could qualify as a claim for a remedial order.[14]
Law
The following details were central to the issues before the ABCA:
- The Builders’ Lien Act (the “BLA”), now the Prompt Payment and Construction Lien Act (the “PPCLA”), requires, on its face, that “[p]roceedings to enforce a lien shall be commenced by a statement of claim.”[15]
- The BLA further provides that a lien ceases to exist within 180 days of being registered if an action is not commenced under the Act either (i) to realize on the lien or (ii) in which the lien may be realized.[16] However, if funds are paid into court as security for the lien, the 180-day limitation does not apply.[17] Therefore, the applicable limitation period in this case was set out in section 3(1) of the Limitations Act, which states:[18]
3(1) Subject to subsections (1.1) and (1.2) and sections 3.1, 3.2 and 11, if a claimant does not seek a remedial order within
(a) 2 years after the date on which the claimant first knew, or in the circumstances ought to have known,
(i) that the injury for which the claimant seeks a remedial order had occurred,
(ii) that the injury was attributable to conduct of the defendant, and
(iii) that the injury, assuming liability on the part of the defendant, warrants bringing a proceeding,
or
(b) 10 years after the claim arose,
whichever period expires first, the defendant, on pleading this Act as a defence, is entitled to immunity from liability in respect of the claim.
When did the limitation period begin?
The ABCA held that the first two factors in section 3(1)(a) of the Limitations Act were met no later than the date the trustee filed the lien, as the “injury” was known at that time and was clearly attributable to Chandos.[19] Therefore, the only question was when the injury, assuming liability on the part of Chandos, warranted bringing a proceeding.
The ABCA held that the dispute over the enforceability of the contractual clause did not delay the limitation period, adding that “commencement of the limitation period does not depend on the plaintiff’s assurance or belief that the claim will ultimately be successful.”[20] Uncertainty regarding the enforcement of the clause could not delay the limitation period, as limitation periods are “triggered by discoverability of facts, not knowledge about questions of law.”[21]
Although the trustee argued that an action was not warranted until sometime after the SCC decision – when the exact amount owed by Chandos to Capital Steel was determined – the ABCA dismissed this argument on the basis that “it is not necessary for the quantum of the claim to be crystallized before the limitation period starts to run.”[22] The mere fact that the parties litigated the contractual interpretation issue all the way to the SCC was sufficient evidence that the “injury” warranted bringing a proceeding.[23]
On this basis, the ABCA determined that the limitation period began to run no later than the date the lien was filed, namely October 26, 2016. Accordingly, a remedial order had to be sought by the Capital Steel estate no later than October 26, 2018; otherwise its claim would be statute-barred.[24]
What qualifies as a claim for a remedial order?
Chandos argued that the “Action” initiated by the November 2016 Consent Order did not qualify as a claim to seek a remedial order, relying on section 49 of the BLA, which requires lien proceedings to be commenced by a statement of claim.[25] However, the ABCA noted that while section 49 is “mandatory in nature … that does not mean that noncompliance is a fatal error, as opposed to a curable irregularity.”[26] As part of its assessment, the ABCA observed that:[27]
- the framework of the BLA contemplates two parallel proceedings where a lien is discharged upon the posting of security: one proceeding, usually initiated by an Originating Application, is for the purpose of posting security and discharging the lien; the other involves an action seeking enforcement of the lien, which is ordinarily commenced by a Statement of Claim in accordance with section 49 of the BLA;
- the template order published by the court may contemplate that these two proceedings are sometimes combined into one; and
- it was apparent that an attempt was made in this case to combine the two proceedings under the November 2016 Consent Order.
The ABCA further noted that the “Rules of Court recognize that procedural errors will occur and enable their cure if there is no irremediable prejudice.”[28] In this regard, the ABCA pointed to Rule 3.2(6):[29]
3.2(6) If an action that is started in one form should have been started or should continue in another, the Court may make any procedural order to correct and continue the proceeding and deal with any related matter.
On this basis, the ABCA found that, to the extent that commencing the lien proceedings via a consent order was an irregularity, the court has the discretion to cure the irregularity under the Rules of Court (the “Rules”) should it choose to do so. Additionally, the ABCA determined that because Chandos had consented to commencing the lien action via consent order – as indicated in the wording of the November 2016 Consent Order itself – it could “hardly … object to curing any irregularity” after the fact.[30]
Finally, the ABCA looked to the wording of the November 2016 Consent Order, which, in addition to expressly stating that it would be “the Originating pleading in this Action,” also allowed any interested party to apply to dispute the validity of the lien and/or the liability of the parties.[31] In other words, the November 2016 Consent Order “contemplated resolution in the action it started of all issues respecting the validity and quantum of the lien.”[32] The ABCA reasoned that this term effectively made the November 2016 Consent Order a proceeding in which the trustee sought a remedial order, as required by the Limitations Act.[33] In other words, the wording of the November 2016 Consent Order went beyond simply dealing with the substitution of security for Capital Steel’s lien against the land. Rather, its wording was such that any further procedural orders required to resolve the parties’ rights under the lien could be given under rules 3.2(6) and 4.9 of the Rules – regarding procedural orders where an action commenced in the wrong form and procedural orders to facilitate proceedings generally – unless Chandos could demonstrate prejudice.[34]
Because the November 2016 Consent Order was filed within the two-year limitation period, Capital Steel’s lien claim was not barred by the Limitations Act,[35] and the matter was remitted back to the trial court for determination of the quantum of the claim and Capital Steel’s entitlement to the funds held in court.[36]
Takeaways
Some important takeaways from the ABCA’s decision in Chandos include:
- While limitation periods may be strictly enforced, procedural irregularities can be cured under the Rules, and they do not create “nullities.” However, the guiding factor in this analysis is that a court should assess whether the procedure used in an action was “legally adequate, not whether it [was] desirable.”[37]
- In the context of lien proceedings, the ABCA in Chandos noted that the “unorthodox” proceedings in that case could be avoided in the future by using the Court of King’s Bench Consent Order template for payments into court.[38] It is important to note that, while the template order does, as observed by the ABCA, contemplate the possibility of combining these two proceedings, in most cases, parties should anticipate that a Statement of Claim – separate from an order for the payment of security – must be prepared and filed to commence an action within the requisite limitation period.
- The requirements for lien proceedings under the PPCLA creates some tension between the ABCA’s decision in the Chandos Decision and the recent decision in Lesenko v Wild Rose Ready Mix Ltd (the “Lesenko Decision”).[39] The latter case involved a provision in a consent order for the discharge of a lien upon the payment of security into court, which required that an action be commenced within 180 days from the date of the lien’s original registration to preserve the lien. Justice Feasby found that this provision did not align with the strict wording of the PPCLA and was therefore unenforceable and void. The rationale for Justice Feasby’s conclusion was that, under section 44 of the PPCLA, the statutory 180-day deadline no longer applies once security is paid into court and, therefore, including the 180-day deadline in the consent order amounted to an agreement that contravened section 5, which states:[40]
An agreement by any person that this Act does not apply or that the remedies provided by it are not to be available for the person’s benefit is against public policy and void.
These decisions could potentially be reconciled on the basis that both interpretations of the legislation favour the preservation of lien claimants’ rights to the greatest extent possible. The Chandos Decision supports the proposition that a procedural irregularity in commencing a lien claimant’s action can be cured, while the Lesenko Decision supports the proposition that a lien claimant cannot agree, even in a court order, to the imposition of harsher requirements for the preservation of its rights than those under the statute. However, it ultimately remains to be seen how this potential issue will be considered by Alberta courts in the future.
- The consequences of a missed limitation period are significant and can result in the loss of an entire claim. As a result, it is always recommended to treat limitation periods conservatively. In the event of any uncertainty, you are strongly encouraged to seek legal counsel for advice.
For assistance with the commencement of lien proceedings, or any other construction issues, please contact Miller Thomson’s Construction and Infrastructure Group.
[1] Chandos Construction Ltd. v. Deloitte Restructuring Inc, 2024 ABCA 403 [“Chandos”]
[2] Limitations Act, RSA 2000, c L-12, s 3(1)
[3] Chandos, supra note 1 at para 3
[4] Ibid atpara. 4
[5] Ibid at para 5
[6] See Capital Steel Inc (Trustee of) v Chandos Construction Ltd, 2019 ABCA 32
[7] See Chandos Construction Ltd v Deloitte Restructuring Inc, 2020 SCC 25
[8] Chandos, supra note 1 at para 7
[9] Ibid
[10] Ibid at para 8
[11] Ibid
[12] See Chandos Construction Ltd v. Deloitte Restructuring Inc, 2022 ABQB 78
[13] See Chandos Construction Ltd v. Deloitte Restructuring Inc, 2023 ABKB 349
[14] Chandos, supra note 1 at para 11
[15] Builders’ Lien Act, RSA 2000, c P-26.4, s 49 [“BLA”]. See also Prompt Payment and Construction Lien Act, RSA 2000, c P-26.4, s 49
[16] Ibid, s 43
[17] Ibid, s 44
[18] Limitations Act, supra note 2
[19] Chandos, supra note 1 at para 13
[20] Ibid at para 14
[21] Ibid at para 15, citing HOOPP Realty Inc v Emery Jamieson LLP, 2020 ABCA 159 at para 57
[22] Ibid at para 16, citing Grant Thornton LLP v New Brunswick, 2021 SCC 31 at para 46
[23] Ibid
[24] Ibid at para. 18
[25] Ibid at para. 19
[26] Ibid at para. 21
[27] Ibid at para. 20
[28] Ibid at para. 23, citing R 1.5(4)
[29] Ibid at para. 23, citing R 3.2(6)
[30] Chandos, supra note 1 at para 23.
[31] Ibid at para 29.
[32] Ibid at para 31.
[33] Ibid at para 30.
[34] Ibid at para 31.
[35] Ibid at para 32.
[36] Ibid at para 34.
[37] Ibid at para 20.
[38] Ibid at para 32.
[39] Lesenko v Wild Rose Ready Mix Ltd., 2024 ABKB 333 (“Lesenko”)
[40] PPCLA, supra, s. 5
