Canada: Recent Court Decision Reiterates That The Construction Lien Act Determines Lien Rights - Regardless Of The Contract Terms

Last Updated: October 27 2013
Article by Howard Krupat and Sarah Willis

Introduction

It is critical for parties to a construction contract to understand and abide by the provisions of their agreement, including its payment terms. However, parties should also understand that when it comes to construction lien rights in Ontario, it is the Construction Lien Act ("CLA") that generally holds the trump card where there is a conflict between the CLA and the contract. A recent decision by the Ontario Superior Court emphasizes this important point. It also reminds us of the commonly misunderstood principle that lien rights arise upon the commencement of the supply of services or materials – they are not contingent upon the delivery of an invoice or the payment terms of an invoice.

The Decision: The Payment Provisions of a Contract Do Not Override the CLA

Bradhill Masonry Inc v Simcoe County District School Board, relates to a masonry subcontract for the renovation of Bradford District High School that was awarded to Bradhill Masonry ("Bradhill").

A dispute subsequently arose between Bradhill and the general contractor, B.W.K. Construction Co. Ltd. ("BWK"), regarding certain payments allegedly owed under the subcontract and for work completed outside the original scope of work. Bradhill left the site in December, 2010 and registered a claim for lien on January 31, 2011.

Bradhill sought to recover from BWK allegedly unpaid amounts for extra work, including site clean-up, the installation of an air and vapour barrier, and additional masonry work to the front entrance of the school. BWK in turn asserted claims of its own against Bradhill. First, under the bid, PST was required to be included in the subcontract price. BWK argued that since it wasn't actually included by Bradhill, BWK should receive a credit. Second, BWK claimed for the costs of unfinished brick work on one part of the school wall. Finally, BWK claimed for the legal fees incurred by the School Board as a result of the lien registered by Bradhill.

With respect to Bradhill's claim, BWK argued that the lien was not valid as a result of certain payment provisions in the subcontract.

One such provision between provided for specific time periods when payments to Bradhill would become due:

Article II. Monthly Estimate. On or before the 25th day of each month the Subcontractor shall submit to BWK in the form required by BWK a written requisition for payment showing the proportionate value of the work performed to date...and the balance of the amount of said requisition ... shall be due to the subcontractor on or about the thirtieth day of the following month, and upon receipt by BWK of monthly payment by the owners.

BWK claimed that as of the date the lien was preserved through registration, no money was owing to Bradhill under the subcontract and, accordingly, no lien rights had arisen. In support of its position, BWK relied on the Ontario Court of Appeal decision in Timbro Developments Ltd v Grimsby Diesel Motors Inc. The provision at issue in Timbro, involved a subcontractor's legal entitlement to payment, which only arose once the contractor had been paid by the owner. The judge in Bradhill rejected the application of Timbro to these facts. In addition, it was noted that BWK had in fact been paid by the owner.

The court affirmed that in Ontario, contracts must conform to the CLA, and not the other way around. Referencing section 15(1) of the CLA, the court noted that lien claims arise, not when money becomes due under the contract, but rather when the subcontractor had "done the work for which it had not been paid".

Finding that the lien claimed was in fact valid, the court then went on to address each of the disputed payments.

Additional Findings – The Disputed Payments

Although the most significant point to take away from this decision is the court's emphasis on the priority of the CLA over a construction contract, the court's findings on two of the claim items between the parties are of interest as well. Regarding Bradhill's claim for the costs of performing extra work, the subcontract provided that any change orders or additional work would only receive payment if there was a written change order from BWK. Instead, however, the site supervisor provided oral instructions to Bradhill for the extra work at issue. Despite the contractual provisions, the court found in favour of Bradhill noting, "[w]here BWK's own person in charge decides to alter the contract...there is a power imbalance which the subcontractor cannot ignore without dire consequences".

Regarding the credit claimed by BWK for PST on the contract price, the court found that it was the owner and BWK's responsibility to have noticed this and proceeded to find in favour of Bradhill notwithstanding that the bid likely would not have been successful had the exclusion of PST been noticed.

Conclusion

The Court's finding regarding the supremacy of the CLA over construction contracts is certainly not a new development in the law, but is instead consistent with the clear provisions of the CLA. For example, section 5 specifically states that, "...every contract or subcontract related to an improvement is deemed to be amended in so far as is necessary to be in conformity with this Act..." But the Bradhill decision is nonetheless an important reminder for parties who are drafting construction contracts or considering their lien rights to be mindful of the provisions of the CLA. The commencement of lien rights is tied to the actual supply of services or materials – not the issuance of invoices or payment due dates.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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