Canada: Unjust Enrichment: Do Subcontractors Have Common Law Remedies Against Owners?

Introduction

Typically, subcontractors will only have a contractual relationship with a party directly above them in the construction pyramid and they will have no contractual relationship with the owner who is the source of funds for payment. As a result, subcontractors lower down the pyramid who contribute work or materials have limited remedies in the event their payor defaults. Where there is a direct contract, subcontractors can rely on contractual remedies to secure payment. Where there is no direct contract, subcontractors must rely on builders' lien legislation to recover the value of the services or material they provide.

In situations where the subcontractor has no contractual relationship with the parties further up the pyramid, and where the subcontractor has failed to adhere to the strict requirements of the builders' lien legislation, some subcontractors have attempted to assert a third remedy; bringing a common law unjust enrichment claim. However, recent case law from British Columbia continues to emphasize the challenges that subcontractors face when alleging unjust enrichment against an owner.

Unjust Enrichment: The Test

In the construction context, unjust enrichment claims by subcontractors usually involve a claim that the owner or general contractor received a benefit (the enrichment), as a result of work done or materials supplied by the subcontractor. The argument is that the enrichment is unjust because the subcontractor was not paid for the work done or material supplied, yet the non-contracting owner or general contractor still receives the benefit.

In order to win an action for unjust enrichment, the subcontractor must meet the following three part test: (1) Show that the owner was enriched; (2) Show that there was a corresponding deprivation suffered by the subcontractor; and (3) Show that there is no juristic reason — a reason recognized in law — to justify the enrichment. At first glance, an unpaid subcontractor that provides goods or services to a construction project seems to have a strong claim. The owner has been enriched by the value of the goods or services and the subcontractor has been deprived of the same. However, case law suggests that the validity of unjust enrichment actions against a non-contracting party will most often fail since the contract between the owner and the defaulting payor is a valid juristic reason for the enrichment. Further, courts have held that an unjust enrichment claim against a non-contracting owner is most often an attempt by the subcontractor to skirt the limitations of the legislatively prescribed remedies under the builders' lien legislation.

Unjust Enrichment Claims Against a Non-contracting Owner Will Most Often Fail

a. Alberta Decisions

In 624250 Alberta Ltd. v Achlands- Graninger Inc.,1 Eclipse Inline Rollerskating Recreation Centre Inc. ("Eclipse") contracted 624250 Alberta Ltd. to perform work on property it was subleasing. After the work was completed, Eclipse refused to pay. The numbered company sued the owner of the property, with which it had no contract, for unjust enrichment. The Court stated that where the subcontractor has a contract with the owner then it has a remedy in the form of a lawsuit in debt or in contract. However, where the subcontractor does not have a contract with the owner, the subcontractor has no common law remedy against the owner. The Court acknowledged that a gap exists in the common law since the owner is ultimately the party who gains from the subcontractor's enrichment. However, this gap was addressed by lawmakers in the form of the Builders' Lien Act.2 Therefore, the claim failed on the third element of the test because the enrichment to the owner was just since the owner had not contracted with the numbered company.

b. Decisions in Other Jurisdictions

This interpretation is widely supported by decisions in other jurisdictions. In Barrie Trim & Mouldings Inc. v Country Cottage Living Inc.3 the owner had refused to pay the contractor who subsequently filed a valid lien. However, the subcontractor, who knew that the contractor had liened the project, chose not to file a lien, preferring to bring an unjust enrichment claim instead. 4 The Court held that the failure of the subcontractor to file a lien was the juristic reason for the enrichment, making it just. Further, the Court questioned whether there was enrichment at all since the owner had partially paid the contract price to the contractor for the work up to that point, and the contractor could have paid the subcontractor. 5 The Court went further and analyzed the reasonable expectation of the parties and public policy considerations. The Court used the analysis from Garland v Consumers' Gas Co.6 to determine that the subcontractor had no reasonable expectation of being paid by the owner. Further, public policy meant that where the subcontractor chose not to join the lien action against the owner, forgoing their statutory remedy, they could not resort to the common law unjust enrichment claim. 7

Unjust Enrichment Claims Will Only Be Allowed in Unusual Circumstances

In certain "unusual circumstances," courts are willing to allow an unjust enrichment claim against a non-contracting owner. An example of such unusual circumstance is found in the Alberta decision Litemor Distributors (Edmonton) Ltd. v. Midwest Furnishings & Supplies Ltd.,8 Midwest was the general contractor and Litemor was a sub-subcontractor supplying light fixtures to the electrical subcontractor. Midwest submitted a credit application to Litemor in order to allow the electrical subcontractor to purchase the fixtures on credit. The electrical subcontractor went into receivership and Midwest refused to pay Litemor. In response, Litemor brought an action against Midwest for unjust enrichment. The Court found that Midwest was enriched when Litemor provided the fixtures because Midwest was able to pass on a completed project to the owner. The Court also found that Litemor suffered a corresponding deprivation in that they purchased and delivered the fixtures at their own cost. Ultimately, the Court held that there was no juristic reason to justify the enrichment of Midwest, meaning the enrichment was unjust.

Other unusual circumstances include cases where owners somehow induce the subcontractor to perform or continue performing the work or to provide supplies. For example, if an owner assures a subcontractor that they will get paid by the contractor if they continue the work, an unjust enrichment claim is more likely to be allowed against the owner. 9

Other cases have stated that in order for an unjust enrichment action to be allowed, there must be a "special relationship" between the parties that makes it "unjust" for the defendant to retain the benefit. 10 The Ontario Court of Appeal explained that this relationship is usually marked by two characteristics, first, knowledge on the part of the owner or general contractor of the benefit, and second, either an express or implied request by the owner or general contractor for the benefit, or acquiescence in its performance. 11 Other decisions simply ask whether the owner or general contractor's conduct was the "proximate cause" of the subcontractor performing the service or furnishing the materials. 12

Recent BC Decision Reinforces Past Decisions

In the recent British Columbia decision of Oasis Windows Ltd. v Coppergate Developments Inc.13 the subcontractor had contracted with the head contractor, not the owner. The Court viewed the unjust enrichment claim as an attempt by the subcontractor to invoke the benefits conferred by the builders' lien legislation in circumstances where the subcontractor has failed to comply with the provisions of that legislation. The subcontractor had failed to file a lien within the timelines set out in the builders' lien legislation and the Court stated, "Where the subcontractor fails, as here, to bring its claim within the remedies provided by the Builder's Lien Act, it loses its claim of lien and thus any claim against a non-contracting Owner." 14 The Court elaborated that the builders' lien legislation was the legislatures attempt to provide a remedy to subcontractors, recognizing the difficulty subcontractors have in recovering from the entities that have contracted with if they are unable or refuse to pay for the labour and material they have supplied. However, the Court held that the legislature provided a remedy for subcontractors and it is not appropriate to extend the remedy of unjust enrichment to the relationship between the subcontractor and owner.

Concluding Thoughts

In the absence of unusual circumstances whereby the owner somehow causes the subcontractor to provide goods or services, Canadian courts have held that an unjust enrichment claim against a non-contracting owner will fail. Owners can ensure these unusual circumstances do not arise by refraining from inserting themselves into the relationship between their contractors and subcontractors.

Subcontractors, on the other hand, should ensure they strictly adhere to the requirements of builders' lien legislation in the jurisdiction of the place of work. Subcontractors should not rely on unjust enrichment as an alternative to lien remedies. Failing to assert their statutory lien rights will, in most cases, leave subcontractors with no claim against a non-contracting owner.

Footnotes

1 2002 ABQB 533 [Acklands-Granger].

2 RSA 2000, c B-7

3 2010 ONSC 2107 [Barrie Trim].

4 RSO 1990, c C-30.

5 Barrie Trim at 11.

6 2004 SCC 25.

7 See also MGL Construction Inc. v Boutet, 2015 ONSC 4477 at para 21.

8 2007 ABQB 23.

9 See e.g. Atlas Cabinets & Furniture Ltd. v National Trust Co. [1990] BCJ No 719 (BCCA) [Atlas].

10 See e.g. Acklands-Granger at 171-172. See also A&D Masonary Ltd. v Elbee Development Corp, [1999] BBCS No. 2467 (BCSC) at para 7.

11 Nicholson v St. Denis (1975), 57 DLR (3d) 699 (Ont CA) at para 8, adopted in Alberta in Agrium Inc. v Chubb Insurance Co. of Canada, 2002 ABQB 495 at paras 31-32.

12 Litemor Distributors at para 34.

13 2015 BCSC 342 [Oasis].

14 Oasis at 16.

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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