Canada: Who Owns That School? The Crown And The Validity Of Lien Claims

Last Updated: November 21 2018
Article by F. Richard Gosse

Terra Services Inc. v. Her Majesty the Queen 2018 NLSC 221

As the Province of Newfoundland and Labrador remains a major driver of local construction and development the issue frequently arises as to whether the protections intended by the Mechanics' Lien Act ("MLA") can be extended to these provincial projects.  As a general rule, the Crown is not subject to the MLA and there is no suggestion that the legislation will be changed anytime soon.  Terra Services offers the most recent affirmation of Crown immunity in this area; Justice Frances Knickle extends a logical analysis of the MLA definition of 'Owner', the perfection of a lien claim, and the scope of the MLA's curative provisions in the context of the lien bond and Crown immunity, and appears to close the door on the suggestion that, absent express legislative authority, the Crown could voluntarily submit to the MLA.

In 2009, a contract to construct a new school in L'Anse Au Loup, Newfoundland and Labrador was entered directly between the provincial Department of Works, Services and Transportation and Pomerleau Inc. ("Pomerleau") as contractor.  When dispute arose on Pomerleau's subcontract with Terra Services Inc. ("Terra"), Terra filed a claim for lien (the "Lien") against land "... owned by the Dept. of Education/Labrador School Board District."  Terra's statement of claim and certificate of action perfecting the Lien named Her Majesty the Queen (the "Crown") as the First Defendant and Pomerleau as the Second Defendant.  The School District was not named as a party.  Upon application by Pomerleau to post security, a consent order was granted in February 2010 that on posting a lien bond (the "Lien Bond") the Lien would be vacated.  In April, 2018, Pomerleau made application to be relieved of its obligation to maintain the Lien Bond on the basis that the Lien was invalid, either on the basis of Crown immunity or because it was never perfected.  Justice Knickle granted the application on concluding that Crown immunity would not apply if the School District is the owner, but because the School District is not a party, the action is flawed and the Lien cannot be saved.  While the Lien is invalid, the action continues as a civil proceeding against Pomerleau.

As Knickle, J. explains, even though a consent order operated to vacate the Lien when the Lien Bond was posted, there was no dispute that the validity of the Lien underpins the requirement for the Bond – if the Lien was invalid that would be an "appropriate ground" to release Pomerleau from its obligation to maintain the Bond.  Invalidating the Lien on an interlocutory application cannot be considered lightly and should not be declared unless it is the "clearest of cases."

With reference to the majority decision of the Court of Appeal in Brook Construction (2007) Inc. v. Blackwood Contractors Ltd., 2015 NLCA 18, there is no doubt that if the land is owned by the Crown, the land is not subject to a lien.  "Owner" is a term defined in the MLA with reference to both the estate or interest in the land, and the credit, benefit and authority of the contracting entity.  Even as the School District was the registered owner, the Crown's contractual relationship to the work was accepted to mean that deciding who would be the Owner per the MLA – the Crown or the School District – was a debatable issue better left for a Trial Judge.  That said, however, logic dictates that if the Crown is owner then the Lien is invalid and if the School District is owner then the issue becomes whether the Lien was ever perfected.

The MLA offers little in the way of curative provisions and failure to strictly comply is usually fatal to the lien claim.  On considering the interplay between sections 19, 24 and 30 (respectively subtitled; 'Informality in registering liens', 'When lien stops' and 'How claim enforceable'), Knickle, J. concludes that any latitude to cure a procedural defect does not extend to failure to name the defendant against whom the Lien would be enforced which is a substantive failure to comply with the MLA requirements to commence an action within the prescribed limitation period.  The curative provisions in section 19 cannot revive a lien that has expired pursuant to section 24.

Arguments that the Crown may have waived immunity and voluntarily submitted to the MLA are rejected on authority of the Supreme Court of Canada's decision in Canada (Procureur général) c. Thouin, 2017 SCC 46, that it would take express language by a legislature to lift Crown immunity at common law.

While the specific facts of Terra Services afford a logical consideration of whether the MLA will apply, the question of a work-around for Crown immunity still looms large as subcontractors and suppliers on provincially-funded projects seek redress through liens when they claim that their work or supply is unpaid.  The obvious takeaway from Terra Services (and from Brook Construction) is to be sure to name everyone – the Crown and the intended ultimate owner – if argument on who is the Owner under the MLA is to be adjudicated.  The bigger question, however, of whether Crown immunity is reasonable in the context of provincially-funded construction remains where it has always been: with the legislature.

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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