Canada: Legislative Definitions And The Relevance Of A Lien Claimant's Status In The Prosecution Of The Construction Lien Remedy

In an October 2021 Ontario Superior Court decision, Mahendran v. 9660143 Inc. et al. 2021 ONSC 6678, the Court ordered the discharge of a claim for lien in a situation where the lien claimant was held to be an owner (and being an owner, the lien claimant could not also be a contractor). Having arrived at this determination on the basis of the lien claimant's status as an owner, there was no need to (and the court did not) deal with the second issue raised by the defendants relating to the timing of the services and materials provided (and whether Ontario's Construction Lien Act governed as opposed to the new Construction Act).

Background

In 2018, the plaintiff entered into an agreement with the defendants to build a house on the defendants' property (the "Property"). Pursuant to the agreement, the plaintiff would build and supply construction services and materials for the construction of the house, and upon its completion and sale, the plaintiff would be paid for his time, supervision and materials, plus a percentage of the profit on the investment.

The plaintiff claimed that he worked on the Property for one year (specifically, for the period July 1, 2018 to July 15, 2019) and claimed that the defendants failed to pay for this work. The plaintiff asserted a claim by way of the registration of a claim for lien against the Property on August 26, 2019. A statement of claim was issued by the plaintiff on November 29, 2019, and the claim was amended on December 4, 2019. A certificate of action was issued and registered on December 5, 2019.

The defendants brought a motion to discharge the lien and vacate the certificate of action on the grounds that the plaintiff was never a "contractor" within the meaning of Ontario's Construction Act (the "Act") and was in fact an "owner" within the meaning of the Act, and therefore not entitled to the construction lien remedy.

An "owner" is defined in the Act as any person having an interest in a premises at whose request and upon whose credit, or on whose behalf, or with whose privity, or for whose direct benefit an improvement is made to the premises.¹ A "contractor" is defined in the Act as a person contracting with or employed directly by the owner or an agent of the owner to supply services or materials to an improvement and includes a joint venture entered into for the purposes of an improvementor improvements.²

The Superior Court Decision in Mahendran

In determining whether the plaintiff fell within the definition of an owner or contractor under the Act, The Honourable Justice Edwards looked at, among other things, the substance of the relationship to determine whether the plaintiff agreed to contribute to the project as a contractor, or whether he formed a partnership with the defendants and was an owner within the meaning of the Act.

Justice Edwards followed the decision in Cohen v Brin, 2013 ONSC 1302³ ("Brin"), wherein Master Albert addressed the distinction between owner and contractor. In Brin (and while acknowledging that the existence of a partnership depends on the facts and circumstances of each case and the intention of the parties), Master Albert noted that the existence of a partnership includes three essential ingredients, specifically: 1. a business; 2. carried on in common; 3. with a view to profit. Master Albert further noted that the indicia of a partnership includes the contribution by the parties of money, property, effort, knowledge, skill or other assets to common undertaking, a joint property interest and the sharing of profits or losses (see Brin paragraph 15).

Justice Edwards reviewed the cross-examination transcript in the proceedings which indicated (similar to Brin), that the plaintiff contributed money, skill, services and materials to a common interest, with a view to profit, and the relationship was more akin to a partnership with the defendants.

Based on the facts and evidence before the court, Justice Edwards was satisfied that the plaintiff was an owner as defined in the Act and the lien was ordered to be discharged.

The plaintiff has appealed the order of Justice Edwards to the Divisional Court, which appeal is pending.⁴

Key takeaway

Prior to entering into a prime contract in respect of construction improvements (and prior to the assertion of any legal claims relating thereto), a contractor should consider whether the relationship being (and ultimately) structured vis-à-vis the owner has the indicia of a partnership, to avoid any unintended consequences, including in respect of the ability to register a construction lien pursuant to the Act.

Footnotes

1. Construction Act, R.S.O. 1990, c. C 30, s 1.

2. Ibid

3. Cohin v. Brin, 2013 CarswellOnt 2307, 2013 ONSC 1302.

4. Mahendran v. 9660143 Canada Inc., 2022 CarswellOnt 5687, 2022 ONSC 2529 at para 12.

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