As our readers are aware, Ontario's Construction Act succeeded Ontario's Construction Lien Act ("CLA") in 2018. Notwithstanding the new legislation taking effect, however, elements of the CLA still continue to apply in certain circumstances as a result of the Construction Act's transition provisions. For example, the CLA may continue to apply for construction contracts and subcontracts where the in-force legislation at the time of contract execution was the CLA.
In general, the transition provisions of the Construction Act are complicated, and understanding how the courts interpret provisions of the CLA remains valuable – and in fact necessary in many instances – to understanding the Construction Act. Of the same token, many provisions of the CLA can be found in either the same or substantively similar form in the Construction Act, such that the proper interpretation of CLA provisions may be relevant to the proper interpretation of those provisions' counterparts under the Construction Act.
Notably this topic was of particular relevance to the recent decision of Prasher Steel Ltd. v. Pre-Eng Contracting Ltd.,2024 ONSC 4772 ("Prasher Steel"); there, the Divisional Court was faced with the issue of whether a subcontractor who had performed work for one project under two separate subcontracts had separate streams of lien rights for each subcontract (with separate dates of expiry), or whether those subcontracts collectively formed the basis for a single set of lien rights (including a single expiry date for all subcontracts).
The Divisional Court found – at least in circumstances where the relevant issue before the court is the subcontractor's date of last supply – that a subcontractor's lien claim does not expire on a subcontract-by-subcontract basis.
Below, we discuss potential implications regarding expiring lien claims with subcontracts still governed by the CLA, as well as the case's application to similar provisions in the Construction Act.
Factual Background
Pre-Eng Contracting Ltd ("Pre-Eng") was a general contractor hired by the owner, York Region District School Board ("YRDSB"), to construct a public school facility in 2011.1 Pre-Eng entered two subcontracts with Prasher Steel Ltd ("Prasher") for: (1) fabrication and installation of structural steel components (the "Structural Subcontract"); and (2) fabrication and installation of miscellaneous metal components (the "Miscellaneous Subcontract"). As a result, the governing legislation for these contracts was the CLA rather than the Construction Act.2
Construction began in August 2011, and the school was ready for use by the time students were ready to commence classes in September 2012. The building was formally turned over to YRDSB on October 1, 2012.
Prasher commenced erecting the steel for the Structural Subcontract in November 25, 2011. The date on which work was completed was subject to dispute, but the trial judge fixed the date of last supply as July 25, 2012. Regarding the Miscellaneous Subcontract, the trial judge fixed the date of last supply as August 21, 2012. This latter date was fixed based on Prasher's final supply of chair dollies and brackets to the work site.
Prasher claimed that it performed most of the work required of it, but remained mostly unpaid. Prasher therefore registered a single lien against the property on October 3, 2012, treating the two Subcontracts as giving rise to a single stream of lien rights.
In response, Pre-Eng claimed that Prasher did not complete significant parts of its subcontracts, and in any event, that Prasher did not preserve its lien rights in time.
Thereafter, Prasher commenced an action against Pre-Eng in order to perfect its lien.
The Superior Court Decision
This lien matter proceeded before to trial in 2021, with judgment rendered in 2022.
The Court found that there were two subcontracts between the parties (as noted above) relevant to the lien claim forming the basis for the action: (1) the Structural Subcontract; and (2) the Miscellaneous Subcontract. Furthermore, and importantly, the Court concluded that Prasher's lien rights expired on a subcontract-by-subcontract basis, such that each of the Structural Subcontract and Miscellaneous Subcontract carried their own date of last supply (and therefore date by which Prasher needed to preserve a separate lien for each subcontract). As a result, Prasher was required to preserve its lien rights on a subcontract-by-subcontract basis even though the subcontracts related to the same improvement, with separate liens necessary for each subcontract.
For the Structural Subcontract, the trial judge found that Prasher's lien rights expired on September 8, 2012. Since Prasher registered its lien claim on October 3, 2012, the trial judge concluded that Prasher's lien in respect of the Structural Subcontract was not preserved in time. Given the timeframe under the CLA, the date for registration of a claim for line was 45 days following the date of last supply. Given that the date of last supply for the structural subcontract was fixed at July 25, 2012, the expiry date for the preservation of a lien would have been (as noted above) September 8, 2012.
Conversely, Prasher's date of last supply for the Miscellaneous Subcontract, the total value of which subcontract was $5,500, was August 21, 2012. Pre-Eng asserted that this constituted "trivial" work that could not revive an otherwise expired lien for the much larger Structural Subcontract.
The Court agreed that "permitting parties to artificially extend the time limit in which to preserve a lien by supplying trivial work or materials would undermine the certainty of the time limits in the CLA and the proper functioning of the [Construction] Act".3 However, the Court explained that whether a particular supply would be "trivial" was contextual and in this specific case, the supply was not trivial.
With respect to the timing of the work under the Miscellaneous Subcontract, Prasher worked in "fits and spurts" over many months. This was the subject of an ongoing complaint by Pre-Eng, suggesting that Prasher had been "puttering away" working on the Miscellaneous Subcontract for months. On this point, the Court concluded that Prasher was not attempting to artificially extend its lien rights by belatedly showing up on site to perform negligible work; in that regard, the Court distinguished this case from Wildberry Homes Inc v Prosperity One Credit Union Limited4, where the plaintiff contractor returned to site two-and-a-half months after their true last supply to install a single $84 handrail.
Thus, the trial judge found that only Prasher's Miscellaneous Subcontract lien claim was registered in time: given that the date of last supply under this subcontract was August 21, 2012, this would have made October 5, 2012 the last day on which to register a lien in respect of the Miscellaneous Subcontract; because Prasher registered its single lien on October 3, 2012, it was therefore in time.
As a result, the Court concluded that Prasher had successfully preserved its lien rights in respect of the Miscellaneous Subcontract, but was out of time with respect to the attempted preservation of its lien rights in respect of the Structural Subcontract.
The Divisional Court Decision
Pre-Eng appealed the 2022 decision on multiple grounds, including whether the trial judge erred in finding that Prasher's last supply of materials was not "trivial" such that the overall lien period could be extended by a later date of last supply.
The Divisional Court quickly disposed of the triviality issue, concluding that the trial judge had made a context-driven assessment of Prasher's last supply and made no palpable and overriding error in that regard.
Prasher cross-appealed, arguing that the trial judge erred in finding that subcontractor liens had to be preserved on a subcontract-by-subcontract basis where the subcontractor had undertaken work in two or more subcontracts with the same contractor on the same improvement.
In deciding Prasher's cross-appeal, the Divisional Court distinguished between how "contracts" and "subcontracts" are treated in the CLA with respect to deadlines for the preservation of liens.
"Contract" is defined as the contract between the owner and contractor. A "subcontract" is defined as any agreement between the contractor and a subcontractor, or between two or more subcontractors relating to the supply of services or materials to the improvement. By these definitions, Pre-Eng was a contractor under a contract with YRDSB, while Prasher was a subcontractor under subcontracts with Pre-Eng.
According to the Divisional Court, s. 15 of the CLA provides that a person's lien would arise and take effect when the person first supplied services or materials to the improvement, and that the time to claim a lien expires based on the date of last supply of services or materials to the improvement. Nothing in the language of this provision indicates that a lien would arise on a subcontract-by-subcontract basis (i.e. that a subcontractor would have separate liens for multiple subcontracts for the same improvement) – rather it suggested only a single lien tied to the overall services provided to the improvement.
Prasher was a subcontractor, and thus s. 31(3) of the CLA applied as follows:
"(3) Subject to subsection (4), the lien of any other person,
(a) for services or materials supplied to an improvement on or before the date certified or declared to be the date of the substantial performance of the contract, expires at the conclusion of the forty-five-day period next following the occurrence of the earliest of,
(i) the date on which a copy of the certificate or declaration of the substantial performance of the contract is published, as provided in section 32, and
(ii) the date on which the person last supplies services or materials to the improvement, and
(iii) the date a subcontract is certified to be completed under section 33, where the services or materials were supplied under or in respect of that subcontract..."
The Divisional Court explained that reference to "the contract" in s. 31(3)(a)(i) was to the prime contract (i.e., the contract between Pre-Eng and the YRDSB). Here, there was no certificate or declaration of substantial performance of the contract, and therefore s. 31(3)(a)(i) did not apply. Since neither of Prasher's subcontracts were certified to be completed, s. 31(3)(a)(iii) did not apply either.
Thus, Prasher's lien claims were subject to expiry under s. 31(3)(a)(ii) of the CLA – in other words, the date on which the subcontractor last supplied services or materials to the improvement.
The Divisional Court found that Prasher's lien claim would persist until 45 days after last supply to the improvement. Had Pre-Eng wished to terminate the Prasher's lien rights for one of the subcontracts, they should have utilized s. 31(3)(a)(iii) – but they did not.
Finally, the Divisional Court distinguished the Supreme Court of Canada's 1954 decision in Board of Trustees Rocky Mountain School Div. No. 15 v. Atlas Lumber Co ("Rocky Mountain"), because that decision was based on Alberta's Mechanics Lien Act, which expressly provided for termination of lien rights 35 days after completion or abandonment of the subcontract. Pre-Eng had successfully relied upon Rocky Mountain before the trial judge, which case stood for the proposition that lien rights expire on a contract-by-contract basis under Alberta'sMechanics Lien Act, RSA 1942, c. 236, s.22.
On this point, the Divisional Court also observed that no Ontario Court has followed Rocky Mountain to find expiry of subcontracts on a subcontract-by-subcontract basis since enactment of the CLA. However, Rocky Mountain does continue to apply in Ontario in respect of prevenient arrangements5, so as to permit claims under separate contracts to expire on the basis of the date of last supply (given that such an arrangement implies an overarching relationship giving rise to multiple different transactions, somewhat like an informal master services agreement).
Therefore, the Divisional Court concluded that the trial judge had erred in concluding that Prasher's lien claims had to be preserved on a subcontract-by-subcontract basis. Because Prasher's lien rights were in respect of both its subcontracts as a whole, the Divisional Court concluded that Prasher had validly preserved its lien claim for both subcontracts.
Analysis
Prasher Steel is instructive in respect to how Ontario's courts may interpret the CLA and also the similar provisions of the Construction Act. In that regard, many of the provisions reviewed in Prasher Steel are substantially similar (if not identical) as between the two statutes (which is of course natural given that one is simply the modernized version of the other).
As a starting point, "contracts" and "subcontracts" have the same definitions across the CLA and the Construction Act. Thus, like Prasher Steel, a similar distinction can be drawn under the Construction Act. Similarly, s. 6(1) of the Construction Act employs the same language, and references the same subsections, as s. 6(1) of the CLA. This means that the same curative provision is available in similar circumstances where the contract or subcontract arises under the Construction Act.
Section 31(3)(a) of the Construction Act is also substantively similar to s. 31(3)(a) of the CLA, albeit with a notable addition at s. 31(3)(a)(ii.1):
"(3) Subject to subsection (4), the lien of any other person,
(a) for services or materials supplied to an improvement on or before the date certified or declared to be the date of the substantial performance of the contract, expires at the conclusion of the 60-day period next following the occurrence of the earliest of,
(i) the date on which a copy of the certificate or declaration of the substantial performance of the contract is published, as provided in section 32,
(ii) the date on which the person last supplies services or materials to the improvement,
(ii.1) the date the contract is completed, abandoned or terminated, and
(iii) the date a subcontract is certified to be completed under section 33, where the services or materials were supplied under or in respect of that subcontract..." [Emphasis added.]
Subsection (ii.1) was introduced as part of the Construction Act in order to encompass the scenario where a contract, for whatever reason, does not have a mechanism for certifying substantial performance, such that subsection (i) does not apply (in addition to those circumstances where the contract is abandoned or terminated, in which case substantial performance could not be achieved due to the cessation of work).
In that regard, subsection (ii.1) may create an additional hurdle for subcontractors trying to preserve their lien rights, insofar as they may not know when the 60-day period for registering a lien began to run.
First, applying the logic of the Divisional Court, subsection (ii.1) refers to the contract between the contractor and the owner. Section 2(3) of the Construction Act in turn addresses when a contract will be deemed complete:
"For the purposes of this Act, a contract shall be deemed to be completed and services or materials shall be deemed to be last supplied to the improvement when the price of completion, correction of a known defect or last supply is not more than the lesser of,
(a) 1 per cent of the contract price; and
(b) $5,000."
If a subcontractor's last supply of services or materials came after this deemed completion, this could mean the date that the contract is completed would come earlier than a last supply. This in turn would start the clock on the timeline for expiry of lien rights. An unwary party – possibly unwary through no fault of their own – could find itself believing that it has until the date of its last supply, only to then realize that their deadline expires (or expired) earlier than anticipated.
Finally, while the analysis provided in Prasher Steel regarding "trivial supply" was based on the CLA, the same principles underly the Construction Act such that the Court's analysis is equally applicable.
In that regard, Prasher Steel suggests at least two factors that a Court may take into consideration in assessing whether a supply is "trivial":
(1) the total dollar value of the last supply, relative to the overall value of the contract (or subcontract) in question; and
(2) the parties' understanding as to the intended pace or level of productivity of the work (e.g. whether the parties understood that the contractor would be working slowly, sporadically, etc.).
It is well established in case law that certain types of work fall below the de minimis standard established for rising above the "triviality" threshold – for example, returning to site months later to trim a handful of bushes would likely qualify as "trivial" – but the issue will inevitably remain fact-specific.
That being said, parties will want to be mindful or ensuring that their engagement with a counterparty does not constitute a prevenient arrangement, in which case the Rocky Mountain decision might still apply and lien rights would still expire on a contract-by-contract basis. While it will typically be a fairly straightforward task to make this determination, there will inevitably be borderline cases where the challenge is more acute.
Overall, Prasher Steel offers conclusions that are both reasoned and understandable, based on the premise that lien rights apply and expire in respect of an improvement – not in respect of a particular contract. Accordingly, the Court's decision in Prasher Steel is a helpful one in adding clarity to construction common law in Ontario.
As always, when it comes to lies in Ontario, we recommend that you get legal advice early and do everything possible to ensure that you understand your rights clearly and that you understand them early enough to apply them.
Footnotes
1 Prasher Steel Ltd v Pre-Eng Contracting Ltd,2022 ONSC 3458. This decision contains the factual background of the dispute.
2 Under the CLA (and later the Construction Act), the transitional provisions (set out at s. 87.3) provide that the CLA applies to an improvement if (among other things) a contract for the improvement was entered into before July 1, 2018, or a procurement process for the improvement was commenced before July 1, 2018 by the owner of the premises. In this case, the procurement was commenced and the relevant contracts were executed years before July 1, 2018, such that the CLA applied in this case.
3 2022 ONSC 3458 at para 117.
4 2008 CanLII 70790 (SCJ).
5 Briefly put, a prevenient arrangement is understood under Canadian law to be a preliminary understanding between parties that they are entering into an ongoing relationship (pursuant to which the parties will enter into multiple separate transactions).
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.
