Five-and-a-half years after the Construction Act (OCA) passed into law and replaced the Ontario Construction Lien Act (CLA) there are still instances where contracts can overlap the two.
A case in point is the dispute between Prasher Steel Ltd. and Pre-Eng Contracting Ltd.
Back in 2011, Pre-Eng signed a contract with the York Region District School Board to be the general contractor for the construction of a public school facility. Pre-Eng subsequently entered into two subcontracts with Prasher Steel Ltd., one for “structural steel” and one for “miscellaneous metals.” Work began in August 2011, and the building was ready for student use 13 months later in September 2012.
Prasher registered a single lien on the building shortly afterwards, claiming it had been “largely unpaid” for its work. However, trial judge Justice Cary Boswell concluded Pre-Eng, “validly paid to third parties to correct work deficiently performed by Prasher under this contract or to complete work not completed by Prasher.”
The more important question concerned liens rights.
Prasher believed its two contracts would have a single stream of liens rights. Pre-Eng countered, maintaining Prasher had only properly perfected one of its liens on time, not both. Justice Boswell agreed with Pre-Eng.
“The trial judge began his analysis with the threshold question of whether the work the subcontractor had done for the project was done under one global subcontract or two separate subcontracts,” Edward Lynde, partner at Fasken Martineau DuMoulin LLP and articling student Arsal Wahab, told the Daily Commercial News.
“This involved noting that the subcontractor had separately tendered the two subcontracts, separately quoted them, the subcontracts were awarded separately, reflected in two separate written agreements, executed on different dates, invoiced and paid as two separate subcontracts, and most importantly, the subcontractor itself admitted that there were two separate subcontracts.”
Justice Boswell ruled a strict interpretation of the CLA provided for the expiration of lien rights on a contract-by-contract basis. Prasher appealed to the Ontario Divisional Court.
Here it was ruled that Justice Boswell erred in law in his finding that separate claims for lien must be registered in respect to separate subcontracts between the same parties for the same improvement, Lynde and Wahab said.
“Absent certification of substantial performance or completion, it did not matter whether a subcontractor provided its services or materials under one subcontract, or multiple subcontracts — the subcontractor lien arises upon first supply to the improvement and persists until expiry following the date of last supply of services or materials to an improvement.”
“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,” write James Little, partner with Singleton Urquhart Reynolds Vogel LLP, associate Nicholas Reynolds and student Jeff Wong.
As Justice D.L. Corbett of Ontario’s Divisional Court wrote, “Absent certification of substantial performance or completion, it matters not whether a subcontractor provides its services or materials under one subcontract or multiple subcontracts – the subcontractor lien arises upon first supply and persists until expiry following the date of last supply of services or materials.”
How is this case important?
Although the CLA and the OCA have their differences, “Prasher Steel is instructive in respect to how Ontario’s courts may interpret the CLA and also the similar provisions of the newer Construction Act,” write Little, Reynolds and Wong. For example, “contracts” and “subcontracts” have the same definitions across the CLA and the OCA.
Given the complexity of the OCA and the CLA, many provisions are open to potentially competing arguments and vested positions, said Lynde and Wahab, particularly as the OCA continues to evolve through amendments.
“Although trite, it remains paramount for all entities to a construction project, including owners, contractors and subcontractors, to know precisely when lien rights expire as it informs all such entities respective rights and obligations under the governing legislation. Read your contract and know your rights.”
John Bleasby is a freelance writer. Send comments and Legal Notes column ideas to editor@dailycommercialnews.com.
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