The principal laws governing construction contracts in Canada are rooted in common law, with the notable exception of Quebec’s civil code.
Even so, many practical remedies afforded to parties, related to construction contracts, are similar. However, not everything is the same everywhere, particularly when it comes to liens.
Take the protections offered by liens. What may be a “lienable service” in British Columbia may not be lienable elsewhere. A recent case highlights this.
Owners of a proposed mixed-use redevelopment rental project in Vancouver applied for the cancellation of a lien filed on title and a certificate for pending litigation, in relation to payment being sought for services supplied by Cape Group Management.
At the outset, and in anticipation of the project going forward, a memorandum of understanding, a letter of intent and ultimately a partnership agreement had been signed between Cape and the property owners. It was contemplated the owners would contribute the land and Cape would provide certain development services. Additional entities would be formed, with the beneficial interest in the completed project shared among them.
As Edward Lynde, partner with Fasken Martineau DuMoulin LLP, and associate Anna Lu described to the Daily Commercial News, Cape did a considerable amount of advance project work.
This included, “retaining a consultant to perform an environmental investigation to determine potential contaminants and hazardous materials, retention of various consultants, including geotechnical and structural engineers, undertaking design components to accommodate the existing soil conditions, and securing a crane swing and underpinning agreements with neighbours.”
However, no planning approvals were obtained and no physical demolition or construction work was ever undertaken. Cape blamed poor market conditions and the owners’ failure to pay their invoices. The owners claimed Cape had abandoned the project.
That’s when Cape placed a lien on the property, representing invoices for services rendered totalling just over $2 million. The owners went to court requesting the lien and pending litigation certification be removed.
As Lynde and Lu explained, the main issue put before the court in relation to the owners’ application to cancel the lien and the pending litigation certification was whether Cape’s work constituted work “in relation to an improvement,” and thus giving rise to lien rights under the province’s Builders Lien Act.
The court ruled against Cape and cancelled the lien.
The absence of any required physical demolition or any commencement of construction work meant Cape’s claims of pre-construction work could not be categorized as having any valid right of lien under B.C.’s lien act.
The decision might have been different had the issue risen in Ontario.
“In Ontario, the lien remedy is only available to those entities that have supplied services or materials to an improvement,” said Lynde and Lu.
However, under Ontario’s Construction Act s.1, “the supply of services” is defined by, “any work done or service performed upon or in respect of an improvement.”
This includes, “the rental of equipment with an operator and, where the making of the planned improvement is not commenced, the supply of a design, plan, drawing or specification that in itself enhance the value of the owner’s interest in the land.”
Lynde and Lu pointed out, “the Ontario Construction Act expressly provides for entitlement to lien rights, pursuant to the supply of services in relation to projects that do not proceed. Furthermore, s. 14(3) of the Construction Act expressly states that architects and employees of architects are entitled to liens in relation to services or materials supplied by an architect pursuant to the Architects Act.”
At the same time, each case is unique.
“Not all services will give rise to the entitlement to a lien, and only those services which in themselves have some connection to the improvement,” Lynde and Lu said. “What constitutes to be lienable service remains a highly fact-specific inquiry. Each case may depend on its own facts and circumstances applied to the provisions of the Construction Act, including the definitions contained therein.”
John Bleasby is a Coldwater, Ont.-based freelance writer. Send comments and Legal Notes column ideas to editor@dailycommercialnews.com.
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