March 2, 2022
Can a Trust Claim be Joined with a Lien Claim under Ontario's Construction Act? Recent Competing Decisions on a Clomplex Issue
Recently, there have been a series of competing decisions over whether or not a trust claim can be joined with a lien claim in an action under the Construction Act R.S.O. 1990, c C.30.
By way of background, on December 12, 2017 Ontario’s Construction Lien Act Amendment Act, 2017 was passed into law, renaming the Construction Lien Act to the Construction Act and making (subject to transition provisions) substantial changes to the legislation. These included the removal of section 50(2) (which provided that a trust claim cannot be joined with a lien claim) and section 55(1) (which allowed lien claims to be joined with claims for breach of contract and subcontract). Over a year-and-a-half later, on May 23, 2019, the legislature then reintroduced s.55(1), as section 3(2) of O.Reg 302/18 (The Regulation governing procedures for actions under Part VIII of the Act).
In decisions released in December of 2021 and January of 2022, Associate Justice Wiebe of the Construction Lien Court in Toronto addressed the impact of the reintroduction of s.55(1) (by way of O.Reg 302/18) on the ability of a lien claimant to join a trust claim in its Action to enforce its claim for lien. In Damasio Drywall Inc. v. 2444825 Ontario Limited, 2021 ONSC 8398 and 6628842 Canada Inc. v. Topyurek, 2022 ONSC253, Wiebe, A.J. more particularly held that:
“… the Legislation appears to have had a change of mind and decided to resurrect the joinder limitation of the old section 55(1).”
“Therefore, trust claims may again be prohibited from being joined with lien claims.”;
a “trust claim is entirely different cause of action from a breach of contract claim”;
that, pursuant to s.50(3) [formerly s.67(1)], a lien action must still be “as far as possible of a summary character”;
that “while a trust claim derives from a breach of contract claim, it concerns trust rights in project funds”, involves “tracing and potential collateral remedies against officers and directors of a corporate trustee” and “is a potentially complex claim”;
a trust claim “cannot pass the test of O.Reg 302/18 section 3(2) as that section has been historically interpreted”; and that
if the Legislature had “intended to allow trust claims to be joined with lien claims it should have stated so explicitly, given this mandate and the nature and complexity of a trust claim”.
In late January, 2022, the issue came before Justice Harper of the Ontario Superior Court of Justice, in SRK Woodworking Inc. v. Devlan Construction Ltd. et al, 2022 ONSC 1030. Justice Harper disagreed with Associate Justice Wiebe’s approach. In doing so, His Honour recognized that the issue is both complex and important, going so far as to suggest that the issue might best be addressed by way of a stated case to Ontario’s Divisional Court.
In allowing the joinder of trust claims, Justice Harper considered well-established principles of statutory interpretation in general, as well as the implication of both case law and the Legislation Act, 2006, S.O. 2006, c.21 on the impact of legislative amendments on the prior state of the law. Towards assessing legislative intent, His Honour referenced Striking the Balance: Expert Review of Ontario’s Construction Lien Act (requestioned by the Attorney General), an Attorney General summary entitled Key Changes to the Construction Lien Act (now the Construction Act) – Ministry of the Attorney General and the Hansard transcripts of the debates conducted in the legislature over the proposed changes. He held upon that review that the legislative intention is to allow lien and trust claims to be joined.
It appears, however, that His Honour failed to recognize that Striking the Balance, the Attorney General’s summary and the Hansard transcripts were all created well before s. 51(1) was reintroduced by way of s.3(2) of O.Reg 308/18. We are thus not sure His Honour addressed the question which Associate Justice Wiebe had posed: what was the legislature’s intention in reintroducing s.51(1) by way of regulation?
In addition, although Justice Harper’s analysis is detailed, well thought-out and lengthy, it does not expressly consider any of the historical case law which had interpreted s.51(1). It also does not expressly consider s.67(1) [now 50(3)] of the Act, which requires lien actions, as opposed to trust actions, to be conducted as summarily as possible. We note that the case law dealing with these sections appears to confirm that, because of the statutorily mandated need for the expedient and speedy resolution of a lien action, claims not essentially connected to a lien claim should not be joined.
Of note, Justice Harper also held:
a) that whether or not a trust claim might be properly joined with a lien claim would depend in part on whether the prompt payment and adjudication provisions of the Construction Act apply; and
b) in obiter, that the Attorney General had no authority to pass s. 3(2) of O.Reg. 308/18.
Justice Harper’s decision is subject to appeal and we will accordingly not delve into the merits of his analysis in this space. Suffice it to say that we do not necessarily agree. In the end, however, His Honour may ultimately be right in his conclusions. The matter at issue is, as His Honour indicated, both complex and of great importance to construction lawyers and participants alike. It is now ripe for a determination by the Ontario Divisional Court. One way or another, it will be good to get clarity on the issue.
Kennaley Construction Law
This material is for information purposes and is not intended to provide legal advice in relation to any particular fact situation. Readers who have concerns about any particular circumstance are encouraged to seek independent legal advice in that regard.