Can construction breach of trust and construction lien claims be joined?

Introduction

Determining legislative intent – or, at a more basic level, the current state of the law – when interpreting a statute can be difficult. When reading certain provisions of a statute, steps should be taken to, among other things, ensure that the most current provisions are being reviewed, in addition to whether those provisions may be affected by Regulations to that legislation. Next you have to consider how the legislative provisions have been (if at all) treated by the courts.

Some recent cases in construction law are proving to be an example of how legislation can be interpreted in different ways by different decision makers, and the impact on construction law practice has been significant. The question is whether the Construction Act intends for construction breach of trust actions to be joined with construction lien actions, and this article addresses the issue of how the courts have treated the legislative amendments and provisions in this regard.

Legislative background: Intended removal of the prior prohibition?

Before the current iteration of the Construction Act[1] (“CA”), which first came into force on July 1, 2018 with future amendments coming into effect on a rolling basis, the Construction Lien Act[2] (“CLA”) was in place.

As part of the government’s effort to update the CLA, the government commissioned an expert report titled, “Striking the Balance: Expert Review of Ontario’s Construction Lien Act” (the “Report”). The Report was well received by many stakeholders and became the foundation of Bill 142, Construction Lien Amendment Act, 2017, with most of the Report’s recommendations being adopted by the Bill’s drafters.

Among the provisions that were removed from the CLA by way of Bill 142 (which also changed the name from the Construction Lien Act to the Construction Act) were sections 50(2) and 55(1):

Trust claim and lien claim not to be joined

50 (2) A trust claim shall not be joined with a lien claim but may be brought in any court of competent jurisdiction. R.S.O. 1990, c. C.30, s. 50 (2).

…

Accommodating multiple claims

Joinder of claims

55 (1) A plaintiff in an action may join with a lien claim a claim for breach of contract or subcontract.  R.S.O. 1990, c. C.30, s. 55 (1).

After providing some background on why section 50(2) came into existence in the first place, the Report notes that Ontario was (or, pending the outcome of the appeal of the SRK Woodworking decision described below, possibly still is) the only common law province that prohibits the joinder of construction lien and trust claims. At Recommendation #39 of the Report, the Report recommended that:

The prohibition on joinder of lien claims and trust claims under section 50(2) should be removed from the Act, subject to a motion by any party that opposes joinder on the grounds of undue prejudice to other parties.

Today, although section 50(2) under the old CLA was removed, Ontario Regulation 302/18 to the CA currently reads as follows:

Joinder

3. (2) A plaintiff may, in an action, join a lien claim and a claim for breach of a contract or subcontract. O. Reg. 110/19, s. 2.

Essentially, this reintroduces the “old” section 55(1) of the CLA.

The cases and judicial treatment of the legislation

Consideration of the Ontario legislature’s recent removal of the prohibition on joinder of lien claims and trust claims started with these obiter dicta[3] statements of Associate Justice Wiebe in the Damasio Drywall Inc. v. 2444825 Ontario Limited[4] (“Damasio”) decision dated December 20, 2021:

Second, there was the issue of O. Reg. 302/18, section 3(2). Ontario Regulation 302/18 is a regulation under the CA. O. Reg. 302/18, section 3(2) is the old CA section 55(1) which allowed the joinder of only “claims for breach of contract or subcontract” to a lien claim. Section 55(1) was interpreted for some time as prohibiting the joinder of claims that were not breach of contract claims to lien claims. That would certainly apply to breach of trust claims.

Mr. Ostrom argued that the old CA contained an explicit prohibition against joining a breach of trust claim to a lien claim. That was the old section 50(2). He pointed out correctly that that prohibition was not carried forward into the new CA. He, therefore, argued that the new CA should be interpreted as allowing for the joinder of trust claims with lien claims.

I stated that I am inclined to disagree. Neither the prohibition in old section 50(2) nor that the joinder limitation in old section 55(1) were carried forward into the initial version of new CA. However, I note that in the spring of 2019 the Legislature reintroduced the joinder limitation of old section 55(1) by adding section 3(2) to O. Reg. 302/18. The wording was the same. That means, in my view, 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.[5] (emphasis added)

The Decision in 6628842 Canada Inc. v. Topyurek

Next, the obiter dicta in Damasio became the ratio decidendi[6] in the subsequent decision of 6628842 Canada Inc. v. Topyurek[7] (“Topyurek”) dated January 10, 2022, also from Associate Justice Wiebe. In Topyurek, Associate Justice Wiebe dismissed the plaintiff’s motion for summary judgment, in part, as follows:

Improper joinder of trust claim: I advised that I adopt the obiter comments I made in Damasio Drywall Inc. v. 2444825 Ontario Limited, … wherein I stated that by reinstating the joinder limitation of old Construction Act, … section 55(1) as O. Reg. 302/18, section 3(2) in the spring of 2019, the Legislature changed its mind and decided to continue to prohibit the joinder of trust claims with lien claims. Therefore, I find that the joinder of the trust claim (including any claim associated with the trust claim such as the accounting) to the lien claim in this case improper.[8]

Justice Harper weighs in

On February 8, 2022, Justice Harper took the opposite approach in SRK Woodworking Inc. v. Devlan Construction Ltd. et al.[9] (“SRK Woodworking”).  In this decision, Justice Harper addressed the issue of whether a breach of trust claim could be added to a lien action and concluded, “I find that there is no reason why the trust and lien claims cannot be part of the same action in this case.”

Appeal of Justice Harper’s decision to the Divisional Court

The Divisional Court granted leave to appeal the decision in SRK Woodworking by way of its decision dated May 6, 2022.[10]  Accordingly, as of the date of this article, the question of whether a claim for breach of trust can be joined with a lien action remains up in the air.

In the meantime, it will be interesting to see if the Ontario legislators revise the provisions described in this article to achieve what Recommendation #39 of the Report proposed, as noted above.

In light of the explicit prohibition against joining breach of trust and lien claims being removed from section 50(2), it seemed that the legislative intent was to allow for such a joinder. However, the reintroduction of the language that was previously at section 50(2) of the CLA as section 3(2) of O. Reg. 302/18 raises questions as to what the legislative intent really was. Associate Justice Wiebe identified this issue and in our view, invites the legislators to clarify this issue.

Impact

The prohibition makes for less practical litigation and court procedures. If breach of trust and lien actions have to still be brought separately (and thereafter “connected” by way of a connecting order to be prosecuted together with common discoveries, pre-trial conferences and settlement meetings), this will result in duplicative costs and additional strain on the court system.

If and when there is a legislative amendment, or appellate court decision that resolves this issue, you can expect Miller Thomson’s Construction Law team lawyers to publish an update. Stay tuned.

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[1] R.S.O. 1990, c. C.30

[2] R.S.O. 1990, c. C.30

[3] Obiter dicta statements in a court decision are remarks by the judge that may be persuasive, but are not legally binding.

[4] Damasio Drywall Inc. v. 2444825 Ontario Limited, 2021 ONSC 8398 (CanLII)

[5] Ibid at paras 4-6.

[6] Ratio decidendi is the reason for the decision and is legally binding.

[7] 6628842 Canada Inc. v. Topyurek, 2022 ONSC 253 (CanLII)

[8] Ibid at para 2.

[9] SRK Woodworking Inc. v. Devlan Construction Ltd. et al., 2022 ONSC 1038 (CanLII)

[10] Devlan Construction Ltd. v. SRK Woodworking Inc., 2022 ONSC 2579 (CanLII)