The Divisional Court considers when a subcontractor’s lien rights expire where they have more than one subcontract

Introduction

In Prasher Steel Ltd. v. Pre-Eng Contracting Ltd.,[1] the Divisional Court addressed a number of issues arising on appeal, including the differences between “contracts” and “subcontracts,” as those terms are defined by the Construction Lien Act, RSO 1990, c. C.30 (the “Act”),[2] for the purposes of establishing deadlines for preserving and perfecting lien claims. In this case, the Court considered whether, pursuant to section 31(3) of the Act, subcontractor liens ought to be preserved on a subcontract-by-subcontract basis where a subcontractor has performed work under two separate subcontracts with the same contractor on the same improvement.[3]

Background of the dispute: The timeliness of the Prasher liens

The Plaintiff subcontractor, Prasher Steel Ltd. (“Prasher”), entered into two separate subcontracts with the Defendant contractor, Pre-Eng Contracting Ltd. (“Pre-Eng”), to provide services and materials with respect to: (1) the fabrication and installation of structural steel (the “Structural Steel Subcontract”) and (2) miscellaneous metal and components (the “Miscellaneous Metal Subcontract”) to the Rick Hansen School in Aurora, Ontario (the “Project”).

Prasher asserted that it had properly performed the required work under both subcontracts, but remained largely unpaid, whereas Pre-Eng asserted a counterclaim arguing that Prasher had not completed its work and/or had deficiently completed the work required. Pre-Eng further alleged that while Prasher, from a temporal perspective, had properly perfected its lien claim with respect to the Miscellaneous Metal Subcontract, it had failed to do so with respect to its lien claim in respect of the Structural Steel Subcontract (i.e., Pre-Eng’s position was that the Prasher lien regarding the Structural Steel Subcontract was preserved out of time).

Background and trial decision

The Trial Court determined that Prasher failed to preserve its lien claim with respect to the Structural Steel Subcontract on time, but that Prasher validly preserved its lien claim with respect to the Miscellaneous Metal Subcontract.[4] In arriving at this determination, the Trial Court applied the Supreme Court of Canada’s decision in Board of Trustees Rocky Mountain School Div. No. 15 v. Atlas Lumber Co.,[5] to conclude that subcontractor lien claims expire on a subcontract-by-subcontract basis and must be separately liened within the time periods prescribed by the Act. However, the Court also found that Prasher had a continuing claim for personal judgment against Pre-Eng in relation to the Structural Steel Subcontract, pursuant to section 63 of the Act, which states:

Subject to paragraph 3 of subsection 36(4) (sheltering), the court may award any lien claimant a personal judgment, whether the claimant proves the lien or not, upon any ground relating to the claim that is disclosed by the evidence against any party to the action for any amount that may be due to the claimant and that the claimant might have recovered in a proceeding against that party.[6]

Subsequent to the Trial Court’s decision, Pre-Eng brought an appeal to challenge the Trial Court’s decision, which found that Prasher was owed amounts under both the Miscellaneous Metal Subcontract (through Prasher’s personal judgment against Pre-Eng) and the Structural Steel Subcontract (through Prasher’s lien claim).

Key issues on appeal

On appeal, the Divisional Court addressed several critical themes in respect of the Trial Court’s decision with respect to Prasher’s lien claims. In particular, the Court examined whether the trial judge erred in including claims related to the Miscellaneous Metal Subcontract.[7] Furthermore, the Divisional Court assessed whether the trial judge was correct in finding that the lien claim under the Miscellaneous Metal Subcontract was timely, which was crucial for determining the lien expiry period under both the Miscellaneous Metal Subcontract and the Structural Steel Subcontract.[8]

In examining the aforementioned issues on appeal, the Divisional Court reiterated that:

• the Act treats “contracts” (section 31(2)) and “subcontracts” (section 31(3)) differently for the purposes of establishing deadlines for preserving and perfecting lien claims;[9] and
• section 63 of the Act exists to address a situation where a subcontractor has a valid claim in contract, but its lien fails due to a failure to preserve and perfect within the timelines established by the Act.[10]

On appeal, the Divisional Court stated the following proposition, which is instructive regarding the difference between “contracts” and “subcontracts” under the Act:

The word “contract” in subparagraph (i) refers, not to the subcontract under which the subcontractor claim is asserted, but the “contract” between the “contractor” and the “owner” under which the subcontract was let to the subcontractor.  No certificate or declaration of substantial performance of the contract bears on the subcontractor claims in this case; paragraph (i) does not apply.  Neither the Structural Steel subcontract nor the Miscellaneous Metals subcontract was certified completed under s. 33 of the Act; paragraph (iii) does not apply.  Thus, the lien claims of Prasher would have been subject to expiry under paragraph (ii): 45 days after the date on which Prasher last supplied services or materials to the improvement.[11]

On appeal, Pre-Eng advanced numerous issues, which dealt with the timeliness of the preservation and perfection of Prasher’s lien claim under the Miscellaneous Metal Subcontract and the Trial Court’s decision to grant Prasher personal judgment for the amount owing under the Structural Steel Subcontract.

Prasher raised one issue on cross-appeal, which was that the trial judge had erred in finding that subcontractor liens must be preserved on a subcontract-by-subcontract basis where a subcontractor has performed multiple subcontracts for the same contractor for the same improvement.[12]

Ultimately, the Divisional Court dismissed the appeal by Pre-Eng and allowed the cross-appeal by Prasher, resulting in Prasher being entitled to judgment and lien remedies in respect of the full value owing under both the Miscellaneous Metal Subcontract and the Structural Steel Subcontract.

Analysis

LIEN CLAIM ADVANCED PURSUANT TO THE MISCELLANEOUS METAL SUBCONTRACT

In addressing the central issues pertaining to Prasher’s lien claim under the Miscellaneous Metal Subcontract, the Divisional Court considered the following four issues:

1. Whether the trial judge erred in finding that Prasher’s lien claim included claims under the Miscellaneous Metal Subcontract;
2. Whether the trial judge erred in applying the curative provision in section 6 of the Act to save Prasher’s improper lien claim;
3. Whether the trial judge erred in finding that the lien claim for claims under the Miscellaneous Metal Subcontract was timely; and
4. Whether the trial judge erred in finding that the delivery of dollies to the construction site extended Prasher’s lien rights.[13]

With respect to the foregoing issues, the Divisional Court recognized the principle that facts on appeal are the facts found by the trial judge. Further, absent a palpable and overriding error of fact, they should not be upset as an appeal is “not a re-trial on the record before the trial judge.”[14] Thus, having found that Pre-Eng had not identified any palpable error of fact that would justify an interference with the trial judge’s findings, the decisions of the trial judge on these issues were upheld.[15]

PERSONAL JUDGMENT PURSUANT TO SECTION 63 OF THE ACT

On appeal of the personal judgment granted by the Trial Court pursuant to the Structural Steel Subcontract, the Court considered the following issue:

1. Whether the trial judge erred in finding that Prasher was entitled to a claim for personal judgment under section 63 of the Act.[16]

On this issue, the Divisional Court identified that the purpose of section 63 of the Act was to address situations where a subcontractor had a valid claim in contract, but its lien claim failed due to the fact that it was not preserved and/or perfected in time.[17] The Court ultimately ruled that Prasher was entitled to enforce its lien for services or materials supplied to the improvement under the Structural Steel Subcontract and was not restricted to a “personal judgment” in any event (more on this below).

THE CROSS APPEAL

On cross appeal, Prasher argued that the trial judge committed an error of law in finding that Prasher’s lien rights expired 45 days after the last date of the subcontract work or the date of subcontract completion or abandonment, on a subcontract-by-subcontract basis. On this issue, Pre-Eng argued that Prasher’s lien rights should expire separately for each subcontract, citing the Supreme Court of Canada’s decision in Rocky Mountain for support of its position.[18]

The Divisional Court began addressing this ground of appeal by examining the different treatment of the terms, “contract” and “subcontract,” in the Act regarding the timelines established for preserving and perfecting lien claims. The Divisional Court identified that Prasher was a subcontractor, and Pre-Eng was a contractor on the Project.[19] Next, the Divisional Court turned to the language of the Act, specifically section 15, which provides “[a] person’s lien arises and takes effect when the person first supplies services or materials to the improvement.”[20] The Court found that there is no language contained in section 15 of the Act which would indicate that a lien arises on a subcontract-by-subcontract basis.[21]

The Divisional Court determined that Pre-Eng’s argument that Prasher’s lien rights expired 45 days after the last date of the subcontract work or the date of subcontract completion or abandonment, on a subcontract-by-subcontract basis was in error, and that Pre-Eng relied on the test for the expiry of a “contractor’s” lien rights under section 31(2) of the Act, whereas Prasher was a subcontractor and, therefore had its lien rights governed by section 31(3) of the Act.[22] Ultimately, the Court determined that subcontractor lien claims do not expire on a subcontract-by-subcontract basis under section 31(3) of the Act. Rather, the Divisional Court found that, “a subcontractor’s lien claims persist until 45 days after last supply “to the improvement” under section 31(3)(iii).”[23]

The Court distinguished this case from Rocky Mountain on the basis that the lien claim in Rocky Mountain was governed by the Mechanics’ Lien Act, RSA 1942, c. 236, s.22, which specifically contemplated termination of lien rights 35 days after the “completion or abandonment of the… subcontract.”[24] The Court recognized that the legislature updated this language with the enactment of the Act, and thus, the principle of the expiry of subcontracts on a subcontract-by-subcontract basis is not applicable under the Act. The Court noted that while Rocky Mountain remains relevant for prevenient arrangements, it no longer applies to the expiry of subcontractor lien claims.[25]

Therefore, on the plain language reading of section 31(3)(a)(ii), the Court found that Prasher’s lien rights in respect of all services and materials it supplied to the Project, expired 45 days after the date of its last supply of services and materials to the improvement. The Court determined that the trial judge had erred in concluding that the lien claim respecting the Structural Steel Subcontract had to be preserved separately and earlier than the lien claim under the Miscellaneous Materials Subcontract, and accordingly, the Court ruled that Prasher’s claims for lien under both subcontracts were timely.[26]

Key takeaways

The Prasher v Pre-Eng decision provides further commentary and adds to evolving case law with respect to the interpretation of lien right preservation under the Act, and the differences depending upon whether the party wishing to preserve its rights is a contractor or a subcontractor on the subject project. Of critical importance to this decision is the proposition that liens arise upon the supply of services and materials to an improvement, and the time to preserve a lien claim expires based on the date of last supply of services or materials to the improvement. As noted by the Divisional Court in this case, absent certificate 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.”[27]

Should you have any questions, please do not hesitate to contact a member of Miller Thomson’s Construction and Infrastructure group.

---

[1] Prasher Steel Ltd. v. Pre-Eng Contracting Ltd., 2024 ONSC 4772 [“Prasher v Pre-Eng”].

[2] The Court noted that the Construction Lien Act was the governing legislation as Prasher’s lien claim pertained to services and material supplied to the improvement in 2012.

[3] Supra note 1 at para 3.

[4] Ibid at para 1.

[5] Board of Trustees Rocky Mountain School Div. No. 5 v. Atlas Lumber Co., 1954 CanLII 61 (SCC), [1954] SCR 589.

[6] Construction Lien Act, RSO 1990, c. C.30, s. 63.

[7] Supra note 1 at para 2.

[8] Ibid.

[9] Ibid at para 28.

[10] Ibid at para 25.

[11] Ibid at para 32.

[12] Ibid at para 3.

[13] Ibid at para 2.

[14] Ibid at para 5.

[15] Ibid.

[16] Ibid at paras 2 and 6.

[17] Ibid at para 25.

[18] Ibid at para 33.

[19] Ibid at para 29.

[20] Ibid at para 30.

[21] Ibid.

[22] Ibid at para 33.

[23] Ibid at para 34.

[24] Ibid at para 35.

[25] Ibid at para 36.

[26] Ibid at paras 37 and 38.

[27] Ibid at para 9.