Is a general contractor the same as a “contractor” under the Construction Act? Does a “closer than usual” relationship between an owner and contractor turn the contractor into a co-owner? These were two of the questions recently considered in Alumtech Bond Inc. v. Epic Precast Ltd., 2021 ONSC 4447. In this case, the defendant general contractor, Suncity, successfully brought a motion under section 47 of the Construction Act to declare the lien of the plaintiff lien claimant, Alumtech, expired on account of a failure to be perfected.
Epic Precast Ltd. (“Epic”) was the owner of a commercial property. In 2018, Epic hired Suncity Development Ltd. (“Suncity”) under a CCDC 3-2016 Cost Plus Contract (“the Construction Contract”) to build a commercial plaza at cost, with a guaranteed maximum price of $25,000,000. The Construction Contract also specified that Suncity would earn a fee of 3% of the cost.
In turn, on June 19, 2019, Suncity entered into an agreement with Alumtech Bond Inc. (“Alumtech”) whereby Alumtech was to, amongst other things, supply and install aluminum composite panel, fascia, capping and soffit for two of the buildings in the plaza. Alumtech proceeded with its work, and its last date of supply was September 30, 2020. A dispute then arose, after which Suncity terminated its agreement with Alumtech on December 16, 2020.
On October 21, 2020 Alumtech registered a claim for lien in the amount of $26,067.21. The parties did not dispute the timeliness of the preservation of the lien. What was disputed, however, was whether Alumtech perfected its lien in time. Alumtech waited until January 12, 2021 to commence its action. On January 13, 2021 it registered a certificate of action, a period of 109 days after the date of last supply.
A threshold issue before the Court was what version of the Construction Act applied: the statute as it read on June 29, 2018 (the “Old CA”), or after that date (the “New CA”). If the former applied, then Alumtech had 90 days to perfect its lien, and therefore it was out of time (109 days was 19 days too late). If the latter, then it had 150 days to perfect.
On the motion, Alumtech argued that its lien was properly perfected. Its principal argument was that the Construction Contract between Epic and Suncity was a sham: Suncity was actually an “owner” under the Construction Act, making Alumtech a “contractor”. If so, then Alumtech’s lien was properly perfected for two reasons:
- Section 87.3(1)(a) of the Construction Act specifies that if “a contract for the improvement was entered into before July 1, 2018”, the Old CA applies. But if the Construction Contract was not a valid contract, then it would not trigger the application of this provision. Thus the period for perfection would be 150 days (under the New CA) and not 90 days.
- If it were a “contractor”, Alumtech’s lien period would not start to run until the date of formal contract termination, December 16, 2020, as opposed to the date of its last supply, September 30, 2020.
In examining these arguments, the Court first noted that, by its own admission, Alumtech had conceded that it was not a “contractor” but a “subcontractor” under the Construction Act. In the Court’s opinion, these admissions were “telling”. For instance, Alumtech had pleaded that Epic was at all material times the owner of the Property, but made no reference to any other entity as being an owner. It also pleaded that Suncity was a “general contractor”. Both of these admissions were reiterated in its claim for lien, in which it again named Epic as an owner and Suncity as a general contractor.
The Court found that the above were “clear admissions” and held that Suncity could rely on them on its motion to declare the lien expired. Simply, there was one owner on the project, Epic, and one general contractor, Suncity. There was no cross-motion by Alumtech seeking to withdraw these admissions, nor evidence containing a satisfactory explanation for these admissions.
Alumtech did, however, advance an argument that the reference to Suncity as a “general contractor” was a “colloquialism” with a different meaning than the defined meaning of the word “contractor” in the Construction Act. The Court rejected this argument, finding the suggestion “puzzling”, and held as follows (at para. 21):
In my experience, the common use of the words, “general contractor,” parallels exactly how the CA defines “contractor,” namely the party with the contract with the owner. It does not include the concept of ownership. That is how I interpret the use of the words, “general contractor,” in the statement of claim.
Accordingly, the Court found that Alumtech had admitted to Epic being the owner, and Suncity being a contractor. As such, the Construction Contract between them was a “contract” as defined under the Construction Act, and, as it was entered into before July 1, 2018, triggered the application of the Old CA. This meant that as a subcontractor, Alumtech only had 90 days under the Old CA to perfect its lien, which it failed to do.
Other Circumstantial Evidence of the Alleged “sham” Construction Contract
Interestingly, and while not necessary to disposing of Suncity’s motion, the Court went on to opine on other aspects of Alumtech’s arguments. Specifically, it considered the argument that the evidence created a triable issue of a Suncity interest in the plaza as a co-owner. A triable issue would have defeated Suncity’s motion.
To that end, Alumtech introduced several pieces of circumstantial evidence, including:
- Suncity introduced Epic to the property and entered into an alleged construction contract with Epic just a day after Epic bought the plaza;
- the Construction Contract had a fee for Suncity, 3%, that was well below market rate thereby creating an unusually favourable contract for Epic;
- Epic did not keep holdback on periodic payments to Suncity creating unusually favourable payments to Suncity and risk to Epic;
- Suncity admitted having a side agreement with Epic giving Suncity naming rights on signs in the plaza and in advertisements;
- Suncity marketed plaza properties for sale; and
- Suncity employees referred to the relationship between Epic and Suncity employees as a “partnership.”
Yet, despite the fact that this was “evidence of a closer-than-usual relationship between a contractor and an owner”, the Court doubted that it would be enough to create a triable issue. The Court accepted Suncity’s argument that the evidence could “point in other directions or in no direction (at para. 27):
A close relationship between an owner and contractor is not unheard of and does not per se make the contractor an owner. One does not have to be an owner to sell units in the plaza. The agreement about naming rights could be a license agreement and nothing more. There was no evidence as to what the market rate for a management fee for a project of this size was at the time and, therefore, it is unclear whether the contract was indeed favourable to Epic. Furthermore, 3% of $25,000,000, namely $750,000, is not an insignificant amount of money. In addition, a failure to retain holdback by an owner, while not common, is not unheard of, particularly when there is inadequate legal advice on the matter. As to the references to “partnership” in emails, I was not shown evidence that the authors of those emails clarified what they meant by those references. They could, as a result, have been talking about a “contract” relationship.
Ultimately, the Court did not have to rule on any of these evidentiary matters. The judgment does, however, suggest that had Alumtech not made its admissions, perhaps a clearer (less circumstantial) set of facts could have resulted in the Court finding that the relationship between Epic and Suncity was one of co-ownership, not owner-contractor.
In the result, the Court granted the motion to declare the Alumtech lien expired, and ordered that it be vacated and the posted security returned to Suncity. The case is a salutary example of how parties should be careful in framing their pleadings, as the status of a lien claimant being a contractor, as opposed to a subcontractor, could matter for the purposes of whether a lien is preserved or perfected in time.