In previous newsletters, we discussed a number of cases in which courts disagreed on whether legislative amendments to the Construction Act precluded the joinder of trust claims and lien claims. The Divisional Court has now weighed in on the issue and ruled that under the current legislation, such joinder is indeed prohibited.
By way of a short reminder, the former Construction Lien Act contained a provision prohibiting the joinder of trust claims with lien claims. Section 50(2) provided that “a trust claim shall not be joined with a lien claim but may be brought in any court of competent jurisdiction”. However, since nothing in the Act stated that a lien action and trust action could not be heard at the same time or one immediately after the other, parties often requested and obtained a “connecting order” from a master or judge to procedurally connect lien and trust actions, with common discoveries, pre-trial conferences and settlement meetings. As pointed out in a previous newsletter, since all of that seemed counterproductive, the Expert Review of Ontario’s Construction Lien Act (the “Report”), recommended the repeal of section 50(2):
"The removal of the prohibition against joinder of lien and trust claims would make the Act consistent with legislation from the other provinces, where such a prohibition does not exist. It is particularly concerning because the prohibition of joinder can be circumvented by a court order for a trial together or one after another, resulting in unnecessary costs and delays. The very problem this provision seeks to address is exacerbated by the duplication of proceedings it can cause, contributing to the courts’ backlog and costs to the parties. The provision has been heavily criticized by stakeholders, most of whom have suggested its removal, and none of whom proposed its retention. In keeping with the summary procedure provisions of the Act, parties should be able to join lien and trust claims without leave of the court, subject to a motion by any party that opposes the joinder on grounds that the joinder would cause undue prejudice to other lien claimants or parties."
That recommendation was followed by the legislature and section 50(2) was not carried forward into the Construction Act. However, the old Act also provided in section 55(1) that “a plaintiff in an action may join with a lien claim a claim for breach of contract or subcontract.” That provision was originally also omitted from the new Act, but was added again verbatim later, in 2019, to O. Reg. 302/18 as section 3(2).
In two decisions, Damasio Drywall v. 2444825 Ontario Limited, 2021 ONSC 8398, and 6628842 Canada Inc. v. Topyurek, 2022 ONSC 253, Associate Justice Charles Wiebe held that the fact that the Legislature reintroduced the old section 55(1) indicated that it simply changed its mind and meant to again prohibit joinder of trust claims, and that the decision not to carry forward the old section 50(2) did not change that result. According to His Honour, the permissive joinder of contract claims, by implication, precluded permissive joinder of trust claims.
The same issue came before the court in SRK Woodworking Inc. v. Devlan Construction Ltd., 2022 ONSC 1038. Justice Harper of the Superior Court of Justice referred to the two decisions by Associate Justice Wiebe but declined to follow them. As we discussed in another newsletter, His Honour reasoned that the deletion of the previous section 50(2) in the new Act was an overt indication that the legislature did not intend to prohibit such a joinder any longer, and the re-introduction of section 55(1), permitting joinder of contract claims into O. Reg 302/18, did not change that analysis.
On appeal to the Divisional Court, the court was therefore faced with two lower court decisions that had arrived at opposite conclusions. The Divisional Court agreed with Associate Justice Wiebe’s legislative interpretation and set aside the decision of Justice Harper. Justice Corbett, writing for the court, agreed that by expressly permitting joinder of contract and subcontract claims, by implication the Regulation precluded joinder of any other claims, applying the well-known legislative interpretation principle of expressio unius est exclusio alterius - the expression of one or more things of a particular class may be regarded as impliedly excluding others.
The court also agreed with Justice Wiebe that the Act provides for as far as possible a summary procedure and that adding a breach of trust claim would result in adding further issues that would significantly complicate the narrow issues of breach of contract in a lien action and would undoubtedly increase documentary production, examinations for discovery and the number of parties and issues to be tried, leading to an increase of costs of the proceeding and length of trial.
Justice Corbett was alive to the argument that one could infer from the repeal of the ban on joining trust claims with lien claims that the Legislature intended that trust claims could now be joined with construction lien claims. However, the court held that that line of reasoning conflicted with another principle of statutory interpretation which precludes construing a current provision on the basis of prior versions of the legislation. Instead, one is supposed to be able to divine the meaning of a statute by reading the statute, and not by reading every version of the statute that has been in effect.
In our earlier newsletter, we argued that if the effect of section 3(2) of O. Reg. 302/18 on its own were to prohibit the joinder of trust claims, then the former section 50(2) would have been superfluous, and a legislative interpretation which renders any provision of an Act meaningless or superfluous is to be avoided. However, that argument would arguably also run afoul of the principle against using prior versions enunciated by Justice Corbett.
Finally, the Divisional Court also expressly disagreed with the lower court’s finding that the Regulation was ultra vires:
"The motions judge found that the joinder provision in the Regulation is ultra vires. With respect, I do not agree with that conclusion. The Act contemplates that Regulations may be promulgated “governing procedures that apply to [construction lien] actions” and joinder rules are squarely within that mandate. In authorizing such Regulations, the Legislature has conferred legislative authority on the Lieutenant Governor in Council in respect to matters of procedure. Of course, the legislature retains the authority to establish procedures, and to the extent that it does so, the Lieutenant Governor in Council may not enact a Regulation inconsistent with the Act. But the Act is now silent on joinder of claims. The joinder provision in the Regulation is not inconsistent with that silence."
It is not entirely clear whether notwithstanding the recommendations in the Report, the legislature indeed intended to reinstate the restriction on trust claims by reintroducing section 55(1) into the regulations, or whether the reintroduction of former section 55(1) without addressing former section 50(2) was on oversight on the part of the legislature. In our earlier newsletter, we stated that addressing this issue and carrying out the intention of the Report, if this was indeed the intention of the legislature, will require either analysis of this issue by a higher court or further act of the legislature. A higher court has now weighed in. If it was the legislature’s intention to follow the Expert Report on this point, it is now up to the legislature to amend the Regulation to make that happen.