Does the new Construction Act allow a party to join a lien claim with a breach of trust claim? This is the question recently considered by the Ontario Superior Court of Justice in SRK Woodworking Inc. v. Devlan Construction Ltd., 2022 ONSC 1038 (“SRK Woodworking”), which held that the longstanding statutory prohibition on joining such claims may no longer apply.
Background – Amendments to the Construction Lien Act
The old (pre-July 2018) Construction Lien Act did not allow for the joinder of lien and trust claims. Section 50(2) of that statute provided:
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).
This prohibition was removed when the Ontario legislature updated the provisions of the Construction Act in 2017.
What was not removed was another joinder provision. The old Construction Lien Act contained a provision in section 55(1) allowing a claim for breach of contract to be joined with a lien claim:
A plaintiff in an action may join with a lien claim a claim for breach of contract or subcontract.
Thus, under the old Construction Lien Act, lien claims could not be joined with breach of trust claims, but could be joined with a breach of contract claim. The oft-expressed rationale for this discrepancy was that claims in contract were amenable to being heard alongside lien claims, but trust claims were more complex and so would unduly slow down the lien action.
Interestingly, when the first amendments to the Construction Lien Act occurred in 2017, the breach of contract joinder provision was also completely deleted from the statute. However, in 2019, after further amendments, the language in the old s. 55(1) was reintroduced, but this time as a Regulation (O. Reg. 302/18) rather than into the main body of the statute.
Thus, when the Court heard the issues in SRK Woodworking, the situation was that section 50(2) prohibiting joinder of trust claims had been completely deleted, but the language in section 55(1) permitting joinder of contract claims had been reintroduced in the Regulations. The effect of this latter change was particularly important to the Court’s reasoning, as discussed below.
The SRK Woodworking Decision
The removal of section 50(2) in the Construction Act, and the “reassignment” of section 55(1) to the Regulations, has presented Ontario courts with the opportunity to opine on the permissibility of the joinder of lien claims with breach of trust claims.
This issue came before The Honourable Justice R. J. Harper on January 26, 2022. Justice Harper’s decision focused primarily on two key questions:
1. Can a breach of trust claim be brought along with a lien claim under the Construction Act when the old prohibition in bringing such a claim was removed from the Construction Act?
2. The former permissive section of the Construction Lien Act allowing for breach of contract actions to be joined with lien claims (section 55(1)) was moved in the new Construction Act to its regulations. What is the impact of a former section of an Act being replaced by a regulation with the same wording?
Justice Harper’s analysis was based on principles of statutory interpretation, the stakeholder recommendations outlined in Striking the Balance, and the Hansard debates. Together, they led him to conclude that the joinder of lien claims with breach of trust claims was proper. In coming to this conclusion, Justice Harper adopted the view of the Ministry of the Attorney General’s recommendations that the removal of the prohibition of the joinder of lien and trust claims was indicative of the intention to expressly permit such claims to be joined.
For one, Striking the Balance considered the additional burdens faced by courts by adjudicating separate claims which nevertheless have similar parties and factual circumstances. Justice Harper found that a joinder of lien and breach of trust claims would reduce the burden faced by courts by permitting actions which have similar facts and parties to be heard together as opposed to separate hearings.
There was further support for permitting joinder from the legislature. Justice Harper considered as persuasive the record (Hansard) of the meeting of the Standing Committee, which included the Advocates’ Society recommendation that “the removal of the prohibition on breach of trust claims being heard together with lien actions were agreed to be well overdue”. Stakeholders and industry specialists agreed that the joinder of lien and breach of trust claims was a long overdue change that was deemed acceptable, and even ideal, and Justice Harper adopted their logic.
Lastly, Justice Harper noted that the counter-argument that joinder of lien claims with trust claims was inconsistent with the intention of the Construction Act would be more persuasive if the prompt payment and prompt adjudication sections of the statute were applicable to the matter before him. However, they did not apply and as such there was no inconsistency with the intention of the Construction Act.
Does SRK Woodworking Overrule Prior Case Law?
Justice Harper’s ruling in SRK Woodworking appears to overrule prior case law from Associate Justice Wiebe in Damasio Drywall v. 2444825 Ontario Limited, 2021 ONSC 8398 and 6628842 Canada Inc. v. Topyurek, 2022 ONSC 253 on this issue.
To provide some context: in Damasio Drywall, Associate Justice Wiebe also considered whether lien claims could be joined with breach of trust claims. In his view, despite the statutory amendments, joinder was not possible given that “[i]f the legislature 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. It did not.”
Further, Associate Justice Wiebe opined that a trust claim is an entirely different cause of action than a claim for breach of contract. The fact that the language permitting joinder of contract claims was assigned to the Regulations under the new Construction Act led him to find that the Legislature “appears to have had a change of mind and decided to resurrect the joinder limitation of the old section 55(1)”. In other words, he concluded that by reintroducing and permitting joinder of contract claims in 2019, the legislation once more and implicitly disallowed joinder of trust claims.
Associate Justice Wiebe’s ruling in Damasio was obiter dicta, but in the Topyurek case, His Honour adopted the comments made in Damasio.
In his opinion in SRK Woodworking, Justice Harper acknowledged these two prior rulings but explained his reasoning for reaching a different result.
First, with respect to the reasoning that there was no express language in the new Construction Act permitting joinder, Justice Harper did not agree and 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.
Second, Justice Harper had to determine whether, by introducing the language of s. 55(1) which permitted joinder of contract claims into O. Reg 302/18, this meant the Legislature intended to continue the prohibition on joinder of trust claims. This required considering whether a section of a statute which is removed from the statute and moved to a regulation can have the same force and effect.
On this second point, Justice Harper determined that moving this language to the Regulation had a significant effect: in making such a change, the Legislature did not consider section 88 of the Construction Act, which enables regulations to be passed. He found that there was nothing in section 88 which “gives the authority to pass by regulation a provision that dictates what actions may be brought”. In other words, O. Reg. 302/18 was not determinative of what kinds of actions could be brought – and joined, including lien actions with breach of trust actions.
Accordingly, it is in these respects that Justice Harper diverged from Associate Justice Wiebe’s interpretation, ultimately allowing the joinder of a lien claim with a breach of trust claim on the facts in SRK Woodworking.
Conclusion
The decision in SRK Woodworking suggests that the era in which joining lien claims was prohibited is now at an end. However, there remains some uncertainty.
For one, while stopping short of declaring the new breach of contract joinder provisions in O. Reg. 302/18 invalid (since he was not asked to determine that), Justice Harper opined that the effect of moving any joinder language to a Regulation, possibly invalid, means there is no longer a permissive joinder section of the statute allowing either a breach of contract claim or a trust claim to be brought. However, His Honour ultimately did not rule on this point – but it potentially leaves open the door to a creative argument that the new Construction Act prohibits any joinder whatsoever.
Second, the decision in SRK Woodworking may be read to argue that in cases where the prompt payment or adjudication provisions in the new Construction Act apply to a matter, then it may not be appropriate to join lien claims with breach of trust claims. This, too, was not fully determined in the decision.
In light of the potential uncertainty, it may be prudent to follow the tried and tested approach of commencing separate lien and breach of trust actions. It is also useful to note that Justice Harper’s interpretation of the Act permitting joinder suggests it continues to be permissive, and not mandatory. Even if it is possible to join lien and trust claims in one proceeding, it was never intended to be required. There may be circumstances where separate proceedings are appropriate, even preferable, so as to not burden multi-party lien proceedings with breach of trust claims and vice versa.