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The Use of Promissory Estoppel to Save an Expired Lien


In our Spring 2019 Newsletter, we discussed the decision of Justice Doi in J.D. Strachan Construction Limited v. Egan Holdings Inc. and Egan Funeral Home, 2019 ONSC 522. In that case, the lien claimant attempted to rely on the doctrine of promissory estoppel to argue that its lien had not expired for failure to perfect it in accordance with the timelines of the Construction Act.

While in the result, the court declared Strachan’s lien expired and allowed the claim to continue in contract, the court did so on the basis that the defendants had not made any representations that would have led the lien claimant to expect that strict legal rights and obligations under s.31(2)(a)(i) of the Act would not be enforced. In other words, the court held that on the facts, the test for estoppel had not been met; the court did not find that the doctrine had no application in the context of construction lien timelines to begin with.

On that basis, the court distinguished two earlier Ontario decisions that had applied estoppel in lien actions, Valo v. 430327 Ontario Inc. (1982), 36 OR (2d) 439 (Master) and Soo Mill & Lumber Co. v. 499812 Ontario Ltd. (1984), 17 C.L.R. 306 (Ont. H.C.).

We commented in 2019 that the difficulty with Justice Doi’s analysis regarding promissory estoppel was that such an argument was not consistent with the Construction Lien Act or the Construction Act, since the period to perfect a lien under section 36(2) of the Construction Lien Act is an expiration period, not a limitation period, the wording of section 36(2) is clear that a preserved lien expires unless it is perfected in time, that once the expiration period to preserve or perfect a lien has lapsed, the lien cannot be revived, and that parties cannot contract out of the Act.

The Ontario Divisional Court has now upheld the judgment of Justice Doi on the basis that the decisions in Valo and Soo Mill were distinguishable on the facts before him, and that was enough to dispose of the appeal. In obiter, however Justice Corbett made the following comment (emphasis added):

17 I note, further, that a construction lien does not just affect the rights and interests of the claimant and the owner. It can affect the position of other claimants on the site (contractors, subcontractors, workers and suppliers), and it can affect the position of lenders, including construction lenders. The CLA expressly provides that parties may not contract out of provisions of the Act: it is arguable that this provision would not permit promissory estoppel to operate to defeat deadlines stipulated in the Act.

18 Promises to pay, even ones that are stated to be contingent on a claimant altering his position to his detriment (for example, promising to pay next week so long as a lien is not registered), happen frequently in construction contracts. If such promises — to pay — could have the effect of extending deadlines, then lenders would not be able to be sure that a lien will not emerge later that would otherwise be out of time. The "promises" could cascade down the "construction ladder". The strict deadlines on the Act could be defeated. I would not decide this issue in this case, where it is clear that the facts do not give rise to promissory estoppel. However, this decision does not signal that promissory estoppel can arise to defeat the deadlines in the CLA.

Case Law

In Valo, the owner met with a contractor during the time in which the lien could be preserved.  During negotiations, the owner told the contractor that the lien rights "were not a problem because we were mutually extending time for payment in order to allow him to complete the calculations at which time he expected to be able to pay the moneys owing for supervision services and materials, and for the bonus, if any". The contractor testified that it was his clear understanding based on this that he would still be able to register a lien. The court held that he was justified in thinking that, particularly in view of the fact the owner was a lawyer. In the end, based on that representation, the contractor did not register the claim for lien in time, and the owner applied to have the lien discharged on the basis that it was expired.

The court refused to discharge the lien. Even though it was presented with law to the effect that the time for registering a claim for lien could not be extended by agreement, the court found that in circumstances before it, the owner’s conduct estopped him from raising the defence that the claim for lien was registered out of time.

That decision was followed in Soo Mill, where the defendants advised the claimant that if it did not file a lien, they would make appropriate arrangements for payment. The judge agreed that the defendants were later estopped from arguing that the lien, when eventually filed, was out of time.

Both decisions were heavily criticized in other jurisdictions but were not discussed in any detail in subsequent Ontario decisions until Strachan. The only support for the Ontario line of cases came out of Alberta, where courts held that there could not be an absolute prohibition to applying this doctrine whenever there is a lien: TRG Developments Corp. v. Kee Installations Ltd., [2014] 12 W.W.R. 385 (Alta. Master); affirmed (2014), 39 C.L.R. (4th) 93 (Alta. Q.B.), affirmed [2015] 10 W.W.R. 639 (Alta. C.A.). The most recent authority on point before Strachan was the Alberta Master’s decision in Boulevard Real Estate Equities Ltd. v. 1851514 Alberta Ltd., 2015 ABQB 619, in which the court held that where supported by appropriate evidence, an owner of land in Alberta may be estopped from asserting that a builders' lien filed against its land was filed out of time.

Throughout the rest of Canada, the Ontario cases were rejected. The Nova Scotia Supreme Court, in Gateway Materials Ltd. v. B.H. Fancy Construction Ltd., (1994), 17 C.L.R. (2d) 128, held that Soo Mill was contrary to established law that parties cannot agree to extend the time for filing a lien.

In Catt Steel Services Ltd. v. Delta (Corp.), (1995), 26 C.L.R. (2d) 170, the British Columbia Supreme Court held that the time limitations in the Act were to be strictly applied and that the doctrine of promissory estoppel had no application.

A Newfoundland court, in Weir's Construction Ltd. v. D.A.R. Enterprises Ltd.2005 NLTD 16, held that both Valo and Soo Mill were unsound law and that regardless of the facts, the equitable doctrine of estoppel could never validate an expired lien.

A 2005 Ontario case, H.H. Angus & Associates Ltd. v. Salter Farrow Pilon Architects (2005), 42 C.L.R. (3d) 305 (Ont. S.C.J.), without discussing Valo or Soo Mill, refused to apply estoppel in a Construction Lien Act context:

In my view, estoppel cannot arise in circumstances where a statute provides mandatory terms. The legal relationship in matters involving construction contracts is governed not only by the contract between the parties, but also by operation of statute. While estoppel may apply on those parts of the contract which are not effected [sic] by the Construction Lien Act, they cannot in my view apply to permit waiver out of the statutory provisions.

It is respectfully submitted that this is a sound approach. As Justice Orsborn stated in Weir’s Construction:

23      The authorities are clear that a mechanics lien is a creature of statute. It is a security interest created in derogation of the common law; it is intended to protect the interests of a defined class, and proceedings are structured to benefit not simply one lien claimant, but the entire class of lien claimants who have claims against any particular owner.

24      The exercise and enforcement of a mechanics lien depends on strict compliance with the statutory provisions. In essence, the lien lives and breathes and dies according to the statute.

Similarly, the Ontario Divisional Court, albeit in a different context, has made it clear that the Act provides a complete code for securing the price of services and materials provided to an improvement: see Scepter Industries Ltd. v. Georgian Custom Renovations Inc., 2019 ONSC 7515 (Div. Ct.).

Justice Corbett’s obiter comments in Strachan indicate that going forward, Ontario courts will likely follow that reasoning and lien claimants who miss the statutory deadlines to preserve or perfect their liens will have a much more difficult time to persuade a court to apply the doctrine of promissory estoppel to save their liens.