Vestacon Limited v ARC Productions Ltd. involves a unique project where Allied Properties REIT (“Allied”) linked two previously separate historic low-rise buildings, 134 Peter Street and 364 Richmond Street West, with a multi-story atrium and a 12-storey tower atop 134 Peter Street. Allied branded the project as Queen Richmond Centre West, or QRC West. Allied owns several single purpose nominee corporations, two of which are Peter Co., which owns 134 Peter Street, and Richmond Co., which owns 364 Richmond Street. The two nominee corporations were formed solely to own their respective properties.
Arc Productions Limited (“Arc”) contracted with Peter Co. and Richmond Co. to lease space in their respective properties. Arc’s leased space spanned across both properties. Vestacon Limited (“Vestacon”) and Arc entered into a contract for leasehold improvements. Vestacon contracted with Plan Group Inc. (“Plan Group”) for electrical services and materials. Arc hired X-Design Inc. (“X-Design”) as its consultant and payment certifier.
Vestacon registered a claim for lien on June 6, 2016 for $1,990,602.49 and perfected its lien on July 19, 2016. The lien was registered against the PIN for 134 Peter Street, but not the two PINs that correspond with 364 Richmond Street. Plan Group registered a claim for lien on August 9, 2016 for $841,383.13 and perfected their lien on September 13, 2016. The lien was registered against the PIN for 134 Peter Street, and only one of the two PINs for 364 Richmond Street West.
Arc declared bankruptcy in January of 2017.
Master Albert was tasked with four motions, heard together, for the following relief:
Motion 1: Peter Co. asked the court to declare Vestacon's lien claim expired and dismiss the corresponding action against Peter Co.
Motion 2: Vestacon asked the court (i) to declare that Vestacon's claim for lien was registered in time; (ii) to declare all three CSPs, or alternatively the first two CSPs, invalid; and (iii) to grant leave to add Richmond Co. as a defendant to Vestacon's action.
Motion 3: Vestacon asked the court to find that it served a proper notice on the landlord/owner pursuant to section 19 of the Construction Lien Act (the "Act").
Motion 4: Peter Co. and Richmond Co. asked the court to declare Plan Group's lien claim expired and dismiss the corresponding action.
Only if motion 3 was decided in the affirmative did motions 1, 2, and 4 have to be decided.
Motion 3: Were Vestacon’s section 19 notices valid?
Due to Arc’s bankruptcy, Vestacon's claim was predicated on serving a proper section 19 notice and the absence of the owner serving a Form 3 notice denying responsibility.
On November 30, 2015, Vestacon delivered an email with start-up documents to Allied, and began work that day. The covering email lists the documents attached, including the section 19 notices.
One of the issues with respect to the section 19 notices was whether Vestacon served the notices properly. Vestacon argued that the Construction Manual contained Allied’s consent, and consent on behalf of Peter Co. and Richmond Co., to deliver documents by email, and that Allied was identified in the lease as the proper party for service. Allied, Peter Co., and Richmond Co. argued that the notices should have been served on Peter Co. and Richmond Co., not Allied.
Master Albert decided that the section 19 notices served on Allied constituted service on Peter Co. and Richmond Co. Allied acted as agent for Peter Co. and Richmond Co., neither Peter Co. nor Richmond Co. have bank accounts, and all three entities have the same business address. Allied’s organizational structure is not easily ascertainable to a contractor, which should not be used to defeat the rights of lien claimants on technicalities. Vestacon had provided notices by email to Allied on other projects. Allied consented to receiving the notices by email when it provided email addresses in the construction manual. Master Albert concluded that the section 19 notices were properly served, and that Allied did not serve Form 3 notices denying liability.
Motions 1 and 2: Did Vestacon preserve its claim for lien in time?
Three published certificates of substantial performance were at issue (“CSP 1”, “CSP 2”, and “CSP 3”). On March 9, 2016 Vestacon received CSP 1 from X-Design and caused it to be published. CSP 1 certified that Vestacon’s work in 134 Peter Street was substantially performed as of February 23, 2016, but in fact Vestacon’s work was only 75 percent complete. Vestacon had not applied to X-Design for CSP 1.
On April 21, 2016, Vestacon received CSP 2 from X-Design and caused it to be published, certifying substantial performance of Vestacon’s work at 364 Richmond Street West as of April 21, 2016. Vestacon did not apply to X-Design for CSP 2.
Peter Co. argued that Vestacon’s lien claim was registered more than 45 days after CSP 1 was published and is therefore expired. Peter Co. relied on section 2(2) of the Act, and CD1, which provides for the acceleration of Vestacon’s work at 364 Richmond Street West. Vestacon argued that any CSP published before substantial completion of the contract is void, subject to the exception in section 2(2). Vestacon asserted that their lien claim period started at the contract completion date and sought to have at least the first two CSPs declared invalid.
Section 2(2) of the Act provides the following:
Where a substantial part of an improvement is ready for use or is being used for the purposes intended and the remainder of the improvement cannot be completed expeditiously for reasons beyond the control of the contractor, or where the owner and the contractor agree not to complete the improvement expeditiously, the incomplete portion may be hived off from the contract price to determine substantial performance.
Master Albert determined that section 2(2) of the Act did not apply to CSP 1 or 2 because there was no extraordinary delay, and CD1 called for an acceleration of the project. X-Design improperly treated one contract as two contracts for each municipal address for the purposes of certifying substantial performance. There is no evidence of an agreement between Arc and Vestacon to treat the properties separately for determining substantial performance. Master Albert concluded that both CSP 1 and 2 were not valid.
X-Design issued CSP 3 for the entire contract, and Vestacon published CSP 3 on April 22, 2016. Vestacon contended that CSP 3 only described the lands by municipal address, not legal description, and the contract had not been substantially performed. Vestacon also argued that the value of work completed when CSP 3 was issued did not meet the statutory test.
Master Albert noted that the court is reluctant to declare a CSP invalid on technical grounds, but the omission of a legal description is serious and prejudiced Vestacon. With the legal description, Vestacon would have known the correct PINs to register its claim for lien against. Master Albert concluded that all three CSPs are invalid because they lacked a legal description of the property. Master Albert also agreed with Vestacon that the value of the work left to be completed was more than the monetary threshold required. Therefore, Vestacon preserved its claim for lien within the time required.
Motion 2: Did Vestacon’s lien include 364 Richmond Street West?
Vestacon’s claim for lien was not registered against the PIN for 364 Richmond Street West, nor does it name Richmond Co or Allied as owners. Vestacon sought to have its claim for lien declared valid as against 364 Richmond Street West and to obtain leave to add Richmond Co as a defendant. To succeed, Vestacon must prove that 364 Richmond Street West is land “enjoyed with” 134 Peter Street.
Vestacon relied on several facts to argue that 346 Richmond Street West constitutes “lands enjoyed” with 134 Peter Street. To name a few, the City of Toronto and developer treated the two buildings as one for planning and zoning, the project operates with shared common expenses, the addresses were marketed together as QRC West, the buildings are linked by an internal door, and the buildings share gas, water, security, garbage services, mechanical systems, and electrical systems.
Peter Co. and Richmond Co. relied on several facts to deny the proposition that 364 Richmond Street West does not constitute lands “enjoyed with” 134 Peter Street, namely that the properties have different owners, construction schedules, start up documents, construction meetings, and that Arc had moved into 134 Peter Street before the completion of the work in 364 Richmond Street West.
Master Albert noted that to determine this question of fact, the commonality of officers and directors, whether separate legal owners are related, whether there is a visible separation or property line and whether there is an integrated or common use must be assessed.
Master Albert applied the reasoning found in Phoenix Drywall v Mississauga Rest Home Two Inc., where a rest home and its adjacent parking lot were separately owned by related owners. The contractor inadvertently registered a claim for lien on the parking lot and not the rest home. The contractor successfully argued that the lands served “a common and integrated use” with a global objective.
Master Albert declared 364 Richmond Street West to be lands enjoyed with 134 Peter Street and granted leave to add Richmond Co. as a defendant.
Motion 4: Did Plan Group’s lien claim expire?
Peter Co. and Richmond Co. asked the court to declare Plan Group’s lien expired prior to registration and dismiss the action. Plan Group argued that their lien was preserved within 45 days of their last day of supply.
Master Albert determined from the evidence presented that there is a genuine issue for trial, and the motion to declare Plan Group’s lien expired must fail. Additional evidence about the nature and value of the work supplied in the final month of work is required.
Master Albert reaffirmed several well-established principles, and provided clarification on difficult concepts, such as the service of section 19 notices by email. This decision is currently under appeal to the Divisional Court.