Failure to Register Lien Leaves Subcontractor Without a Path to Recover Damages
February 21, 2023
When Alberta made significant changes to construction law with the introduction and passing of the Builders’ Lien (Prompt Payment) Amendment Act in 2022, people and companies working in the construction world had a comprehensive way to pursue payment against contractors and customers that they did not have before.
Some of the more noteworthy aspects of the Act include a requirement for owners, contractors, and subcontractors to pay invoices within 28 days of receiving an invoice. This is contrary to traditional “pay when paid” contracts that might leave a subcontractor to go without payment if the contractor who hired them was not paid or developed a litigious relationship with the client.
As a contractor or subcontractor, one is entitled to register and enforce a lien against the property on which work is being performed. For many contractors and subcontractors, this is great news. But at the same time, it’s a tool that only helps when used.
As we have seen in a recent decision from the Ontario Superior Court of Justice (which has similar legislation to Alberta), the pursuit (or “perfection”) of a lien is not only a great way to pursue damages, but it can also be considered the only/necessary way to do so.
Construction project comes to a halt
There are several parties involved in this case, and while we normally don’t mention parties by name, in this case, they are companies based in Ontario, so we will do so to make following the summary a little easier.
The project’s owner was a numbered corporation referred to by the court as “245”. They were preparing to develop eight townhouses throughout the years 2018 and 2019. In November 2018, they hired a company referred to as “Hans Steel” as a contractor to supply and install the wood and steel framing for the houses. Hans Steel subcontracted with a company referred to as “Zargos” to have them supply the carpentry and wood framing. Zargos then subcontracted the entire scope of its work to a company referred to as “Med.”
The work was not completed in February 2019 when 245 terminated its contract with Hans Steel. Hans Steel registered a claim for a lien that same month. With Hans Steel out of a contract, Zargos also stopped working. However, Med continued to work directly for 245 before eventually registering a lien in July 2019. This meant that while Hans Steel and Med had liens registered, Zargos had not yet done so.
Subcontractor fails to register lien and instead pursues damages
Rather than registering a lien, Zargos opted to commence a civil action against both Hans Steel and 245 claiming the defendants had benefited from unjust enrichment and sought damages of $175,000.
However, the court wrote that when a subcontractor, in this case, Zargos, fails to preserve and perfect its lien rights (meaning register and pursue a lien), it forfeits any other recourse against the owner or contractor. The court wrote that the province’s Construction Act, much like Alberta’s Builder’s Lien (Prompt Payment) Amendment Act is a “complete code,” meaning it contains all of the rights available to parties working in construction or supplying material for construction projects. As such, a subcontractor is limited to its lien rights should it wish to pursue damages. In this case, Zargos had let its lien rights expire and, in doing so, lost all of its recourse against 245.
What is needed to establish a claim for unjust enrichment
While the court ruled that Zargos did not have a claim for unjust enrichment, it took time to outline what must be shown in order to establish one. The court listed three things:
- An enrichment by the defendant
- A corresponding deprivation by the plaintiff
- An absence of juristic reason for the enrichment
In this case, there had been an enrichment by the plaintiff in that they had work performed on their project. There was also a corresponding deprivation by Zargos, who was not compensated for their work. However, when it came to the third element, the court found the existence of a contract between the owner and the contractor counts as a juristic reason for the enrichment claim by the subcontractor. This means that even if Zargos could have pursued its unjust enrichment claim, it would not have been able to satisfy the court that it should be successful in doing so. Those in Alberta can look to a 2016 decision from the Alberta Court of King’s Bench (then “Queen’s Bench”), which also dealt with an unjust enrichment claim from a subcontractor. In that decision, the court made a similar ruling as what we see in Ontario, in writing, that the existence of a contract between the contractor and the owner of the property established a juristic reason for the enrichment of the owner.
Work with the construction law team at HMC lawyers to ensure you don’t miss an opportunity to pursue damages
Legislation such as the Builder’s Lien (Prompt Payment) Amendment Act provides peace of mind to subcontractors and contractors. But at the same time, it’s important to remember the necessity of using the legislation to pursue damages. By working with the experienced construction law team at HMC Lawyers, you can count on knowing that all proper avenues are pursued. We have the experience and unique perspective needed to understand the technical nature of construction disputes as well as the specific needs of businesses working in the construction industry. We have seen enough to understand that even minor disagreements can lead to significant delays and the impact that liens and other claims can have on your bottom line. We regularly help clients with a variety of construction-related matters, including builders’ liens, negligent construction issues, delay claims, and professional liability claims. If you have questions about any of the above problems or want to better understand how the new Prompt Payment and Construction Lien Act might impact you or your business, call us at 403-269-7220 (toll-free at 1-800-480-3534) or reach out online.