Thursday, 14 May 2020

Builders'/Mechanics and Miners Liens for Unpaid Contractors and Vendors in Alberta and the Northwest Territories

By Christopher Buchanan and Graham Henderson

During this time of economic uncertainty, it has become increasingly important for companies across Alberta and the Northwest Territories to remain informed about methods for safeguarding their claims for payment. One such method is through the use of statutory liens. Contractors, subcontractors, suppliers and labourers who have not been paid for their work or materials may be able to register liens against the property where they supplied the work or materials may be able to register liens against the property where they supplied the work or materials. Liens secure the unpaid party's claim against the property and may ultimately result in a forced sale of the property to have the debt paid.

Based on questions we have received from a number of clients, we have prepared a brief primer on Builders' Liens including mineral liens (under Alberta's Builders' Lien Act) in Alberta, and Mechanics Liens (under NWT's Mechanics Lien Act) and Miners Liens (under NWT's Miners Lien Act) in Northwest Territories. 

ALBERTA

Builders' Liens: Overview

Builders' Liens  are created by the Builders' Lien Act. This type of lien is available to persons who have not been paid for their supply of work or materials in respect of an improvement associated with lands or the recovery of minerals. The value of a Builders' Lien is limited to the price of the unpaid work or materials. 

"Work" includes the performance of services. For example, a supplier of rental equipment for a construction project is often providing a “service” that entitles the supplier to register a lien. However, there has been extensive judicial consideration of the question of whether or not any particular activity allows for lien registration. The answer to that question will ultimately depend on the nature of the activity and the manner in which the activity relates to the lands.


Builders’ Liens must be registered within 45 days (or 90 days in the case of work or materials supplied to an oil or gas well site) from the date the last work or materials were supplied or the contract for the work or materials was abandoned.

Builders’ Liens expire 180 days after being registered, unless the lienholder has commenced an action to realize the claim of lien and a Certificate of Lis Pendens is registered with the Land Titles Office.

A registered Builders’ Lien secures the unpaid party’s claim against the property to which the lien is attached. If funds are paid to the lienholder or the court to satisfy the debt, then the Builders Lien may be cancelled. If the court orders the sale of lands to which a lien is attached, then the proceeds from the sale would be distributed among all creditors with claims registered against the lands, in order of priority.

Surface Liens

A Builders’ Lien attaches to the “owner’s” interest in the lands. The definition of an “owner” under Alberta’s Builders’ Lien Act is broader than the common sense meaning of “owner”; as a result, in some cases liens may be registered against interests other than those of the actual registered land owner. For example, a lien may be registered against a tenant’s interest if the work is done for the tenant.

A Builders’ Lien associated with work or materials supplied in respect of the surface of the lands (as opposed to work or materials supplied in respect of minerals – discussed below) must be registered with the Land Titles Office.

Recovery of Minerals

When a person supplies work or materials in relation to an improvement associated with the recovery of minerals, then a Builders’ Lien may be registered in respect of those minerals. In such a case, the Builders’ Lien would attach to an interest in the minerals.

If the minerals are privately owned, then the Builders’ Lien must be registered as usual, at the Land Titles Office. If the minerals are owned by the Crown, which is the case with most minerals in Alberta, then the Builders’ Lien must be registered with the Minister of Energy, as opposed to at the Land Titles Office. The same deadlines apply to the Builders’ Liens, regardless of whether they are registered with the Minister of Energy or the Land Titles Office.

A Builders’ Lien in respect of minerals also attaches to the minerals after they are severed from the land.

Notably, it is possible for the supply of work or materials to entitle a lien claimant to register liens against interests in both lands and minerals (for example, where the project relates to an improvement to the surface and the recovery of minerals).

NORTHWEST TERRITORIES

Mechanics Liens

Mechanics Liens are created by the Mechanics Lien Act. This type of lien is available to contractors, subcontractors, and labourers who have not been paid for work done, materials or machinery supplied, or labour performed in connection with the owner’s building or land. Mechanics Liens attach to the estate and the owner’s interest in the building and land. They are registered against the title of the owner’s property at the Land Titles Office. An “owner” includes a tenant with a leasehold interest in the land.

The value of the Mechanics Lien is limited to the value of the unpaid work, materials, machinery, or 30 days of wages. Subcontractors may register Mechanics Liens against the owner’s property when they have not been paid by the general contractor or another subcontractor.

Mechanics Liens must be registered within 45 days after the last day that the work/labour was performed or the materials/machinery were supplied, or 45 days after the contract was terminated or abandoned.

While the Mechanics Lien is in place, the owner cannot remove property or machinery from the property if it would prejudice the lienholder’s claim.

Mechanics Liens expire 45 days after being registered, unless the lienholder commences court proceedings to realize the claim of lien and a certificate of proceedings is registered with the Land Titles Office.

If the funds are paid to the lienholder or the court to satisfy the debt, then the Mechanics Lien may be cancelled. If the court orders the land or machinery to be sold, then the proceeds from the sale would be distributed among all creditors with claims registered against the lands, in order of priority.

Miners Liens

Miners Liens are similar to Mechanics Liens in some respects, but different in others. The key difference is that Miners Liens attach to the production from a mine, meaning that the value of the ore produced and sold forms part of the security.

Miners Liens are also available to contractors, subcontractors, and labourers who have not been paid by an owner or contractor for work done, materials supplied, or labour performed. The work or materials must be connected to the operation of a mine.

Miners Liens cast a wider net than Mechanics Lien. Not only does a Miners Lien attach to the owner’s interest in the land and the mine, it also attaches to the owner’s interest the minerals or ores produce from the mine, as well as the chattels, equipment, and machinery used in connection with the mine or land. 

Another difference is that the underlying title for mining properties is usually held by the Crown, with the owner holding a leasehold interest in the surface and subsurface minerals. For that reason, leases for mines are registered with the NWT Mining Recorder rather than the Land Titles Office. Miner Liens can be registered against the owner’s mining leases through the Mining Recorder.  

Miners Liens must be registered within 6 months after the last day that the work/labour was performed or the materials were supplied. After the lien is filed, the lienholder has 90 days to both commence a court action to realize on their claim and register a lis pendens with the Mining Recorder.

Choosing Between Miners Liens and Mechanics Liens

Mechanics Liens are appropriate for claims involving commercial or residential properties that are registered with the Land Titles Office. Most claims will use Mechanics Liens.

Miners Liens are appropriate when the owner is operating an oil sands mine or a traditional mine.
Selecting the right type of lien is critical due to the significant differences in filing deadlines and the expiration dates.

CONCLUSION

Registering liens can sometimes be a complicated process, as there are specific restrictions, deadlines and procedural requirements. For that reason, we recommend consulting legal counsel to ensure that lien rights are properly protected. 

For more information on registering liens in both Alberta and the Northwest Territories, please contact a member of our Construction Team.


Tuesday, 12 May 2020

How Close is Close Enough – Alberta Court Deems Equipment Lessor’s Lien Valid Even Though Equipment Was Never On Site

by Corbin Devlin and Moe Denny


A recent Alberta Court of Queen’s Bench decision provides an example where services may be performed on one site yet give rise to lien rights on another site. Northern Dynasty Ventures Inc v Japan Canada Oil Sands Limited considers the validity of builder’s lien claims brought by a lessor of equipment. The decision arises from an appeal of a Master’s Order declaring the lien of a lessor of equipment valid.

By way of background, the Defendant is the operator of an oil sands project near Fort McMurray, Alberta (the “Project”) and entered into a Master Agreement with Highway Rock Products Ltd. (the “Contractor”). In turn, Northern Dynasty Ventures Inc (“NDV”) and Tyalta Industries Inc. (“Tyalta”) were subcontractors to the Contractor. NDV entered into an agreement with the Contractor granting the Contractor an exclusive license to remove sand and gravel from a gravel pit located approximately 30 kilometers away from the Project site (the “Gravel Pit”), accessible by road at a driving distance of 89 kilometers. Tyalta rented to the Contractor equipment used to crush and screen sand and gravel at the Gravel Pit. All of the gravel was provided to the Defendant for its use in connection with the Project.

Tyalta registered a lien against the Project site. The Defendant sought to have the lien discharged on the basis that it was invalid, particularly because the Project was not the location – or even near the location – where the rental equipment was used. Determining the validity of Tyalta’s lien required the Court to interpret section 6(4) of the Builders' Lien Act (the “Act”), which provides:
6(4) For the purposes of this Act, a person who rents equipment to an owner, contractor or subcontractor is, while the equipment is on the contract site or in the immediate vicinity of the contract site, deemed to have performed a service and has a lien for reasonable and just rental of the equipment while it is used or is reasonably required to be available for the purpose of the work.
In coming to its decision, the Court answers three questions: (1) where is the contract site; (2) what is the meaning of immediate vicinity; and (3) is there a common purpose between the sites.

Ultimately, the Court found that the Project was the “contract site.” However, after considering the context of the matter, the Court determined that notwithstanding the distance, the Gravel Pit was within the “immediate vicinity” of the contract site, stating:
I find on the facts of this specific case that the gravel pit and the [Project] site are in the immediate vicinity of each other. Thus, as the rental equipment was at all relevant times located at the gravel pit, the rental equipment was in the immediate vicinity of the contract site... The gravel was not obtained out of country, out of province, or even in central or southern Alberta. Given the nature of gravel pits, immediate vicinity must be considered in context.
When assessing the purpose of the work, the Court found that the work performed at the Gravel Pit using Tyalta’ rental equipment resulted in gravel that was required for the Project. This gravel was not available at the Project and had to be transported from the Gravel Pit. Thus, the Court determined that the two sites clearly had a common purpose, the construction of the Project, and the work performed at the Gravel Pit was an integral part of the overall Project.

In summary, though equipment may not be used at a contract site, a lessor of equipment may have a valid lien against the contract site so long as their equipment was integral to the contract site and used somewhere within the immediate vicinity, which depending on the context may even be a 89 kilometre drive away.

Read the full decision here.

Friday, 8 May 2020

Writing a Scope of Work, Badly

By Corbin Devlin

The scope of work is the most critical piece of a construction contract.  Disagreement over scope of work is the most common cause of construction disputes.  A proper, careful and detailed scope of work not only avoids disputes, it protects the owner from costly changes.  Unfortunately, this critical piece of the contract often does not get the attention it requires.

We see many examples of this.  They are often avoidable.  For example, some contracts simply fail to list some or all of the specifications and drawings, or they refer to the wrong version.   Too frequently, scope of work documents are referenced with insufficient clarity, or sometimes they are even described as “attached” but then they are not actually attached.  Bid qualifications may be incorporated by reference, in conflict with other contract documents, or with ambiguity as to the extent of the qualifications.  We have seen design development documents incorporated by reference, along with (inconsistent) specifications and drawings, without any provisions to clarify which one takes precedence.  And of course, project specifications and drawings may simply be incomplete as at the contract date. 

Use the Right Form of Contract

It is often the case that work is contracted while the design remains incomplete, particularly on complex industrial projects.  This is not in itself a problem.  Contract based on incomplete design carries certain risks.  What is required is clarity as to the baseline scope of work, and contract provisions that clearly indicate what happens when completed design changes the construction cost (and schedule). 

Particular forms of contract exist for this purpose; industrial construction owners have sophisticated contract forms that address the allocation of such risks. Design-Build and EPC (Engineering, Procurement and Construction) contracts are intended for use where the design is incomplete – or where the design is not even started.  But contracts intended for use in a traditional Design-Bid-Build scenario (i.e. where the designer completes the design documents before the owner seeks bids for construction), such as CCDC 2, respond poorly to situations where the design is incomplete at the contract date.  Change orders are guaranteed – and disputes over scope of work are quite likely.

In particular, it is risky if a stipulated price contract provides no clear baseline for determining what constitutes a change in scope.  If the contract does not specify what scope the contract price is based on, how are the parties to agree what constitutes a change when the construction drawings and specifications are issued?

Careful What You Incorporate

Incorporating bid documents to define the scope of work is not uncommon.  But in our experience, it is an imprudent shortcut.  Bid documents may include information that is out of date by the time of contracting.  They may contain bid clarifications that pertain to other bidders.  They may contain qualifications that are at odds with other express contract terms.  Disputes over scope of work are much less frequent when the contract restates the scope of work and supersedes the bid documents, rather than incorporating them.

Use Industry Standards and Best Practices

Use of standard trade definitions (e.g. Alberta Construction Trade Definitions) and standard construction specifications (e.g. National Master Construction Specification) represents the best practice for clearly defining scope of work.  Trade definitions specify which trade is responsible for what; they are a complete list of inclusions and exclusions pertaining to scopes of work.  Standard construction specifications provide templates to consistently organize, format and write project specifications.

Keep Out of Court

Of course, many construction owners and contractors do an excellent job of properly defining the scope of work.  Those contracts don’t cross our desk (as construction litigators) too often, because disagreements are less frequent.  Lawyers don’t usually get involved in writing construction specifications; there are professionals specifically (better) trained for this (e.g. Construction Specifications Canada).  But some of us are frequently involved in resolving disputes when specifications are not clear.  We tend to see a disproportionate number of contracts with poorly defined scopes of work, because the ensuing disputes come to us for litigation or arbitration. 

Some gaps or ambiguities in the scope of work are inevitable given the complex and changing nature of construction work.  On the other hand, many gaps or ambiguities are avoidable with careful attention to setting out the scope of work in detail at the outset.

Ensure the contract includes a clear and complete scope of work to avoid dispute as to what constitutes a change.  Or, if appropriate, ensure that the right form of contract is used to address the fact that design is incomplete when the contract is made.


Tuesday, 28 April 2020

Alberta Court of Queen’s Bench – Dissatisfied Customer’s Obligations to a Contractor

By Moe Denny

In a recent decision, Cubbon Building Centre Ltd v Gabrysh, 2020 ABQB 219, the Alberta Court of Queen’s Bench answers the question: can a home renovation contractor’s workmanship be so deficient that the customer is relieved of any obligation to pay? In this decision, the Honourable Justice Mah clarifies the risk to owners who fail to allow a contractor the ability to remedy defects on a project and subsequently terminate or repudiate an agreement.

The action arises as a result of the defendant’s failure to pay in full for the supplies provided and work performed by the plaintiff. The defendant alleged that the work performed was so substandard that he was required to dismantle it and have it all redone by another contractor, and also alleged breaches of the Fair Trading Act (now the Consumer Protection Act) so as to nullify any contract with the plaintiff.

In its review of the law the Court provides that a fundamental breach entitling the innocent party to repudiate the contract must be a breach that goes to the root of the contract and therefore deprives the contracting party of substantially the entire benefit of the very thing for which it contracted.

Ultimately, the plaintiff was successful in their action, with the Court finding that there was no fundamental breach of contract on the plaintiff’s part and therefore the defendant was not entitled to repudiate the contract, or purport to terminate it as he did. Relying on 1314058 Alberta Ltd v Albers, 2019 ABQB 9, which outlines the law relating to fundamental breach in the context of residential renovation, the Court held:

There is no doubt that Cubbon’s product did not meet Mr. Gabrysh’s expectations. However, he did not afford them the opportunity to make good. Moreover, he undid their work. Tearing something down does not mean that it was not done in the first place. Mr. Gabrysh’s actions do not relieve him from liability for Cubbon’s services and materials.

Further to the above, when considering the alleged breach of the Fair Trade Act by the plaintiff, the Court found there was no evidence of overcharging or misrepresentation and dispensed with the defendant’s allegations accordingly.

The key take-aways from this decision are:
  • a contractor’s workmanship not meeting the owner’s standards, does not necessarily relieve the owner from liability for materials and services provided; 
  • contractors should be given the opportunity to address concerns prior to hiring a replacement contractor;
  • tearing down a product that does not meet the owner’s standards does not mean that it was not done in first place; and
  • dissatisfaction in a contractor’s work does not necessarily amount to a fundamental breach.