Monday, 17 December 2018

Certificate of Substantial Performance Limits Lien Rights Even Without Posting

By Corbin Devlin

It has always been my view that a Certificate of Substantial Performance (CSP) must be properly posted to be valid, but the Court of Appeal has recently determined otherwise.

The CSP and The Builders’ Lien Act

The Builders Lien Act (BLA) of Alberta requires a lien to be registered within 45 days of completion or abandonment of the contract for which the lien is claimed (90 days in the case of an oil or gas well site), failing which it expires. But lien claimants must also be aware that there is a deadline triggered by the issuance of a CSP relating to their contract or subcontract.

45 (or 90) days after the CSP is issued, the owner may safely release the “major lien fund” (i.e. 10% of the value of the work actually done and materials actually furnished under the contract at the date of issue of the certificate of substantial performance, plus any additional amounts owing on the contract), provided no liens are registered. All that remains as security for lien claims registered after the owner releases the major lien fund in accordance with the legislation is the “minor lien fund” (i.e. 10% of the value of the work actually done and materials actually furnished on or after the date of issue of the certificate of substantial performance). This can drastically reduce the security available to lien claimants pursuant to the Builders’ Lien Act.

Prudent lien claimants will take note of the issuance of a CSP, and consider if the financial circumstances of the project require them to register a lien within 45 (or 90) days from that event to protect themselves.

Posting Requirement

The BLA expressly requires the person issuing a CSP to post a signed copy of it in a conspicuous place on the job site within 3 days from the date of issuing the certificate so that persons working or furnishing materials have a reasonable opportunity of seeing the certificate.  And there is a penalty for non-compliance: “Where the person issuing a certificate of substantial performance fails to comply with this section, that person issuing the certificate is liable for legal and other costs and damages incurred by and resulting to a person by reason of the non-compliance.”

Discrepancy Between Issuance and Posting

The problem is that the BLA does not say that the CSP takes effect from the date it is posted.  It says that it takes effect from the date it is “issued.”  We now know (the Court of Appeal has made it clear) that posting and issuance are not the same thing.  “Posting” is defined in the legislation (i.e. a conspicuous place on the job site).  “Issuance” is not.

In the recent case H20 Plumbing & Heating Ltd v. Maximum Tank Truck Services Ltd, 2018 ABCA 381, the contractor issued a CSP, and the subcontractor registered a lien more than 46 days later.  There was conflicting evidence if and when the CSP was posted in accordance with the requirements of the Builders’ Lien Act.  The Court of Appeal held that the uncertain evidence regarding the date of posting was not material because the time for the owner to withhold the major lien fund runs from the date of issuance of the CSP.  The Builders’ Lien Act is quite clear: for the purpose of determining the relevant timelines under the Act (for the owner to retain the major lien fund), only the date of issuance matters, not the date of posting.

This decision invites more questions.  Is a CSP “issued” as soon as it is signed by the contractor?  Can a CSP be backdated?  The concept of issuance has been considered by the courts to include “some communication” of the document [Alterra Property Group Ltd v. Doka Canada Ltd, 2008 BCSC 1880]  But this still begs the question, communication to whom?  It seems that a CSP may be validly issued once it is communicated from the contractor to the owner.  But what about communication to the subcontractors who are most affected by the document?

It should be a significant concern to subcontractors that they may lose the right to attach the major lien fund without getting any notice of the issuance of a CSP.  If a CSP is issued but never posted, lien rights may be lost with the passage of 45 (or 90) days, without any notice to them at all.  The subcontractor awaiting payment of a significant receivable may end up with grossly insufficient security (i.e. a share of the minor lien fund, at most) despite following the requirements of the BLA to the letter.

Alternate Remedies

The only direct remedy for the lien claimant who suffers a loss due to failure to register a lien on time – because a CSP was “issued” but not properly “posted” -  is to make a civil claim against the party who failed to properly post the CSP.  But that is an empty remedy if the party who failed to post the CSP is also insolvent, a fairly common scenario in lien cases.  This point was not lost on the Court of Appeal, but the court concludes: “This potential unfairness is insufficient to override the express wording of the Alberta BLA...”

(In some circumstances, the subcontractor adversely who loses out on attaching the major lien fund may also find some protection in the trust provisions of the BLA, but these provisions are extremely narrow. Reference our prior article on this topic for more information. )

Looking Forward

Did the legislators really mean for lien rights to be affected by the (undefined) date of issuance?  There appears to be no good reason the CSP takes effect as of the date of “issuance” instead of the date of “posting.”  Given the acknowledged unfairness to subcontractors, this discrepancy begs for correction by the legislature.

Meanwhile, prudent subcontractors will consider the financial status (ability to pay) of the parties above them in the chain of contracts, and seek additional security for payment, or otherwise mitigate their risk, where appropriate.  Lien rights are a valuable safety net in many cases but, once again, we see that they are no guarantee of payment.