UPDATED: Trends in Prompt Payment Legislation

Editors note: As this topic evolves, our team will continue to provide updates and commentary. Our most recent article pertaining to this subject can be found here.

By Richard Wong and Corbin Devlin

There is a trend across Canada in establishing regimes to provide prompt payment to contractors and subcontractors for construction work performed and a regime to resolve disputes over the non-payment of that construction work. Recently, Bill C-97, Budget Implementation Act, 2019 No. 1, which includes the Federal Prompt Payment for Construction Work Act, received Royal Assent. This legislated a new regime related to Federal real property or Federal immovables in Canada, and for those contractors or subcontractors who undertake that work for the Federal Crown (or pursuant to a contract a service provider has with the Federal Crown). The Federal Prompt Payment for Construction Work Act will come into force upon a day fixed by order of the Governor in Council.

The Federal Prompt Payment for Construction Work Act is modeled (although different in several respects) after the Ontario regime, which made technical amendments to the Ontario Construction Act. British Columbia, Saskatchewan, Manitoba ,Quebec, Nova Scotia and New Brunswick have also taken steps towards implementing prompt payment regimes. Public consultation with interested parties and development of regulations will assist in tailoring final legislation that will hopefully address the needs of the industry in each province. 

Alberta, however, has not (yet) followed this trend. Although Alberta Infrastructure has been implementing prompt payment clauses in its various contracts since 2016, no significant steps in Alberta have been taken towards a prompt payment regime in comparison to the other noted provinces. With that said, various Alberta industry associations have discussed their interest in implementing a prompt payment regime. Update December 2019: We are informed that Service Alberta has commenced an engagement for a review of the Builders Lien Act, with a view to implementing prompt payment rules for Alberta.

This does not mean that Albertans are not affected by prompt payment legislation. Once in force, those involved in Alberta projects within Federal jurisdiction will be subject to the Federal Prompt Payment for Construction Work Act. This covers any construction projects situated on federal government lands, generally administered by either Public Services and Procurement Canada or Defence Construction Canada.

The regulations of the Federal Prompt Payment for Construction Work Act are in the process of being developed, subject to input from the public, and will expand upon the general guiding provisions. For example, delivery of a “proper invoice” to the Crown (or service provider), triggers payment to be paid to the contractor within 28 days; triggering payment of the contractor to pay subcontractors within 35 days; and subcontractors to pay sub-subcontractors within 42 days. This chain of triggering events continues in increments of seven days.

There are also deadlines triggered that require formal notice of a description of the work and reasons for a party who refused to pay all or part of an invoice. In particular, the Crown (or service provider) has 21 days to provide a contractor with formal notice of non-payment; a contractor has 28 days to provide subcontractors with formal notice of non-payment, and so on. Similar to the payment increments, the chain for formal notice of non-payment continues in increments of seven days.

Where payment is not received within the legislated timelines, the contractor or subcontractor is entitled to seek a determination from an adjudicator. Unless the parties agree otherwise, the adjudicator’s determination is binding on the parties. There is a 21 day timeline to provide notice of adjudication from the later of the date a certificate of completion is received by the contractor or from the date payment is required.

Considering this, contractors and suppliers engaged on Alberta projects within Federal jurisdiction should be aware of the new Federal prompt payment regime. We will update you when the Federal Prompt Payment for Construction Work Act comes into force and when any developments occur with respect to a Provincial prompt payment regime in Alberta.

Contract Strategy

By Corbin Devlin
 
Selecting the right construction contract model for a particular project can be the difference between harmony and discord among project participants, and the difference between the financial success and failure of the project. Too often, we see litigation arise because of different expectations or understandings as to risk allocation, which is primarily a factor of contract strategy.

Contract Models

What does contract strategy mean? It is the selection (and perhaps customization) of the contract model or models to be employed on a particular construction project. For example: 

1. The Design-Bid-Build model, often described as the “traditional” model of construction, involves an owner contracting with one or more professionals for project design, followed by a competitive process to engage a general contractor, and then a separate contract between owner and general contractor. 
2. The Design-Build model, on the other hand, involves the owner contracting a single entity (Design-Builder) to complete design, procure the necessary services and materials, and complete construction. 
3.  The Construction Management model involves the owner contracting a construction manager to handle construction management activities (and often procurement) on the owner’s behalf. Construction Management is further broken down into “construction manager as agent” and “construction manager at risk” contracting models.
4.  Integrated Project Delivery (such as CCDC 30) is an alternative contract model in which the owner contracts with other project participants (for both design and construction) in a collaborative team with shared risks and rewards. 

These are several of the most common contract models, but there are numerous potential variations on each of these models. In addition to industry standard forms, there are of course infinite variations possible when owners or contractors introduce custom contracts, or unique supplemental conditions to the standard forms. In addition to the question of contract strategy as between owner and contractor, there is a similar (but usually more constrained) question of contract strategy for contractors and construction managers in their contracts with trade contractors. Whether we are talking about a prime contract or a subcontract, it is worthwhile noting that the contract pricing mechanism (i.e. stipulated price vs unit rate vs cost plus fee, etc.) is an important part of the contract model, but the question of contract strategy is much broader than just the selection of the pricing mechanism.

Risk Allocation

The allocation of responsibilities and risks varies significantly among the different contract models. For example, in a Design-Bid-Build model where the contractor is engaged on a stipulated price basis, the owner is generally contracting to obtain a completed project within the allocated time, for the agreed price. But the owner carries risks associated with accurately defining project scope and specifications, and associated with potential gaps or changes in design. With a Design-Build model, the owner carries relatively less risk associated with the definition of project scope or incomplete design, but the owner gives up a degree of certainty as to project price and schedule. Key factors which affect the selection of the right contract model include complexity of the project, the capabilities of each project participant, the owner’s objectives and priorities, project constraints (time, budget, etc.) and particular project risks.

Often Overlooked

Too often contract strategy is not given the consideration it deserves. An owner or contractor may use a form of contract recommended to them, or employed successfully on some past project, without thinking about the particular risk profile of the current project and the relative advantages of different contract models. We have seen many cases where disputes arise due to a fundamental difference of expectations, or a misunderstanding by one of the parties, regarding the contractual allocation of risks. This may result from a front-end failure to consider the suitability of the chosen contract model to the project at hand, or a simple misunderstanding of the risk allocation inherent in the chosen contract model.

Resources

There are resources available to assist owners and contractors alike with selecting the right contract model for their project. For example:

1. CCDC 10 provides a good discussion of the suite of CCDC contracts and some of the key risk allocation issues under each one. This document is valuable both as a primer on the subject of contract strategy and as a guide for selecting among the alternative forms offered by CCDC.
2. For a more advanced discussion of contract strategy considerations and best practices, the Construction Owners Association of Alberta has published a Contracting Strategy Best Practice, including useful tools such as a work process flow diagram for developing a project contract strategy.

Although the COAA Contracting Strategy Best Practice is targeted at owners on major industrial projects, both owners and contractors on any substantial construction project can benefit from this resource. I had the pleasure of participating in the development of this guide for a short time as a member of the COAA Contract Strategy Committee. I am thankful to the other committee members, all of them experienced contract management professionals for major construction owners and contractors, for allowing me to learn more than I was able to contribute. For better or worse, lawyers are rarely engaged in a project before the contract model has been chosen.

The Path to an Appeal of an Arbitration Award May Not Be So Straightforward

By Sarah Levine and Corbin Devlin

It is a relatively straight forward and well understood concept that at the outset of parties entering into a contract for services, they may choose to have any dispute that arises to be dealt with by alternative dispute resolution (“ADR”), such as an arbitration process, and include a clause in their agreement to that effect. What is perhaps not so straightforward is what recourse a party may have in the event it does not agree with the arbitral award rendered. The type of appeal that may be brought from the decision of an Arbitrator is often very limited, depending on what your Arbitration Agreement says and how that wording interacts with the Arbitration Act of Alberta (the “Act”).

Standard Arbitration Language

The standard form construction contracts provide for both multi-stage alternative dispute resolution and mandatory arbitration, and the standard CCDC language used with respect to arbitral awards provides that: “the final award is final and binding on the parties”. This begs the question – what if we take issue with the Arbitrator’s award? At first glance this language would appear to preclude any right of appeal. But even with this restrictive language there is arguably some room for appeal to the courts.

Whether or not a party can appeal is largely dependent on the basis for the appeal: in other words, is it on a question of law, fact, or mixed fact and law. The distinction is important, because the Act permits an appeal an arbitral award on a question of law if the agreement is silent on that point - but only with leave of the court. On the other hand, if the agreement states the parties may appeal an arbitral award on the basis of a question of law, fact, or mixed fact and law, they can do so without seeking leave.

There is a lack of clarity in the Alberta case law as to whether an Arbitration Agreement requires explicit language setting out the parties’ appeal rights pursuant to the Act, and what that language must look like. Consequently, aside from the standard form contracts, we see many different provisions purporting to limit – or expand – the parties’ right to appeal.

The Arbitration Act

It is helpful to appreciate the wording of the Act, which must be read in tandem with the parties’ agreement in order to determine what a party’s appeal rights are. The Act provides as follows:

Appeal of award

44(1) If the arbitration agreement so provides, a party may appeal an award to the court on a question of law, on a question of fact or on a question of mixed law and fact.

(2) If the arbitration agreement does not provide that the parties may appeal an award to the court on a question of law, a party may, with the permission of the court, appeal an award to the court on a question of law.

(2.1) The court shall grant the permission referred to in subsection (2) only if it is satisfied that

     (a)  the importance to the parties of the matters at stake in the arbitration justifies an appeal, and
     (b)  the determination of the question of law at issue will significantly affect the rights of the parties.

(3) Notwithstanding subsections (1) and (2), a party may not appeal an award to the court on a question of law that the parties expressly referred to the arbitral tribunal for decision.

The State of the Law in Alberta 

There is a line of case law in Alberta, stemming from a 1998 decision of the Court of Queen’s Bench in Seneviratne v. Seneviratne, 1998 ABQB 289 (Seneviratne) that requires the grounds upon which an appeal of an arbitral award can be brought to be stated in the Arbitration Agreement. In that case, the Arbitration Agreement stated that the parties had the right to appeal “in accordance with s. 44 of the Act”. The court in Seneviratne held that this was not specific enough to permit a party to appeal without leave. The court held that s. 44(1) requires the parties to identify the right of appeal as being either on a question of law, fact, or mixed fact and law. A broad reference to the appeal section, section 44, of the Act is insufficient to create a general right of appeal.

One of the main thrusts of the court’s reasoning in coming to this conclusion, and one that many of the subsequent cases that follow the Seneviratne case hearken back to, is one of the foundational principles underlying the arbitration process and its legislation. That foundational principle is the concept of autonomy (i.e. if the parties have agreed to have their disputes resolved by arbitration, the courts will generally respect that decision and stay out) as reflected in the limits to appeal contained in the Act. The courts have emphasized that parties who deliberately agree at the outset of their contractual relationship to be governed by an ADR process in the event of a dispute, rather than the regular litigation process, should be held to that, and that unless it is explicitly set out in their agreement that they intend to involve the courts, and how/on what grounds, then “the ability to appeal is severely limited”. This principle is followed in several Alberta cases, such as Arnason v. Arnason, 2011 ABQB 393 and Heredity Homes (St. Albert) Ltd. v. Scanga, 2009 ABQB 237.

Takeaways 

The takeaway from these cases and the specific wording of the Act is that parties entering into contracts and contemplating ADR as a process for dispute resolution should also turn their minds to the requisite language with respect to appeal rights of any arbitral award issued, in order to ensure that the wording is specific enough to reflect their wishes. For example, the parties may expressly agree to have their disputes resolved by arbitration, but may nevertheless agree that the arbitral decision is subject to appeal to the courts on questions of law, on questions of fact, on questions of mixed law and fact, or all of these grounds. Addressing this question may seem like a tall order at the outset of a contractual relationship, given that at that point no dispute has even occurred, let alone the issuance of an arbitration award and the contemplation of an appeal of one, but it will certainly do the parties well to deal with that at the outset, rather than receiving a nasty surprise about the limits of your arbitral appeal rights when that time comes.

Without more, the standard CCDC language (“the final award is final and binding on the parties”), in the context of the Alberta Arbitration Act, only permits an appeal of an arbitral award on a question of law, and then only with leave of the court. This is a severely limited right of appeal, because construction disputes generally relate to questions of fact, or questions of mixed law and fact. Most construction disputes relate to issues of contract interpretation, which the courts consider to be questions of mixed law and fact. This very limited scope of appeal is in keeping with the principle of autonomy referenced above.

Red Flags That Your Lien Rights May Be Worthless

By Corbin Devlin

In some circumstances, builders’ lien rights are worthless. Contractors are well advised to look out for these circumstances before entering a contract, and seek alternate security for payment if necessary.

Public highway projects – Public highways are exempt from liens pursuant to the express provisions of Alberta’s Builders’ Lien Act. (Fortunately, the Public Works Act provides a measure of alternate protection, provided the project qualifies as a public work.)

Irrigation district lands – For historical reasons, lands held by an irrigation district are also immune to liens, per the express provisions of the Act.

Provincial government lands – By operation of the Interpretation Act, lands held by the Crown in right of the Province are not lienable. (However, subsidiary interests in Crown lands, such as a private lease of Crown mineral rights, may be liened.)

Federal government lands – Lands held by the federal government are not subject to provincial lien legislation, by operation of federal/provincial division of powers.

Crown agency lands - The federal/provincial immunity to liens extends to lands held by Crown agencies. What constitutes a Crown agency depends on the degree of control exercised over the agency by the Crown; legal advice may be required to determine if a particular agency is immune to lien claims.

Municipal reserves – Municipal governments are not generally immune to liens. However, municipal reserves, school reserves, environmental reserves, conservation reserves, and public utility lots are immune to liens pursuant to the Municipal Government Act.

Areas of federal jurisdiction (e.g. airports) – Pursuant to the doctrine of federal paramountcy, provincial legislation (such as the Builders’ Lien Act) may be inoperative where it conflicts with federal legislation in respect of a subject that is within exclusive federal authority. Airports are an obvious example of a matter within exclusive federal authority. However, that is not to say that all liens relating to airport development projects are invalid. This is a complex area of law, and legal advice is recommended to determine if lien rights exist in respect of any project that may be within federal jurisdiction.

Developers without a legal interest in the lands – Some recent cases have highlighted the fact that lien rights do not exist if the party requesting the work does not have a legal interest in the lands, such as where a developer contracts to begin construction but fails to complete an agreement to purchase the project lands, for example Georgetown Townhouse GP Ltd v Crystal Waters Plumbing Company Inc. Particularly in the case of new developments, trade contractors may want to make inquiries to determine if the developer actually owns the project lands.

No equity – As a very practical matter, lien rights may exist but may prove worthless if there is no equity in the project lands (i.e. if the lands are fully encumbered, such as by a prior registered mortgage that equals or exceeds the land value).

This is not an exhaustive list, but it represents the most frequent circumstances we encounter. Advance consideration as to the existence or adequacy of lien rights can sometimes prevent a total failure of payment.

It is worth noting there may be certain provisions of the Builders’ Lien Act that apply even if the project lands are not subject to lien rights; e.g. trust provisions.

Municipal Reserve Lands – Validity of Lien Disputed Post-Payment of Security

By Richard Wong and Corbin Devlin

Have you wondered whether you can dispute the validity of a lien after alternate security has been paid into Court?  The Court of Queen’s Bench recently confirmed that municipal and/or school reserve lands are not lienable. The liens at issue were determined to be invalid after security was posted into Court for payment of the liens.

Determination of Validity, Post-Security

The Court in Golden Triangle Construction Management Inc v Nuwest Interior Systems Inc, 2019 ABQB 292, was tasked with determining whether, after a contractor has caused liens to be discharged by posting alternate security, the contractor has abandoned its ability to later challenge the validity of those liens.

Four liens were registered by subcontractors against lands designated as “Municipal and School Reserve” and “Municipal Reserve". Pursuant to section 48 of the Builders’ Lien Act, the general contractor, Golden Triangle, posted security for payment of the liens which were then discharged from title.

Section 48 of the Builders’ Lien Act states the Court may order that the registration of a lien be removed from the title to the land concerned where security is given, or payment is made, into court for the amount of the claim. Where this is the case, the money or security stands in the place of the land. But what does “stands in the place of the land” mean?

The Court, like many of us, found the wording of the legislation to be ambiguous. “Stands in the place of the land” was narrowed down to mean one of two things:

1.      Once the lien is discharged from title, the Court can consider the nature of the land (in this case, being a municipal reserve) in evaluating the validity of the lien; or

2.      The security held by the Court was to be treated as if it were proceeds from the sale of the land.

The Court ultimately found the former interpretation to be more appropriate, as it better aligns with fairness to the parties and upholds the objective of the Builders’ Lien Act – protecting those supplying labour and materials, and limiting the liability of owners. This interpretation clarifies that an owner or contractor can post security without abandoning any argument with respect to the validity of the lien. This allows for the speedy clearing of title upon posting alternate security and resumption of progress payments.

Municipal/School Reserves Are Not Lienable

After finding that the validity of the liens could be determined even after the liens were discharged from title, the Court confirmed the Alberta Court of Appeal’s decision in McFarlane Oil Co v Sturgeon (Municipal District No. 90), 1990 ABCA 72.  McFarlane held that liens registered against reserve lands are unenforceable as the Planning Act takes away the Court’s power to grant an order for sale of such lands.

The purpose of the Planning Act is to provide orderly planning and to maintain and improve the quality of the physical environment, without infringing on the rights of individuals except to the extent that is necessary for the greater public interest.  Although the Planning Act will permit the sale of municipal reserve lands, the general scheme of the statute with respect to reserve lands shields the lands from a Court ordered forced sale.  A statutory procedure is in place governing the disposal of reserve lands and the purposes for which the proceeds will be employed. The Planning Act was replaced in 1994 by Part 17 of the Municipal Government Act, but the principles stated in the McFarlane decision remain valid.

In comparison, the Builders’ Lien Act creates a charge on land as security for services rendered or materials furnished.  This, in effect, creates an interest in the land which can be sold and vested by the Court, unless alternate security is paid into Court. Where payment is made into Court, security other than the lands exist to satisfy potential claims. 

Considering this, the Court confirmed that the validity of a lien can be assessed, notwithstanding security or payment is made to discharge the lien. The Court then determined that Nuwest’s lien was invalid because, as determined by the Court of Appeal in McFarlane, municipal reserve lands are not lienable. The security posted by Golden Triangle was ordered to be returned to them.

Considering the significant number of school construction and renovation projects in Alberta,  it is noteworthy that some but not all schools are built on municipal reserve lands; i.e. some school projects may be lienable and some may not. Perhaps future case will consider if an agreement for sale of lands from a municipality to a school board is an interest in land that can be liened.

Lien Rights – When the Developer Doesn’t Have an Interest in the Land

Lien Rights –When the Developer Doesn’t Have an Interest in the Land

In an earlier article, we warned of the risk of loss of lien rights if a transfer of land occurs during construction.  A 2018 court decision reminds us that there is also a risk of loss of lien rights if the party contracting the work doesn’t have a legal interest (ownership) in the land, such as when (for example) an expected transfer of land doesn’t go through. 

The Recent Example

In Georgetown Townhouse GP Ltd v Crystal Waters Plumbing Company Inc, 2018 ABQB 617, the developer/owner Georgetown agreed to sell 48 lots to ReidBuilt Homes.  The contract between Georgetown and Reidbuilt allowed ReidBuilt to occupy the lands and begin construction.  However, the lands would be transferred by Georgetown only upon sale of the lots to individual homebuyers. 

When ReidBuilt came into financial problems, many trades registered liens against the lots in question.  The problem is, the trades were working for ReidBuilt but the lands were owned by Georgetown.  On a court application to determine if the liens (against the lands owned by Georgetown) were valid, Master Prowse determined that Georgetown was not “sufficiently involved” in the construction process to make Georgetown an “owner” as defined in the Builders’ Lien Act (BLA).  The liens were all invalid.

That Quirky Legislation

This issue arises in large part because the BLA has a unique definition of “owner,” and it is only the interest of an “owner” as defined that is subject to claims of lien.  Section 1(j) of the BLA defines an owner as follows:

“owner” means a person having an estate or interest in land at whose request, express or implied, and

(i)   on whose credit,

(ii)   on whose behalf,

(iii)   with whose privity and consent, or

(iv)   for whose direct benefit,

work is done on or material is furnished for an improvement to the land and includes all persons claiming under the owner whose rights are acquired after the commencement of the work or the furnishing of the material.

There is now a substantial body of case law around the question what it means to expressly or impliedly request the work.   Mere knowledge by the registered owner that the work is being done is not sufficient.  Rather, the courts have decided the registered owner must be actively involved in the building process for lien rights to exist.

What is Sufficient Involvement to Trigger Lien Rights?

In the Georgetown case, the lien claimants argued that the registered owner Georgetown expressly or impliedly requested the work based on the following facts:

- Georgetown had the right to approve the style and colours of the homes to be constructed.

- ReidBuilt was required to obtain Georgetown’s approval for the plans for the house before applying for a building permit.

- ReidBuilt was to provide utility servicing within the lot boundaries but only with contractors approved by Georgetown, and the work was to be supervised by Georgetown’s engineers.

- ReidBuilt was required to keep the lots with an orderly and tidy appearance to the satisfaction of Georgetown.

- Georgetown was to provide marketing support to ReidBuilt for the sale of homes on the lots.

- Georgetown’s approval was required for ReidBuilt’s onsite signage and advertising.

However, despite all of these obligations, there was no evidence that Georgetown in fact gave any of the approvals, or participated in any of the ways contemplated in the agreement between Georgetown and ReidBuilt, aside from Georgetown setting up and maintaining a website that referred to ReidBuilt as the builder for the subdivision.  The court concluded that Georgetown’s contractual authority over the development is a relevant factor to consider, but not as significant as what in fact happened.  With no evidence of Georgetown’s active involvement in the building process, the liens were invalid.

Not An Isolated Case

Similar situations have led to similar conclusions by the court in the past. 

In Stealth Enterprises Ltd. v Hoffman Dorchik, 2000 ABQB 311 (CanLII), S & U Homes Ltd. was the registered owner of an apartment building. They made an agreement to sell the building to the developer (632766 Alberta Ltd.) who intended to convert it into condominiums. 632766 refinished four of the apartment suites into show suites and spent other money on refreshing the lobby, before the land transfer was completed. The deal collapsed and an unpaid contractor (hired by 632766) registered a lien against S&U’s title.  The only evidence of active participation by S &U related to some directions regarding cleaning the apartments for rental.  The court determined the lien was not valid. 

In E. Gruben’s Transport Ltd. v Alberta Surplus Sales Ltd., 2010 ABQB 244 (CanLII), the landowner Alberta Surplus Sales agreed to sell 150 acres of land to 1327923 Alberta Ltd.  Alberta Surplus allowed 1327923 to move ahead with development (road construction) prior to closing the deal.  The roadbuilding subcontractor (E. Gruben’s Transport) liened the lands when the deal fell through (and consequently Gruben’s didn’t get paid).  The court determined that Alberta Surplus Sales “had no direct or indirect involvement in arranging for the road work to be done;” so the lien was not valid. 

Finally, in Acera Developments Inc. v Sterling Homes Ltd., 2010 ABCA 198 (CanLII), the issue went to the Alberta Court of Appeal.  Acera was the developer/landowner who agreed to sell the land to Sterling and allowed Sterling to build on the land prior to completion of the purchase and subdivision of the land.  When subdivision approval of the land was refused, and Sterling did not get paid, Sterling registered a builders’ lien. Acera's architectural and construction guidelines required that Acera approve the construction plans, elevations, finished grades, finishing materials and colours, final grade slips, setbacks, foundation designs, auxiliary buildings and fencing, and landscaping. All such plans were in fact approved prior to construction. Further, the construction was inspected by Acera as work progressed.  In these circumstances, the court sided with the lien claimant – the lien was valid because there was sufficient evidence of Acera’s active involvement in the work.

Three Categories of Similar Cases

As Master Prowse states in the Georgetown case: “There are three common categories of cases where this issue arises:

(i)         a landlord (registered owner of land) disavows liens placed on its land by unpaid contractors of a tenant,

(ii)        a purchaser who agrees to buy land upon which a building is to be built, and later takes a transfer of the land after the structure has been built, disavows liens subsequently placed on his/her land by unpaid contractors of the builder,

(iii)      a developer/vendor (registered owner of land) who agrees to sell land, and allows the purchaser to build on the land prior to completion of the sale, disavows liens placed on its land by unpaid contractors of the purchaser.”

The present article deals with category (iii – contracting with purchaser of lands before completion of the sale of the lands).  We have addressed the other two categories in prior articles: (i – landlord and tenant) and (ii – vendor and purchaser).

Room For Mischief

Contractors should be very attentive to these risks.  Most of the time, these situations arise innocently enough when a developer becomes insolvent.  But we have also seen developers deliberately arrange their affairs to protect the project from claims of lien (i.e. isolating the registered owner of the lands from any active involvement in the work).  In either case, contractors should be alert to situations where their statutory lien rights may be compromised.

In the present context, this means making some investigation if the party who is contracting the work has a legal interest in the lands.  If the party contracting the work has no legal interest in the lands, further inquiry is required to determine if the party who actually owns the lands is actively participating in (requesting) the work.  Keep in mind, the registered owner’s right to actively participate in the work is not sufficient; there must be active participation by the registered owner in fact.  If these inquiries suggest that lien rights may not exist, the prudent contractor will mitigate risk in some other fashion, such as requiring other security for payment from the party contracting the work.

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.