Canada: Can Breach Of Trust Claims Be Joined With A Lien Proceeding Under The Construction Act?
Construction Law Bulletin

The Divisional Court, an appellate branch of the Ontario Superior Court of Justice, has released Devlan Construction Ltd. v SRK Woodworking Inc., 2023 ONSC 3035 ("Devlan Construction"). This highly-anticipated case clarifies an important practice point in construction litigation and concludes that breach of trust claims cannot be joined with lien claims in a lien proceeding under the Construction Act (the "Act").¹

Substantial amendments to the former Construction Lien Act were introduced in 2017 - one such amendment included the repeal of the former prohibition on joining trust claims with lien claims. However, in 2018, Ontario introduced regulations to the Act, such as O. Reg 302/18 (the "Regulation"). The Regulation addresses, among other things, what claims could be joined with lien claims in a lien proceeding. However, the Regulation is silent on the issue of joining breach of trust claims with lien proceedings.

The respondent, SRK Woodworking Inc., in the Devlan Construction decision sought to add a breach of trust claim to its lien proceeding on the basis that the former prohibition had been removed.

Despite outlining competing policy concerns, the Divisional Court framed the issue before it as one of pure statutory interpretation - what do the statutory and regulatory provisions provide?

Based on its reading of the applicable legislative regime, namely the purpose and language of the Act and the Regulation, the Divisional Court concluded that joinder of breach of trust claims in a construction lien proceeding is not permitted, and overturned the motions judge on this point. The Divisional Court's conclusion on this issue is also consistent with two prior decisions of the Ontario Superior Court by Associate Justice Wiebe in 2021 and 2022.² The Divisional Court stated that Associate Justice Wiebe had similarly found that "the Legislature's decision not to include a provision in the amended Act permitting joinder of trust claims leads to a conclusion that such claims are not permitted [.]."³

Ultimately, the Divisional Court noted that if it was wrong in its analysis, the error could be "easily remedied" through an amendment of the Regulation.⁴

Consequently, construction litigators should monitor this issue closely in the event that legislative amendments flow from the Divisional Court's decision.

Prior to the amendments introduced in 2017, subsections 50(2) and 55(1) of the former Construction Lien Act provided, respectively, that breach of trust claims could not be joined with lien claims, but that lien claims could be joined with breach of contract claims. Subsections 50(2) and 55(1) were removed and replaced with a new subsection 50(2), which states that the Courts of Justice Act and the rules of court apply to lien claims, except to the extent of any inconsistency with the Act. The Regulation then explicitly provided that a plaintiff may join a lien claim and a breach of contract claim, but there was no mention of breach of trust claims.⁵

Thus, at present, the Act itself neither expressly permits nor prohibits joinder of claims in construction lien proceedings - be it trust claims or breach of contract claims - while the Regulation only deals with joinder of breach of contract claims. In the decision under appeal, the motions judge framed the issue as "what is the impact of removing the prohibition of lien/trust claims and relegating the permissive section of allowing Lien/Breach of Contracts claims to a regulation?"⁶ In permitting joinder of breach of trust and lien claims in this decision, the motions judge canvassed numerous sources and issues, such as the amendment history of the provisions at issue, whether the impugned provision of the Regulation was ultra vires, and documents relating to the legislative history of the Act's amendments, including the recommendations contained in a report prepared for government entitled Striking the Balance: Expert Review of Ontario's Construction Lien Act, and the Hansard debates regarding the proposed amendments.

On appeal, the Divisional Court observed that there are "policy arguments on both sides of the issue" - on the one hand, requiring separate trust proceedings can lead to duplicity of proceedings. On the other hand, having trust claims asserted in a lien proceeding "does not serve the goal of expedited lien proceedings [.]."⁷

Ultimately, the Divisional Court found that the Regulation was a significant factor that "changed" the situation when it came into effect.⁸ The Divisional Court concluded that the regulatory provision allowing for joinder of breach of contract claims would not be required if permissive joinder was available under the Act pursuant to the Rules of Civil Procedure given the Act's new subsection 50(2), as noted above. In other words, the Divisional Court found that the regulatory provision intended to "oust" the application of the Rules of Civil Procedure in respect of joinder of claims, and that the specific reference in the Regulation to joinder of contract claims, by implication, precluded joinder of trust claims. Otherwise, the Regulation would have identified both contract and trust claims as matters that can be joined with lien claim proceedings.⁹

The Divisional Court also disagreed with the lower court's conclusion that the joinder provisions in the Regulation were ultra vires. Although the Divisional Court found that the Lieutenant Governor in Council may not enact a regulation inconsistent with the Act, it observed that "the Act is now silent on joinder of claims. The joinder provision in the Regulation is not inconsistent with that silence."¹⁰

The Divisional Court also considered whether, as a result of the repeal of the express prohibition of joinder of trust claims, an inference should be drawn that the Legislature intended to allow trust claims to be joined with lien claims. The Divisional Court concluded that such an interpretation would conflict with the principle of statutory interpretation in the Legislation Act¹¹that "precludes construing a current provision on the basis of prior versions of the legislation."¹² The Divisional Court wrote, "[o]ne is supposed to be able to divine the meaning of a statute by reading the statute, and not by reading every version of the statute that has been in effect."¹³

Finally, the Divisional Court considered the legislative purpose to be instructive, noting that the Act provides "as far as possible a summary procedure," and that the joinder of breach of trust claims with lien proceedings would "undoubtedly increase the cost of the proceeding and length of trial."¹⁴ As previously stated by Associate Justice Wiebe, "[i]f the Legislature intended to allow trust claims to be joined with lien claims, it should have stated so explicitly, given this mandate and the nature and complexity of a trust claim. It did not."¹⁵

Devlan Construction provides clarity on a significant practice point for construction litigators - however, the decision does not resolve the larger competing policy considerations regarding the joinder of construction lien and breach of trust claims, as it focuses only on what the Act and Regulation currently provide. Consequently, time will tell whether the Divisional Court was correct in its interpretation, or whether there will be further amendments to the legislation to allow for joinder of construction lien and breach of trust claims.

Prepared with the assistance of Arsal Wahab, summer student.

Footnotes

1 R.S.O. 1990, c. C.30.

2 Damasio Drywall Inc. v. 2444825 Ontario Limited, 2021 ONSC 8398 [Damasio], and 6628842 Canada Inc. v. Topyurek, 2022 ONSC 253

3 Devlan Construction at para. 11.

4 Devlan Construction at para. 25.

5 O. Reg. 302/18 at s. 3(2).

6 SRK Woodworking Inc. v. Devlan Construction Ltd. et al., 2022 ONSC 1038 at para. 50.

7 Devlan Construction at para. 14.

8 Devlan Construction at para. 19.

9 Ibid.

10 Devlan Construction at para. 20.

11 Legislation Act, 2006, SO 2006, c 21, Sch F

12 Devlan Construction at para. 23.

13 Ibid.

14 Devlan Construction at para. 24.

15 Damasio at para 8.

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