In the recently released decision of Devlan Construction Ltd v SRK Woodworking Inc., 2023 ONSC 3035, the Ontario Superior Court of Justice (Divisional Court) determined that parties are not permitted to join a breach of trust claim with a lien claim in a construction lien proceeding.
Joinder under the Construction Lien Act and the Construction Act
The Construction Lien Act, enacted in 1983, contained language at Section 50(2) which explicitly prohibited the joinder of trust claims with lien claims under Section 50(2), but also included language at Section 55(1) which expressly permitted a lien claim to be joined with a claim for breach of contract in a single action.
In July 2018, significant updates and changes to the Construction Lien Act came into effect, including the renaming of the act as the "Construction Act", the relocation of the text in Section 55(1) to O. Reg 302/18, and the removal of the former Section 50(2) provisions completely. The removal of the express prohibition against joining lien claims and trust claims, and no changes to the permissive language allowing lien claims to be joined with breach of contract claims, created ambiguity as to whether parties were permitted to combine their trust claims and lien claims into a single proceeding under the Construction Act.
Superior Court's decision
In 2022, the Ontario Superior Court of Justice was asked to consider whether the above amendments to the Construction Act now permitted SRK Woodworking Inc. ("SRK") to add its breach of trust claims against Devlan Construction Ltd.'s ("Devlan Construction") directors and officers to SRK's existing lien action. After a review and consideration of the statutory interpretation of the Construction Act, the legislative intent, the role of regulations, and previous judicial interpretations, Justice Harper held that "there is no reason why the trust and lien claims cannot be part of the same action in this case".
Devlan Construction subsequently sought leave to appeal the decision.
Divisional Court's decision
The Divisional Court allowed Devlan Construction's appeal and determined that lien claims could not, in fact, be joined with breach of trust claims. In the Court's reasons, Justice Corbett explained the explicit nature of the types of matters that could be joined to a construction lien claim under O. Reg 302/18, meant that save and except for breach of contract and subcontract claims, lien claims could not be joined with any other type of claim.
What does this mean?
As a result of the Divisional Court's decision, the prohibition of the joinder of lien actions and breach of trust actions under Section 50(2) of the Construction Lien Act is still in effect notwithstanding that this section was removed from the Construction Act. This means that plaintiffs are still required to commence separate actions for the lien claims and breach of trust claims.
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