Canada: The Owner Strikes Back: Subcontractor Unjust Enrichment Claims

When striking pleadings, the moving party must show that it is "plain, obvious, and beyond doubt" that the plaintiff's claim could not succeed – it must have no reasonable prospect of success. This is typically a high bar to meet. However, when a subcontractor advances claims against the federal Crown as owner for unpaid construction work, do such claims have a reasonable prospect of success? An Ontario court considered this issue, and ultimately struck the plaintiff's claims against the Crown.

Background

This matter related to a construction project to replace a bridge. HPN Engineering was the general contractor. It retained the plaintiff, Central Welding and Iron Works, as structural steel subcontractor. HPN provided partial payment to Central for its completed work. The owner, Public Works and Government Services Canada, a federal Crown corporation, failed to certify substantial performance of the project or of Central's subcontract with HPN. As such, HPN failed and/or refused to provide the holdback amount of $38,554.55 to Central.

Central sued HPN and the owner, alleging breach of contract, breach of the trusts created by the Construction Act, and unjust enrichment against both parties. In response, the owner brought a motion to strike the Statement of Claim on the ground that it disclosed no reasonable cause of action, and was frivolous, vexatious or an abuse of process.

The Test for Striking Pleadings

To strike a pleading, the moving party must show “that it is plain, obvious, and beyond doubt that the plaintiff could not succeed”, and the claim “must be read generously with allowance for inadequacies due to drafting deficiencies” and should “not be dismissed simply because it is novel”. The Court noted that another way of putting the test is whether the claim has no reasonable prospect of success.

The Court further noted that "any action for which there is clearly no merit may qualify for the classification as frivolous, vexatious, or an abuse of process.” An action is only struck in the clearest of cases.

All of the Claims Against the Owner Were Struck

Regarding Central's breach of contract claim, the only relevant contract was the subcontract between Central and HPN. This subcontract did not create any obligations for the owner, nor any rights for Central to claim against the owner for a breach. At the hearing, Central conceded that this claim could be struck.

Regarding breach of trust, the owner argued that the Construction Act did not bind it, as a federal Crown corporation. While the Act binds the provincial Crown, the same was not true for the federal Crown. As a corollary, the owner also argued that claims against it for failing/refusing to certify substantial performance also lacked merit. Even if the Act did apply to it, there is no cause of action for any failure or refusal to certify substantial performance. The Court accepted these arguments.

For the unjust enrichment claim, the Court agreed with the owner that there were juristic reasons for its enrichment and corresponding deprivation of Central. In particular, the Court agreed that a contract between an owner and a general contractor for improvements to the owner's land constituted a juristic reason for the owner's enrichment in circumstances where a subcontractor seeks to claim for unjust enrichment against the owner for those improvements. As such, it was plain and obvious that Central's claim against the owner for unjust enrichment disclosed no reasonable cause of action.

As such, the Court struck all of Central's claims against the Owner. The situation could not be cured by leave to amend, given the contractual chain between the parties, and the owner's position as a federal Crown corporation not subject to the Construction Act.

Takeaways

Pleadings can be struck if it is plain and obvious that the claim has no reasonable prospect of success. While this is a high bar, Courts have recognized that subcontractors can only advance claims against owners in particular situations, most commonly via the registration and perfection of construction liens.

While this decision was rendered in Ontario, the same result would follow in Alberta. The test for striking pleadings is the same, and the federal Crown is similarly not bound by the Prompt Payment and Construction Lien Act.