February 29, 2024
When the Construction Act replaced the Construction Lien Act one of the amendments we liked was the apparent ability to join a claim for breach of trust with the lien and breach of contract claims, simplifying and consolidating related claims into one action. Or so we thought.
Turns out it isn’t so simple.
THE CASE
The Divisional Court, Ontario’s intermediate appeal court, in Devlan Construction Ltd. v SRK Woodworking Inc. overturned a Superior Court ruling which matched our expectations (which were shared by many lawyers) that the breach of trust claims may be joined with the lien claims.
The bump in the road is section 3(2) of the regulations under the Act , which repeats what used to be section 55(1) of the CLA:
“A plaintiff may, in an action, join a lien claim and a claim for breach of a contract or subcontract.”
That section says nothing about breach of trust. Previously, it was section 50(2) of the CLA which mandated the breach of trust claim being separate:
“A trust claim shall not be joined with a lien claim but may be brought in any court of competent jurisdiction.”
Section 50(2) does not appear in the Construction Act. So, most lawyers read it like the Superior Court judge did: no prohibition on joining the claims.
But unless and until the Court of Appeal speaks, or the regulation is amended, the Divisional Court ruling is the law.
They start out by noting that the combined Act and regulations “could be clearer”. They recognize the importance of this procedural issue.
The alternative interpretation is that since there is no permission in the Act or regulations to combine claims, they must remain separate. This is the view that the court preferred.
The Divisional Court noted that on a policy basis, the issue was whether adding the trust claims to lien actions would unduly delay lien actions, which are supposed to be expedited and simple (whether they are or not is another question).
They say however, that their decision is based not on policy, but on a reading of the law.
Section 3(2) of the regulation, the Court holds “by implication… precludes the application of the Rules of Civil Procedure…” which permit joinder of claims generally.
TAKEAWAYS
With all due respect to the Divisional Court, this conclusion does not necessarily follow. It is possible to argue, as the Superior Court judge accepted, that there is no conflict between the Construction Act regulation and the Rules. It is appropriate, where legislation is ambiguous, to pick the interpretation that best suits the policy goals of the Act. The court could have said that preventing delay was the more important policy objective, but then they would have needed to deal with the opposite policy being reflected in the Rules.
The Divisional Court calls upon the regulation makers to clarify the law if it is wrong. This is a degree of uncertainty in the correctness of the result which is seldom seen.
But this creates a trap for lawyers, used to permissive joinder under the Rules. Clients may be protected by errors and omission claims against the lawyers, but that would place the cost on a relatively innocent party and allow those guilty of breach of trust to escape liability due to a slip. As the objective of our system of litigation is to determine fault, and make the guilty pay, especially for serious wrongs like breach of trust, this is not an ideal result.
We will await further developments, but continue to issue separate claims in the interim, increasing cost and delaying recovery if the funds have been misappropriated.
WHAT WEILERS LLP CAN DO TO HELP YOU
We keep current on these technical issues, so you don’t have to. Construction law is a substantial portion of our commercial litigation practice. We understand breach of contract, lien claims, and trust claims. If you need a lawyer with this skill and knowledge, give us a call and see if we are the right lawyers for you.