Chandos Construction Ltd v Twin Peaks Construction Ltd, 2016 ABQB 296

Court of Queen ’ s Bench of Alberta Citation: Chandos Construction Ltd v Twin Peaks Construction Ltd, 2016 ABQB 296 Date: 20160526 Docket: 1601 06066 Registry: Calgary Between: Chandos Construction Ltd. Applicant - and - Twin Peaks Construction Ltd. Respondent _______________________________________________________ Memorandum of Decision of A. R. Robertson , Q.C., Master in Chambers _______________________________________________________ Introduction [ 1 ] On May 20, 2016 I gave oral reasons in this matter, but I indicated that written reasons would follow.

These are those written reasons. [ 2 ] In this interesting application under the Builders’ Lien Act 2000, chap. B-7 (the “ Act ”), the parties seek resolution of an issue that arises out of the introduction to the Act in 1985 of the concept of the minor lien fund. The issue has apparently not previously been resolved. [ 3 ] In 1985 the Act was significantly revised. Two of the revisions are relevant here.

Firstly, the amendments created the concept of a minor lien fund, to allow most of the holdback, called the major lien fund, to be released when construction has been substantially performed and secondly, trust provisions were introduced to the Act .

[4] The Revised Statutes of Alberta 2000 made various amendments to the Act, which resulted in changes to

section numbers. Also, there have been some subsequent amendments, but the concepts of the minor lien fund and the trust provisions that wereintroduced in 1985 remain in the current version of the Act but there is, to use expression of counsel for the respondent, “scanty” case lawon the major/minor lien fund topic.

Issue [5] The question now before the Court is this: in the circumstances when there has been a certificate of substantial completionfiled and the major lien fund has been paid by the owner to the general contractor, does the lien attach to the remaining minor lien fundfor the work that was done (and materials supplied) before the certificate of substantial performance? I have concluded that it does not. The Facts [6] This case involves the construction of a hotel in Calgary.

The applicant, Chandos Construction Ltd. (“Chandos”) is thegeneral contractor and the respondent Twin Peaks Construction Ltd. (“Twin Peaks”) is the structural steel supplier and installer, asubcontractor to Chandos. [7] Nearing the end of construction, Chandos posted a certificate of substantial performance and issued it to the owner.

TwinPeaks does not challenge that the certificate was properly issued and that it was posted on the site as described in sections 19 and 20 ofthe Builders’ Lien Act. [8] At the time the certificate was issued and posted, and within 45 days afterwards, no lien was registered (or at least no lienrelevant to this application was registered), and subsequent to that time the owner paid to Chandos, the general contractor, the amount itwas allowed to pay under

section 21 of the Act. That is, the 10% holdback in place up to the date of the issuance of the certificate ofsubstantial performance, being the major lien fund,was paid to Chandos. [9] In the circumstances, that left, I am told, a holdback of approximately $45,000 held by the owner pursuant to the Act. That is10% of the last portion of the construction cost. It is the minor lien fund. [10] Thereafter, Twin Peaks registered a builder’s lien on the title to the hotel lands, almost all of which relates to work done priorto the date of the certificate of substantial performance.

The claim for lien is for $118,756.29. [11] Chandos also acknowledges that it holds an additional $926.31 as a holdback in favour of Twin Peaks, and there is a balanceotherwise owing, but not yet invoiced by Twin Peaks, of $209.50. It is prepared to pay those amounts into court, but it has a dispute withTwin Peaks over the work done leading to the claim for most of the $118,756.29.

It says that in light of the fact that the statement oflien was filed after the major lien fund was paid, Twin Peaks has a contractual claim but, except for the small amount that Chandosacknowledges is owing, Twin Peaks no longer has a lien claim.

The lien for work done before the date of issuance of the certificate ofsubstantial performance does not migrate so as to attach to the minor lien fund. [12] Twin Peaks acknowledges that its lien claim would be limited to the current holdback of about $45,000, and that it no longerhas a valid lien claim for the remainder of the $118,756.29, but Chandos submits that Twin Peaks’ lien is limited to an amount claimedfor work done after the date of the certificate of substantial performance which, in the circumstance, is $80. [13] No other liens have been filed that would advance a claim against the minor lien fund, but Chandos argues that that does notmatter, because either there is a proper claim against it or there is not.

The fact that in this case no other lien claims would be eroded bya claim for major lien fund work against the minor lien fund cannot affect the outcome.

The decision must be guided by principle, notconvenience. [14] Twin Peaks refers to two masters’ decisions that touch on the issues. [15] The first one is Shearwall Farming (Yukon) Ltd v HMW Building Systems Ltd., (AB KB), [1991] A.J.No. 759, 122 A.R. 318. [16] Master Funduk was dealing with facts similar to these, but Shearwall did not involve the circumstance where the 10% pre-certificate holdback – the major lien fund - had already been released by the owner to the general contractor.

The question before himwas whether the lien filed by the subcontractor was late, where it was filed within 45 days of completion or abandonment of the work,but after the 45 day period following the issuance of the certificate of substantial performance. He held that the statement of lien was notlate. He did not deal with the question of to what it attached. [17] The second case is Vector Electric and Controls v Enviro-Abled Solutions Inc, [2006] A.J. No. 815, 2006 ABQB 502, 2006CarswellAlta 850, a decision of Master Smart.

In that case, Master Smart was dealing with a case where there was an issue about thecertificate of substantial performance not being posted as contemplated by

section 20 of the Act, and the owners were unaware that theposting had not occurred. He dealt specifically with sections 18, 19, 20 and 21 of the Act. [18] In paragraph 12 of the decision he flirted with deciding whether the lien claimant was limited to the minor lien fund. But hedeclined to deal with that issue, because there was a dispute as to the quantum of the lien fund and there were other arguments made by

counsel. It was not clear to him that the owner could rely on the certificate of substantial performance. [ 19 ] Accordingly, in the circumstances before him he felt it was necessary and appropriate for a judge to hear all of the evidence, including the knowledge of the owners at the date the certificate was issued, to determine which lien fund was applicable. If the certificate was not issued properly, that might have a significant impact on the resolution of the case. But we do not have that uncertainty here. [ 20 ] In the result, the specific issue before me has not previously been dealt with. [ 21 ] Neither Master Funduk in Shearwall nor Master Smart in Vector Electric referred to

section 24 of the Act in their decisions. That

section provides as follows:

(1) When a certificate of substantial performance is issued, (

a) any lien arising out of work done or materials furnished before the date of issue of a certificate of substantial performance is a charge on the major lien fund, and (

b) any lien arising out of work done or materials furnished on and after the date of issue of a certificate of substantial performance of the contract is a charge on the minor lien fund.

(2) When a minor lien fund does not arise under

section 23, any lien arising out of work done or materials furnished is a charge on the major lien fund. [ 22 ] We are dealing with subsection (1). [ 23 ] When there is only one general contractor, there is only one major lien fund and one minor lien fund. Once the 10% holdback for the work that was done prior to the issuance of the certificate of substantial performance has properly been paid by the owner to the general contractor, the major lien fund is gone.

It has been paid. [ 24 ] A builder’s lien is initially against the interest of the owner in the land, but if the owner pays the lien funds the owner is required to retain into court, then there is a claim against the funds, which stand in place of the land. [ 25 ] Pursuant to

section 25, an owner is not liable for more than the total of the major lien fund and the minor lien fund. If the owner follows the requirements of the Act , there is no further claim to be had against the owner’s land or the fund. [ 26 ] For example, if a subcontractor claims for 100% of the value of its work, but the owner has previously paid 90% of the contract price to the general contractor, the lien can only attach the remaining 10% holdback.

An owner is not liable twice for moneys paid properly in compliance with the Act . [ 27 ] The same applies to the major lien fund once it is paid. [ 28 ] Sections 18, 19, 20, 21 and 23 deal with the major lien fund and the minor lien fund as two separate funds, but the basic concept remains the same: once the owner has paid the major lien fund properly to the general contractor, no liens having been filed within 45 days of the applicable date, then the major lien fund is gone.

So long as the owner still has that money in his hands, the liens attach the land until funds are paid into court in place of the land. [ 29 ] Therefore, a lien properly registered within 45 days of completion or abandonment is properly registered, and if it is done after the 45 days following the date of the certificate of substantial performance, but the owner has not yet paid the major lien fund to the general contractor, then it still attaches it. That is the effect of section 18(3)(b), section 23(2) and section 23(5).

But if the money has been paid, there is nothing to attach. [ 30 ] That does not mean that the subcontractor or worker no longer has a remedy if it has liened too late to attach the major lien fund. There is, of course, always a remedy in contract against whoever was the contracting party. [ 31 ] But as well the legislature anticipated the circumstance we have here.

Section 22 was specifically introduced in 1985 (although it was

section 16.1 then) to provide further protection to unpaid workers, suppliers and sub-contractors. [ 32 ]

Section 22 creates a trust obligation where a certificate of substantial performance is issued and the payment is made by the owner after the certificate is issued. The person who receives the payment holds the money in trust for the benefit of the persons who provided work or furnished materials for the work or materials in respect of which the certificate was issued. This starts with the general contractor but it trickles down to sub-contractors as debts are discharged by payment by the general contractor. [ 33 ] Accordingly, there is no gap or inequity in the Act on this point.

Section 24 makes it clear that liens filed after the major lien fund deadline (45 days after the issuance of the certificate of substantial performance) no longer attach in respect of work done before the date of issue of the certificate. Although

section 24 does not specifically state the obvious negative (such as, “A lien arising out of work done or materials furnished before the date of the issue of the certificate is not a charge on the minor lien fund”) that is obviously the intent of

section 24. That is the resulting inverse of what is stated in positive terms in

section 24. The protection for those who file liens late, or do not file liens at all, is as set out in the trust provisions in

section 22. [ 34 ] I want to make it clear that I have not made a declaration that Twin Peaks’ claim is protected by the trust funds provision. The claim is contested by Chandos, and of course the claim must be proven. No one argued that the trust fund provisions apply. I have referred to the trust fund provisions as part of my analysis of the operation of the Act . [ 35 ] Accordingly, I declare that the lien claimed by Twin Peaks is not a valid claim against the minor lien fund to the extent that it claims for work done and material supplied before the date of issuance of the certificate of substantial performance. I will grant an order

under

section 48 of the Act to pay into court the amount which Chandos acknowledges is owing plus an additional $1,000 as security for costs. Heard on the 16 th day of May, 2016. Dated at the City of Calgary, Alberta thi s 25 th day of May, 2016 . A. R. Robertson, Q.C. M.C.C.Q.B.A. Appearances: David A. de Groot Burnet, Duckworth & Palmer LLP for the Applicant Shaun Flannigan Merchant Law Group LLP for the Respondent