Enerkem Alberta Biofuels LP v Producits Metalliques Pouliot Machinerie Inc, 2016 ABQB 524

Court of Queen’s Bench of Alberta Citation: Enerkem Alberta Biofuels LP v Producits Metalliques Pouliot Machinerie Inc, 2016 ABQB 524 Date: 20160921 Docket: 1403 09237 Registry: Edmonton Between: Enerkem Alberta Biofuels LP, Enerkem Alberta Biofuels GP Inc. and the City of Edmonton Applicants Defendants - and - Produits Metalliques Pouliot Machinerie Inc. Proceeding As Creditor of 7597606 Alberta Inc. O/A Metal Energie Pursuant To

Section 38 of the Bankruptcy and Insolvency Act, RSC 1985, c. B-3 Respondents Plaintiffs _______________________________________________________ Reasons for Judgment of W. S. Schlosser , a Master of the Court of Queen’s Bench of Albertas _______________________________________________________ [ 1 ] This is an application to pay funds into court and have liens discharged, pursuant to

section 48 of the Builders Lien Act , RSA 2000, c B-7. [ 2 ] The application is brought by Enerkem and is responded to by Metal Energie. There are other parties, including the City of Edmonton, and other lienholders in the chain under Metal Energie.

[3] The lien relates to the construction of our municipal Waste-to-Biofuels’ facility. The City owns the land. It leases it toEnerkem. Enerkem is under agreement with the City to construct and operate the plant. In this scenario there are potentially two lienableestates: the leasehold estate and the reversion. The City had only a watching brief in this application. [4] This is not an application to determine the lien fund. The lien fund may only be set once. In that instance the lienable estatescan make a difference. [5] A

section 48 application is open to anyone willing to post the funds that will stand in place of the land. [6] There were five liens filed: (

a) October 18, 2013, being instrument no. 132336276, in the amount of $338,504.60 plus GST; (

b) February 14, 2014: instrument no. 142056183 in the amount of $369,037.15 (which is essentially a duplication of the lien filedOctober 18, 2013; though $338504.60 plus GST is $355,429.83); (

c) February 14, 2014: Instrument 142056182, in the amount of $60,375.00 and; (

d) February 14, 2014: Instrument 142059023, in the amount of $619,549.01. All of these liens were filed against the reversion rather than the lease. For the purposes of this application, the lienable estates areessentially irrelevant unless, of course, the liens were filed against the wrong property and that is not the case here. [7] The most common application of this kind is to pay the face value of the lien plus an allowance for costs into court to havethe lien discharged. This is what section 48(1) (a)(

i) provides. Importantly, such an application does not determine the claim, other thanto establish the costs of having the liens discharged. Once the funds are paid into court and the lien is discharged against the land, thelienholder will be required to prove its claim. The Act anticipates that this is to be done summarily, though sometimes a trial will berequired. [8] In some cases, the applicant seeks to pay in a lesser amount than the face value of the claim. Section 48(1)(a)(iii) permitsthis. This is what the Applicant seeks to do in this case. [9] The issue then becomes how the amount should be determined.

In this regard, it is important to distinguish between thestatutory lien fund and the

section 48 amount. List of Authorities Authorities of Applicant, Enerkem Alberta Biofuels LP: (

a) Builders’ Lien Act, RSA 2000 c B-7; (

b) Peter Kiewit Sons Co. v Eakins Construction Ltd., (1960) (SCC), SCR 361 #2 (SCC) (

c) Boulder Construction Builders Ltd. v Calgary (City), (ABQB) (

d) Doyle Construction Co. v Carling O’Keefe Breweries Of Canada Ltd., (BCCA) (

e) Lloydminster Roman Catholic Separate School District No. 34 v Border City Transit Mix

(1980) Ltd., (ABQB) at para 41 (

f) Community Capital Management

(1976) Ltd. v Master Mechanical Plumbing & Heating Ltd., 1981 SBCA 149 (

g) Guglietta v Oldach, (ABQB) (

h) Northern Eau Claire Construction v Boddez, 1986 CanLII, 1991 (ABQB)RR Authorities of Respondent, Produits Metalliques Pouliot Machinerie Inc.: (

a) Bankruptcy and Insolvency Act, RSC 1985, c B-3 (

b) Builders’ Lien Act, RSA 2000, c B-7 (

c) Phoenix Assurance v Bird Construction, (SCC), [1984] 2 SCR 199 (

d) Acera Developments Inc v Sterling Homes Ltd, 2009 ABQB 494 (

e) Gypsum Drywall (Northern) Ltd v Coves, 1988 ABCA 58

(

f) Acera Developments Inc v Sterling Homes Ltd, 2010 ABCA 198 (

g) Daon Development Corporation v Bahrey’s Glass Limited, (AB QB) (

h) Suss Woodcraft Ltd v Abbey Glen Property Corporation and Swaig, (

i) K & Fung Canada Ltd. V. NV Reykdal & Associates Ltd, 1998 ABCA 178 (

j) Consolidated Gypsum Supply v B.L.R. Construction Ltd. (1984) 55 AR 340 (ABQB) (k) 698147 Ontario Ltd v Enescu, 2015, 2015 ONSC 6827 (

l) Lloydminster Roman Catholic Separate School District No. 34 v Border City Transit Mix

(1980) Ltd., (ABQB) (

m) MCAP Service Corporation v Anthony Plaza II, ULC, 2013 ABQB 41 , 2013 ABQB41 Authorities of WillBros Facilities and Tank (Canada) LP: (

a) The Builders’ Lien Act, RSA 2000 c B-9 (

b) Bird Construction Co v Ownix Developments Ltd,

(1984) CarswellONT 592 (SCC) (

c) Bristow et al, Construction Builders’ and Mechanics’ Liens in Canada, 7th ed, loose-leaf (consulted on September 1, 2016),(Toronto: Tomson Reuters, 2005) (

d) Northern Electric Co v Manufacturers Life Insurance Co, 1992 CarswellBC77 (CA) (

e) Ram Construction Ltd v Standard Trust Co, 1992 CarswellBC 77 (CA) (

f) Ferro Corp Re, 1982 CarswellAlta 986 at para 8 (QB Master), [1982] AJ No 259 (

g) Calgary Masonry Supplies v Sather Allen Holdings Ltd, 1994 CarswellAlta 23 (ABQB) (

h) Krupp Canada Inc v JV Driver Projects Inc, 2014 ABQB 259 at para 107 Authorties of Respondent, Enerkem Alberta Biofuels LP: (

a) Yale Development Corporation Ltd. v ALH Construction Ltd et al, (AB KB), 22 DLR (3d) 597 1972CarswellAlta 131 (CA) (

b) LT Interior & Drywall Ltd v Sota Centre Inc, 2003 ABQB 552 (

c) K & Fung Canada Ltd v N.V. Reykdal & Associates Ltd., 1998 ABCA 178 (

d) Labbe-Leech Interiors Ltd. v. TRL Real Estate Syndicated

(07) Ltd, 2009 ABQB 653. How Much? (

i) The Lien Fund Cases [10] The Lien Fund is a statutory holdback required to be retained by an owner. ‘Lien fund’, ‘major lien fund’, and ‘minor lienfund’, are all defined (sub-sections: 1(g)(

h) and (i), respectively). Before the 1985 amendments to the Act, these terms and

definitionshad been incorporated into sections within the relevant parts of the Act. [11] The crucial wording referenced a percentage to be retained by the owner: then 15%, now 10%, plus any amount payable underthe contract which has not been paid. The timing of the filing of the lien would have a bearing on this, but it is not relevant for ourpurposes. The exercise begins with a determination of a percentage of the value of the work actually done and materials actuallyfurnished.

Then it proceeds to a determination of amounts payable under the contract that have not been paid. [12] The resulting figure can be adjusted downward for equable set off for damages; being either the owner’s cost of completion,or the cost of correcting deficiencies; provided this is not precluded by the contract:eg Lloydminster (Funduk, M), paras 39, 40, 42(Community Capital, Guglietta, Northern Eau Claire).

Insurance, or performance bonds, are irrelevant (Lloydminster). (ii) The Peter Kiewit Line of Cases [13] In terms of adjusting the amount upward from the contract price, things were so good for the contractor. Peter Kiewit was a1960 contracts decision from the Supreme Court of Canada. While the owner could set off damages in equity, so long as the contract didnot prohibit it (and it is unlikely that an owner would draft such a contract), it was much more difficult for a contractor to claim amountsover the contract price on a quantum meruit basis. This is what the Peter Kiewit decision finds.

There are exceptions to the Peter Kiewit

principle.

But it is an uphill battle for a contractor trying to obtain compensation for unapproved extras. (iii) Community Capital [14] If we combine the Peter Kiewit principle with the idea that lien rights are purely and strictly creatures of statute, the words‘payable under the contract which have not been paid’ tended to limit the contractor’s recourse to increase the lien fund for extra work.The dispute typically involved extras that the contractor said were requested by the owner but which had not been formally approvedunder the contract; or ‘re-engineering’ of aspects of the work over the course of construction.

Contractors did unapproved or re-engineered work at their peril. Continuing the work could constitute affirming the contract. The net result is articulately applied to adetermination of the lien fund in the Community Capital case. There, Stevenson, JA, writing for the Court said: [13] Once the value of the work in place was determined the lien fund is to be 15 percent. plus any additional amount "payable underthe contract which has not been paid" (S.15(1). The respondent urges that the amount claimed by the contractor was payable.

It is onething to contend that the claim by the contractor, unanswered, is evidence of the value of the work in place; it is another to conclude thatthe claim was payable. Under this contract (Article A-4) no moneys are payable without a certificate (or, I assume, an arbitration awardunder Articles A-4 and GC-16). Proceedings under the arbitration clause, or a certification by the architect, would open up the questionof deducting the costs of completion as against the contractor. The respondent also suggests that the C.J.

Oliver and Horwitz cases havethe effect of making the owner liable on a quantum meruit for the purpose of determining the holdback. In Horwitz Smith, J.A. (as hethen was) expressed difficulty in interpreting and reconciling the sections of the statute then in force. Since those two decisions adefinition of lien fund has been introduced and it is my view that the difficulties have been put to rest. In order to give the lien claimantsaccess to a fund in excess of 15 per cent, the additional amount must be "payable under the contract". If it is not payable under thecontract the lienholders cannot have resort to it.

This

interpretation is consistent with the view that this type of legislation is directedtowards ensuring that the holdback is retained, not to the creation of an additional fund for lien claimants: Noranda Exploration Co.Ltd. and Noranda Mines Ltd. v. Sigurdson (SCC), [1975] 5 W.W.R. 83 (S.C.C.) (emphasis added) [15] This principle has been followed and applied many times (eg Lloydminster, Guglietta, Northern Eau Claire). (iv)

Section 48 [16] Section 48(1)(

a) is wider than the

section that governs the determination of the lien fund : 48(1) The court may, on application, order that the registration of a lien be removed from the title to the land concerned (

a) Where security is given or payment is made into court for (

i) the amount of the claim, (ii) the maximum amount for which the lien may properly attach under section 18(3) or (4) or 23 (3) or (4), or (iii) such lesser amount as the court determines, and any costs that the court may fix, (

b) where the relevant lien fund has been paid out under this Act, or (

c) on any ground not referred to in clause (

a) or (

b) as the court considers proper. [17] This subsection does not contain the words ‘payable under the contract that has not been paid’. The starting point is the facevalue of the lien plus an allowance for costs. The amount can be reduced at the applicant’s option but then the exercise becomessomewhat more complicated. [18] Master Robertson makes a helpful comment in Krupp: 107 On an application under

section 48 to post security for less than the amount claimed in the lien, or to remove the lien entirely, therelief sought is usually final in nature and therefore analogous to a

summary dismissal application. The specific requirements of Rule 7.3of the Alberta Rules of Court may not apply, but the matter should not be decided so as to reduce or eliminate the lien claimed withoutevidence making it clear that there is no genuine issue of material fact requiring a trial. But on an application under

section 48 there maynot be pleadings yet, or affidavits of records by either side, or any questioning done. [19] Using the law of

summary judgment as a touchstone takes us into familiar territory. This case is somewhat different from theusual

section 48 application in that here there are pleadings and fairly extensive evidence. (

v) The Claims [20] The claims can be divided into three categories: 1) The Module contract; 2) The Piping contract;

3) The By-pass contract. (vi) The By-pass Contract [ 21 ] If we begin with the last, invoices total $150,352.94. $84,727.44 was paid under the contract leaving a difference of $65,625.50. The face value of the lien (instrument no 142056182) is $60,375.00.

This contract started as a fixed price contract in the amount of $115,000.00 but contract revisions took the contract price to $145,102.44, inclusive of GST. [ 22 ] The difference between the contract price admitted by Enerkem, of $145,102.44, and the total invoices, of $150,352.94, less the mount paid, is a bonus amount claimed by Metal Energie. [ 23 ] However, the face value of the lien is $60,375.00 (not $65,625.50 which would be the value of the claim including the bonus).

For the purposes of the Act the amount of the claim has to be has to be the face value of the lien and not some greater amount. [ 24 ] Accordingly, instrument no. 142056182 may be discharged pursuant to

section 48 of the Act on payment of $60,375.00 plus an allowance for costs of 10% into court. (vii) The Piping Contract and the Module Contract [ 25 ] For the purposes of this application, I am treating the face value of these liens as being $619,549.01 and $369,037: being instrument nos: 142059023, and 142056183, for the Module contract and the Piping Contracts, respectively (rather than the earlier October 18, 2013 lien filed under the Piping Contract). [ 26 ] It is the Applicant’s position, with respect to the Module contract, that $1,148,754.98 was payable for this work. $869,314.31 was actually paid.

When we figure in an additional credit of $80,000.00, that leaves $199,440.99. Anything over and above that constitutes an unapproved extra to this fixed price contract. [ 27 ] It is Metal Energie’s position that there are an additional $328,837.16 of unpaid invoices outstanding beyond the scope of work covered by the Module contract. They argue that this work was either approved, that Enerkem waived the strict terms of the contract or, perhaps that they should be compensated on a quantum meruit basis because the scope of work was re-engineered.

Accordingly, the evidence discloses that the difference between the two positions is $199,440.99 and $528,278.15. [ 28 ] There is a similar disparity with respect to the Piping contract. This contract too was a fixed price contract totalling $376,362.05 after adjustments. $239,858.49 has been paid leaving $136,507.56 owing.

However, there is a contractual liquidated damages cross-claim for delay in the amount of $2,500.00 per day for a period of 56 days, totalling $140,000.00; more than the amount otherwise admitted to be owing under the revised contract. [ 29 ] The face value of Metal Energie’s Piping contract lien is $369,037.15, based on instrument no. 142056183 filed in February, 2014. [ 30 ] Metal Energie makes a similar argument with respect to this additional work. They say they issued invoices in the total amount of $585,194.41, leaving $345,339.93 owing.

So, if we ignore the liquidated claim for delay, there is $208,832.36 in dispute. Disposition [ 31 ] The exercise here is to determine the Applicant’s costs to remove the liens. The amount is either the face value of the liens plus an allowance for costs or a lesser amount, fixed with the certainty of a

summary judgment application. Claims between owners and contractors, or general contractors and subs, consist of contractual claims and equitable claims relating to the work and materials supplied. There may also be damages claims. Just as the lien claimant may attempt to claim for extra work, the owner may try to set off the costs of completion, or of correcting deficiencies. There may also be liquidated contractual amounts for delay. The

section 48 application does not determine the claims of owners and contractors once and for all. It is only a measure of the statutory obligation to have the liens removed. [ 32 ] If this were a

summary judgment application, and Enerkem were the applicant, the legal burden would fall to it throughout to show (in this case) that its payment number is ‘unassailable’. In my view, it has discharged its evidentiary burden by tendering evidence of the fixed price contract, and in the case of the Piping contract, the liquidated amount for delay and completion. In a

summary judgment application the burden would then fall to Metal Energie to show that it has at least an arguable case for its numbers. If it were able to meet this threshold, this would justify payment of these additional amounts into court up to the face value of the lien, plus an allowance for costs. The usual steps relating to proof of the lien claims would follow. [ 33 ] Proving the enhanced numbers is, to say the least, an uphill battle for the respondent; both from an evidentiary prospective, and a legal prospective, given the Peter Kiewit line of cases.

The difficulty is that the Respondents brief was focused more on other issues than discharging its evidentiary burden as a Respondent to an application that is in the nature of

summary judgment. This will involve a much more detailed review of the evidence and the law of fixed price contracts. Enerkem’s position is, without more, presently unassailable. [ 34 ] Unless the Respondent makes a further application, the By-pass lien will be discharged on payment of the face value of the lien into Court plus the above noted allowance for costs:, the Module lien will be discharged on payment of $199,440.99 plus a 10% allowance for costs; The Piping Contract lien may be discharged without payment in as the evidence discloses that there is likely a net amount payable to Enerkem.

These payments will be sufficient to discharge the liens from title but will not extinguish claims over and above these amounts outside of the Builders’ Lien Act .

[ 35 ]

Section 191 of the Land Titles Act will apply to the Order. Heard on the 16 th day of August, 2016. Dated at the City of Edmonton, Alberta this 21 st day of September, 2016. W. S. Schlosser M.C.C.Q.B.A. Appearances: Bradley Smith McLennan Ross LLP for the Respondent, Metal Energie Darren Bieganek, Q.C. and Tara Matheson Duncan Craig LLP for the Applicant, Enerkem Alberta Biofuels LP Scott Hammel, Q.C. Emma Johnston Miller Thomson LLP For the deemed Party, WillBros Facilities and Tank (Canada) LP