Bova Steel Inc v Constructions Beauce-Atlas Inc (Les), 2016 ABQB 589

Court of Queen’s Bench of Alberta Citation: Bova Steel Inc v Constructions Beauce-Atlas Inc (Les), 2016 ABQB 589 Date: 20161020 Docket: 1601 06431 Registry: Calgary Between: Bova Steel Inc. Plaintiff - and - Les Constructions Beauce-Atlas Inc., PCL Construction Management Inc. and Ice District (10111-104 Avenue) Corp. Defendants _______________________________________________________ Memorandum of Decision of A. R. Robertson , Q.C., Master in Chambers _______________________________________________________ [ 1 ] After a subcontractor posts security under

section 48 of the Builders Lien Act , RSA 2000 Chap. B-7 to secure a lien registered by a sub-sub-contractor or supplier to it, when the lien claimant starts proceedings to enforce its claim must the landowner and the general contractor remain as parties to the lawsuit? [ 2 ]

Section 49 says that proceedings shall be commenced by a statement of claim, and subsection (3) says that when the party issuing the statement of claim is not the contractor (this would be the general contractor) the statement of claim shall name the owner, the contractor, and the holder of any prior registered encumbrance against whom relief is sought. [ 3 ] That is what happened here. The lien claimant is Bova Steel Inc. (“Bova”), a sub-sub-contractor to Les Constructions Beauce-Atlas Inc. (“Beauce”), which is a subcontractor to the general contractor, PCL Construction Management Inc. Beauce applied under

section 48 to post the bond. That application was granted. The security has been posted. Accordingly, Bova’s claim is now against the security, not the land. The owner and the general contractor want out of the lawsuit.

[ 4 ] The plaintiff also claims that the owner and the general contractor have been unjustly enriched by the improvements on the lands done by the plaintiff. The owner and the general contractor say that there is no reasonable claim on the facts as pled and that that aspect of the claim should be struck pursuant to Rule 3.68(2)(b). [ 5 ] I have concluded that the claim for unjust enrichment and damages on a quantum meruit basis should be struck, and I have concluded that the owner and general contractor may have a proper argument to be released from this claim, but it is premature.

I have provided some interim directions to avoid wasted steps. Overview of the Arguments [ 6 ] The real dispute is between Bova, the lien claimant, and Beauce, the sub-contractor that retained Bova. The owner, Ice District (10111-104 Avenue) Corp., and the general contractor, PCL, have been named as defendants but security has been posted. They say they have no interest in the outcome of the lien claim and they should not be required to file pleadings, provide affidavits of records, or otherwise take

part in the lawsuit. Once the lien was removed from the title by the security, funds were able to flow again for the construction of the building, and construction continues. [ 7 ] The amount of the lien is significant. Bova Steel claims $1,912,383.88. [ 8 ] The Builders’ Lien Act specifically provides that the Alberta Rules of Court apply to proceedings under the Act , “except where and to the extent that they are inconsistent with this Act or the rules prescribed under this Act”:

section 64. Accordingly, if Ice District and PCL remain as parties, they will have to deliver statements of defence and provide affidavits of records even though they do not see any meaningful lien claim against them (other than the unjust enrichment claim, discussed below). As parties to the lawsuit, they argue that they will be required to at least monitor the rest of the proceedings. That will cost money, time and energy that will simply be wasted.

They say they do not care what the outcome is of the lien dispute as between Bova and Beauce. [ 9 ] They rely on Rule 3.68(2)(b), asserting that Bova’s statement of claim discloses no reasonable claim as against them under the builder’s lien aspect of the claim. [ 10 ] Bova opposes the application and says that the owner and general contractor are required to remain as parties to the lawsuit. The Builders’ Lien Act requires them to be named as parties, and Bova says that it will suffer prejudice if they are removed, and that they will suffer no prejudice if they remain as parties.

The provision of security does not eliminate the on-going need to determine the relevant lien fund, and that may not be capable of resolution until near the end of construction. The determination of the lien fund affects the owner and the general contractor, and possibly other lien claimants, even if it does not affect them financially in this dispute. [ 11 ] As mentioned, there is another claim as well. Bova also claims that Ice District and PCL have been unjustly enriched.

Ice District and PCL have not yet delivered statements of defence, because they say this claim is not reasonable and should also be struck pursuant to rule 3.68(2)(b). This claim, of course, is beyond the reach of the Builders’ Lien Act , and therefore the limitation on questioning set out in paragraph 53(3)(

f) of the Act (no questioning without a court order) might not apply. Since that provision does not contemplate actions that combine both claims to enforce liens and equitable claims, a court application may be necessary to decide what, if any, questioning is appropriate. [ 12 ] At this stage, since there have been no defences filed by Ice District or PCL, there have been no affidavits of records, and of course no questioning.

Analysis: Unjust Enrichment [ 13 ] The claim for unjust enrichment appears in paragraph 44 of the statement of claim, following a detailed statement of the allegations not just about Bova’s contract with Beauce, but also Ice District’s contract with PCL, and PCL’s contract with Beauce. [ 14 ] The statement of claim is also clear that Beauce was dealing with PCL, and PCL was dealing with Ice District. The claim alleges breaches of the sub-subcontract as between Beauce and Bova, alleged changes to Bova’s work, and Beauce’s alleged repudiation in September 2015.

The amended statement of claim does not assert any wrongdoing in respect of those breaches as against Ice District or PCL.

A blanket assertion is made that Ice District made payments to PCL, which in turn paid Beauce in relation to the project, and Bova relies on the Builders’ Lien Act for claims against the major and minor lien funds and the statutory trust. [ 15 ] A claim is asserted in breach of contract and in negligence against Beauce. [ 16 ] Accordingly, up to this point the claim is clearly a contract dispute as between Bova and Beauce and the assertion of rights under the Builders’ Lien Act . [ 17 ] However, following these claims, the assertion of unjust enrichment appears in paragraph 44: Further or in the alternative, as a result of the Steel Erection Work, Change Work and other work and supply of materials set out above and performed by Bova, each of Beauce, PCL and [Ice District] have been enriched in the amount of $1,912,383.88, or such other amounts as may be proven at the trial of this Action.

Bova has been correspondingly deprived to such amounts and there is no juristic reason for the enrichment to Beauce, PCL or [Ice District]. [ 18 ] In my view, there is no proper claim for unjust enrichment and quantum meruit, for the simple reason that the claim makes it clear, as one would expect, that there were the usual contractual relationships between the owner, the general contractor, the subcontractor and the sub-subcontractor, Bova.

Accordingly, to the extent that the owner Ice District paid the general contractor PCL, and PCL paid sub-contractor Beauce, that is exactly what was expected by all parties subject only to the holdback requirements under the Builders’ Lien Act to maintain a lien fund. [ 19 ] The “juristic reason” for any payments that did not make their way to Bova is the law of contract. The parties made payments

because that was their contractual obligation, subject to the over-riding provisions in the Builders’ Lien Act. If it were otherwise, thennotwithstanding their contractual obligations no owner could pay a general contractor unless every subcontractor, sub-subcontractor,supplier, and labourer had previously been paid. That would invert the natural “trickle down” of money from owner to generalcontractor, to subcontractor, and so on.

This would simply be unworkable, and would not reflect any sort of normal business practice orcontract. [20] It is because of the fact that contractors, subcontractors, sub-subcontractors, suppliers and workers are sometimes unpaid thatthe Builders’ Lien Act was created. There is no need for equity to impose an unworkable obligation as well, without something more inthe specific circumstances. There are no special circumstances here. [21] This has been previously addressed in several cases, such as 624250 Alberta Ltd. v. Acklands-Grainger Inc., 2002 ABQB533; Northwest Drywall and Building Supplies Ltd. v.

Flaming Brothers Construction Ltd., (BC CA), 48 BCLR (3d) 382 (C. A. 1998); and St. Paul v. Genereux Workshop (Bonnyville) Ltd., 1984 ABCA 218, 1984 CarswellAlta 100, 12 D.L.R. (4th)238. [22] In St.

Paul, the Court of Appeal referred to the argument that there was the obligation proposed here as “a new terror”. [23] In Acklands-Grainger Inc., Master Funduk said, at paragraphs 18 and 19, in connection with a proposed amendment to add aclaim such as this: The proposed amendment should not be allowed because without more as a matter of law an owner does not have an in personamliability to a contractor that he did not contract with for the contract price or the value of the improvements. It is not necessary for me to widely discuss the law about unjust enrichment. That has been done in case law and articles.

See, forexample, McInnes, The Canadian Principle of Unjust Enrichment: Comparative Insights into the Law of Restitution, (1999) 37Alta. LawRev. 1, and Worthington Reconsidering Disgorgement for Wrongs, 91999) 62 Mod. Law Rev. 218. Worthington succinctly puts it thisway, p. 226: This is all the more so when jurisprudential underpinnings of the law of unjust enrichment are considered. The gist of the action is not toremedy loss, nor to right wrongs. It is to compel the defendant to give up unjustified enrichments. [24] The issue was also addressed by the Court of Appeal in Iona Contractors Ltd. v.

Guarantee Company of North America,2015 ABCA 240 at paragraph 20: The general provisions of the Builders’ Lien Act are well known.

At common law, subcontractors have no claim against the owner ofproperty that they improve, because there is no privity of contract between them. [25] The Court went on in paragraph 21 to discuss how the legislation “creates a comprehensive, integrated system to providesome assurance to subcontractors that they will get paid for improving land.” [26] Bova relies on Litemor Distributors (Edmonton) Ltd. v Midwest Furnishings & Supplies Ltd., 2007 ABQB 23, CarswellAlta316 and Man-Shield (Alberta) Construction Inc. v. 1117398 Alberta Ltd., 2007 ABQB 603, 2007 CarswellAlta 1347, but those casesinvolved unusual facts where the owner was trying to avoid paying anyone and there was accordingly an absence of “juristic reason”. [27] Here, there is simply a bald assertion in the statement of claim that there has been unjust enrichment with no explanation as towhy the facts here might justify the claim, and bare allegations of fact such as these do not establish a reasonable claim: Hovsepian v.Westfair Foods Ltd., 2001 ABQB 700, [2001] A.J.

No. 1074, at para.. 28 – 30. [28] Accordingly, I have no hesitation in striking out paragraph 44 of the statement of claim on the basis that the facts alleged donot disclose a reasonable claim. Analysis: Removing the Owner and General Contractor [29] The argument that the owner and the general contractor should be released from the lawsuit is an issue that regularly plaguesconstruction litigation.

The actual issues at play in the dispute are known primarily by the parties to the underlying dispute – not merelythe issues set out in the pleadings, but detailed issues as to what evidence is available from the parties who are interested in the outcomeof the dispute, and whether information or records may be necessary from the owner (and in this case the general contractor) whootherwise has no interest in the outcome once security has been posted. [30] However, it must be remembered that what must be proven at the ultimate trial is that the lien claimant had a lien claimagainst the land, that the land was improved by the lien claimant, and that the lien claim was filed in time.

It may be necessary todetermine the amount of the lien fund, which involves proving the agreement between owner and general contractor and the paymentsactually made. Proving these issues might involve getting some information from the owner, for example if there is a factual dispute asto whether the lien claimant’s workers were actually on site at a particular time, or that the material was delivered to the site, on the daysthey have asserted.

The owner, or the general contractor, may have information that the subcontractor does not have to challenge thefacts alleged by the sub-subcontractor or supplier lien claimant. [31] Since the lien claimant is only entitled to its proportionate share of the major lien fund (section 18(3)), there may yet have tobe a determination as to the lien fund, and that cannot happen until near the end of the project: Maple Reinders Inc. v. W. Dalton EnergyCorp., 2007 ABCA 247 at paragraph 2 (quoting paragraph 34 from the Court below) and para. 37.

But often there is no need to do that,because many disputes are over quality of work and contractual obligations. The subcontractor has a contractual obligation to pay thelien claimant anyway, so issues of the actual determination of the “lien fund”, and even perhaps the validity of the lien, may beimmaterial to the real dispute.

[32] However, it is possible that the determination of the lien fund at the applicable time, if it is necessary, may require someinformation from the owner, such as how much the owner paid and when. [33] The question is whether that potential for some precise factual issue is enough to justify leaving the owner and the generalcontractor as defendants, because aside from the unjust enrichment claim, once security has been posted under

section 48, they have noexposure to the ultimate award. [34] There is no question that the owner and the general contractor must be named in the first instance by a subcontractor, subsubcontractor, supplier or labourer, because that is what section 49(3) requires. However, section 49(6) goes on to provide that, “Theprocedure in adjudicating on the claims shall be of a

summary character, so far as possible, having regard to the amount and nature of theliens in question and the enforcement of them at the least expense.” Proportionality is a central part of the resolution of a lien claim. [35] This would suggest that if someone does not care about the outcome, they should not be a party. Each party added to alawsuit inevitably adds to delay and expense for all concerned. Simply serving an application and supporting affidavit involves extracopies, extra delivery charges, and (more importantly) more time trying to

schedule the application so that all those who are parties havethe opportunity to appear. As we see here, if someone is a party to a lawsuit, they will still feel the need to monitor the proceedings and,at least on some occasions, attend at court to make sure no ruling is made that is somehow adverse to their position. If a five day trial isultimately scheduled, it would be a brave defendant’s lawyer who does not at least send a junior associate lawyer to watch theproceedings and report, just in case some step is taken, or threatened, that might affect that party’s position.

For example, there may beconcerns about res judicata and issue estoppel that affect the party if there are other, separate, proceedings.

A finding of fact in one casemight come back to haunt a property owner who is a party, even when the property owner has no stake in these proceedings. [36] Accordingly, there appear to be good practical reasons that militate in favour of removing the owner and the generalcontractor, but are there some disadvantages that might result to the lien claimant’s ability to have its claim fully resolved if they arereleased? [37] Bova advanced an argument that the owner and general contractor should remain parties due to the trust provisions under theBuilders’ Lien Act, but the trust provisions in Alberta are very limited, and they do not apply here.

Money is only held in trust in Albertaunder the Act when both a certificate of substantial performance is issued and payment is made by the owner after a certificate ofsubstantial performance is issued.

Although the amended statement of claim here makes a general reference to the statutory trust, thestatement of claim does not assert that a certificate of substantial performance was issued when the dispute arose, so there is no factualbasis that gives rise to trust concerns. (Furthermore, I was advised in oral argument that, although there is no evidence on the point,work is continuing and no such certificate has been issued, so I should not anticipate an application for an amendment to this effect.) [38] It is important to recognize the limited nature of the trust provisions in the Alberta legislation, because case law from otherprovinces often deals with trust provisions that are much broader. [39] Bova relies on a decision from the Saskatchewan Court of Appeal, BWV Investments Ltd. v.

Saskferco Products Inc., (SK CA), 1999 CarswellSask 76, [1999] 7W. W. R. 473 That case dealt with an application to strike at the claim againstthe owner after security had been posted, just as we see here. The Court concluded that the owner should not be struck from the action.At paragraph 35, the Court stated: The posting of security to discharge property from a lien under the act is not an acknowledgement of the validity of the lien by theapplicant or any other person.

It does not change the lien claimant’s burden to prove it is entitled to payment under the act.Concomitantly it follows that the owner and other parties may still contest the liens existence, amount and validity. [40] The Court concluded that the owner was a necessary party before the Court (para. 35), and that the posting of security byanother party did not eliminate the need for them to be before the Court, referring to Dominion Bridge Co. v. Janin Construction Ltd., 3Nfld. & P.E.I.R. 418 (Nfld C.A. 1973). The Court concluded that, as a minimum, declaratory relief was required as to the validity of thelien.

That apparently required the owner to remain in the action. [41] The Court also took into account the apparent right of builder’s lien litigants to the “full range of discovery” that is apparentlyavailable in Saskatchewan. Furthermore, the owner had first challenged the validity and amount of the lien, and then took the positionthat its presence before the Court was not necessary. [42] The Court made reference to Saskatchewan equivalent to

section 33 of the Alberta Builders’ Lien Act.

Section 33 allows alienholder to demand information from the owner and the contractor, and for orders to be made by the court against the owner, thecontractor, and others, “at any time before or after proceedings are commenced for the enforcement of the lien”.

The SaskatchewanCourt commented that, “this statutory requirement falls short of the broad discovery processes of disclosure and production of documentsand oral examination for discovery.” [43] An important distinction in Alberta is that the “full range of discovery” is not, at least as a starting point, available under theBuilders’ Lien Act, because it stands in the way of the “summary character” of the intended proceedings.

In Alberta, no questioning maybe done without an order of the court: section 53(3)(f). [44] In Dominion Bridge, in 1973 the Newfoundland Supreme Court, Appeal Division came to a similar decision. They stated thatthe Mechanics’ Lien Act must be strictly adhered to. The Court noted (para. 5) that upon the filing of a lien bond in lieu of the lien, theproperty is released from the lien, but, “the Act does not say that the owner is discharged from the action.

If it was the intention of theAct that the owner should be discharged, the Act, in my view, would have said so in plain terms.” [45] The Court went on to say (para. 7), that because the owner cannot show that it was prejudiced by leaving it as a defendant, itsapplication to be stricken out as a defendant should be dismissed. [46] Dominion Bridge was squarely criticized by a Newfoundland and Labrador trial judge more recently, in Avalon Controls Ltd.

v. Emery Construction Ltd. , [2003] N.J. No. 206 . The Court made it clear that his view differed from the Court of Appeal’s but nonetheless he found that he was bound by stare decisis and therefore he declined to grant an order allowing security to be posted where the owner refused to release the holdback funds unless the action were wholly discontinued as against it. That is, the facts were somewhat different than before this Court, but that Court’s concern about the correctness of the appellate Court’s decision in Dominion Bridge was clear: para. 13 and 14.

At paragraph 17, the Court stated its views very clearly: Where funds adequate to discharge all of the liens and costs are either paid into Court, or security for same is provided, what purpose is served by continuing to oblige the owner to remain as a party to the action and to defend it? In my view it is not a sufficient answer to this question say that the owner is not obliged to appear at the trial or to file a defence. Such a course of action on the part of an owner would, in my view, be foolhardy and expose the owner to potential additional risks.

Clearly an owner would be inclined to participate in the trial to ensure the trial judge does not, incorrectly, expose the owner to a greater liability than to have held back the statutorily required holdback fund. The right to pay money into Court or to provide security achieves one of the stated purposes of the Act, i.e. it frees up cashflow for parties in the contractual chain while at the same time protecting the interest of lien claimants.

Not to permit an owner to be discharged as a party to an action where the owner has provided adequate security for the lien claim and costs defeats this very laudable purpose of the legislation. [ 47 ] Bova also relies on Atek Developments Inc. v. Laurel Facility Inc. , 2014 ABQB 740 , 2014 CarswellAlta 2374, where Master Hanebury was dealing with a similar application. An owner wanted to be removed from an action after security had been posted by the contractor. She concluded that

section 48 does not stand alone from the other sections of the Act , and the posting of security does not affect the amount required to be retained by the owner for the lien fund. Therefore, she concluded that there is a claim against the owner that can continue after the posting of security. [ 48 ] Nonetheless, she removed the owner from the proceedings because upon a review of the statement of claim, she noted that the only relief sought against the owner related to the lands. No claim was made in relation to the lien fund.

At paragraph 15, she stated, “The Act is clear that once security has been posted no claim against the lands remains.” [ 49 ] Here, the amended statement of claim primarily focuses on the plaintiff’s contracting party, Beauce, but asks for “judgment against the defendants” without clarification as to what is meant by “defendants”. (This claim for judgment still includes the claim for unjust enrichment and quantum meruit , although judgment is sought again in paragraph 55 with a specific reference to quantum meruit .

The generic claim for “judgment against the defendants” seems to ask for judgment on some other basis.) [ 50 ] Nonetheless, paragraph 52 specifically seeks a declaration that Bova is entitled to a valid builder’s lien, and in paragraphs 53 and 54 asks for sale of the land or, alternatively, that Bova be paid from the lien bond. [ 51 ] In the result, it is not as clear in this case as it was in Atek that the relief sought against the owner is limited to the land. [ 52 ] However, none of the cases discussed mention a leading Alberta Court of Appeal decision on the Builders’ Lien Act , Driden Industries Ltd. v.

Sieber , 1974 AltaSCAD 14 , [1974] 3 WWR 368 , where the Court was dealing with an earlier incarnation of the Act .

Section 36 of the older Act is the predecessor to

section 49 of the current Act . At paragraph 8, the Court stated that it would be “otiose” to make the owner and the general contractor (and the holder of any prior encumbrance if there was one) defendants: Notwithstanding the mandatory words of section 36 (1) it is clear that the

section cannot apply to this case for subsection (3) provides that where the party issuing the statement of claim is not the contractor (which is the situation here), the statement of claim shall name as defendants the owner, the contractor, and the holder of any prior registered encumbrance, and it is provided by subsection (5) that “prior registered encumbrance” does not include a lien. Now here the dispute is between Driden and the Lien-holder.

The owner, the contractor and the holder of any prior encumbrance (if such there be) are not the least concerned, and it would be otiose to make them defendants. [Emphasis added.] [ 53 ] The Court expressed the view (para. 12) that the proper procedure to be followed is for the applicant, at the same time as the money is paid into court under what is now

section 48, to ask the Court to settle the issue to be decided and direct who should be the plaintiff and who should be the defendant. The absence of express provisions in the Act setting out this process was not an obstacle for the Court. The Court commented (para. 13) that since the legislature had not spelled out the procedure, the procedure to be followed must be decided by reference to analogous provisions of the Act and once the parties and issues had been decided, the pretrial application could be held. Conclusion [ 54 ] In light of (

a) the Court of Appeal’s direction in Driden Industries ; (

b) the fact that keeping the owner and the general contractor as parties seems likely to involve preferring form over substance since there is little likelihood that either of them will be called upon for any relief and have no interest in supporting either Beauce or Bova in their dispute, although depending upon what issues are raised in the pleadings there is a small chance that there could be a later ruling that affects one or both of them; (

c) the express statement in

section 49 of the Builders’ Lien Act that proceedings are intended to be of a

summary character; (

d) the requirement in section 53(3)(

f) that no questioning be conducted without an order of the court; (

e) the requirement in

section 64 that the Alberta Rules of Court apply except to the extent that they are inconsistent with the Act; and

(

d) recent directions from the Court of Appeal and the Supreme Court of Canada to the effect that the Court must be cognizant of proportionality, judicial economy and the need to provide appropriate access to justice, a concept that is expressly embedded in the Act ; it is appropriate to invoke the foundational rules in the Rules of Court . [ 55 ] Rule 1.4(2)(

d) specifically allows the court to “make a ruling with respect to how or if these rules apply in particular circumstances or to the operation, practice or procedure under these rules”. Rule 1.2 (2) specifically directs that the rules are intended to be used to identify the real issues and to facilitate the quickest means of resolving a claim at the least expense, and to provide an effective, efficient and credible system of remedies and sanctions to enforce the rules, orders and judgments.

This is consistent with s. 49(6) of the Act . [ 56 ] In order to follow the direction from the Court of Appeal in Driden Industries the application by the owner and the general contractor may be allowed, but not until the actual issue or issues has or have been identified. [ 57 ] With this in mind, it is my direction that, until further order: (

a) neither PCL Construction Management Inc. nor Ice District (10111-104 Avenue) Corp. is required to deliver a statement of defence or an affidavit of records, (

b) the remedies allowing direct requests for information that are described in

section 33 of the Builders’ Lien Act shall remain available to the parties, but no order directing that questioning may take place shall apply to either PCL or Ice District unless it such an order specifically states that it applies to them, and (

c) after the exchange of pleadings as between Bova and Beauce and their affidavits of records (copies of which are, of course, to be served upon counsel for PCL and Ice District) PCL and Ice District shall have leave to reapply to have this action struck as against them. [ 58 ] I would anticipate that if an order is granted striking the claim as against PCL and Ice District, it might contain a direction that if, at a later point, any party intends to seek relief that may affect the interests of either PCL or Ice District directly or indirectly, such as an order affecting the calculation of the lien fund, appropriate written notice would be required to be given to PCL or Ice District, as appropriate, and they would have leave to speak to the issue. [ 59 ] Costs may be spoken to.

Heard on the 19 th day of September, 2016. Dated at the City of Calgary, Alberta this 20 th day of October, 2016. A. R. Robertson, Q.C. M.C.C.Q.B.A. Appearances: Daina J. Young Reynolds Mirth Richards & Farmer LLP for the Applicant (Defendant) PCL Construction Management Inc. Dennis Schmidt Dentons Canada LLP for the Applicant (Defendant) Ice District (10111-104 Avenue) Corp. Corey A. Sandquist Sandquist Law & Construction Project Consulting

For the Respondent (Plaintiff) BOVA Steel Inc. Robert A. Rakochey Norton Rose Fulbright For the Defendant Les Constructions Beauce Atlas Inc.