J.K. Engineering Ltd v Red Quest Developments Ltd, 2017 ABQB 75

Court of Queen’s Bench of Alberta Citation: J.K. Engineering Ltd v Red Quest Developments Ltd, 2017 ABQB 75 Date: 20170202 Docket: 1601 12005 Registry: Calgary Between: J.K. Engineering Ltd. Plaintiff - and - Red Quest Developments Ltd. and Aqua Properties Ltd. Defendants _______________________________________________________ Reasons for Decision of A. R.

Robertson , Q.C., Master in Chambers _______________________________________________________ Overview [ 1 ] This application is brought by the defendant landowner Aqua Properties Ltd. for an order declaring that the builder’s lien claim registered by the plaintiff is invalid. The plaintiff filed a statement of claim pursuant to the Builders’ Lien Act , RSA 2000 Chap B- 7 (“ BLA ”), the plaintiff was served with a notice to prove lien, and this application is the result of issues that have thus been identified in the proceedings.

No statement of defence has been filed. [ 2 ] The project in question is a proposed recreational vehicle (“RV”) Park adjacent to the Travers Reservoir near Vulcan, Alberta. The plaintiff, J. K. Engineering Ltd., was retained in stages to provide both designs, materials supply and construction services in connection with the development and construction of the RV Park by Red Quest Developments Ltd. Therefore, although JK is an engineering firm, it also performed services as the contractor building some of the major aspects of the RV Park.

There is no evidence indicating there was another contractor involved. [ 3 ] It was initially retained to design the freshwater system, to design the wastewater system, and then to construct both of them.

Before the construction of those projects was complete, JK was retained to provide assistance in obtaining approval from Alberta Environment in respect of the surface water storm drainage system. JK acknowledges that this was not part of the scope of the initial work. However, the work on this aspect of the project overlapped by months with the construction work already started by JK.

That initial construction work was completed before the storm drainage system work by JK terminated. [ 4 ] JK appears to have seen all of the work as being related: its final invoice, dated July 8, 2016, which is addressed to Aqua Properties Ltd., includes all of the work done to that point.

One entry is for “Additional engineering related to water supply, wastewater disposal and storm water management plan (estimate) $50,000.” (This invoice was not addressed to Red Quest, and by this time the distinction between the two defendants seems to have become blurred - the principal behind both corporations is the same person. The question of liability in contract is not before the Court on this application.) [ 5 ] That invoice was not paid. The balance outstanding is $337,650.00. [ 6 ] I have concluded that the application to strike the lien must be dismissed.

The Unusual Facts Creating the Problem [ 7 ] The problem that has arisen is that the approval of a storm drainage system has not yet been granted by Alberta Environment, with the result that the project is stalled mid-construction. Normally all approvals are obtained before any significant work is done in the actual construction of an improvement, but here the process was turned “upside down” by the owner, who directed that construction of the water treatment and wastewater disposal systems begin notwithstanding the fact that all necessary approvals had not yet been obtained.

Aqua Properties thus found itself in a difficult circumstance. I am told that Aqua Properties is continuing its efforts to obtain approval using a different engineering firm. [ 8 ] The design and construction work that JK did in connection with the water and wastewater systems clearly would give rise to a builder’s lien. The work that JK did assisting Aqua Properties in connection with its work with Alberta Environment is not as straightforward. The approval was denied; an appeal was brought.

JK assisted throughout, and provided some preliminary drawings which, it admits, were not sufficiently detailed to allow actual construction work.

The Arguments Why the Lien Should be Struck Late Registration; Later Work not Lienable [ 9 ] JK’s lien was not registered at the land titles office until long after the freshwater and wastewater work was completed, but it was registered within 45 days of the last of its work, which was by then limited to assisting Aqua Properties in connection with seeking the approval for surface drainage. [ 10 ] Since the work done in connection with installation of the water and wastewater systems was done long before the builder’s lien was filed, the lien was out of date for that work unless the later work was a continuation of that construction work and it was, on its own, properly the basis of a builder’s lien.

Aqua Properties says it was neither; the quality of this later work was different. It submits that the case law is clear that preliminary work done in connection with the surface drainage approval process is not something that gives rise to a builder’s lien. The nature or “quality” of this work is different than construction.

Therefore, Aqua Properties argues that it should be discharged. [ 11 ] The later work ended with a report from JK to Aqua Properties sent July 4, 2016, entitled, “Rebuttal to Alberta Environment and Parks Information provided on June 30, 2016.” Aqua Properties had submitted its application for Registration to Construct and Operate a Municipal Storm Drainage System on February 27, 2015. By the time this application was filed, JK was in the process of construction of the water treatment and wastewater systems.

The Director had concluded on June 30, 2016 (almost a year and a half after receiving the report) that the application was incomplete and not based on sound technical and legal judgment. The July 4 report was provided by JK to advise to Aqua Properties Ltd. as to its position. [ 12 ] Aqua Properties argues that this work was in connection with obtaining approvals, not “work on or in respect of an improvement” which is the critical wording in

section 6 of the Builders’ Lien Act that says what work gives rise to a lien. (The

section is quoted more fully below.) Aqua Properties therefore submits that the lien should be discharged. “Remedial” Work [ 13 ] Aqua Properties also argues in the alternative that the work done within the 45 day period was remedial in nature, and therefore the period for filing a builder’s lien was not extended by it. Subsection 41 (5) of the BLA provides that the time for registering a lien is not extended by correcting work “improperly done or omitted to be done”. However, the nature of the work done here was to obtain approvals which were, it would clearly appear, not guaranteed.

The fact that the approval was not granted does not mean that the work was “deficient”, and in any event subsection 41(5) does not clearly apply to the sort of work that we are dealing with here. [ 14 ] In my view, that subsection addresses work improperly done in the actual design or construction of the improvement.

Simply because an application for approval is not granted, or because an appeal is unsuccessful, does not mean that the work done by those seeking the approval or prosecuting the appeal was deficient, even though Alberta Environment described the application as incomplete. [ 15 ] Furthermore, the report from JK in question is very clear that it considers the problem to be at the Alberta Environment end, because the Director was requiring that the project have no impact on the adjacent property, either positive or negative, and that this expectation is unreasonable and impossible to implement.

Also, JK asserts that some of the work that it did more recently was responding to requests for information and details requested by the regulator, which JK says is not uncommon. [ 16 ] The alleged “deficiency” in JK’s work is very much contested. The lien cannot be struck at this stage based on that ground.

Case Law [17] The case law is clear that preliminary work done in advance of actually constructing an improvement is not necessarilysubject to the Builders’ Lien Act. However, work done that is more specifically related to the construction is subject to the Act, even ifthe project does not proceed. For example, an architect who provides detailed drawings for the construction of the project is still entitledto claim a lien claim even though the owner decides not to proceed with the work. A lien arises in respect of an “improvement”, which isdefined as including “anything constructed ... or intended to be constructed”: BLA, s 1(

d) and Peter Hemingway Architect Ltd v AbacusCities Ltd, 1980 ABCA 182 , [1980] 6 W.W.R. 348, 113 D.L.R. (3d) 705 (Alta. C.A.). [18] The test as to whether the lien arises is found in

section 6. Leaving aside an exception for claims in connection with therecovery of a mineral, the

section says: [A] person who (

a) does or causes to be done any work on or in respect of an improvement, or (

b) Furnishes any material to be used in or in respect of an improvement, for an owner, contractor or subcontractor has, for so much ofthe price of the work or materials as remains due to the person, a lien on the estate or interest of the owner in the land in respect of whichthe improvement is being made. [19] There are several Court of Queen’s Bench and Court of Appeal decisions dealing with where the line should be drawn indetermining what work may properly be described as being “on or in respect of an improvement”.

The analysis is fact-specific. [20] In Leduc Estates Ltd v IBI Group, , [1992] 4 W.W.R. 561(Alta. Q.B.), aff’d 1994 ABCA 5, at para. 15, theCourt said: Not every person who performs a service that contributes in any way to the total project is entitled to a builder’s lien. As is pointed out inHett [cited below], the type of services that are performed by a solicitor, accountant or sociologist would not properly be the subject of alien.

Only those contributing to the actual, direct process of construction of some improvements are entitled to a lien. [21] Sometimes the work done by a contractor who is clearly assisting an owner or developer is the subject of a lien, andsometimes not, depending upon the nature or “quality” of the work in question.

For example, an architect who provides services withrespect to rezoning, subdivision, and other development issues is not entitled to lien for those services, because they, “are not sufficientlyconnected to construction of an ‘improvement’ to support a lien”: John Barlot Architect Ltd v 413481 Alberta Ltd, 2010 ABCA 51 atpara. 11. [22] “The work of a lien claimant must be an integral and necessary part of the actual physical construction of the project, asdistinguished from mere development work”: Leduc Estates at para. 33. [23] In Hett v Samoth Realty Projects Ltd, (AB CA), 76 D.L.R. (3d) 362, the Court of Appeal said: Although it is clear that services need not be physically performed upon the improvement to fall within the meaning if the Act they mustin my judgment be directly related to the process of construction.

Surely inspiration, the development of concepts, logistics, applicationsfor zoning, legal services, or accounting services do not fall within “services upon the improvement” as those words are defined by thecase law .... [24] In John Barlot at para. 16 the Court of Appeal made it clear that when some of the work was on the improvement (andtherefore “lienable”) and some was not, the contractor might still not succeed on a lien for the latter. “Even if construction drawings forthe project had been prepared by the respondent, that would not support a lien for the subdivision and planning part of the work”.

If thatapproach applies here, and even if the drawings done by JK here had been sufficient for later construction, but if it were done at thatearly stage for the approvals, then this sentence might suggest that the work could not properly be the subject of a builder’s lien. [25] Counsel for the defendants referred to Haley v Richards, (Q.B.). An architect had done work for a projectupon which construction was never begun, and although the Court dismissed his claim for other reasons (no debt was owing: para. 33)he discussed the validity of the lien claim.

The only work done within 45 days of its filing was a meeting with city councilrepresentatives by the architect, the owner’s representative, and its legal counsel. The architect argued that he attended in his capacity asan architect and that his architectural skills were required at the meeting and in drafting a letter that preceded the meeting. The Courtdiscussed Hett and also Inglewood Plumbing Gasfitting Ltd v Northgate Development Ltd, , 54 W.W.R. (N.S.) 225(A.B.Q.B). [26] In Inglewood, Milvain, J. held that an architect’s work was lienable although the architect did not actually superviseconstruction.

The Court in Haley held that for a lien to be declared valid, “it is necessary that the work done by [the architect] withrespect to the May 17 meeting be directly related to the process of construction.” He held that was not the case and found that even if hehad found a debt to be owing, the lien was invalid. As mentioned construction was never begun. [27] Leduc Estates, mentioned above, provides a helpful discussion of a number of cases. Armbro Materials & Construction Ltd v230056 Investments Ltd, (ON SC), 9 O.R. (2d) 226, 60 D.L.R. (3d) 68 (S.C., 1975) is discussed at para. 27 – 29.

Anengineer had prepared plans of the sewage, the water mains and roads in order that they might be approved by the municipal authorities.They were presented, rejected, amended and then approved subject to a condition that an easement be granted. The owner did notproceed because it did not have money for the required easement. The engineers were also retained to supervise construction, but ofcourse that did not occur.

The Court upheld the lien because the engineering plans were “so inextricably linked with the land” andspecifically designed for the lands. (The Court in Leduc Estates seems to have had some concern about the analysis in Armbro (seepara. 29) because of a comment about the increase in value of the land as a result of the work. Leduc says that that consideration isirrelevant to the question of whether the nature of the work creates an entitlement to a lien. But the concern regarding Armbro was

limited to that concern, not applicable here.) [28] Leduc Estates also reviewed (para. 30 – 31) Jenkins v Wilin Construction Ltd, (NS SC), 25 N.S.R. (2d)19, 36 A.P.R. 19 (Co. Ct., 1977). The facts in that case were very similar to those here.

An engineer registered a lien for services“determining [the land’s] physical features, the locating of services, the examining of the land use on adjoining lots, the determining ofaccess routes, topographic and drainage conditions ...” and “preparing plans to scale, including front elevation view and preliminarylayout scheme, as well as a site layout plan” and “making representations to municipal authorities and area residents” in connection witha zoning change.

The judge concluded that the work was done with a view to construction of an improvement and, “The preparatorywork on an offsite done by the engineer in the case are just as essential for the construction of the work as the work of the assistantarchitect in [another case].” [29] The Court in Leduc Estates held that, “The work of a lien claimant must be an integral and necessary part of the actualphysical construction of the project as distinguished from mere development work”: para. 33. [30] That Court described (at para. 3) the work done by the lien claimant, the engineering firm IBI.

It included “preparation andapproval of an area structure plan, preparation of a subdivision plan for the first phase and all the attendant engineering work necessaryto get that plan approved (e.g., rezoning, negotiations for an easement for a sewer pipe, etc.).” The Court concluded that this work wasnot “directly related to the actual process of construction” and in light of Hett, was not the proper subject of a lien. Analysis [31] The prior cases show that the Courts have struggled to find the correct place to draw the line between work that is properlysubject to a builder’s lien and work that is not.

Work that is done during a period where construction of the project remains conceptual isoften not the proper subject of a builder’s lien. Usually this work is done by the owner with the assistance of legal counsel, planningconsultants, and other professionals, but the work is sometimes done by persons who might in other circumstances properly register liensfor construction, and in those cases the distinction is often not as clear. In particular, an architect involved in a project not yet begun, andwhich might never be begun, may be in a precarious position as to the registration of a lien.

The facts must be examined closely. [32] However, in my view, the facts here, admittedly somewhat unique, direct the Court to the conclusion that the work done byJK was directly related to construction. Armbro and Jenkins are persuasive authorities. [33] This project had long proceeded past the conceptual state – long past the “intended to be constructed” aspect of the definitionof the word “improvement”. JK had done most, if not all, of the construction work to date.

The surface drainage work was not dissimilarto the work already contracted to JK – it involved engineering, design, and would involve the use of heavy equipment to completeconstruction component of the work – and JK was retained during the process of constructing the water treatment and sewage disposalwork for this additional work. The work was directly related to the actual construction of the project, already well underway.

The workwas not “mere development work”. [34] The work done by JK within the 45 days prior to registration was not dissimilar in nature to a builder seeking a buildingpermit for an unusual and large project where problems have been identified, and who must do further work to get a regulator’s approval,where that approval involves more designs and more information to satisfy the regulator. During that process the builder would beadvising the owner as to his position.

That work would clearly be directly related to construction, and here the fact that construction hadalready started on related things - on this project by this engineering company - underscores the connection to the actual construction. [35] This was work done during the process of construction by the contractor, notwithstanding that it was not part of the scope ofthe initial contract. The distinction discussed in Hett about “inspiration, the development of concepts, logistics, applications for zoning,legal services, or accounting services” is inapplicable here.

As well, the facts here are very similar to those in Armbro, where the lienwas not struck. Conclusion [36] Accordingly, I conclude that JK had done “work on or in respect of an improvement”, it was doing more in July 2016, and theimprovement was already underway. [37] The application to strike JK’s lien is therefore dismissed. [38] Costs would normally follow the event here and be awarded to JK but there may be submissions to be made by counsel in thatregard.

If the parties cannot agree on costs, they may make arrangements through the chambers clerk to make those submissions. [39] This was an interesting and challenging case with unusual facts. I commend both counsel for their very able and helpfulsubmissions. Heard on the 09th day of January, 2017. Dated at the City of Calgary, Alberta this 30th day of January, 2017.

A. R. Robertson, Q.C. M.C.C.Q.B.A. Appearances: Shaun Flannigan Merchant Law Group LLP for the Plaintiff Evan Valeriote Miller Thomson LLP for the Defendants