June 28, 2016
In Yorkwest Plumbing Supply Inc. v. Nortown Plumbing (1998) Ltd, et al, the Court of Appeal for Ontario confirmed that a subcontractor is bound by Section 20(2) of the Construction Lien Act (the “Act”) with respect to its right to register a general lien over multiple premises with one owner.
The plaintiff, Yorkwest Plumbing Supply Inc. (“Yorkwest”) was a plumbing supply subcontractor for the contractor Nortown Plumbing (1998) Limited (“Nortown”). The owner, Intercorp Projects (Milton on the Escarpment) Limited (“Intercorp”) owned multiple premises subject to an improvement. Intercorp’s contract with Nortown specified that all lien rights would arise and expire on a lot-by-lot basis. Following Yorkwest’s last supply of the project it filed a general lien against each premises, and in each case claimed a lien for the total amount owed for what it had supplied to all the lots in the subdivision. Those liens were discharged pursuant to motions for summary judgment brought by the owner. The motion was upheld by the Divisional Court on the basis that section 20(2) of the Act confirms that a subcontractor cannot claim a general lien on a project where the contractor and the owner have agreed that liens will arise and expire on a lot-by-lot basis. This section of the Act is particularly relevant in a housing development involving multiple lots. Yorkwest appealed to the Court of Appeal for Ontario.
Section 20(2) of the Act only refers to ‘contracts’ and not ‘subcontracts’. Accordingly, Yorkwest argued that as the subcontract between Nortown and Yorkwest did not address the right to register a general lien, section 20(2) of the Act did not apply, and it was permitted to file a general lien over all premises. In a unanimous decision written by Feldman, J.A., the Court of Appeal confirmed that Yorkwest was bound by the terms of the contract between owner (Intercorp) and contractor (Nortown) that precluded general liens. The fact that a subcontract is silent on the right to file a general lien has no bearing on the analysis.
Feldman, J.A. took notice that the Legislature’s intent in passing subsection 20(2) of the Act was to permit the owner and contractor to contract out of the right to file a general lien. Feldman, J.A. determined that the appellant’s interpretation would undermine the ability of contractors and owners to make provisions in their contracts to allow the owner to release holdback on a lot-by-lot basis. This would considerably undermine the purpose of subsection 20(2) of the Act.
The lesson for subcontractors is to ensure they exercise their rights under section 39 of the Act and obtain a copy of the contract between the owner and contractor before registering a lien. Had Yorkwest reviewed the main contract in this case before registering its general lien, it would have realized it was limited to liening on a lot-by-lot basis. As a result Nortown lost its security.