Section 39 of the Construction Lien Act – More Information Necessary?
March 21, 2016
Section 39 of the Construction Lien Act provides for the right to make requests for an accounting of payments made on a project. In the case of Comstock Canada Ltd. v. Durr Systems, Inc. et al. 85 O.R. (3d) 355, Justice Ferguson of the Ontario Superior Court of Justice found there to be a new interpretation of the disclosure requirements.
The plaintiff subcontractor (Comstock Canada Ltd.) commenced a construction lien action against the defendant general contractor (Durr Systems, Inc.), on a project owned by General Motors, who was not a party to the action. Pursuant to Section 39, the plaintiff made a demand to the general contractor for information setting out the state of accounts between it and the owner. The contractor had posted security for the full amount of the claim and costs, and refused to comply with the demand. The plaintiff brought a motion pursuant to Section 39(6) of the Act for an order compelling the contractor to provide the requested information.
The defendant raised a number of arguments in support of its position that no order should have been made.
First, the defendant argued that since security had been posted, the claim was against the security and therefore the state of accounts was irrelevant.
Second, the defendant argued that the section should be limited as suggested in the Report of the Attorney General’s Advisory Committee on the Draft Construction Lien Act [page 359] which was delivered on April 8, 1982 to the then Attorney General. That report said, in part:
We suggest that the Act should require disclosure of only that information which is pertinent to the decision of whether or not to preserve a lien claim or to pursue a lien action.
Third, the defendant further argued that the information is not relevant to the plaintiff’s claim.
Justice Ferguson dismissed all of the defendant’s arguments. He stated that the defendant’s position overlooked “the distinction between the source of the recovery and the merits of the claim.” The information requested may not be relevant to the source of the recovery, but could be very relevant to the merits of the claim.
In granting the motion, Justice Ferguson ordered that very detailed information be provided by the owner including: the total amount the general billed, the total amount the owner paid, the dates of all invoices the general submitted relating to the work that the subcontractor did, and the dates and amounts of all payments from the owner.
To illustrate the breadth of what may be required in terms of disclosure, Justice Ferguson noted that, “Depending on the facts of the case and the degree to which defendants’ bills can be related to the plaintiff’s claim, I can foresee a court ordering more detailed information. For instance, if the lien dispute focuses on a particular extra then it would seem reasonable that the information about that extra should be broken down.”
Typically the answers that a responding party gives to a Section 39 request are short, concise and cover the basic information required by Section 39. In light of Comstock is this sufficient? If Comstock stands, the typical succinct answer to a Section 39 may become insufficient. Comstock could create a greater obligation on the responding party to provide fuller and more detailed disclosure early in the proceeding.
Comstock Canada Ltd. v. Durr Systems Inc., 2007 CanLII 8921 (ON SC)