Canada: Ontario Court Rejects Motion Filed Under Section 47 Of The Construction Act; Clarifies The Concept Of "Abandonment Of Contract" In Construction Lien Matter

SUMMARY AND SIGNIFICANCE

In S31 Inc. v. Ecolomondo Environmental (Hawkesbury) Inc., 2023 ONSC 5071 [S31 Inc.], the Defendant ("Ecolomondo"), pursuant to a construction lien claim made by the Plaintiff ("S31"), filed a motion under section 47 of the (Ontario) Construction Act (the "Ontario Act") in the Ontario Superior Court of Justice.

The Court concluded that the section 47 procedure of summary dismissal was not available to Ecolomondo given the existence of material issues that needed to be analyzed and determined at trial. It also clarified the meaning of abandonment in construction projects. This decision is expected to have important precedential value for lien enforcement cases in other jurisdictions seeking summary determination without a trial or involving an analysis of abandonment.

FACTUAL BACKGROUND

Ecolomondo hired S31 as a contractor, the contract was executed in July 2020, and arguably, the contract was abandoned by S31 before November 27, 2022. S31 registered a construction lien on January 26, 2023. Ecolomondo sought to discharge the lien registered by S31. It argued that that the lien had been registered more than 60 days after abandonment of the contract and was invalid on account of non-compliance with section 31(2)(b) of the Ontario Act. This section states that the lien of a contractor expires at the conclusion of the 60-day period following the occurrence of (a) the date the contract was completed; or (b) the date the contract was abandoned or terminated, whichever was earlier. In this case, the contract had been abandoned, and therefore, Ecolomondo argued that any lien had to be registered by S31 within 60 days of the date of such abandonment.

Ecolomondo brought a motion for summary dismissal of the matter under section 47 of the Ontario Act. Section 47 allows a party to apply to the Court for a motion for discharging a lien on the ground that the underlying claim is frivolous, vexatious or an abuse of process, or on any other proper grounds. Section 47 processes are similar to summary judgment motions under Rule 20 of The Rules of Civil Procedure in Ontario.

ABANDONMENT VIS-À-VIS LATE REGISTRATION OF A LIEN

The key concepts analyzed by Justice P. Roger were "abandonment" and "applicable time period for lien registration" in the context of whether a section 47 motion for summary judgment could be granted in the case at bar. The judge observed that the Ontario Act does not define "abandonment," but that abandonment "has been determined [in common law] to occur when there is a cessation of work and either an intention not to complete the contract or a refusal to complete the contract." It was pointed out that where abandonment is denied, as was the case here, all relevant circumstances must be considered to determine whether abandonment has "objectively" occurred.

The Court concluded that "once it becomes impractical or impossible to perform the contract, no reasonable person would persist in saying that they were ready, willing, and able to continue performing." In other words, where dispute resolution is no longer possible, a contract will be considered abandoned irrespective of whether the contractor claims to have the intent to perform.

CONCLUSION OF THE ONTARIO SUPERIOR COURT OF JUSTICE IN S31 INC.

Given the above analysis, and the parties' disagreement on whether a Court can weigh evidence, evaluate credibility, and draw inferences from evidence on a summary section 47 motion under the Ontario Act, the Court had no choice in S31 Inc. but to declare that the issues existing in this case warranted a trial, and to rule that determination by way of a section 47 summary judgment was not feasible. The motion was dismissed, and costs of $33,000 were ordered to be payable forthwith by Ecolomondo.

THE LAW IN OTHER JURISDICTIONS

In the Western provinces, the equivalent of section 47 of the Ontario Act is found in section 25(2) of the (British Columbia) Builders Lien Act. While there is no exact equivalent enabling a summary procedure to be followed in the Saskatchewan and Alberta Acts, the decision in S31 Inc. can be analyzed in the context of the general rules of summary judgment applicable in these provinces vis-à-vis construction liens whose validity has been questioned on the basis of the timeliness of registration.

In Saskatchewan, for example, section 49 of The Builders' Lien Act (the "BLA") lists the circumstances in which unregistered lien rights expire. Where no certificate of substantial performance is given, section 49(1) of the BLA sets out the statutory period of 40 clear days for the expiry of a lien, occurring after the earlier of (a) the day the contract is completed; or (b) the day the contract is abandoned. This is similar to the Ontario Act. Another similarity with the Ontario Act is that abandonment is not defined within the BLA. Having said that, the definition of abandonment was briefly examined by the Saskatchewan Court of Queen's Bench in Cornerstone Developments Inc. v. Sawtooth Custom Homes Inc., 2011 SKQB 223 [Cornerstone] (overturned on appeal on separate grounds) where the Court endorsed the SCC's interpretation in Elizabeth Townhouses Ltd. v. Sigurdson, [1975] 2 SCR 449 [Elizabeth]. In Elizabeth, it was held that: "In order to constitute abandonment a cessation of work would have to be permanent in the sense that it was not intended to carry the project to completion." This is aligned to the interpretation by the Ontario Superior Court of Justice in S31 Inc.

Based on the interpretation of the Court in Cornerstone, it is likely that the Saskatchewan courts would come to a similar determination as that of S31 Inc., namely that relevant circumstances may be considered to determine if there was a sense of permanency and that the contract was abandoned, and therefore, a summary judgment determination would not be available. One important caveat, unique to the Saskatchewan legislation, is section 49(5) of the BLA which allows a lien claimant to register and enforce their claim after the expiration of the holdback, subject to any intervening interest which may have arisen prior. This section provides more latitude in registering a lien, which in turn may make claims arguing that the registration of a lien is statute-barred, such as that in S31 Inc., less likely to be filed in Court.

RATIONALE OF COSTS AWARD

Another important point to be noted in S31 Inc. is the awarding of significant costs amounting to $33,000. The Court ordered that Ecolomondo pay such sum to S31 forthwith. While awarding such costs, the Court expressly reasoned that the quantum was determined with a view to dissuade future applicants from trying to use the section 47 summary procedure to have matters with key triable issues heard without the benefit of a trial.