Construction law is one of few areas of practice that is governed by more than one set of procedural rules which are, at times, inconsistent or contrary to one another. The dualling procedural rules that regulate a construction lien action in Ontario have inevitably led to significant confusion among parties to litigation, as well as costs to rectify procedural issues. This blog seeks to clarify the interplay between the procedural rules of the Ontario Construction Act, the Courts of Justice Act, and the Rules of Civil Procedure in the preliminary stages of a construction lien action and to identify some areas where the regulations notably differ.
As a reference point, the Construction Act provides that an Ontario construction lien action shall be governed by the procedures of the Courts of Justice Act and, by virtue, the Rules of Civil Procedure made pursuant to the Courts of Justice Act, to the extent that they are consistent with the regulations of the Construction Act. In other words, the Rules of Civil Procedure shall govern the procedures and steps in a construction lien action unless a rule is inconsistent with the procedures enumerated in the Construction Act. This begs the question: what provisions of the Rules of Civil Procedure are inconsistent and are thereby trumped by the provisions of the Construction Act?
As a brief review, the Construction Act came into force in Ontario as of July 1, 2018 and was preceded by the Construction Lien Act. The Construction Lien Act was revamped with the alterations and additions of various sections in the Construction Act. The Ontario Court’s interpretation of the provisions of the Construction Lien Act remains binding insofar as it corresponds with the Construction Act.
The Construction Act prescribes the construction lien action procedures under regulation O. Reg. 302/18 (the “Construction Procedure Regulations”). The procedures in a construction lien action are purposefully restrictive, remaining consistent with the Construction Act’s mandate: “that the procedure of a lien action must be as far as possible of a summary character.” (Devlan Construction Ltd. v SRK Woodworking Inc., 2023 ONSC 3035 [Devlan], at para 11).
Below is an overview and explanation of the primary inconsistencies in the procedural guidelines to be cognizant of during the initial stages of a construction lien action.
Commencing a Construction Lien Action
Assuming a construction lien has been properly preserved and the steps for perfection are taken, the Construction ProcedureRegulations provide that a construction lien action shall be commenced by issuing a statement of a claim, similar to Rule 15 of the Rules of Civil Procedure. The difference is that the Construction ProcedureRegulations require the statement of claim to be served within 90 days after it is issued, whereas the Rules of Civil Procedure provide that a statement of claim shall be served within six months of issuance.
If a statement of claim in a construction lien action is not served within 90 days of issuance, then the preserved construction lien will have not been properly perfected, and therefore, the claim for lien will have expired.
Parties in a Construction Lien Action: Defendant by Counterclaim and Third Party Claim
The Construction ProcedureRegulations strictly outline who may be added as a party to a construction lien action and under what circumstances, whereas the Rules of Civil Procedure establish a far more flexible approach to naming a party to an action.
The Rules of Civil Procedure provide that a defendant who counterclaims against a plaintiff may join any other party as a defendant to the counterclaim whether or not the entity is a party to the main action. The Construction ProcedureRegulations alternatively specify that a defendant may counterclaim against the person who named the defendant as a defendant.
In other words, a defendant to a construction lien action may only counterclaim against the plaintiff. An easy mistake for a lawyer or defendant to a construction lien action to make is to assume that they may counterclaim in accordance with the flexible approach under the Rules of Civil Procedure. For example, a defendant who has been sued in a construction lien action by a plaintiff corporation may not properly attempt to pierce the corporate veil and personally name a principal of the plaintiff corporation as a defendant by counterclaim in that same action if the individual was not personally named as a plaintiff in the main action.
The Rules of Civil Procedure permit a defendant to commence a third party claim against any person who is not a party to the action in several different circumstances where that person may be relevant to the events associated with the main action, allowing significant discretion to a party when naming an entity as a third party to a claim.
The Construction ProcedureRegulations, on the other hand, establish that a person against whom a claim is made arising out of a construction lien action may join a third party to the action for the purpose of claiming contribution or indemnity in respect of the claim only with leave of the court on a motion.
The availability of a third party claim is notably more restrictive in a construction lien action then a proceeding brought under the Rules of Civil procedure. A third party claim under the Construction Act requires leave of the Court and must be for a true claim for contribution and indemnity. The Ontario Superior Court has historically followed a three-part test in granting or denying leave to add an entity as a third party to a construction lien claim under the Construction Lien Act: 1) are the proposed third party claims true claims for contribution and indemnity?; 2) if so, will they unduly prejudice the ability of the third party or lien claimants to conduct a defence?; and 3) will they unduly delay or complicate the resolution of the lien proceedings? (Lomax Realty Development Group Inc. v New Foundation Development Co-operative Corp., 2016 ONSC 6276 at para 8). Absent new case law to the contrary, this same test would be applied to adding a third party claim under the Construction Act.
Allowable Claims in a Construction Lien Action
Remaining consistent with its mandate, the Construction Procedure Regulations specify what causes of action may be joined with a lien claim. The Rules of Civil Procedure is conversely liberal as to what claims may be brought or joined together in an action.
The Construction Act specifies that a construction lien action may be joined with a claim for breach of contract or subcontract. The Ontario Superior Court recently confirmed that this language is to be interpreted as restrictive in its recent decision Devlan. What this means is that a plaintiff, including a plaintiff by counterclaim, may only prosecute a claim for breach of contract or subcontract in a lien action, notably excluding the usual causes of action that are brought concurrently or in the alternative to a claim for breach of contract, including claims for negligence, negligent/fraudulent misrepresentation, unjust enrichment, and breach of trust.
Navigating a construction lien claim can be difficult, confusing, and stressful given the interplay between the Rules of Civil Procedure and the Construction Act. It is vital to follow the appropriate procedural steps when enforcing or defending a claim for lien. Please reach out to our team of professionals at Barriston Law to guide you through this complex landscape.
Written by Nathan Stadig and Jacklyn Tuckey