Legal Blog

Joinder

The simple question for this newsletter is whether a statement of claim to enforce a claim for lien can also join a trust claim to that lien claim. This issue was dealt with in Devlan Construction Ltd. v. SRK Woodworking Inc., a 2023 decision of the Divisional Court. The answer to the question was dependent on statutory interpretation, an esoteric exercise that lawyers and judges often must perform, but which we normally spare our readers. But not this time. We are going to give you the reasoning behind a relatively simple answer to a simple question – if only so that you understand the intellectual exercises in which lawyers and judges must sometimes engage for a case.

Lien – Trust

The Construction Act, old and new, has two major provisions (aside from the prompt payment and adjudication provisions in the new Act) to enforce payments for services and materials: (i) a lien on the land (or holdbacks) that the claimant says it helped improve and (ii) a claim (without the security of the land) against the person with whom the plaintiff contracted for a judgment based on a breach of the trust fund provisions of the Act. A trust claim is also invariably brought against officers and directors of a corporation with whom the claimant contracted.

The lien claim and the trust claim are not mutually exclusive. A claimant can bring both – because, as we have previously written, a lien claim will not necessarily fully compensate a claimant for the amount due to it. It depends on the circumstances.

Old Act

The Construction Lien Act, before it was amended in 2017 (to take effect in 2019) had the following provisions:

s. 50(2) – A trust claim shall not be joined with a lien claim but may be brought in any court of competent jurisdiction.

s. 55(1) – A plaintiff in an action may join with a lien action a claim for breach of contract or subcontract.

It is readily apparent from these two sections that a claimant could claim both a lien and a trust claim, but not in the same action. The only claim that could be added to a lien action was a claim for breach of contract. Liens, and the contracts on which they are based, go hand in hand. But why not a trust claim also? Because the lien action is supposed to be a simpler, more speedy process, than a regular action and the legislature did not want the lien action bogged down with trust fund issues.

History

The Construction Act (which was the old Construction Lien Act with a changed name and a bunch of changed and new provisions) was enacted in 2017. However, to give the legal profession and the construction industry time to understand and contemplate the changes, it was not proclaimed into force until July 2019. Between the time of the original enactment and the date of proclamation, the government, as the new Act authorised it to do, promulgated regulations to flesh out the new Act’s procedural provisions.

Changes

The new Act deleted old s. 50(2) and s. 55(1). After we read that, we said to ourselves: “We can now include a trust claim in a lien action.”

However, not so fast.

One of the regulations under the new Act, promulgated in 2018, re-enacted a similar version to s. 55(1) as follows:

“s. 3(2) – A plaintiff may, in an action, join a lien claim and a claim for breach of a contract or subcontract.”

Now, we have a statute that is silent about the joinder of trust and lien claims, but we also have a regulation that expressly allows for the joinder of contract claims and is silent about the joinder of trust claims. Do we interpret the new Act by looking at the changes from its predecessor or do we interpret the new Act without accounting for the changes.

The motion judge held that a lien claim could be joined to a trust claim and the defendants appealed to the Divisional Court.

Regulation

The Divisional Court noted that the provisions of the regulation were properly made within the authority that the Act gave to establish procedures that apply to construction lien actions. The purpose of authorising the Lieutenant Governor in Council (i.e. Cabinet) to make regulations is to promote flexibility and responsiveness. Time to enact legislation is limited; regulations can be added and changed far more easily and quickly.

The Court noted that allowing trust claims to be joined with lien claims eliminates the duplication and cost of two separate actions. However, it “does not serve the goal of expedited lien proceedings to have lien and trust claims both asserted in lien proceedings, thus expanding the range of parties, of contended issues, and of documentary and oral discovery.”

Regardless of the policy implications set out above, the Court stated that its job was not to choose the wisest policy, but to interpret what the legislature and Cabinet have done.

Interpretation

The Court noted that the new Act:

• neither permits nor prohibits joinder of a trust claim with a lien claim; and
• provides special processes for the conduct of a lien action, processes that one does not see in a regular action.

Accordingly, can a trust claim be adequately dealt with if the action is limited by these processes?

The Court did not accept that it should interpret a new provision by looking backwards to the old provision. As it stated, “One is supposed to be able to divine the meaning of a statute by reading the statute, and not by reading every version of the statute that has been in effect.”

Accordingly, the Court held that the Act was silent as to joinder and left it to the regulations to establish what could be joined. Because the regulation allowed only the joinder of contract claims, the Court interpreted it to disallow the joinder of any other claims, including trust claims. The court stated that the regulation would not have been needed if permissive joinder for anything was already available. “By expressly permitting joinder of contract and subcontract claims, by implication the Regulation precludes joinder of other claims…”

The Court went further. It stated that if its interpretation were wrong, the government could easily remedy the problem, not by legislation with its slow and cumbersome procedure, but through a nimble and quick regulation.

Result

The Court dismissed the trust claim portion of the statement of claim against the corporate defendant that had contracted with the plaintiff and dismissed the plaintiff’s action against the individual trust defendants. If the plaintiff now wants to commence a separate trust claim, it has a full right to do so – but may want to rethink that proposition in light of the costs that it would incur weighed against the advantage that it may gain from a trust claim that might not be available in the lien action.

 

Image courtesy of MusicToby.

Written by Jonathan Speigel, the founding partner of Speigel Nichols Fox LLP, leads the litigation and construction practices.