Legal Blog

Promises

As every contractor knows (or should know), the Construction Act specifies (now) a 60-day time period to preserve a claim for lien and (now) an additional 90-day time period to perfect the lien by commencing an action and, if applicable, registering a certificate of action. An attempt to preserve or perfect the lien even one day late will mean you are out of luck. Or are you? What if a person higher up on the construction ladder promises payment if a contractor forgoes preserving or perfecting a lien – and then, after the limitation period has passed, reneges on that promise? The concept of promissory estoppel was discussed in J.D. Strachan Construction Limited v. Egan Holdings Inc., a 2019 decision of the Superior Court of Justice.

Scenario

The general published a certificate of substantial performance on May 13, 2014. It registered its claim for lien for $505,000 on June 26, 2014, preserving its claim for lien in time in accordance with the old Construction Lien Act 45-day lien period. It registered its claim for lien when the owner reneged on its law firm’s promise, made earlier that day, to release the holdback funds of $290,000.

The time to perfect the claim for lien expired, under the old CLA, on August 11, 2014 (i.e. 45 days from the last day that the general could have preserved the claim for lien). The general did not attempt to perfect its lien until September 17, 2014. The owner moved for summary judgment to discharge the lien from title to the property. The general claimed, based on promissory estoppel, that the owner did not have a right to enforce the 45-day limitation period to perfect a claim for lien.

What’s Dat?

Simple version of promissory estoppel:

Promissory – you made a promise

Estoppel – you are stopped from doing what you want to do because of that promise.

Full version: What a party (the promisee) must prove to rely on promissory estoppel:

The other party (the promisor) has by words or conduct made a promise or representation intended to affect their legal relationship and be acted upon.

The promisee relied upon the representation by acting on it or in some way changing its legal position.

In that regard, an admission of liability or a mere promise to pay is insufficient to engage promissory estoppel; something more is needed.

Proof

The general relied on the following facts to support its assertion that the owner be estopped from relying on the general’s failure to commence its action and perfect its claim for lien within the limitation time set out in the Construction Act:

• Four days after the lien was registered, the owner’s law firm again advised that the holdback funds would be paid and, again, they were not.
• On August 1, the owner’s architect, who was also the project’s payment certifier, told the general that the owner had agreed to pay the general what it owed and all that remained was for the parties to meet on August 12 to finalise the details. The architect also stated that the only reason why the owner had not paid the holdback was because the general had liened the project.
• Relying on that conversation, the general concluded that the payment dispute had been resolved subject to finalising the details.
• The parties met on August 12 as scheduled – one day after the final day to perfect the claim for lien. The owner agreed to pay $496,000 (and we assume that the general agreed to accept it in lieu of the $506,000 claim). The owner was to pay $380,000 after the sale of another of the owner’s properties and $116,000, evidenced by a promissory note, in equal monthly instalments over 2 years.
• The general’s lawyer drafted the minutes of settlement, which provided for the general to discharge its lien once the owner made the $380,000 payment.
• The owner did not sign the minutes and did not make the promised payment, even after selling the other property.

Was this enough to establish promissory estoppel? The judge held that it was not – for the following reasons:

• In the August 1 discussion with the architect, the promise to pay was unclear and the actual amounts to be paid had not been settled. Certainly, there was no discussion regarding the perfection of the lien. Although the general was influenced by that promise to pay and made a business decision not to commence its action within the specified time, that was an overenthusiastic response to the promise.
• During the August 12 meeting, the owner made promises of payment, but the owner never promised that it would waive or not enforce the limitation period for perfecting the lien. The owner never asked the general not to perfect its lien. Indeed, the parties never even addressed the statutory period to perfect the lien. Accordingly, the general did not satisfy the test that there was an objectively determined intent of the owner to affect the legal relations between the owner and general when the owner made its promise to pay.
• Even if the August 12 meeting contained all that was necessary to prove promissory estoppel, the perfection period had already passed. To engage promissory estoppel, the promise must be made before the limitation period has expired when the parties still have an enforceable legal relationship.

Discharge

The judge noted, more as a comment than as another reason for not giving effect to the promissory estoppel claim, that the parties were sophisticated business entities who were able to look after their own interests. The contractor was well aware of its earlier challenges in obtaining payment from the owner, which is why it had to register its claim for lien. It had ample time and opportunity to perfect the lien within the prescribed period and made a business decision not to do so.

The judge discharged the lien, but allowed the general’s action against the owner to continue.

Applicability

The judge relied on two Ontario cases to give effect to the possibility that promissory estoppel could be used to excuse a lien claimant from meeting its statutory obligations to preserve or perfect its claim for lien. These trial level cases, decided in 1982 and 1984, have not been expressly approved in Ontario since then and have been rejected in a number of other Canadian provinces.

We have always operated on the assumption that the Construction Act limitation periods are etched in stone. To allow the concept of promissory estoppel creates chaos:

• It could adversely affect other people in the construction ladder. For example, a sub fails to register its lien within the appropriate time; the owner pays the general because there are no preserved liens; and then the sub, relying on the general’s promissory estoppel, registers a claim for lien. That lien affects the owner’s land even though the owner made no promises.
• It would often be based on alleged oral representations, resulting in a “he said, she said” debate.
• It allows the nonsense that took place in the Strachan decision. It is a fact-intensive exercise resulting in uncertainty.

 

Image courtesy of paahulb.

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