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Stat Decs

Posted on September 1, 2010 | Posted in Construction

Contractors swear statutory declarations to satisfy owners that the contractors have paid their subs and suppliers and  have completed various aspects of their contractual responsibilities. Some contractors swear these declarations as if they were just inconvenient pieces of paper – without too much concern about the accuracy of the information contained in them. This can lead to trouble.

Two recent cases illustrate the consequences of false stat decs: Nortown Electrical Contractors Associates v. 161975 Ontario Inc. and Federated Contractors Inc. v. Ann-Maura Developments Inc., each a 2010 decision of the Ontario Superior Court of Justice.

Nortown

The owner retained an electrical contractor directly. Accordingly, for purposes of the Construction Lien Act, the contractor was a general. On July 22, the electrical consultant issued a “certificate of substantial completion” regarding the contractor’s work. This was meaningless because it was not a “certificate of substantial performance“, something that is defined under the Act and, after it is published, starts the lien period running.

Since there was no published certificate of substantial performance, the lien period commenced to run once the contract was fully completed.

On August 20, the contractor requested a release of its holdback, asserting it was 100% complete and that the value of the work then completed was $4.3 million. On the same date, the contractor swore a stat dec, declaring that it had paid all accounts of subs, suppliers etc. and that the final contract amount, after all adjustments, was $4.3 million.

On October 15, the contractor registered a claim for lien claiming that it was owed $1.08 million on a contract of $4.3 million and that it completed the last work on September 2. If the last work was indeed supplied September 2, the lien was registered in time; if the last work was supplied by August 20, the lien was not registered in time.

The owner had not requested the contractor to supply any extra work after August 20. It argued that, by the contractor’s own admission, the last work had to have been performed by August 20 and the lien was registered too late. The contractor explained the August 20 stat dec as follows: “The project was not substantially complete despite the Progress Draw and the Statutory Declaration, and that the billing was for 100 percent of the initial contract but not for extras. Progress Draw 28 was sent out in contemplation of completion and was intended to mean that the job was close to 100 percent complete. Nortown was close to final completion and wanted to place the amount in its receivables. Nortown knew that the owner would not pay it all, and continued until the work was completed.”

Federated

On May 15, 2006, the general served a written notice of lien on the owner giving notice of a claim for lien of $551,762.39. A written notice of lien differs from a registered lien. Even without registration, the paymaster must hold back not only the usual 10%, but also the amount of the lien claimed. The notice of lien loses effect only when the underlying claim for lien is registered or when the time for registration passes. We are not sure why the general would have given notice to the owner only; the owner was the paymaster. We would have expected that the general would have given the notice of lien to the mortgagee also.

Three years later, the general registered a claim for lien for exactly the amount, to the penny, referred to in its prior notice of lien, but stated that it performed its last services on February 28, 2009. By sheer coincidence (or not), the owner had defaulted under its mortgage against the project and, just around the time of the lien registration, the owner’s mortgagee was progressing with its sale of the project.

The general had a construction management contract with the owner. Under it, the owner was to pay the general 15% of the cost of the construction work at the project. The general claimed, “that it had merely estimated its anticipated construction fee in the May 15, 2006 notice of lien and had not actually provided the services claimed”. Sound familiar?

Treatment

In Nortown, the contractor led evidence to demonstrate that work had taken place after the date of its stat dec and, indeed, even later than the date set out in the claim for lien. Its records showed that its people were on site performing over 170 hours of labour and installing over $3,000 of materials. Further, not all of this work was to correct deficiencies (which does not count), but included installation of fixtures that had arrived late.

The owner moved to discharge the claim for lien. The judge never really discussed the false stat dec. Instead, he referred to two principles of the Act: ensure that the owner does not get the benefit of a contractor’s work without paying for it and ensure that lien claimants comply with the time limits under the Act. The judge felt that, if the contractor’s evidence was believed, the date of the last work was after the date set out in the stat dec. Accordingly, he felt that the credibility issue ought to be dealt with at trial and refused to discharge the lien.

Normally an award of costs on a motion follows the result. In this case, however, the judge reserved the costs of the motion to the trial judge. Presumably, whoever is successful at trial, will be awarded the costs.

In Federated, the Master took a more jaundiced view of the general’s action. She referred to the general’s assertion as “utterly unbelievable” and stated: “It would have been impossible in 2006 for Federated to estimate to the penny the fee to which Federated would be entitled over the next two years and ten months based on construction that had not yet been done and materials and services that had not yet been provided…. In effect, Federated is telling the court that it lied in 2006 when it served the notice of lien, that it had not done the work claimed in the notice of lien and that the court should ignore the notice of lien and accept that Federated provided construction services in 2009, within 45 days of filing the claim for lien. If this is the explanation then Federated is asking the court to participate in its sham.”

The Master discharged the claim for lien and dismissed the general’s action.

Difference

How do we explain the difference in the reactions of the judge and Master in the two cases?

In Nortown, it seems there was some plausible evidence that, although the contractor played fast and loose with its stat dec, it did perform additional work in the two months after the stat dec. In Federated, the lien was registered 3 years later and there was no evidence mentioned of additional work. Further, the same person owned the holding corporation that owned both the general and the owner and this person was also the sole officer, director, and shareholder of each of the owner and the general. Given that the general was trying to obtain priority over the owner’s mortgagee, the Master, we suggest, smelled a rat. She was not going to allow the puppet master of the general and owner to defeat the mortgagee. Accordingly, she allowed the general to hang itself on its own stat dec.

For good measure, the Master would also have discharged the lien on the theory that an owner cannot lien its own land. As far as the Master was concerned, the corporate relationship between the corporate owner and the corporate general was close enough that the general was not entitled to register its claim for lien.

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