Legal Blog

Technicality

 Non-lawyers seem to believe that technicalities will sway the ultimate result in a court action. Although this may once have been the case, it is extremely rare now. Judges want to see a result that is just; if there is a technical aspect that leads to an injustice, judges will not hesitate to craft their decisions in a manner that will negate the technicality. An example of this craftsmanship arises in Juddav Designs Inc. v. Cosgriffe, a 2010 decision of a construction Master in the Ontario Superior Court of Justice.

 Essence

 The dispute was quite ordinary. A contractor performed work for home owners and did not get paid everything it was owed. The contractor registered a claim for lien. The owners countered that the contractor took too long and that there were deficiencies.

 The Master decided that the parties never agreed upon the alleged contract completion time of 10 weeks; however, if they had, the actual completion time of 12 weeks was not unreasonable in a renovation project. The Master awarded no damages for delay. As for the deficiencies, the Master noted that the project had been completed for 3 years and the owners had never rectified any of the alleged deficiencies. Of the 8 alleged deficiencies, the Master awarded $50 for the repair of an outlet that was not working.

 The Master determined that the amount due to the contractor was $45,800, exactly what the contractor claimed, less the $50.00.

 Oops

 The real defence arose because the contractor registered its claim for lien, and commenced its action to enforce the lien, under the wrong name. The contract was made between the owners and Judy Davis carrying on business as JD Design. All of the owners’ interactions were with JD Design, Davis, and Davis’ assistants. However, Juddav Designs Inc. registered the claim for lien and commenced the action. It seems that, unbeknownst to anybody but Davis, Davis really carried on her business through Juddav, a corporation. Juddav never registered JD Designs as its name and style; indeed, neither did Davis.

 Accordingly, Juddav commenced an action to enforce a contract to which it was never a party. It did not matter that the owners would have entered into the contract with Juddav had they known of its existence; they were never told about, and did not contract with, Juddav.

 Lien

 A non-contracting party has no right to register a claim for lien; a claim for lien is a remedy for a contractor with an oral or written contract to enforce its rights under that contract. No contract, no valid lien. Accordingly, the Master had no choice but to discharge the lien; the Construction Lien Act provides for an extraordinary remedy of a lien and either the lien claimant falls within its ambit or it does not.

 However, the matter is not ended just because the lien is invalid. Section 63 of the Act allows the court to award a lien claimant a personal judgment,  regardless whether the lien claimant proves the lien, if the grounds for the judgment relate to the lien claim.

 Quantum Meruit

 The contractor first claimed that the owners should have to pay based on quantum meruit (i.e. the amount merited), which is claimed when the contract does not accurately set out how the price for the services rendered is to be calculated; it allows a court to come to a price that is appropriate for the work done. However, before quantum meruit applies, there must first  be a contract. In this case, Juddav had no contract.

 Unjust Enrichment

 The contractor then argued the concept of unjust enrichment, which is an equitable remedy. To succeed on a claim for unjust enrichment, the claimant must show that the recipient received a benefit, the claimant suffered a detriment (e.g. working for nothing), and there was no juristic (e.g. contractual) reason for either the benefit or detriment.

 The Master had to surmount some problems that arose out of the technical nature of the Act.

 1. A previous decision of the court had held that a plaintiff could not successfully claim unjust enrichment in a lien action. The Master in that decision had held that the claim for unjust enrichment could just as easily have been pursued in a civil action outside of the lien procedures. The Master in Juddav distinguished the case on a number of bases.

 – She noted that the Master in the prior case did not refer to section 63 of the Act, which allows the court to grant a personal judgment. Had Juddav brought a regular civil action against the owners, it would have been successful on an unjust enrichment claim against the owners.

 – The prior decision had been rendered when the limitations period was 6 years, plenty of time to commence a normal civil action. The limitations period is now only 2 years. By the time that a contractor realises that it is in the wrong court, it may be too late to start a regular civil action.

 – Most importantly, the Rules of Civil Procedure, which apply to the Act unless inconsistent with it, require the just, most expeditious, and least expensive determination of every civil proceeding. As far as the Master was concerned, “it would not be ‘just’ to apply an interpretation to section 63 of the Act that leads to an unjust result.” The Master went further; she stated:

 “To allow the defendants to rely on a technicality to avoid paying Judy Davies or her company what they owe makes a mockery of the justice system. To exacerbate matters both defendants are lawyers. To permit them to use the justice system to take advantage of a genuine supplier of services and materials and rely on a technicality to line their own pockets would be unfair. It would condone their attempt to manipulate the legal system to their own advantage and thumb their respective noses at the supplier.”

 2. Another previous decision of a Master held that section 55(1) of the Act precluded a lien claimant from joining a claim for unjust enrichment with a lien claim. Section 55(1) limits a lien action to matters necessary to be tried in order to dispose completely of a lien action. The Master in Juddav agreed that a claimant could not join, say, a personal injury claim with a construction lien claim on contract. She felt, however, that a claim for unjust enrichment dealing with the very work and services that were the subject of the lien action could be joined in the action, particularly when all parties agreed that there was a contract, but only disputed the characterisation of the contracting parties.

 3. The contract was between Davis and the owners, not Juddav and the owners. However, the Master found that Davis was the alter ego of Juddav (i.e. she and the corporation were inextricably bound together and were really the same entity) and that, therefore, payment to Juddav satisfied payment to Davis.

 Result

 The Master discharged the lien, but granted a personal judgment against the owners. The loss of a lien can have adverse consequences (e.g. lost rights to a holdback if the payor is two rungs above the claimant in the construction ladder or lost priority over other execution creditors if the owner is insolvent). However, when the claimant is contracting with a solvent owner or an owner with sufficient equity in the land, the loss of lien rights means nothing if there is a corresponding personal judgment.