Devlan Construction Ltd v SRK Woodworking Inc: Joinder of Trust and Lien Claims is Not Permissible Under Ontario’s Construction Act

Summary

Below we consider the Divisional Court’s decision in Devlan Construction Ltd v SRK Woodworking Inc, 2023 ONSC 3035 (“Devlan Construction“) and its implications for the joinder of trust and lien claims under Ontario’s Construction Act. Broadly, based on a reading of the Construction Act’s regulations and rules of statutory interpretation, the Divisional Court concluded that trust claims could not be joined with lien claims under the Construction Act.

Below, we discuss some implications of this decision, contrasting it with the recommendation on the joinder of lien and trust claims from Striking the Balance: Expert Review of Ontario’s Construction Lien Act (“Striking the Balance“), which was one of the bases for the updating of the Construction Lien Act (or the Construction Act, as it ultimately became).

Brief Factual Background

In the original dispute (SRK Woodworking Inc. v. Devlan Construction Ltd. et al., 2022 ONSC 6229), SRK Woodworking Inc. (“SRK”) brought a lien action with respect to payment for the supply and installation of millwork to a local public school against the contractor, Devlan Construction Ltd. (“Devlan”). Subsequently, SRK sought to amend its pleadings by adding parties who were officers and directors of Devlan, and to claim breach of trust under the Construction Act. At issue was what the Construction Act and O Reg 302/18 provided regarding joinder of lien and trust claims.

The Superior Court’s Decision

The contract that was the subject of the proceedings was entered into in March 2019. The motion judge was unable to determine which version of the Construction Act applied. Though the subcontract between Devlan and SRK was executed in March 2019, it was unclear to the Court when the prime contract was executed or when procurement began based on the evidence available.

For this case, the motion judge specified that while s. 50(2) of the Construction Lien Act was no longer part of the Construction Act, the permissive section of joining lien claims and breach of contract claims was introduced into the Construction Act’s new regulations.

Both parties asked the motion judge to apply the legal principle of statutory interpretation which provides that the expression of one or more things of a particular class may be regarded as impliedly excluding others (the “implied exclusion” principle).

One concern raised was the proper manner in which to interpret the removal of two sections in the Construction Lien Act prior to its amendment in 2017. Specifically, the removal of the following sections:

Section 50(2)

A trust claim shall not be joined with a lien claim but may be brought in any court of competent jurisdiction; and

 

Section 55(1)

A plaintiff in an action may join with a lien claim a claim for breach of contract or subcontract.

While both sections were removed, s. 55(1) was subsequently re-enacted, verbatim, in O Reg 302/18 at s. 3(2) – that is, as a regulation to, instead of a provision within, the Construction Act.

Devlan relied on O Reg 302/18, s. 3(2), which only specified that breach of contract or subcontract claims could be joined with lien claims (i.e. the lack of a similar permission in respect of breach of trust claims meant that it was implicitly forbidden). By contrast, SRK’s position was that since the former prohibition to join trust and lien claims no longer existed in the statute, the legislature intended that such joinder was permitted.

For the motion judge, the key issue regarding the meaning of O Reg 302/18, s. 3(2) was whether the legislature – by creating a regulation which expressly allowed joinder of breach of contract claims to lien claims – intended to signal that the joinder of all other claims to lien claims was barred.

To help determine legislative intent, the motion judge reviewed a chart prepared by the Ministry of the Attorney General titled Amendments to the construction lien and holdback provisions, which stipulated that the prohibition on joinder of lien claims and trust claims had been removed.

The judge also reviewed Striking the Balance, which recommended removing the prohibition on joinder of trust claims and lien claims under s. 50(2) of the Construction Lien Act.

The judge analyzed the totality of the Construction Act and noted that the legislation was designed to provide a scheme that would allow construction projects to move forward in an organized, efficient, effective, and timely manner.

Nevertheless, the motion judge was unconvinced by the argument that joining trust and lien claims was inconsistent with the Construction Act as a whole. This was because the parts of the Construction Act dealing with prompt payment and adjudication did not apply to the matter before them. Thus, the motion judge found that SRK should be allowed to join their trust claim with their lien claim. Devlan accordingly appealed to the Divisional Court.

The Divisional Court’s Decision

The Divisional Court began by acknowledging that the Construction Act and its regulations, read together, could be clearer about this issue of joinder; however, for the purpose of this case, the Court stipulated that the key question was simply what the Construction Act and regulations provided. The current Construction Act neither permitted nor prohibited joinder of claims in a construction lien proceeding.

While the Construction Act provided for recourse to the Rules of Civil Procedure, this was only in respect to procedural matters left unaddressed by the Construction Act and regulations. Thus, once O Reg 302/18 came into effect, this regulation ousted the application of the Rules of Civil Procedure in respect of the joinder of claims. This was because of the express language of s. 50(2) of the Construction Act:

Except to the extent that they are inconsistent with this Act and the procedures prescribed for the purposes of this part, the Courts of Justice Act and the rules of court apply to the actions under this part. [emphasis added]

In that regard, O Reg 302/18 stipulated that “a plaintiff in an action may join with a lien claim a claim for breach of contract or subcontract.” By expressly permitting joinder of contract and subcontract claims, O Reg 302/18 impliedly excluded joinder of other claims. In this, the Court considered the implied exclusion principle noted above.

The Court acknowledged that the express prohibition on joinder of trust and lien claims was repealed and not reintroduced in the regulations. However, the applicable principle of statutory interpretation set out in the Legislation Act precluded construing current provisions on the basis of prior versions of the legislation:

No implication

56 (1) The repeal, revocation or amendment of an Act or regulation does not imply anything about the previous state of the law or that the Act or regulation was previously in force;

Same

(2) The amendment of an Act or regulation does not imply that the previous state of the law was different.

Finally, the Court noted that the Construction Act should be as far as possible a summary procedure. Adding breach of trust claims would, it surmised, result in adding further issues that would significantly complicate the narrow issue of breach of contract in a lien action. This would then increase documentary production, examinations for discovery, and the number of parties and issues to be tried, which would undoubtedly increase the cost and the length of the proceeding.

Furthermore, the Court observed that even if it were wrong in its reading of the Construction Act and the regulations, this could be remedied by amending the regulations to expressly address joinder of trust and lien claims.

Accordingly, Devlan’s appeal was allowed, with the breach of trust claims struck from the proceeding and the action struck as against the trust defendants.

Analysis & Commentary

Devlan Construction provides helpful clarification about relevant rules of statutory interpretation used by the Divisional Court to make its determination, including:

• By expressly permitting the joinder of breach of contract claims to lien claims, this by implication precluded the joinder of other claims (such as breach of trust claims) – in other words, the principle of implied exclusion applies; and
• Current statutory provisions cannot be construed on the basis of prior versions of the legislation.

That being said, Devlan Construction raises important issues for further consideration.

First, it is arguable whether the Legislation Act explicitly precludes analysis of prior versions of legislation in all cases. Section 56(1) of the Legislation Act lists repeal, revocation, and amendment of an act or regulation as elements that do not imply anything about the previous state of the law. In Devlan Construction, what is at issue is re-enactment of a provision as a regulation, which might arguably not be captured by s. 56(1).

Also, s. 46 of the Legislation Act indicates that every provision of “Part IV – Interpretation” – that is, the Part wherein s. 56 appears – applies to every Act and regulation. However, an exception appears in s. 47:

47 Section 46 applies unless;

(b) its application would give to a term or provision a meaning that is inconsistent with the context. [emphasis added]

According to Sullivan’s Statutory Interpretation, courts work with an expansive view of admissible context, meaning very little cannot be considered if it is relevant to the interpretive problem at hand.[1] This includes legislative history, which is anything that is prepared to facilitate the passage of legislation[2], and legislative evolution, which begins with analysis of the first enactment of legislation, followed by subsequent amendments, up to final repeal.[3]

Even if current provisions cannot be construed based on prior versions of the legislation, s. 56(2) of the Legislation Act only specifies that “amendment of an Act or regulation” does not imply anything about the previous state of the law. This language arguably does not extend to the context surrounding the amendments.

This proposition is also supported by the Superior Court’s recent decision in Director of Employment Standards v Sleep Country Canada, 2023 ONSC 3975. There, the Court observed that an amendment to the statute at issue in and of itself did not reveal anything; rather, the Court referred to the lack of evidence (such as Hansard) that would have demonstrated a reason for why the legislature made the amendment in question. This suggests that the context surrounding the amendments forms a valid part of the assessment. In the present case, there was ample evidence of context surrounding the intent of the amendments and the desire to remove the prohibition against joinder of lien and trust actions specifically.

As such, the position of the Divisional Court appears to somewhat understate available extrinsic context, such as legislative history, especially in light of s. 47(b) of the Legislation Act. For example, this creates a situation where the recommendation to remove the prohibition on joinder of trust and lien claims in the Striking the Balance report was not followed.

This is despite the fact that Ontario is the only common law province that prohibits this type of joinder, and despite the fact that multiple stakeholders consulted in Striking the Balance believed that this type of joinder should be allowed. The ultimate question is of course what the legislature intended; however, since this report was commissioned and written in order to aid the legislature in updating the Construction Lien Act – in addition to which the drafters of the report were engaged by the legislature to consult in the drafting of the legislation – it still forms part of the relevant interpretive context.

Additionally, removing the prohibition on joining trust and lien claims was expressly included in the chart prepared by the Ministry of the Attorney General on July 1, 2018 in Amendments to the construction lien and holdback provisions. This document, described as “a chart describing some of the key changes”, was part of a summary prepared by the Ministry of the Attorney General to explain the amendments to the Construction Act.

The chart specified the following: “the prohibition on joinder on lien claims and trust claims has been removed.” This chart followed the Hansard debates from November 15, 2017, where the removal of the prohibition on breach of trust claims being joined with lien claims was described as a “well overdue” amendment. Again, this forms part of the context surrounding the updates to the Construction Lien Act.

Second, without a regulation being added to explicitly prohibit joinder of trust claims to lien claims, the arguable implication of Devlan Construction appears to be that this explicit removal of the prohibition on joinder of trust and lien claims ultimately served no purpose.

However, both s. 50(2) and s. 55(1) were removed from the Construction Lien Act, but only s. 55(1) was re-enacted as a regulation. According to Sullivan’s Statutory Interpretation, departure from a pattern or practice is one reason why Courts may reject certain interpretations of legislation.[4]

This re-enactment of s. 55(1) as a regulation may create a fixed pattern of expression where the legislature seems to have been aware of the need to re-enact certain provisions as regulations. Despite the legislature knowing about the removal of the provision that prohibited joinder of trust and lien claims based on the contextual evidence above, they did not re-enact said provision as a regulation.

Third, the issue of implied exclusion raises questions regarding other related principles of statutory interpretation, including analysis of legislative intent and the objective of the amendments. In Rizzo v Rizzo Shoes Ltd (Re), [1998] 1 SCR 27 (“Rizzo”), the Supreme Court stated that there is only one principle or approach to the interpretation of legislation:

[T]he words of the Act are to be read in their entire context and in their grammatical and ordinary sense harmoniously with the scheme of the Act, the object of the Act, and the intention of Parliament.

The objectives of amending the Construction Lien Act to the Construction Act included the following:

• Modernizing the construction lien and holdback rules;
• Helping to make sure that workers and businesses are paid on time for their work; and
• Helping to make sure payment disputes are addressed quickly and painlessly.[5]

While prompt payment was one objective of the amendments, modernizing the construction lien rules was also another expressly-stated objective. Permitting joinder of trust claims with lien claims would arguably help modernize the construction lien rules because the basis for the prohibition was from a Report of the Attorney General’s Advisory Committee in 1983. At the time, it was decided that issues related to lien and trust claims were very different, and resolving lien claims was the primary concern under the Construction Lien Act.[6]

However, in practice, courts had been willing to join lien and trust claims while the Construction Lien Act was in force.[7] Thus, permitting joinder of these types of claims in the Construction Act at least to some degree would only be following the actual practice of the courts themselves. Furthermore, as readers will appreciate, the Courts of Justice Act (along with the Rules of Civil Procedure) emphasize the avoidance of a multiplicity of proceedings, which proposition is particularly relevant in respect of this issue given that trust issues often overlap to a significant extent with lien issues. In other words, such a change would modernize the legislation by bringing it into line with modern practice, both specifically in the construction context and in the litigation context more generally.

As stated by the Supreme Court in Rizzo, using legislative history to help determine the intention of the legislature is an “entirely appropriate” exercise that has frequently been employed by the Supreme Court. In conjunction with the potential applicability of s. 47 of the Interpretation Act, it may be possible to look at the legislative history of s. 50(2) of the Construction Lien Act and the provision’s subsequent removal in the Construction Act.

In that regard, one point made by the motion judge bears repeating: the principle of implied exclusion should be used carefully, as much depends on the context, and thus it is not a principle of universal application.

Due to the significance of the questions raised by Devlan Construction, we look forward to seeing how it will be subsequently interpreted or applied, or if the provincial legislature will subsequently respond with additional regulations to clarify this issue. In that regard, it bears noting that Devlan may somewhat understate the ease with which regulations are revised. While moving the relevant provisions from the Construction Act to its regulations may have avoided the issue of having to formally amend the legislation through the legislature, the practical reality remains that revising regulations requires significant input from stakeholders both within and outside of government. Ultimately, the legislature will ideally consider the original intent behind Striking the Balance in making any subsequent changes; in the interim, however, there will likely be some confusion and difficulties in matters involving breach of trust issues under the Construction Act, and associated additional costs will be borne by litigants.

Jeff Wong (summer student) assisted in the preparation of this article.

[1] Ruth Sullivan, Statutory Interpretation, 3^rd ed (Toronto: Irwin Law Inc, 2016) at 51 [Statutory Interpretation].

[2] Ibid at 259.

[3] Ibid at 260.

[4] Ibid at 149-150.

[5] Ministry of the Attorney General, “Summary” (October 1, 2019), online <https://www.attorneygeneral.jus.gov.on.ca/english/construction_law_in_ontario_chart.php>.

[6] Bruce Reynolds & Sharon Vogel, “Striking the Balance” (April 30, 2016), online <https://wayback.archive-it.org/16312/20210402052122/http:/www.attorneygeneral.jus.gov.on.ca/english/about/pubs/cla_report/#_Toc450127325>.

[7] Ibid.

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