Fatal Errors: The small mistakes that can have a big impact on your lien claim

AUTHORED BY: Matthew Turzansky and Ryan Krushelnitzky

The scenario is a fairly common one: a contractor doesn’t get paid, and then proceeds to register a lien on a project, only to later discover a mistake in the Statement of Lien. It could be a typo in the name of the Owner; or it could be a failure to properly identify the interest being liened. While such errors may seem small, they could put the entire lien claim in jeopardy.

This scenario was addressed recently by the Court of Queen’s Bench in Encore Electric Inc. v Haves Holdings, 2017 ABQB 803. In that case, an electrical contractor was hired to perform certain electrical work in a Defendant tenant’s leased space. When a dispute arose about alleged deficiencies, the Contractor registered two liens valued at approximately $686,000.

When the liens were registered, the box for identifying the interest in the land was left blank. This resulted in the lien being registered against the property owner’s fee simple interest, rather than the Defendant tenant’s leasehold interest. In light of this, the Defendant applied to have the liens struck on the basis that they were not registered against the correct interest in the lands.

In response, the Contractor argued that the landlord’s interest could be liened (notwithstanding that the Contractor was hired by the Defendant tenant), since the landlord fell within the definition of “owner” under the Builders Lien Act. The Court rejected this argument. The Court relied upon the line of cases to the effect that the owner’s interest will not be lienable where work is performed for a tenant unless the owner becomes significantly involved in the design and/or construction, or where the landlord obtains a “direct benefit” from the work.

The Contractor also argued the error on the face of the lien could be cured by the Court. Section 37 of the Builders Lien Act allows a flawed lien to survive where there is “substantial compliance” and nobody is prejudiced by the failure. The Contractor argued that this was a situation where no prejudice was suffered as a result of the mistake, as the Defendant tenant had knowledge of the lien claim. Further it was argued that no party would have done anything differently had the proper interest been named.

Master Prowse considered his earlier decision in Norson Construction Ltd. v Clear Skies Heating & Air Conditioning Ltd., 2017 ABQB 188.  That was a case where the lienholder’s error was found to be curable. The Master distinguished between the type of mistake in the Norson and the mistake made by the Contractor in this case:

  1. In Norson, the lienholder correctly identified the interest being liened (fee simple), but simply identified the wrong company as owner;
  2. In the current case, it wasn’t simply a typo in the name; rather the Contractor registered a lien against an interest that was not properly lienable to begin with.

The difference between the two types of mistake makes all the difference. While a mistake in the name of the owner of the land may be cured, a failure to lien the correct interest cannot (on the basis there is no substantial compliance). Citing a string of authorities all pointing to the same outcome, Master Prowse found he had no choice but to strike out the Plaintiff’s lien. Master Prowse expressed sympathy for the Plaintiff’s arguments, but held that he was handcuffed by the binding authorities until a Queen’s Bench judge decided otherwise.

How does this decision affect you? A small mistake in your Statement of Lien may have big consequences. Until the Court decides to re-examine the established case law, an error in identifying the interest to be liened will continue to be a fatal one. The best way to ensure that your lien claim is not lost by such an error is to seek legal advice before the lien is registered. For advice and assistance in the registration of liens, contact Matthew Turzansky or Ryan Krushelnitzky at Field Law.

Termination Problems: when can you walk away from a contract?

AUTHORED BY: Leah McDaniel and Ryan Krushelnitzky

Construction projects don’t always go as planned. Delays, add-ons, and changes to plans are common. Parties can sue when losses occur. When this happens, the contract itself is the key guide to the parties’ obligations.

However, sometimes things go very wrong. There are times when matters go so far sideways that one of the  parties wants to bring the contract to an early end.  For example, by taking the position that the other side has “repudiated” the agreement and treating the contract as if it is at an end.

An Example – Fundamental Breach & Repudiation in the Construction Context

The Alberta Court of Queen’s Bench applied the principles of repudiation in the construction context in the recent decision of RPM Investment Corp v Lange, 2017 ABQB 305.  This was a case involving a construction agreement for a new home.

While the relationship between the Owners and Contractor started off smoothly, frustrations soon developed. Among other things, the Contractor accused the Owners of seriously delaying making design decisions, resulting in construction difficulties. The Owners complained that the Contractor wasn’t doing the work based on their specifications.

Matters came to a head when the Owners sent an email to the Contractor stating that they were “giving notice of our intent to terminate effective November 8, 2010” saying that they believed that the Contractor had abandoned the contract and committed a fundamental breach.

The Contractor didn’t agree, but decided to treat this email as a repudiation and walked away from the contract. The Owner subsequently hired another builder to finish the job.

The Contractor then sued the Owner for its damages resulting from the repudiation. The Owners countersued, claiming the Contractor had abandoned the job and done substandard work.

The Decision – Who walked away first?

After assessing the evidence, the Court sided with the Contractor. While  parts of the work did not meet the Owners’ expectations, they were not so serious as to amount to a “fundamental” breach.  Further, the Court found that the Contractor did not abandon the project.

The result in this case came down to repudiation. The Court held that the Owners’ termination email repudiated the contract, by effectively indicating that the Owners no longer intended to be bound by it. This gave the Contractor the option to accept the repudiation, or reject it. The Contractor elected to accept the repudiation, and communicated this clearly within a reasonable time.

The Contractor was thus able to sue for damages resulting from the repudiation.

What does this mean for you?

Issues involving fundamental breach and repudiation are difficult – once you choose a position, it may be difficult to come back from it. Parties considering taking drastic steps should consider their options clearly before doing so.

The RPM Investment Corp case provides a cautionary tale – the Owners’ said that they didn’t mean to repudiate the contract, but the Court found that they had. This meant that their ability to sue the Contractor was limited to anything that happened before the repudiation. The Owners were also responsible for the costs of a new builder to finish the job, plus any damages that the Contractor suffered due to the early end of the contract.

If you think you may need to walk away from a contract, or you think that someone you hired may be abandoning their obligations, contact Ryan Krushelnitzky, lawyer and Partner with Field Law, to discuss your options.