Man-Shield (Alta.) Construction Inc. v. 1117398 Alberta Ltd.

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Richard Bell & Karen McGlone

In Man-Shield (Alta.) Construction Inc. v. 1117398 Alberta Ltd., the Alberta Court of Queen’s Bench recently considered the issue of whether a contractor who has failed to file a builders’ lien within the statutory 45-day time limit may nonetheless register a certificate of lis pendens against the property and claim an in rem interest in the land itself based upon a claim of unjust enrichment and constructive trust. The court noted that this was the first time that this issue had been determined in a reported decision, and the case therefore has important ramifications for both owners and contractors alike.

The contractor in this case, Man-Shield, and the owner-developer, 1117398 (also known as Zephyr), entered into a contract for the construction of a condominium complex. Man-Shield alleged that Zephyr had refused to pay outstanding invoices for Man-Shield’s work on the project in the amount of approximately C$1-million, and it filed liens against three condominium units remaining in Zephyr’s name. However, the liens were filed out of time and were therefore discharged. Nonetheless, Man-Shield also registered certificates of lis pendens against the three condominium units and filed a statement of claim alleging unjust enrichment and the right to a constructive trust over the property. Zephyr brought an application to discharge the certificates of lis pendens and to summarily dismiss the claim.

Dealing first with the claim of unjust enrichment, Master Hanebury found that this claim should not be summarily dismissed. She held that the legislative scheme in the Builders’ Lien Act did not bar the right of a contractor to claim unjust enrichment or quantum meruit against an owner, since those claims could be made outside of the provisions of the Act and did not constitute an attempt to assert an in rem interest in the land itself.

However, Man-Shield’s ability to pursue a claim for unjust enrichment did not, in this case, lead to the conclusion that it could, in turn, seek the remedy of a constructive trust that was necessary to support the certificates of lis pendens against the property. Master Hanebury noted that a constructive trust may arise where there has been an unjust enrichment and where the “law is of the view that one person ought to surrender or hold property for the benefit of another”. Relying upon the authority of the Supreme Court of Canada in Peter v. Beblow, she also noted that a constructive trust should only be granted where a monetary award is insufficient and there is a direct link to the plaintiff’s contribution to the property which is to be the subject of the trust.

At first blush, Man-Shield’s work on the condominium project might seem to have provided the required “contribution to the property”. In addition, Man-Shield argued that a monetary award would be insufficient in this case, because Zephyr allegedly had no other assets with which to satisfy a potential judgment. The issue, however, was the interplay between the equitable remedy of constructive trust and the express legal rights afforded to contractors (and owners) under the Alberta Builders’ Lien Act.

Master Hanebury noted that builders’ lien legislation in Canada has altered the common law and equitable regime by giving trades people, service providers and suppliers who have improved the land an automatic statutory right to register a claim against the land in the form of a lien. There is no longer any need to seek the equitable remedy of a constructive trust. However, with the certainty arising from the codification of this legal right in the Builders’ Lien Act came certain mandatory requirements, including the requirement to meet the strict timeframes for filing a lien. Man-Shield’s failure to file a builders’ lien within the 45-day time limit prescribed under the Act meant that it lost all entitlement to any in rem claim against Zephyr’s property.

Master Hanebury pointed out that, to allow a contractor who fails to file a lien in time to assert a claim for constructive trust over the same property would simply allow that contractor to claim by the back door what it had previously failed to claim by the front door and would make a mockery of the entire builders’ lien regime. If contractors were allowed to pursue a claim of constructive trust and to file certificates of lis pendens outside of the 45-day lien period, this would ultimately mean that owners would have no certainty of title, and the benefits of the legislative scheme would be lost. In other words, allowing claims for constructive trusts outside of the Builders’ Lien Act would effectively extend the statutory period for filing liens indefinitely.

For property owners, the Man-Shield case is significant in confirming that the statutory time limits in the Builders’ Lien Act for filing liens against the property cannot be circumvented merely by a contractor or a subcontractor claiming the existence of a constructive trust. This may be particularly important for an owner facing a claim by a subcontractor, whose only remedy for unpaid invoices against the owner may otherwise be under the Builders’ Lien Act, given the probable lack of a direct contractual relationship with the owner.

For contractors, the Man-Shield decision is likewise significant in affirming both the need to file a builders’ lien in order to assert an in rem claim against the property itself, as well as the strict requirement to file such a lien within 45 days from the date on which work was last performed on, or services or materials were last provided to, the property. The decision confirms that a contractor who fails to file a builders’ lien on time will likely be restricted to claiming relief against the owner of the land in the nature of in personam claims based in contract, tort or equity and will not be entitled to register a certificate of lis pendens or otherwise assert an in rem claim against the property itself through a claim of unjust enrichment and constructive trust. On the positive side for contractors, while not a final determination on the merits, this decision leaves open the door for contractors to claim against owners for unjust enrichment despite the lack of privity of contract, the existence of the Builders’ Lien Act, and a failure to follow the statutory timelines stipulated for the filing of a lien.

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