A recent case from Alberta, Boulevard Real Estate Equities Ltd. v. 1851514 Alberta Ltd., 2015 ABQB 619, applied an old, but still valid, legal exception to the strict interpretation of the Construction Lien Act: the effect of a promise to pay in exchange for a promise not to lien the property.
In Boulevard, the defendant 1851514 (“185”) supplied labour and materials to the plaintiff owner (“Boulevard”) on two Alberta projects. 185 was unpaid and registered builders’ liens against both projects under Alberta’s Builders’ Lien Act. After registration, Boulevard promised to pay 185 after a meeting where they would “sit down and reconcile all of the accounts” and on the condition that 185 remove its builders’ liens, so that Boulevard could obtain financing. 185 relied on this promise, removed its liens and then, of course, nothing happened. Boulevard not only didn’t pay 185, it didn’t even schedule a meeting. 185 re-registered the liens it previously discharged (which were now out of time) and Boulevard brought a motion to discharge them.
Master Prowse of the Court of Queen’s Bench of Alberta dismissed the motion for discharge relying upon two thirty-year-old Ontario cases: Valo and Valo v. 430327 Ontario Inc. (1982), 29 C.P.C. 1 (Ont. Master) and Soo Mill Lumber Co. v. 499812 Ontario Ltd. (1984), 17 C.L.R. 306 (Ont. S.C.). In each case, the court dismissed motions to discharge a construction lien registered after the expiry of the time to lien (then 37 days). In each case, the court ruled that the defendant owner was estopped from claiming that the lien was out of time because of a specific promise made to the lien claimant that if it didn’t lien, that it would be paid.
In Valo, the owner’s husband, a lawyer, responded to the lien claimant’s concern that his lien rights were about to expire by telling him that his lien rights “were not a problem because we are mutually extending time for payment in order to allow him to complete the calculations at which time he expected to be able to pay the moneys owing…”. In Soo Mill, the owner of the project asked the lien claimant not to lien the job and in exchange, provided a series of post-dated cheques and a promise to pay the lien claimant’s material supplier directly. The material supplier was not paid and the owner stopped payment on the second post-dated cheque. In both cases, a construction lien registered after the expiry of the time to lien was found to be valid.
In all three of the above cases, the court was careful to state that it was not extending the time to file a lien, but rather refusing to discharge a lien that otherwise would have been statute-barred but for the conduct of the owner. This conduct estopped the owner from receiving the benefit of the legislation limiting the time to lien.
The court in Soo Mill reaffirmed the law that parties cannot “contract out” of the provisions of the Construction Lien Act, which is set out in section 4 of the Act and in case law applying it. Rather the courts in the above cases applied their equitable jurisdiction to “do justice” in the face of dishonest owner conduct that was relied upon by the lien claimants.
This equitable jurisdiction cannot be used to affect the rights of third parties that may have relied upon the expiry of the lien period. Master Prowse in Boulevard specifically stated, relying on Valo and Soo Mill, that the estoppel is personal to the litigants who were parties to the promise to pay and not to anyone else. If a lender, for example, advanced funds relying on clear title, the lender’s rights could not be prejudiced by the lien.
In summary, the law remains that, if an owner promises a contractor that it will get paid as long as it doesn’t lien the property, that owner will not be able to later discharge a lien as out of time if the contractor relied upon that promise.