Imagine, if you will, that you are a subcontractor who provided services or materials in respect of a construction project and are still owed monies for your work.
You could use the statutory mechanism of construction liens, pursuant to the Ontario Construction Act R.S.O. 1990 c. C.30 (the “Act”), to obtain security against real property (or security in lieu in the form of monies or bonds posted with the court). You could also use it to advance a claim against an owner for unpaid amounts based on the doctrine of unjust enrichment – even if you had no direct contract (i.e. no “privity of contract”) with the owner.
However, where a subcontractor (or, for that matter, a sub-subcontractor) does not avail itself of its statutory rights in time, by preserving and perfecting its lien claims, these expire with no opportunity to resurrect same.
The question thus becomes: where a subcontractor foregoes its right to lien for unpaid work pursuant to the Act, and has no direct contract with the owner, can it still advance a claim of unjust enrichment against an owner?
The three elements of unjust enrichment are:
- an enrichment of the defendant;
- a corresponding deprivation of the plaintiff, and
- an absence of juristic reason for the enrichment.
If we presume the first two prongs are satisfied, we must turn to the third prong – a subcontractor is required to show an absence of a juristic reason for its deprivation and the owner’s enrichment.
Master Wiebe (as he then was) has stated:
There is consistent authority for the proposition that claims in restitutionary quantum meruit by subcontractors against owners should not be allowed because to do so would circumvent and undermine the scheme established by the construction lien legislation. The existence of the Construction Lien Act (“CLA”) [the pre-2018 predecessor to the Act] is in effect the juristic reason for any unjust enrichment by the owner that a subcontractor may otherwise be able to establish. The CLA provides subcontractors with specific in personam remedies against owners which turn on the concepts of lien and holdback. To give subcontractors the added non-statutory remedy of restitutionary quantum meruit when the statutory remedies fail would undermine the statute.
In Tremblar Building Supplies Ltd. v. 1839563 Ontario Limited, the Divisional Court held that a subcontractor is precluded from advancing a claim for unjust enrichment against an owner in the absence of a construction lien. The court stated at paragraph 18:
In the case at bar, the situation is the precise sort of situation that the Construction Lien Act was designed to address and augmenting the scope of claims available would undercut the balance established by the Act. The comprehensive scheme of rights and obligations under the Construction Lien Act is the juristic reason for precluding claims for unjust enrichment by subcontractors against owners.
The court in Tremblar elucidated that the Act is remedial legislation which operates in addition to the common law (i.e. contractual rights and obligations between the parties), and creates two distinct sets of obligations and remedies, being the construction lien and the construction trust. If not for the Act, the subcontractor would be restricted to its rights in contract law and would have no direct recourse against an owner as a creditor.
The subcontractor in Tremblar did not register a construction lien and lost its ability to rely on the Act. Because construction trusts are statutory trusts, and owners do not hold funds in trust for subcontractors (otherwise they would have a positive obligation to ensure contractors apply the funds properly), the subcontractor could not use trust principles to recover the amounts owed to it either.
On August 17, 2022, the Ontario Court of Appeal quoted from and affirmed Tremblar:
The Construction Lien Act clearly ousts certain equitable rights. For instance, it precludes a subcontractor who was entitled to, but did not register a construction lien for unpaid work as provided by the Construction Lien Act, from claiming the amount of the lien in unjust enrichment.
The jurisprudence is consistent: if you do not ‘use’ the statutory rights contained in the Act, you will ‘lose’ the ability to rely on the doctrine of unjust enrichment when there is no privity of contract. It is thus important to consider, in a fulsome and timely manner, what claims may be extinguished in the absence of a lien.