A local construction company recently learned a harsh lesson about builders’ liens, the basics of contract law, and the importance of the term “Ltd.” in the case of Canbar West Projects Ltd. v Sure Shot Sandblasting & Painting Ltd. 2010 ABQB 372.

Canbar West Projects Ltd. (“Canbar”) applied to the Court to enforce a builders’ lien for over $300,000, in relation to construction work it had performed on a property owned by one of the Defendants. Canbar had yet to be incorporated when the contract was drawn up prior to the commencement of the work. At that time, the principals of Canbar were hoping to incorporate as “Can-West Projects Limited”, and therefore all of the contract documents were drawn up using that name in anticipation of the incorporation.

Unfortunately, when the principals of Canbar attempted to register “Can-West Projects Limited” with the corporate registry, they were told that the name was already in use. Therefore the company was registered as “Canbar West Projects Limited” (the “bar” is a literal reading of the hyphen in “Can-West”). Canbar registered the trade name “Can-West Projects” pursuant to the Partnership Act and printed business cards using “Can-West Projects Ltd.”. The contract setting out the work to be completed on the Defendant property was never amended, and all invoices, change orders, statutory declarations, etc. were issued under the name “Can-West Projects Ltd.”

About a year later (after a fire has destroyed most of the work carried out on the Defendant property—but that’s a story for another day), Canbar decided to take action on unpaid invoices relating to work done under the contract. It filed a lien and a certificate of lis pendens on the Defendant property.

The Defendants argued that Canbar’s lien was invalid, as “Canbar West Projects Ltd.” was not a party to the contract under which the work was performed.

Section 6 of the Builders’ Lien Act allows for liens to be filed by a “person who (a) does or causes to be done any work on or in respect of an improvement, or (b) furnishes any material to be used in or in respect of an improvement…” Thus, the question before the Court was whether Canbar is “the person who did the work or provided materials to the project”.

The Court confirmed that the Builders’ Lien Act is generally given a broad and liberal interpretation, except when it comes to determining who may seek to apply a lien under the Act. Accordingly, it was held that it was up to Canbar to establish that it came within the terms of the Act.

The Judge hearing the matter did not accept Canbar’s argument that the contract was a “preincorporation contract” adopted by Canbar after its incorporation pursuant to ss. 15(2)-(5) of the Business Corporations Act, because the proper adoption procedures were not followed. Furthermore, it was held that there was no valid contract to adopt because “a non-existent corporation cannot enter into contracts”. Of course, there is a Can-West Projects Ltd. out there somewhere, just not one that entered into any contract for work carried out on the Defendant property—this tangle in logic was cited by the Court as another reason that the lien before it was fatally flawed.

Reading the rest of the decision is a bit like watching a tennis game.

The first point was handily won by the Defendants. The Court determined that the difficulties with the lien could not be fixed using the curative provisions of the Builders’ Lien Act, and accordingly, the lien was declared to be invalid, and the certificate of lis pendens discharged.

However, before the Defendants could start cheering, the Court noted that it “is not preventing whoever did the work on the Project from commencing an action seeking payment for the work they completed” on an equitable (unjust enrichment) basis. Thus, it turns out, all was not lost for Canbar.

(If the Defendants were feeling dejected following that comment, their spirits were no doubt lifted by the Court’s parting invitation for submissions on the issue of whether Canbar should be penalized for filing an invalid lien. There is no reported decision to date in relation to that issue.) This case highlights the importance of ensuring that contract documents correctly record the names of the parties, and are amended in the event of any changes or adopted in accordance with the Business Corporations Act with notice to all parties to the contract. Failure to do so may result in restricting access to powerful (and much less expensive) remedies.

There is also a lesson to be learned from this case about the use of trade names, and the restrictions on use of the term “Ltd.” As pointed out in this decision, the Alberta Business Corporations Act clearly states at s. 10(3) that “no person other than a body corporate shall carry on business within Alberta under any name or title that contains the word… “Ltd.”” Improper use of the term “Ltd.” may result in fines up to $5,000 in addition to liability to anyone who suffers damages as a result of a corporation’s improper use of the term “Ltd.”