Newfoundland & Labrador Crown Immunity for Mechanics’ Lien Holdbacks: 3 Key Risks for Subcontractors in Brook Construction (2007) v. Blackwood Contractors Ltd.
May 24, 2016
By John V. O'Dea, Partner at McInnes Cooper,
Ken Anderson, Associate at McInnes Cooper
It’s now certain: in Newfoundland & Labrador, liens can’t be placed on Crown land or holdbacks with the possible exemption allowing for a lien to be placed on the holdback for public streets. Here’s how the Newfoundland and Labrador Court of Appeal’s decision in Brook Construction (2007) v. Blackwood Contractors Ltd. increases the risks for subcontractors in Crown infrastructure projects in Newfoundland & Labrador.
The Case. The NL Crown owned land in St. Anthony to construct a school. Brook was the general contractor for the project; Blackwood was the subcontractor for the supply and installation of heating, plumbing and ventilation. On November 2, 2012, Blackwood ceased work on the project and registered a lien under the NL Mechanics’ Lien Act (Act) on the Crown land for $604,513.84. The lien also claimed a charge against the holdback. On November 26, 2012, Blackwood filed a statement of claim against Brook alleging breach of contract and asserting it brought the action “to enforce the lien as provided in the Mechanics’ Lien Act”. However, it didn’t claim enforcement of the lien by sale of the property or name the Crown as a party to the action. Brook applied to the court to vacate the lien on the two grounds: that Blackwood failed to commence an action naming the Crown as owner, and that it can’t claim a lien against Crown land. The judge refused, ordered the lien be vacated upon Brook posting a bond, and concluded there’s a distinction between the rights to claim a lien on Crown land, and to claim a lien against the holdback – and the lien can exist against the holdback because an action can be taken under the Act even where the work was on Crown land. Brook appealed this decision.
The Appeal Decision. The key issue in the appeal was whether the Act allowed Blackwood to lien the Crown’s holdback funds, which the Court of Appeal said was a novel and important issue. The Court of Appeal concluded it doesn’t, ultimately addressing four key legal points:
- The holdback lien is “parasitic” on the land lien. The right to the lien on the holdback is “parasitic” on, not separate and distinct form, the existence of a lien on the land. Referring to section 12 of the Act (“Holdback”) the Court noted it’s clear that the statutory holdback must only be maintained respecting contracts “under and by virtue of which a lien may arise” and where there’s a lien under section 6 of the Act (“General right to a lien”), which creates the statutory lien and without which there would be no claim on the land benefitted by the work. The Court explicitly noted that mechanics lien legislation in other provinces have created “trust” provisions for the purpose of the holdback – but the NL Act has no trust provisions.
- The failure to sue the Crown was fatal. Blackwood’s failure to name the Crown as a defendant in its statement of claim rendered the claim deficient. A lien claimed against land must include the owner of the land as a party, and a claim against a fund of money must include the person holding the money as a defendant. Section 24(1) of the Act (“When lien stops”) requires a lien claimant to file an action within 90 days after the work has been completed “to realize the claim”.
- The Crown is immune from the Act. The Act doesn’t bind the Crown. Under the NL Interpretation Act, no provision of a statute binds or affects the Crown unless that statute expressly states it does and decided Canadian cases and secondary sources are virtually unanimous on this point. Without an express statement in the NL Act, the NL Crown is not statutorily obligated to holdback funds nor are they lienable – even though it may holdback funds voluntarily or be required to do so pursuant to a contract. In reaching this decision, the Court rejected Blackwood’s argument that the fact the exemption for a “public street, road or highway” in section 5 of the Act isn’t expressly limited to municipalities means it applies to Crown-owned streets, roads and highways, supporting its argument that the Act applies to Crown land. However, the Court noted, without deciding, that it’s possible the public street exemption applies only to those owned by municipalities and not those owned by the provincial Crown because the Crown is not expressly subject to a mechanic’s lien.
- The Proceedings Against the Crown Act doesn’t save the lien against the holdback. The Court divided on this issue (and in particular, on the effect of section 24(1) of the Proceedings Against the Crown Act, which deals with the ability to issue legal process against the Crown for payment of money owing or accruing as remuneration for goods or services), but the majority decided the Proceedings against the Crown Act does not modify the law to make the Act applicable to Crown land and/or the holdback.
The Three Key Risks. Practically, the ultimate decision that liens can’t be placed on Crown land or holdback, with the possible exception of the holdback for public streets, increases the risks for subcontractors in Crown infrastructure projects in NL:
- Reduced security for Crown projects. Subcontractors in Crown infrastructure projects in NL have lost the security provided by a holdback lien, and they might quote higher prices to general contractors for this work to compensate for this added risk.
- Litigation on the public street exemption question. While the decision left open the possibility the public street exemption applies to Crown streets and roads, it strongly suggests the exemption only applies to those owned by municipalities. This creates a significant risk for subcontractors working in this sector, and litigation on this issue is highly likely.
- Names matter. If the general contract between the Crown and the general contractor provides for a holdback or states the Crown is subject to the Act, a prudent subcontractor will name the Crown in both its claim for lien and statement of claim – or risk losing the claim altogether.
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