Focus: Ruling could leave transit projects in limbo

A decision earlier this year from Master Donald Short of the Ontario Superior Court of Justice suggests that contractors working on billions of dollars worth of municipal transportation projects in Ontario and possibly elsewhere in Canada could hold them up indefinitely if they don’t get paid on time.

In Toronto alone, the $1.8-billion Eglinton-Scarborough crosstown light-rail transit project and the planned light-rail extension along Sheppard Avenue are just two examples of public projects the decision could affect.

In Advanced Construction Techniques Ltd. v. OHL Construction Canada, Short ruled a sub-contractor working on land intended for the York University subway extension in Toronto could put a $4-million lien against the property.

“Had the contractor not bonded off [posted security for] the lien, it was theoretically possible that there could have been a judicial sale of the York University campus, including the northern twin tunnel and the subway station currently under construction,” says Harvey Kirsh, a lawyer with Glaholt LLP, a Toronto construction law boutique firm.

Under provincial law, construction lien claimants have a charge against land and property on which they’ve worked much like a bank does when it takes a mortgage in return for lending money. Lien claimants can then seek judicial approval for the sale of the property and use the proceeds to pay the debt owing to them for their work on the land in question.

“Given the enormous financial commitment for the development of transportation systems, this is a landmark decision which will be of considerable interest to all construction trades — general contractors, subcontractors, and material suppliers alike — regarding their rights to lien a subway project and, by extension, any significant transportation project,” says Kirsh, who argued before Short that public works shouldn’t be subject to liens.

Kirsh, representing the contractor who was challenging the lien of the subcontractor, argued it would be absurd to suggest a court would order the sale of portions of the TTC subway, including subway tunnels, stations, trains, and related facilities, that would render the remainder of the system unusable.

In this case, the “public work” was the York University subway station on the extended line. Workers were to build the station on campus near or under the Schulich building. The university owned the land but had agreed the TTC would take it over and operate the station when it was complete.

OHL Construction Canada was the contractor for the station. It hired Advanced Construction Techniques to perform some preliminary monitoring work. Dissatisfied with the work, OHL eventually ordered the other company off the site.

After Advanced Construction Techniques filed a lien, OHL posted security for the amount owing and then asked the court to vacate the lien so as to free up the title to the university’s property. Short, however, refused to do so.

“Ultimately, it seems to me that a much stronger public policy consideration than the one argued by OHL is that the subcontractors to OHL should not be prejudiced as a result of a plan or scheme entered into between the TTC and York University,” he wrote in his reasons for his decision.

In most other provinces, the right to a lien isn’t available for the supply of services or materials with respect to the construction of a street, road or highway. Alberta has separate public works legislation that contains a claims procedure; Manitoba legislation doesn’t permit a lien for bridges, airstrips, docks, ferry terminals or hydroelectric generating stations or facilities; and the Quebec civil code doesn’t allow for a lien for prescribed educational and health institutions.

Charles Bois of Miller Thomson LLP’s Vancouver office notes B.C. law allows for liens against municipally owned properties and “certain properties owned by federal or provincial Crown corporations provided that such properties have been surveyed and registered in land title offices.”

Nonetheless, the law in many cases isn’t clear and Short’s decision could influence similar matters in other provinces, although it’s certainly not binding.

“There are a lot of subtle differences between Alberta and Ontario law that might cause an Alberta court to analyze a case with substantially identical facts from a different perspective,” says Corbin Devlin, a construction lawyer in McLennan Ross LLP’s Edmonton office.

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