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No Unjust Enrichment For You!: Yorkwest Plumbing Supply Inc. v. Nortown Plumbing (1998) Ltd.
Posted on: April 4th, 2017 by

Can you join an unjust enrichment claim with your construction lien claim in the same action? The Court of Appeal thinks not, though the Divisional Court was not so categorical.

You expect a construction lien action, by its very name, to assert a contractor/subcontractor’s statutory right, under the Construction Lien Act, to relief against an owner’s real property, or against the security posted in lieu of a claim against the real property. It is also expected that the contractor/subcontractor will include a claim for breach of contract against the party immediately above it in the construction ‘pyramid’. What has come to be a fairly common practice is to also claim unjust enrichment against everyone, the contractor/subcontractor immediately above the lien claimant, as well as the owner with whom the lien claimant often has no direct relationship. However, just because it is common practice does not mean that it will pass legal muster.

Indeed, this was the result in Yorkwest Plumbing Supply Inc. v. Nortown Plumbing (1998) Ltd., 2016 ONCA 305 where a unanimous panel of the Ontario Court of Appeal held that any unjust enrichment claims were barred by the Construction Lien Act itself, going further than, and apparently overruling, the earlier decision of a unanimous Divisional Court in the case (2014 ONSC 5655).

The Facts

The facts are fairly straightforward. Yorkwest Plumbing Supply Inc. (“Yorkwest”) was a plumbing supply subcontractor of Nortown Plumbing (1998) Ltd. (“Nortown”) on two home development projects, one owned by Intracorp Projects (Milton on the Escarpment) Ltd. (“Intracorp”) and the other by Burl 9 Developments Limited (“Burl 9”). In the course of its subcontract Yorkwest supplies material to Nortown on credit. Before the projects are finished, Nortown is bankrupt. Yorkwest claims it is owed $39,846.69 for materials supplied on the Intracorp project and $63,535.24 for materials supplied on the Burl 9 project. Yorkwest registers a general lien against both projects in an effort to secure payment from Intracorp and Burl 9. Intracorp and Burl 9 respond with a motion for summary judgment on the basis that, among other things, Nortown’s general contract with both Intracorp and Burl 9 provided that liens would arise and expire on a lot-by-lot basis, precluding the general lien registered by Yorkwest. Intracorp and Burl 9 are successful and summary judgment is granted dismissing the action and discharging the liens. Yorkwest appeals to the Divisional Court. Its appeal is dismissed. Yorkwest appeals that dismissal to the Court of Appeal. That appeal is also dismissed.

The Decisions

The main issue  at all levels of court was whether Yorkwest could sustain a general lien against the owners notwithstanding the general contract’s specific provision that liens would arise and expire on a lot-by-lot basis. In that regard, a unanimous Court of Appeal confirmed that section 20 of the Construction Lien Act permitted an owner to contract out of the default general lien provisions and that the absence of a reference in section 20 to ‘subcontract’ did not alter the analysis. Indeed, the Court indicated that a subcontractor’s right to demand information from the owner under section 39 of the Act, including whether liens expired on a lot-by-lot basis, afforded subcontractors a sufficient procedural protection to justify the refusal to permit Yorkwest to register a general lien notwithstanding that it was not privy to the contract that abrogated that right.

Intracorp and Burl 9 had also taken issue with Yorkwest’s alternative claim against them of unjust enrichment. Regardless of its claim to a lien against their real property, Yorkwest also alleged that each of Intracorp and Burl 9 has been enriched by Yorkwest’s supply of material that was incorporated into each project, that it had suffered a corresponding loss, and that there was no legal reason (such as a contract) for that transfer of value. In dismissing this aspect of the appeal, the Court of Appeal’s reasons were brief and to the point:

[53]      Section 55 of the [Construction Lien Act] allows a plaintiff in a lien action to join in the action a claim for breach of contract or subcontract. In its statement of claim, the appellant pleaded that it was not paid pursuant to its agreement with Nortown, which was named as one of the defendants. However, the appellant did not plead breach of contract as against the respondent owners, Intracorp and Burl 9, as it had no contracts with them.

[54]      The Divisional Court held that to allow claims not referred to in s. 55 to be joined in the action, such as claims for quantum meruit or unjust enrichment, would amount to a refusal to apply the plain wording of s. 55. I agree. The Act is intended to provide a summary procedure for dealing with lien claims. By including s. 55, the Act further defines the extent and intent of actions that can be brought to enforce it.

[emphasis is mine]

In doing so, the Court of Appeal upheld the result at the Divisional Court, insofar as the Divisional Court refused to permit Yorkwest to continue its action against Intracorp and Burl 9 on the basis of unjust enrichment alone. In doing so, however, it glossed over the nuance in the Divisional Court’s decision. On the issue of the unjust enrichment claim, Marrocco A.C.J.S.C., writing for the panel, had held:

[44]           [Yorkwest] submitted that its claim should be permitted to continue its action on the basis of a breach of contract. [Yorkwest] also described its claims against [Intracorp] and [Burl 9] as claims for unjust enrichment and quantum meruit.

[45]           Section 55(1) of the Construction Lien Act provides that a plaintiff in an action may join a claim for breach of contract or subcontract with a lien claim.

[46]           Section 55 (1) permits the lien claimant to advance a claim based on services performed and acknowledged as received even if the contract for the provision of those services is ultimately not proven. Section 55 (1) permits the appellant to include a claim based upon a contract even if it turns out that the appellant is unable ultimately to prove the contract. Section 55 prevents personal injury or unrelated tort claims from being advanced in a lien claim because lien claims are intended to be summary in nature.

[47]           [Yorkwest] did not plead a contract with either [Intracorp] or [Burl 9]. [Yorkwest] did not plead a breach of contract by those persons. The affidavit of Gabrielle Pizzardi provided in response to [Intracorp] or [Burl 9] motions for summary judgment does not suggest that [Intracorp] or [Burl 9] contracted with [Yorkwest].

[48]           Yorkwest’s claims of unjust enrichment and quantum meruit in its statement of claim are not based on any pleading that there was a contract between [Yorkwest] and [Intracorp] or [Yorkwest]and [Burl 9].

[49]           Allowing [Yorkwest] to join claims for unjust enrichment or quantum meruit unrelated to contracts between [Yorkwest] and those persons, amounts to a refusal to apply the plain wording of section 55 (1).

[50]           Of course, it is possible to advance claims for unjust enrichment or quantum meruit in the absence of a contract. However, such claims cannot be joined with a lien claim due to the wording of section 55 (1) of the Construction Lien Act.

[51]           Accordingly [Yorkwest’s] claims for unjust enrichment and quantum meruit cannot be joined with this lien claim and there will be no order permitting this action to continue as a claim for breach of contract, unjust enrichment or quantum meruit.

Conclusion

On its face, the Court of Appeal’s decision is categorical: if your claim is not contemplated by section 55 of the Act then it cannot be jointed in your lien action. The Court of Appeal’s decision may be distinguishable on its facts from a case where, as the Divisional Court discussed, a subcontractor joins an unjust enrichment claim in its lien action against the general contractor with whom it did have a contractual relationship. However, it would seem that the Divisional Court’s analysis begs the question: if there is a contract between the subcontractor and the general contractor, then there is either no unjust enrichment claim at all, insofar as the contract is the legal reason for the transfer in value, or there is no contract, in which case the freestanding unjust enrichment claim against the general contractor is no different than the impermissible freestanding unjust enrichment claim against the owner.

The Divisional Court’s analysis appears to be concerned with the use of quantum meruit to secure compensation for contractors and subcontractors who perform work that is truly outside the scope of their contract or subcontract, but without entering into a new written agreement with the owner or contractor as to the terms of compensation for that extra out of scope work.  Even here, it may be better to characterize the arrangement between the owner/contractor and the contractor/subcontractor for the extra out of scope work to be an oral contract to do that extra out of scope work in exchange for fair compensation, the particulars of which compensation is to be agreed to at a later date and bypass altogether the messy question of whether your unjust enrichment claim will be permitted to proceed.

In the end, Yorkwest is a clear reminder from the Court of Appeal that construction lien actions are creatures of statute designed to advance a particular and narrow subset of claims to a quick resolution in a summary way. The practical upshot is that, as a lien claimant, you may join a breach of contract claim in your lien action, but nothing else. Of course, as the Divisional Court noted, if your claim against the owner, or anyone else, is truly in the nature of unjust enrichment, then there is no bar to commencing a separate action for that relief in the usual way and subject to the usual procedural requirements, but that is a topic for another day.

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