Ontario Construction Act a “Comprehensive Scheme” – Claims for statutory breach of trust and unjust enrichment between subcontractor and owner dismissed
The Ontario Divisional Court recently confirmed that the Ontario Construction Lien Act (now the Construction Act) (the “Act”), which provides obligations and rights in addition to those provided by the common law, is a comprehensive scheme – meaning that the additional rights and obligations provided for in the Act do not imply the existence of further rights and obligations that do not arise under contract law or under the Construction Lien Act itself.
In Tremblar Building Supplies Ltd. v 1839563 Ontario Limited the Divisional Court upheld a lower court summary judgment decision that dismissed the claims of a subcontractor against an owner in breach of trust under the statutory trust remedies contained in the Act, and in unjust enrichment. The Divisional Court expressly held that the Act provides a comprehensive scheme for construction obligations and remedies, and permitting additional remedies not otherwise contemplated therein (like, for example, unjust enrichment) to be grafted on to that scheme would undermine the careful balance struck in the legislation.
Tremblar Building Supplies Ltd. (“Tremblar”) entered into a subcontract to provide construction materials to 1830563 Ontario Limited (the “Contractor”). There was no contract between Tremblar and the Owner in this case. Before construction was completed, the Contractor filed for bankruptcy protection, leaving Tremblar unpaid. Tremblar sued the Owner for both breach of trust under the trust provisions of the Act and unjust enrichment for the money that the Contractor owed Tremblar, the Owner having received the benefit of the materials supplied by Tremblar. Tremblar had not availed itself of any lien remedies under the Act. The Owner successfully brought a summary judgment motion to dismiss Tremblar’s claims (the lower court decision can be found here).
Divisional Court dismisses Tremblar’s breach of trust and unjust enrichment claims against the Owner
In its decision upholding the findings of the lower court, the Divisional Court affirmed the remedial nature of the Act and noted that while it creates additional rights and obligations beyond those provided by contract law, it does not imply the existence of further rights and obligations that do not arise under contract law or the Act. Since Tremblar chose not register a construction lien, the court was only tasked with addressing the application of the construction trust rights established by the Act between the Owner and Tremblar, and whether the Owner was otherwise unjustly enriched to the detriment of Tremblar.
Breach of trust
The Divisional Court considered the statutory trusts which are created by, and limited by, the terms of the Act. The Divisional Court found that the trusts under the Act run with the contractual obligations – but only in respect to money received or receivable by the trustee in respect to the improvement. The Divisional Court found that owners do not hold funds in trust for subcontractors. Rather, they hold them in trust for the contractor or contractors with whom they have a direct contract. To hold otherwise would mean that owners would have a positive obligation to ensure that contractors apply their funds properly – and this, the Divisional Court held, would wholly undermine the structure of the relations contemplated under the Act.
Tremblar also argued that it had a cause of action in unjust enrichment against the Owner. The general principles of unjust enrichment in Canada are well-established and require the following three elements to establish a cause of action: (i) an enrichment of the defendant; (ii) a corresponding deprivation of the plaintiff, and (iii) an absence of juristic reason for the enrichment.
In this case, the Divisional Court focused on the third requirement – absence of a juristic reason – for its finding that there is no cause of action on the part of a subcontractor against an owner for unjust enrichment. To satisfy the third requirement, Tremblar had to prove an absence of any juristic reason for its deprivation and the Owner’s enrichment.
The lower court had noted that the existence of a contract between an owner and a contractor has been held by the Divisional Court to be a juristic reason preventing a claim by a subcontractor against an owner in unjust enrichment. However, the lower court went one step further and, in the alternative, also found that the existence of a valid statute (in this case, the Act) with a comprehensive scheme of rights and obligations could also be the juristic reason that precludes recovery in a claim for unjust enrichment by a subcontractor against an owner.
The Divisional Court endorsed this view, and held that the Act itself provides the juristic reason to deny a claim for unjust enrichment in these circumstances. Specifically, the Divisional Court noted that the Act is a comprehensive code for securing obligations arising on construction projects, and is meant to balance the interests among the many parties involved. This situation was the precise sort that the Act was designed to address, and augmenting the scope of claims available would undercut the balance established by the Act. Therefore, because the Act did not provide for unjust enrichment claims for persons not in privity of contract, this was in and of itself a sufficient juristic reason to prevent Tremblar, as a subcontractor, from asserting an unjust enrichment claim against the Owner.
The Divisional Court reminds us in this case that the Act is intended to create a comprehensive scheme of additional rights and obligations over and above those that exist at common law, and that those additional rights and obligations do not imply the existence of further rights and obligations that do not arise under contract law or the Act. Indeed, the Divisional Court held that a subcontractor will be precluded from advancing a direct claim for statutory breach of trust under the trust provisions of the Act, or a claim for unjust enrichment, against an owner, by virtue of the fact that neither claim is contemplated by the Act. This case also serves as a helpful reminder that summary judgment can be a useful procedural vehicle for dealing with meritless claims under the Act, or in law.