Does a Subcontractor Have a Claim for Unjust Enrichment Against the Owner?
January 2023 - 4 min read
The Court confirmed that if a subcontractor registers a lien and subsequently fails to perfect that lien claim, it does not have an unjust enrichment claim. The lack of privity between an owner and subcontractor rarely results in a valid unjust enrichment claim.
Each province has lien legislation governing the rights of parties supplying services and materials to construction projects. This legislation contains rigid limitations and requirements, as liens impact owners’ property rights.
If a subcontractor lien claimant fails to preserve and protect its lien rights under the applicable legislation, can that party commence a claim against the owner for unjust enrichment? The Ontario Superior Court of Justice considered this scenario in Zagros Homes Development Inc. v. Hans Steel Canada Corp.
2458313 Ontario Inc. (“245”) was the owner of a project involving the construction of eight townhouses on its property in 2018 and 2019. 245 hired Hans Steel as a contractor to supply and install wood and steel framing for the project. Hans Steel subcontracted the wood framing scope of work to Zagros, who subsequently sub-subcontracted its entire scope of work to Med.
245 terminated its contract with Hans Steel before the project was completed. This caused Zagros to stop working, but Med continued to work directly for 245. Med and Hans Steel registered liens on February 8, 2019, and July 9, 2019, respectively. Zagros never registered a lien. However, it commenced a civil action against Hans Steel and 245, claiming damages.
Zagros brought a motion for leave to amend its claim to add a paragraph claiming unjust enrichment and quantum meruit (“what one has earned” - i.e., a claim for reasonable value of services) against 245. 245 brought a motion for an order striking Zagros’ claim for failing to preserve and perfect its lien, precluding it from pursuing any other claims against 245. As the two motions were related, they were dealt with simultaneously.
Claim for Unjust Enrichment Where a Lien Claimant Has Failed to Perfect Its Lien
The Court stated that it is well-established law that where a lien claimant fails to preserve and perfect its lien, it has no recourse against the owner, including recourse through a claim for unjust enrichment or quantum meruit. Further, the Court confirmed that a subcontractor’s rights under the Construction Act are in contract, statutory trust, and construction lien.
A subcontractor’s contract and trust claims are limited to the parties it has contracted with. A lien right is the only form of recourse that a subcontractor has against an owner, and it is limited to an owner’s statutory holdback obligations. In this case, Zagros had contracts with Hans Steel and Med, but it did not have a contract with 245. When Zagros allowed its lien rights to expire, it lost its only recourse against 245.
In a claim for unjust enrichment, a party must show the following:
- an enrichment by the defendant;
- a corresponding deprivation by the Plaintiff; and
- the absence of a juristic reason for the enrichment.
In this case, the existence of a contract between the owner and contractor constitutes a juristic reason for enrichment on a claim made by a subcontractor. As such, a claim for unjust enrichment by a subcontractor against the owner is not legally tenable.
Applicability in Alberta
The Court’s comments on why a subcontractor has no unjust enrichment claim against an owner are consistent with Alberta case law. Like the Construction Act in Ontario, the Builders’ Lien Act and Prompt Payment and Construction Lien Act in Alberta are complete codes concerning the rights of parties supplying services and materials to construction projects.
In Alberta, Bova Steel Inc v Constructions Beauce-Atlas Inc (Les) dealt with a similar situation where a sub-subcontractor brought an unjust enrichment claim against the owner and general contractor. The Court determined that the “juristic reason” for any payments that did not make their way to the sub-subcontractor is the law of contract. The parties made payments due to their contractual obligations. As such, there was a juristic reason for the alleged enrichment, and the claim for unjust enrichment against the owner and general contractor was struck.
The Builders’ Lien Act and Prompt Payment and Construction Lien Act require lien claimants to be vigilant in preserving their lien rights. These acts offer parties who would otherwise have no claims in contract or statutory trust some assurance that they will be paid for improving the land. Lien claimants cannot attempt to obtain payment through unjust enrichment as this would undermine the purpose of lien legislation.
If you would like advice on builder’s liens and the requirements to preserve/perfect lien rights, please contact Anthony Burden or Logan Maddin in Calgary, Ryan Krushelnitzky in Edmonton, or any member of Field Law’s Construction Group for guidance and assistance in this area.
Link to decision: Zagros Homes Development Inc. v. Hans Steel Canada Corp., 2022 ONSC 7059