Ontario Divisional Court confirms Construction Act a comprehensive scheme

24 February 2021

The construction industry is underpinned by a complex structure of contractual relationships between owners and contractors, contractors and subcontractors, subcontractors and sub-subcontractors, and so on down the construction pyramid.  Ontario's Construction Act, R.S.O. 1990, c. C.30, formerly the Construction Lien Act, (the "Construction Act" or the "Act") governs these relationships and sets out the rights and remedies of the various participants in the construction industry.

In Tremblar Building Supplies Ltd. v 1839563 Ontario Limited, the Ontario Divisional Court recently upheld the summary judgement dismissal of a subcontractor's breach of trust and unjust enrichment claims against an owner.  In doing so, the Divisional Court confirmed that the Construction Act is a complete code: remedies not provided for in the Act are not available. 

Tremblar Building Supplies Ltd. ("Tremblar") entered into a subcontract to provide construction materials to 1830563 Ontario Limited (the "Contractor").  As is usually the case, there was no contract between Tremblar and the owner.  Following the Contractor's filing for bankruptcy protection, Tremblar commenced an action against the owner for breach of trust under the Construction Act and for unjust enrichment based on the alleged benefit, to the owner, of Tremblar's unpaid materials and services.  Tremblar did not commence a lien action.   

The Divisional Court dismissed both claims. 

First, the Court observed that the Construction Act statutory trusts, created by sections 7 and 8 of the Act, exist only as between the two contracting parties.  This means that owners hold funds in trust for contractors, with whom they have a contractual relationship.  Since owners have no contractual relationship with subcontractors, they do not hold funds in trust for subcontractors.  Section 8 of the Act clearly obliges contractors, not owners, to retain trust funds for the benefit of subcontractors.  The Court determined that allowing Tremblar's trust claim would create a new remedy not contemplated in the Act and would effectively require owners to ensure that contractors distribute their funds properly.  The Court was not willing to take this step. 

Second, the Court upheld the dismissal of Tremblar's unjust enrichment claim not only due to the existence of the contract between the Contractor and the owner but also, and more importantly, because the Construction Act creates a complete code.  To succeed in claiming unjust enrichment, a plaintiff must establish three things: (i) an enrichment of the defendant; (ii) a corresponding deprivation of the plaintiff, and (iii) an absence of juristic reason for the enrichment.  The Courts have already held that the contract between the contractor and owner provided a juristic reason that could prevent unjust enrichment claims by subcontracts against owners.  In this case, the Divisional Court went a step further, confirming that the fact that the Construction Act does not provide for unjust enrichment claims between subcontractors and owners affords a juristic reason to deny such claims. 

Overall, the Divisional Court's decision emphasizes that the Construction Act is a complete code, one based foremost in the complex contractual relationships that underlie the construction industry. 

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