Prompt Payment Update—Alberta's Court of King's Bench Concludes Adjudicator Decisions under the PPCLA are Independent of Lien Validity

August 08, 2024

Written By Brian Reid, Chris Petrucci and Chris Abtosway

Introduction

In 2022, amendments to the Prompt Payment and Construction Lien Act (PPCLA)¹ introduced a prompt payment and related fast-track adjudication process. Recently, in Welcome Homes Construction Inc v Atlas Granite Inc,² the Alberta's Court of King's Bench interpreted these provisions, considering how they relate to the lien process under the PPCLA. Prior to this case, Alberta courts had not considered the intersection of the adjudication process and the lien process under the PPCLA.

In Welcome Homes, it was held that adjudication and lien processes are separate regardless of the fact that they may be factually intertwined. In particular, it was held that an adjudication process considers the parties' contractual rights, not their lien rights. Therefore, an adjudicator can issue a decision regarding a party's contractual entitlement to payment under the PPCLA, even if the lien registered in respect of the same claim is not valid, because the contractual entitlements and the lien rights are two distinct issues.

Background

Welcome Homes Construction Inc. (Welcome) hired Atlas Granite Inc. (Atlas) to supply marble countertops for a new home. A dispute arose when Welcome refused to pay Atlas for its work or materials and Welcome later terminated the contract. Following this termination, Atlas registered a builder's lien claiming compensation for the unpaid work and materials it had provided. In response, Welcome served a notice to Atlas to take action on its lien pursuant to section 45 of the PPCLA. However, instead of commencing this action, the parties agreed to follow the new adjudication process under sections 33.4 and 33.6 of the PPCLA.

In the subsequent adjudication, the adjudicator found in favour of Atlas, holding that payment was owed for certain work and materials supplied. Following this adjudication decision, Welcome attempted to continue with the lien process by serving a Notice to Prove Lien pursuant to section 52 of the PPCLA. In this lien action, Welcome alleged that the lien was registered out of time and was therefore invalid. The lien proceedings were stayed by consent pending the Court's determination of the effect of the adjudication on the lien proceedings.

Decision

Applications Judge Schlosser considered whether the adjudicator's decision depended on the validity of the lien. In other words, if the lien was invalid, was the adjudicator's decision also invalid?

Applications Judge Schlosser held that an adjudicator's decision did not depend on the validity of a lien. Instead, Judge Schlosser noted that lien rights and contractual rights are separate, with the adjudicator determining the contractual rights between the parties to a contract and not lien rights, which often involve third parties. In particular, the prompt payment and adjudication regime in the PPCLA deals only with parties in a direct contractual relationship (such as an owner-contractor, contractor-subcontractor, or sub-contractor-subcontractor contractual relationship). Although the type of disputes that may be referred to adjudication according to section 19 of the Prompt Payment and Adjudication Regulation³ are broad, the PPCLA does not provide a statutory claim against anyone other than the contracting parties. Accordingly, Applications Judge Schlosser held that validity of the lien was irrelevant to the contractual dispute regarding Atlas's contractual entitlement to payment.

Further, although a builder's lien claim and a contractual claim for payment may relate to identical facts, in this case the fact of the lien did nothing other than frame the dispute and lead to the parties agreeing to use the adjudication procedure. Accordingly, the adjudicator’s decision regarding a party's contractual entitlement to payment could not be overridden by the other party seeking to determine a party's lien rights.

Conclusion

The decision in Welcome Homes Construction Inc v Atlas Granite Inc provides increased clarity regarding the intersection of the prompt payment adjudication process and the lien processes set out in the PPCLA which are separate and distinct, even when arising from the same facts. Accordingly, an adjudicator’s decision regarding contractual entitlement to payment will not be subject to reversal or set aside just because the lien related to the same services or materials may later found to be invalid.

If you have any questions about this decision or construction-related disputes, please contact a member of the Bennett Jones Construction Group. 

We would like to thank Phillip Hanna, Student-at-Law for his contributions to this blog.

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