The issue of whether or not a subcontractor can advance a claim of unjust enrichment (payment for work performed that a party received a benefit or enrichment from) against an owner in the context of a builders lien claim has been the subject of debate within the construction industry. Generally speaking, claims for unjust enrichment advanced by a subcontractor are difficult to establish, as the contractual relationship between the subcontractor, the general contractor and the owner provide a “juristic reason” for any benefit the owner receives. The absence of a contractual relationship between a subcontractor and owner has been accepted by our courts as a juristic reason for denying any recovery to a subcontractor under the principle of unjust enrichment.
There are, however, exceptions to this general rule, such as, where the owner of a project is found to have entered into an agreement with the subcontractor directly. This exception was recently considered by the B.C. Supreme Court in Hans Demolition & Excavating Ltd. v. Green Oak Development (West 7th) Corp., 2021 BCSC 1472.
In order to successfully bring a claim in unjust enrichment, a claimant must establish that: (a) there was an enrichment; (b) a corresponding deprivation; and (c) an absence of any juristic reason for the enrichment. The contracts that typically exist in construction projects are typically viewed as providing a juristic reason for any enrichment, thus making a claim for unjust enrichment difficult to establish.
In Hans Demolition, the plaintiff subcontractor claimed that it had not been paid for various excavation and shoring work (the “Excavation Work“) performed for a multi-residential construction project, (the “Project“), owned by the defendant, Green Oak Development (West 7th) Corp., (the “Owner“). The subcontractor filed a builders lien for the labour and materials it said it provided to the Project, and, in the alternative, claimed that it was owed payment for the labour and materials performed pursuant to a claim in unjust enrichment.
At the time Hans Demolition became involved in the Project, Webster Development was the general contractor. No subcontract was entered into between Hans Demolition and Webster Development for the Project, however, quotes for the Excavation Work were provided by Hans Demolition to Webster Development, who executed the same. After Hans Demolition began performing the Excavation Work, the Owners terminated Webster Development’s contract and brought a new general contractor onto the Project.
Hans Demolition continued to perform the Excavation Work after Webster Development’s contract was terminated, and issued invoices for this work to the Owner. The Owner paid certain of the invoices and disputed others. The primary issue in dispute between the Owner and Hans Development was whether Hans Demolition performed extra or “over” excavations which caused issues with the construction of the Project. In response, Hans Demolition stated that it performed all Excavation Work as directed by the site superintendent.
Ultimately, Hans Demolition filed a claim of builders lien in the amount of $175,639.24 for sums it alleged were due and owing to it for the Excavation Work and commenced a civil claim seeking to perfect the builders lien and, in the alternative, receive payment for the Excavation Work it performed pursuant to the principles of unjust enrichment.
The Owners alleged that the builders lien was filed out of time as it was filed more than 45 days after Webster Development (the party that Hans Demolition had first begun working under) had its contract terminated. The Court agreed that the lien was filed out of time, and was therefore invalid.
Having found that the lien was invalid, the Court then considered if Hans Demolition had a claim against the Owners for unjust enrichment. In considering this claim, the Court found that, although there was no contract between the Owners and Hans Demolition, there was a business relationship between the two parties. In finding the existence of a business relationship, the Court looked to the correspondence between the Owner and Hans Demolition and noted specific representations and assurances given to Hans Demolition by the Owner that it would be paid for the Excavation Work after Webster Development was terminated from the Project. These assurances, made in the very specific circumstances where the general contractor had been terminated from the Project were found by the Court to establish a relationship that would make it unjust to permit the Owner to rely on the contractor / subcontractor relationship in order to avoid payment for the benefit of the Excavation Work it received, and indeed encouraged the subcontractor to continue performing.
Ultimately, the Court awarded Hans Demolition a restitutionary award in unjust enrichment of $130,639.24 (less than the full amount of the builders lien claimed).
Insights for Subcontractors and Owners
This decision highlights that subcontractors must be alert to the status of the general contractor with which it has a contract. If that contract is terminated at any time by the owner, the statutory deadline for the subcontractor to advance its lien rights will begin to run.
This decision also highlights that owners must be alert to the contractual relationships in place on its project. If the owner steps in to take over, even informally, a contract between a contractor and subcontractor, the owner may be establishing a business relationship directly with the subcontractor which entitles it to payment from the owner directly for any benefit it provides to the project.
In short: knowing the contracts established in respect of any project is important for all parties. These contracts should be reviewed and referenced frequently as the project proceeds.