Continuing Contracts: The supplier’s dilemma of when to file a Builders’ Lien

Suppliers often form relationships with their customers and provide multiple shipments of materials without an individual contract for each order. In good times, this free flow of materials keeps transactions costs low and is beneficial to both parties. However, in difficult times, purchasers may fail to pay for materials leaving suppliers to determine when to file a lien under Alberta’s lien legislation and what materials the lien can include.

In Alberta, the Builders’ Lien Act (the “Act”) requires that a lien be registered within 45 days from the day all materials under a contract were delivered (see Builders’ Lien Act, RSA 2000, c B-7 at ss. 41 and 42). Therefore, suppliers must determine whether their shipments of materials were provided under separate contracts or a single continuing contract. If the shipments are made under a single continuing contract then a supplier only needs to file a lien 45 days after the last shipment was delivered.

A continuing contract (referred to as a “prevenient arrangement”) exists where there is a preliminary understanding between parties that they are entering into an ongoing relationship for the supply of materials over time. In Alberta, the “preliminary understanding” requires that the work done is “determinable with a sufficient degree of certainty to constitute the ‘thread’ that serves to link the subsequent supply of goods or services together.” (see Re Blue Range Resource Corporation, 1999 ABQB 873 at para 10)

To determine whether the arrangement has a sufficient degree of certainty, Courts have relied on the following specific factors:

• a limited time frame;
• a designed area of service;
• advanced discussions or a guarantee of a specific amount of work; and
• exclusivity between the parties.

However, in contrast, Courts have found that it is not necessary that:

• all of the work or material should be ordered at the same time;
• the preliminary understanding between the parties involves a specific project;
• materials are supplied to a single owner or lands; or
• the agreement is legally binding and may be terminated at any time.

Since courts have concluded that prevenient arrangements are questions of fact, no one factor is conclusive. This has resulted in many nuanced and fact-driven decisions on the existence of prevenient arrangements.

The variety of interpretations and applications by the courts of prevenient arrangements makes it difficult for a supplier to rely on them and make sound business decisions on when to file a lien. Therefore, to the extent possible, other remedies outside of the Act should be explored within the period of filing a lien, such as directions to pay from entities higher up the construction hierarchy.

However, if a supplier intends to rely on a prevenient arrangement and files a lien with only the last shipment within the lien period, the supplier will have the legal obligation to demonstrate that the materials were supplied under a prevenient arrangement with reference to the above factors. Since the existence of a prevenient arrangement is a question of fact, the supplier will need to prove the characteristics of the relationship and convince a court that there was a preliminary understanding between parties that they entered into an ongoing relationship for the supply of materials over time.

To assist a Court in finding a prevenient arrangement, suppliers may want to consider:

• including a term in the initial contract that the materials are being supplied pursuant to a prevenient arrangement;
• creating internal documents at the time of each order that the material supplied is being provided under a prevenient arrangement and provide it to the purchaser; and/or
• Including unique identifiers on purchase orders or invoices that relate to the prevenient arrangement, such as a single purchase order number.

If you have a construction law question, reach out to a member of our Construction Law Team