deconstructing construction liens. what is a lien? 1. a creature of provincial statute 1873: ontario...

DeconstructinDeconstructing Construction g Construction

LiensLiens

What is a Lien?What is a Lien?1. A creature of provincial statute1. A creature of provincial statute

1873: Ontario1873: Ontario 1879: British Columbia & Nova Scotia1879: British Columbia & Nova Scotia 1884: Northwest Territories1884: Northwest Territories 1890: Newfoundland1890: Newfoundland 1902: Manitoba1902: Manitoba 1903: New Brunswick1903: New Brunswick 1907: Saskatchewan1907: Saskatchewan 1914: Yukon1914: Yukon 1930: Alberta1930: Alberta 1936: Prince Edward Island1936: Prince Edward Island 1999: Nunavut (adopting N.W.T. statute)1999: Nunavut (adopting N.W.T. statute)

What is a Lien?What is a Lien?

1. A creature of provincial statute1. A creature of provincial statute 2. With broad, overriding application2. With broad, overriding application all “contracts” deemed amended to all “contracts” deemed amended to

conform (s. 5)conform (s. 5) lien claimant deemed purchaser lien claimant deemed purchaser pro pro

tanto tanto upon registration of a lien (s. 76)upon registration of a lien (s. 76)


2. With broad, overriding statutory 2. With broad, overriding statutory applicationapplication

3. That arises upon the mere doing of 3. That arises upon the mere doing of workwork

s. 15: “A person’s lien arises and takes s. 15: “A person’s lien arises and takes effect when the person first supplies effect when the person first supplies services or materials to the services or materials to the improvement.” improvement.”



3. That arises upon the mere doing of work3. That arises upon the mere doing of work

4. And expires on the mere passage of time4. And expires on the mere passage of time 45 days to preserve45 days to preserve 45 more days to perfect45 more days to perfect Expires after 2 years unless set down for Expires after 2 years unless set down for

trialtrial



3. That arises upon the mere doing of 3. That arises upon the mere doing of workwork

4. And expires on the mere passage of 4. And expires on the mere passage of timetime

5. And causes the most delightful 5. And causes the most delightful mayhem in between.mayhem in between.

Why are there liens?Why are there liens?

1.1. Hickey v. StalkerHickey v. Stalker (1923), 53 O.L.R. (1923), 53 O.L.R. 414 (C.A.)414 (C.A.)

Meredith C.J.C.P:Meredith C.J.C.P:

““Speaking generally, the object of the Speaking generally, the object of the Mechanics’ Lien ActMechanics’ Lien Act is to prevent owners is to prevent owners of land getting the benefit of buildings of land getting the benefit of buildings erected and work done at their instance erected and work done at their instance without paying for them.”without paying for them.”


2.2. Minneapolis-Honeywell Regulator Minneapolis-Honeywell Regulator Co. v. Empire Co. v. Empire Brass Mfg. Co. Ltd. Brass Mfg. Co. Ltd. [1955] 3 D.L.R. 561 [1955] 3 D.L.R. 561 (S.C.C.) Rand J:(S.C.C.) Rand J:

““The Act is designed to give security to The Act is designed to give security to persons doing work or furnishing persons doing work or furnishing materials in making an improvement on materials in making an improvement on land.”land.”

Why are there liens?Why are there liens?3.3. Teepee Excavation & Grading Ltd. Niran Teepee Excavation & Grading Ltd. Niran Construction Construction Ltd. Ltd. (2000), 49 O.R. (3d) 612 (2000), 49 O.R. (3d) 612 (Ont. C.A.)(Ont. C.A.)

Carthy J.A.:Carthy J.A.:

““The The Construction Lien ActConstruction Lien Act serves a specialized serves a specialized purpose in a narrow field. A lien claimant may purpose in a narrow field. A lien claimant may commence an action, provide shelter for other commence an action, provide shelter for other claimants, obtain a form of execution before claimants, obtain a form of execution before judgment, and proceed to trial in summary judgment, and proceed to trial in summary fashion without production of documents, fashion without production of documents, discovery or other interlocutory steps except by discovery or other interlocutory steps except by leaveleave.”.”

Why are there liens?Why are there liens?4.4. Report of the Attorney General’s Advisory Report of the Attorney General’s Advisory Committee Committee on the Draft on the Draft Construction Lien Construction Lien ActAct, 1982:, 1982:

““The need for the types of remedies provided by The need for the types of remedies provided by the the Mechanics’ Lien ActMechanics’ Lien Act […] emanate from the […] emanate from the complicated nature of contractual relationships complicated nature of contractual relationships within the construction industry, and the credit-within the construction industry, and the credit-granting practices which are an integral part of granting practices which are an integral part of that industry. Ordinary contractual remedies are that industry. Ordinary contractual remedies are believed to be inadequate in the face of such believed to be inadequate in the face of such phenomena.”phenomena.”

Why are there liens?Why are there liens?5.5. D.N. Macklem, D.I. Bristow, D.N. Macklem, D.I. Bristow, Construction Construction Builders’ and Builders’ and Mechanics’ Liens in CanadaMechanics’ Liens in Canada, 6, 6thth ed., ed., Vol. 1, (Toronto: Carswell, 1990) at p. 1-3 Vol. 1, (Toronto: Carswell, 1990) at p. 1-3

(citing (citing Scratch v. AndersonScratch v. Anderson, [1917] 1 W.W.R. , [1917] 1 W.W.R. 1340):1340):

““The land which receives the benefit The land which receives the benefit shall bear the burden.”shall bear the burden.”

But…But…Canada Law Journal, Vol. XIII, N.S., January Canada Law Journal, Vol. XIII, N.S., January 18771877::

““But as to the subject matter involved, But as to the subject matter involved, probably the best thing to do would be to probably the best thing to do would be to repeal the repeal the Mechanics’ Lien ActMechanics’ Lien Act in totoin toto. The . The enactment is in itself unnecessary and illogical, enactment is in itself unnecessary and illogical, the wording is obscure, and its provisions the wording is obscure, and its provisions unintelligible and contradictory. The Act has unintelligible and contradictory. The Act has resulted in more harm than good to the honest resulted in more harm than good to the honest and prudence mechanic.and prudence mechanic. ” ”


1. Prevent unjust enrichment2. Create a special class of creditors3. Who enjoy special procedures4. And ultimate recourse to the land

improved5. While doing as little violence as

possible to established property rights and day to day commerce.

How does our Lien Act How does our Lien Act balance these interests?balance these interests?

A lien claimant’s statute (substantial compliance)

Titles often cluttered with extravagant liens

Liens used to coerce owners /mortgagees to pay or lose their project

Time periods ambiguous (subjective) Owners left defenseless

PrePre 19831983

How does our Lien Act How does our Lien Act balance these interests?balance these interests?

An owner’s statute (strict compliance, s. 6)

Extensive statutory remedy scheme for slander of title (ss. 35, 86)

Time periods clear (objective, concept of publication of certification of substantial performance)

Procedures toughened up and expanded (ss. 39, 40 – noting in default)

Post 1983Post 1983

Post 2002Post 2002

Even better!Even better!

Post 2002Post 2002

Dominance of trust remedy (Part II) over lien remedy (Part III)

Trust claim is not registered on title Trust has no time periods to observe Trust not limited to holdback Trust benefits from same summary

procedure as liens (Villa Verde) Trust invokes mind-numbingly

draconian personal liability section (s. 13)

Q:Q: Where do all these Where do all these concepts come concepts come

together?together?

A:A: Priorities:Priorities:Where vested Where vested

interests in interests in real real property collide property collide head-on with special head-on with special rights granted to lien rights granted to lien

claimants.claimants.

PrioritiesPrioritiesComplete statutory codeComplete statutory code

Part XIPart XI

ss. 72 – 85ss. 72 – 85

Overall Priorities SchemeOverall Priorities Scheme

ss. 72 – 75: Administrative s. 72: Lien enforceable

in spite of defaults. 73: Lien Assignables. 74: General Liens. 75: OK to take other

security


ss. 72 – 75: Administrative ss. 76 – 77: Over-arching priority

s. 76: Purchaser pro tanto

s. 77: General priority over all executions, unless recovered upon


ss. 72 – 75: Administrative ss. 76 – 77: Over-arching prioritys. 78: Priorities over mortgagess. 79 – 80: Priorities among lien claimants

s. 79: Persons who comprise class

s. 80: Priority between and within class

Overall Priorities SchemeOverall Priorities Schemess. 72 – 75: Administrative ss. 76 – 77: Over-arching prioritys. 78: Priorities over mortgagesss. 79 – 80: Priorities among lien claimantsss. 81 – 85: Special prioritiess. 81: Workerss. 82: General lienss. 83: Insurance proceedss. 84: Proceeds of sales. 85: Priorities on insolvency

Overall Mortgages Overall Mortgages SchemeScheme s. 78(1): Over-arching priority of lien

s. 78(2): Except: Building mortgage s. 78(3): Except: “Prior” mortgages (prior advance) s. 78(4): Except: “Prior” mortgages (subs. advance) s. 78(5): Except: Special priority against

subsequent mortgages S. 78(6): Except: General priority against subs.

mortgages s. 78(7): Except: Some trustees s. 78(11): Except: All home buyer mortgages s. 78(8): Postponement s. 78(9): (2) and (5) don’t apply to mortgages

before 1983 s. 78(10): Financial Guarantee Bond

The Whole Prior/Subsequent Thing

First lien arisesFirst lien arises

Prior mortgages mortgages Subsequent mortgages mortgages

Prior advancesPrior advances Subsequent advances advances

Value of land determi- of land determi-

nativenativeAdvances without without

notice determinativenotice determinative

Building mortgage mortgage

exceptionexception

Building mortgage mortgage

exceptionexception

Special Special priority for defi- for defi-

ciency in holdbackciency in holdback

AdvanceRegistration

Before 1Before 1stst lien lien arosearose

After 1After 1stst lien lien arose, but before arose, but before registration of registration of written notice of written notice of lienlien

Before 1Before 1stst lien aroselien arose

s. 78(3), s. 78(3), priority for priority for actual value of actual value of premises at premises at time lien arose time lien arose / total value of / total value of all advances to all advances to that datethat date

s. 78(4), priority s. 78(4), priority for everything in for everything in s. 78(3) plus all s. 78(3) plus all advances before advances before registration or registration or written notice of written notice of lienlien

After 1After 1stst lien aroselien arose

s. 78(6) s. 78(6) prioritypriority

s. 78(6), priority s. 78(6), priority for all advances for all advances before before registration or registration or written notice of written notice of lien, less any lien, less any deficiency in deficiency in holdbacksholdbacks

ExampleExample

MortgageMortgageA (Land)

Advance Advance

A1A1Advance Advance

A2A2AdvanceAdvance

A3A3MortgageMortgage

B (Building)B (Building)

AdvanceAdvance

B1B1AdvanceAdvance

B2B2

Lien # 1Lien # 1

ArisesArises

Lien # 1Lien # 1

ExpiresExpiresLien # 2Lien # 2

RegisteredRegistered

ExampleExample

MortgageMortgage

A (Land)A (Land)Advance Advance

A1A1Advance Advance

A2A2AdvanceAdvance



AdvanceAdvance

B1B1AdvanceAdvance

B2B2

Lien # 1Lien # 1

ArisesArisesLien # 1Lien # 1



1.1. Mortgagee B advanced in the face of a lien, Mortgagee B advanced in the face of a lien,

so that advance B2 loses priority to all liens so that advance B2 loses priority to all liens

ExampleExample

MortgageMortgage


A1A1Advance Advance

A2A2AdvanceAdvance



AdvanceAdvance

B1B1AdvanceAdvance

B2B2

Lien # 1Lien # 1




2. Advance B1 is a good advance. 2. Advance B1 is a good advance.

ExampleExample

MortgageMortgage


A1A1Advance Advance

A2A2AdvanceAdvance



AdvanceAdvance

B1B1AdvanceAdvance

B2B2

Lien # 1Lien # 1




3.3. Mortgage B is a building mortgage and a Mortgage B is a building mortgage and a

subsequent mortgage, so it loses priority to subsequent mortgage, so it loses priority to

the extent of any deficiency in the holdbackthe extent of any deficiency in the holdback

ExampleExample

MortgageMortgage


A1A1Advance Advance

A2A2AdvanceAdvance



AdvanceAdvance

B1B1AdvanceAdvance

B2B2

Lien # 1Lien # 1




4.4. Advance A3 is a subsequent advance (after Advance A3 is a subsequent advance (after

Lien 1 arose). Therefore, unless Lien 1 was Lien 1 arose). Therefore, unless Lien 1 was

registered or notified, Advance A3 is additionalregistered or notified, Advance A3 is additional

priority for Mortgagee Apriority for Mortgagee A

ExampleExample

MortgageMortgage


A1A1Advance Advance

A2A2AdvanceAdvance



AdvanceAdvance

B1B1AdvanceAdvance

B2B2

Lien # 1Lien # 1




5.5. Advances A1 and A2 are prior, so priority isAdvances A1 and A2 are prior, so priority is

lesser of actual value of land at the time the lesser of actual value of land at the time the

lien arose or total of A1 & A2.lien arose or total of A1 & A2.

Questions & Questions & Answers Answers

Q: What if a mortgagee has Q: What if a mortgagee has

more than one intention?more than one intention? Is it Is it still a building mortgage?still a building mortgage?

A: Yes.A: Yes.A mortgage can be segmented for the A mortgage can be segmented for the purposes of determining priorities. purposes of determining priorities. Where first intention was the Where first intention was the acquisition of land, the first advance acquisition of land, the first advance was held not to be building mortgage.was held not to be building mortgage.Royal Bank v. Lawton Developments Inc.Royal Bank v. Lawton Developments Inc.(1994), 16 O.R. (3d) 450 (Ont. Gen. Div.)(1994), 16 O.R. (3d) 450 (Ont. Gen. Div.)

Q: When is an advance actually Q: When is an advance actually “made”? When the mortgagee “made”? When the mortgagee

releases the money?releases the money?

A: No, when the mortgagor gets the A: No, when the mortgagor gets the money.money.

An advance is made not when the An advance is made not when the mortgagee releases the funds, but only mortgagee releases the funds, but only when the owner acquires actual control of when the owner acquires actual control of the money advanced.the money advanced.Marsil Mechanical v. A. Reissing – Reissing Enterprise Marsil Mechanical v. A. Reissing – Reissing Enterprise Ltd.Ltd. (1996), 26 C.L.R. (2d) 148 (Ont. Gen. Div.) (1996), 26 C.L.R. (2d) 148 (Ont. Gen. Div.)

Q: What if the land is Q: What if the land is worthless? What is the “actual worthless? What is the “actual value of the premises when the value of the premises when the first lien arose” then? first lien arose” then?

A: Zero, A: Zero, nono priority for the priority for the mortgagee. Environmental mortgagee. Environmental contamination can render the contamination can render the premises’ value “nil” for the premises’ value “nil” for the purposes of determining priorities purposes of determining priorities between prior mortgagee and lien between prior mortgagee and lien claimants. claimants. Park Contractors Inc. v. Royal Bank of Canada Park Contractors Inc. v. Royal Bank of Canada (1998), 38 O.R. (3d) 290 (Ont. Gen. Div.)(1998), 38 O.R. (3d) 290 (Ont. Gen. Div.)

Q: Who gets the benefit of a Q: Who gets the benefit of a single lien claimant’s priority?single lien claimant’s priority?

A: All lien claimants.A: All lien claimants.

All lien claimants have the All lien claimants have the benefit of that priority to all benefit of that priority to all advances made subsequent to advances made subsequent to the registration of the first lien.the registration of the first lien.Norwon Electric Sault Co. v. Ross Norwon Electric Sault Co. v. Ross

(1984), 7 C.L.R. 1 (Ont. H.C.)(1984), 7 C.L.R. 1 (Ont. H.C.)

Q: What if a mortgagee makes Q: What if a mortgagee makes an advance in the face of a an advance in the face of a lien? Does it lose priority for lien? Does it lose priority for that advance against all liens that advance against all liens or just the prior registered or just the prior registered liens? liens?

A: All liens.A: All liens.

Priority is lost against all liens, Priority is lost against all liens, even if the preserved lien is even if the preserved lien is later vacated from title.later vacated from title.Boehmers v. 794561 Ontario Inc. Boehmers v. 794561 Ontario Inc.

(1995), 21 O.R. (3d) 771 (Ont. C.A.)(1995), 21 O.R. (3d) 771 (Ont. C.A.)

Q: Do advances include Q: Do advances include interest? interest?

A: Yes.A: Yes.

Principal and interest are equally Principal and interest are equally secured under a mortgage. secured under a mortgage. Advances include interest. Interest Advances include interest. Interest payments on mortgages therefore payments on mortgages therefore have priority over lien.have priority over lien.830889 Ontario Inc. v. 607643 Ontario Inc. 830889 Ontario Inc. v. 607643 Ontario Inc.

(1990), 43 C.L.R. 181 (Ont. Gen. Div.)(1990), 43 C.L.R. 181 (Ont. Gen. Div.)

Q: What if a mortgagee advances Q: What if a mortgagee advances negligently, to the prejudice of lien negligently, to the prejudice of lien claimants? Can the lien claimants claimants? Can the lien claimants sue for negligence?sue for negligence?

A: No.A: No.No. In view of the sweeping benefits of s. 78, No. In view of the sweeping benefits of s. 78, courts have held that even a mortgagee’s courts have held that even a mortgagee’s negligence will not avail lien claimants, as negligence will not avail lien claimants, as no independent duty of care exists.no independent duty of care exists.Con-Drain Co. (1983) Ltd. v. 846539 Ontario Con-Drain Co. (1983) Ltd. v. 846539 Ontario Ltd. Ltd. (1997), 35 C.L.R. (2d) 230 (Ont. Gen. Div.), (1997), 35 C.L.R. (2d) 230 (Ont. Gen. Div.), aff’d. [1998] O.J. No. 5041 (Ont. C.A.)aff’d. [1998] O.J. No. 5041 (Ont. C.A.)

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