Transcript Making a Lunch out of Lien Law

Making Lunch
Out of Lien Law
Duncan W. Glaholt
Glaholt LLP
1. Encounters with E-Reg.
2. David Goldman’s
Interesting Problem
3. What’s New and Different
with Liens?
1. Encounters With E-Reg.
Concerns and Suggested
Solutions
Prepared with the assistance of Roger J. Gillott,
Osler Hoskin & Harcourt LLP
Concern 1: Ambiguities regarding
Affidavit of Verification
1. How can lawyer select statement 2521, “I
am the lien claimant”?
2. Can cross-examination take place on
electronic affidavit of verification?
3. Who is to be cross-examined?
Extracts from A.G. Report
In a recent Divisional Court decision, Ken
Gordon Excavating Ltd. v. Edstan, the court held
that an affidavit of verification was not required
for the proper preservation of a lien, because of
the substantial compliance provisions of the
Mechanics’ Lien Act. The Committee is strongly
of the view that an affidavit of verification should
be mandatory, in the hope that this will help to
prevent spurious and exaggerated work was or
is to be done.
Construction Lien Act, s. 40
Cross-examination on claim for lien
40.--(1) Any person who has verified a claim for
lien that has been preserved is liable to be crossexamined without an order on the claim for lien
at any time, irrespective of whether an action has
been commenced.
Who may participate
(2) There shall be only one examination under
subsection (1), but the contractor, the payer of
the lien claimant, and every person named in the
claim for lien who has an interest in the premises
are entitled to participate therein.
Just How Long can a CrossExamination Go?
AMCA International Ltd. v. Ellis-Don Ltd. (1990), 42
C.L.R. 227 (Ont. Master)
This cross examination has to date, occupied 13 days,
and transcripts of the cross examination have been made
available to me. In these 13 days of examination there is
nothing approaching a clear admission which would
assist defendant, and I see nothing which would suggest
that any such admission will be forthcoming…
While I hesitate to say that there has been a deliberate
abuse of process here, the effect of this lengthy and
unfruitful examination is an abuse of process and I am,
therefore, granting the motion and terminating the
examination.
Suggested Solutions
Ministry to issue practice direction clarifying that:
(a) cross-examination on affidavits will proceed as
before under s. 40 of the Act;
(b) Where statement 2521 is selected (“I am the lien
claimant”, the lawyer is understood to be the recording
the fact that his client is swearing the affidavit;
(c) where statement 2522 is selected (“I ___ am the
agent of the lien claimant”), the individual named will
be cross-examined, even if that person is a lawyer for
the lien claimant.
Until Ministry Makes Suggested
Changes:
Ministry has issued direction to Land
Titles Offices to allow paper claim for
lien, including the affidavit of verification,
to be scanned into Statement 61.
Concern 2: Limit on the Number of
PINs that can be Affected by Single
Lien
1. Current limit is 250 PINs.
2. When liening common elements, more
may be required.
Suggested Solution
Until number of PINs is increased,
Ministry recommends that documents be
registered in paper.
Concern 3: Field for “Owner” not
long enough to include multiple
parties
Solution:
Until size of field is increased, a list of
owners should be scanned into Statement
61 as a schedule.
Concern 4: Vacating Lien
Instruments Using Court Orders
Problem:
Statement 702 does not account for the fact that
a court order which discharges a lien, and which
is to be registered on title, will always involve
vacating the registration of a claim for lien, but
may or may not involve vacating the registration
of a certificate of action (if the lien has not been
perfected, no such instrument will exist).
Suggested Solution
The Ministry recommends, where the
Statements do not match the situation,
that the generic “Application to Amend
Based Upon a Court Order” be used, and
the Court Order is to be scanned into
Statement 61. This is viewed as a
temporary measure.
Concern 5: Statement 708
Problem:
A court order providing that the registration of a claim for lien and/or
a certificate of action is to be vacated could result from posting
security with the court, or from an order of the court upon some
other basis.
If the order is not scanned into Statement 61, and Statement 708 is
left in its current form, an individual reviewing title will have no way
of knowing whether there is money in court to the credit of the lien
that has been vacated.
It will be necessary for that individual to do a court file search to
obtain a copy of the order, based upon the court file number and
date currently provided in Statement 708. This process involves
going outside the land registration system to get the information.
Suggested Solution
The system should be changed, and two possibilities
present themselves:
1. Make it a requirement of registering an order
which vacates the registration of a claim for lien
and/or a certificate of action that the order be
scanned in to Statement 61.
2. Provide the following optional field, to be
inserted into Statement 708:
“Security in the form of <a lien bond/a letter of
credit/cash> in the amount of $XXXX was posted
with the court.”
Concern 6: Statement 705
Problem:
It seems inappropriate to have a lawyer who is arranging
to vacate the registration of a certificate of action make a
definitive statement that a lien or liens are sheltering
under his client’s certificate of action, since this is not
something the lawyer could possibly know for certain.
It would seem more appropriate to make the statement
that another lien may be sheltering behind the certificate
of action.
Accordingly, Statement 705 should be amended to read,
“Another lien or liens may be sheltering under the
Certificate of Action registered as number ……..”
Concern No. 7:
Never (NEVER!) use the document
“Registration of Court Order” when you are
dealing with liens. It will not amend the
register to delete the instrument that the
order deals with.
Instead, use the form “Application to
Amend Based on Court Order”.
Concern No. 8:
Certain Land Registry Offices are
encouraging (insisting!) that solicitors who
want to vacate liens select the document
“Discharge of Lien”.
Unless you mean to wipe out the lien for
all purposes, forever, DO NOT
DISCHARGE THE LIEN.
Construction Lien Act, s. 48
A discharge of a lien under this part is
irrevocable and the discharged lien cannot be
revived, but no discharge affects the right of the
person whose lien was discharged to claim a
lien in respect of services or materials supplied
by the person subsequent to the preservation of
the discharged lien.
See Southridge Construction Group Inc. v.
667293 Ontario Ltd. (1993), 2 C.L.R. (2d) 177
(Ont. Div. Ct.)
Best Practice No. 1
An informal polling of lien practitioners
indicates that the practice is to scan and
paste into statement 61 (a text file
schedule), the entire claim for lien form, as
executed by the client, including affidavit
of verification.
Best Practice No. 2
At the time the client attends to execute the
paper copy of the lien, have them execute an
acknowledgement and direction to your firm and
your E-Reg. clerk:
1. that you were authorized and directed to
register the lien electronically;
2. that they have provided you with all of the
information to be contained in the electronic
version of the lien, which they represent to be
accurate and reliable;
3. that they understand that electronic
registration of the lien has the same
consequences as ordinary registration.
Best Practice No. 3
Always use the document
“Application to Amend Based
on Court Order”.
Special Bonus Track !
Electronic Tendering
What is Electronic Tendering?
Two versions exist today:
(a) Internet based system that displays a
description of the commodity being
procured.
(b) Same as (a), plus option to download
and pay for tender documents.
Future of E-tendering
(a) Internet based system that displays a
description of the commodity being
procured, plus option to download and
pay for tender documents
PLUS
(b) Submission of tender in purely
electronic format, without any paper
being produced.
Two Potential Problems With Pure
Electronic Tendering and an
Unanswered Question
First Problem: Security !
(a) threat of others accessing information
sent through the internet
(b) threat of others altering information
sent through the internet
Two Potential Problems With Pure
Electronic Tendering and an
Unanswered Question
Second Problem: Technology
(a) software compatibility, updates, antivirus, encryption issues
(b) internet and server size, reliability and
speed
Unanswered Questions
When has a purely electronic tender been
sent and received?
How will courts apply the existing rules in
a construction setting?
Will this change the carefully erected
superstructure created by the S.C.C. in a
series of cases beginning with Ron
Engineering?
Electronic Commerce Act 2000, S.O. 2000, c. 17.
Time of sending of electronic information or document
22. (1) Electronic information or an electronic document is sent when it
enters an information system outside the sender's control or, if the
sender and the addressee use the same information system, when it
becomes capable of being retrieved and processed by the addressee.
Contracting out
(2) Subsection (1) applies unless the parties agree otherwise.
Presumption, time of receipt
(3) Electronic information or an electronic document is presumed to be
received by the addressee,
(a) if the addressee has designated or uses an information system for
the purpose of receiving information or documents of the type sent,
when it enters that information system and becomes capable of being
retrieved and processed by the addressee; or
(b) if the addressee has not designated or does not use an information
system for the purpose of receiving information or documents of the
type sent, when the addressee becomes aware of the information or
document in the addressee's information system and it becomes
capable of being retrieved and processed by the addressee.
More Unanswered Questions
How does one make sure that it has been
received in the same form it was sent?
How does a purely electronic tender
remain “sealed”?
(see S.N. Bunston, “Electronic Tendering:
Potential Risks and How to Avoid Them”,
Toronto, Canadian Institute, 2002)
2. David Goldman’s
Interesting Problem
1. Strip mall
2. Purchased at arm’s length
3. Usual affidavits, declarations, covenants
and undertakings (no lienable work, no
liens, no notice of liens)
4. Usual searches on closing: no liens
5. Closing & mortgage registered
6. Architect registers lien for services for
previous owner
Problem:
Section 78(5):
“Where a mortgage affecting the owner's
interest in the premises is registered after the
time when the first lien arose in respect of an
improvement,
the liens arising from the improvement have
priority over the mortgage to the extent of any
deficiency in the holdbacks required to be
retained by the owner under Part IV.”
Q 1: Does the New Mortgagee Lose
Priority Over Deficiency in
Holdback?
A: Probably not, as long as the
purchaser (mortgagor) is not an
“owner”.
(more about this later)
Q 2: Do architects
have lien rights?
A: Yes!
Former s. 3(4)
“Despite subsection 14(1), an architect or
the holder of a certificate of practice under
the Architects Act and the employees
thereof do not have a lien.”
Repealed 1997, c. 23, s. 4(1)
Q 3: How can a lien
exist after a closing?
A: Liens “arise” and
then “subsist” unless
and until they expire.
Construction Lien Act, s. 15
A person's lien arises and takes effect
when the person first supplies services or
materials to the improvement.
Construction Lien Act, s. 31(1)
Unless preserved under section 34, the
liens arising from the supply of services or
materials to an improvement expire as
provided in this section.
Q4:
But what about s.
78(5)?
A: Depends on
whether purchaser is
an “owner”.
Section 1 - Definitions
"owner" means any person, including the
Crown, having an interest in a premises at
whose request and,
(a) upon whose credit, or
(b) on whose behalf, or
(c) with whose privity or consent, or
(d) for whose direct benefit,
an improvement is made to the premises
but does not include a home buyer
Section 1 - Definitions
"home buyer" means a person who buys the interest of
an owner in a premises that is a home, whether built or
not at the time the agreement of purchase and sale in
respect thereof is entered into, provided,
(a) not more than 30 per cent of the purchase price,
excluding money held in trust under section 53 of the
Condominium Act, is paid prior to the conveyance, and
(b) the home is not conveyed until it is ready for
occupancy, evidenced in the case of a new home by the
issuance of a municipal permit authorizing occupancy or
the issuance under the Ontario New Home Warranties
Plan Act of a certificate of completion and possession
L.D. Ducharme Systems Inc. v. Denamer
Homes Inc. (1994), 17 C.L.R. (2d) 107 (Ont.
Gen. Div.)
The exclusion of "home buyer" from the definition of
"owner" in s. 1(1) of the Construction Lien Act reflects the
fact that a purchaser who pays less than 30 percent of
the purchase price prior to closing is clearly not financing
the construction of the home.
In essence therefore, those who supply services or
materials to the building are forced to look to the vendor
for payment and cannot create lien rights in the property.
A "home buyer" is not a person whose interests can be
the subject of a alien. The answer to the question
whether or not a "home buyer" has an interest in which a
lien can be created, cannot in my view be different when
the "home buyer" acquires title after a lien is registered…
L.D. Ducharme Systems Inc. v. Denamer
Homes Inc. (1994), 17 C.L.R. (2d) 107 (Ont.
Gen. Div.)
The plaintiffs' submission that a "home
buyer" has a responsibility to protect
himself if a lien is registered before his
conveyance is registered does not reflect
what I see is the reality of the "home
buyer' exemption to s. 14(1). That is, that it
is the vendor/builder and not the "home
buyer" who is financing the construction.
Q4:
then
lien?
If the architect had a
contract with the
previous owner,
why bother to
A: Good Question! All
architect needs is s. 9
(vendor’s trust)
Section 9(1)
Where the owner's interest in a premises
is sold by the owner,
an amount equal to,
(a) the value of the consideration received
by the owner as a result of the sale,
less,
(b) the reasonable expenses arising from
the sale and the amount, if any, paid by
the vendor to discharge any existing
mortgage indebtedness on the premises,
constitutes a trust fund for the benefit of
the contractor.
Section 9(2)
(2) The former owner is the trustee of the
trust created by subsection (1),
and shall not appropriate or convert any
part of the trust property to the former
owner's own use or to any use
inconsistent with the trust
until the contractor is paid all amounts
owed to the contractor that relate to the
improvement.
New & Interesting Developments
What Constitutes a Lienable
Interest in Land?
Construction Lien Act, s. 1
"interest in the premises" means an estate
or interest of any nature, and includes a
statutory right given or reserved to the
Crown to enter any lands or premises
belonging to any person or public authority
for the purpose of doing any work,
construction, repair or maintenance in,
upon, through, over or under any lands or
premises
Pankka v. Butchart
[1956] O.R. 837 (C.A.)
Facts I
Veteran entered into agreement with the Director,
The Veterans’ Land Act, to purchase a parcel of
land registered in the name of the Director.
Under Veterans’ Land Act, purchaser had right
to:
(a) balance of surplus remaining in hands of
Director after sale;
(b) refund of down-payment in certain
circumstances;
(c) notice in case of default;
(d) in the event of rescission, the surplus over
and above the amount owing under the contract
Did any of these interests constitute an
interest in land for the purposes of the
Construction Lien Act?
Court of Appeal:
The provisions to which I have made reference make it
plain, beyond all doubt, that the subject of a mechanics'
lien created by the Act is intended to be an estate or
interest in land which can be sold and vested by order of
the Court in a purchaser. The lien attaches "to the land"
and to the estate or interest of an owner "in the land." A
sale made under the Act is a sale of real property, and
the estate and interest which may be vested in a
purchaser is an estate or interest in rem. It is realty, and
not personalty. There is nothing in the Act to suggest
that a person can have a lien attaching to a right of a
personal nature.
Bravo Cement v. University of
Toronto (1991), 46 C.L.R. 207
(Ont. Div. Ct.)
Facts I
University of Toronto leases land to Sunnybrook
Hospital, save as to lands conveyed to third
parties.
Conveyances contained provision reserving the
Grantor the right at any time to enter upon said
lands and to there lay down, repair, maintain or
remove storm or sanitary drainage installations
for the benefit of all abutting lands now owned
and retained by the Grantor.
Description of lands in Schedule A also reserved
a right of way.
Did reservations in conveyances amount
to an interest in land as required by the
Construction Lien Act?
Divisional Court Decision:
Reversionary provisions described as “a
fee simple upon condition precedent” or as
“a determinable fee simple” do not amount
to an interest in the land.
They are mere rights which can be
exercised should the circumstances
permit.
Graham Mining Ltd. v. Rapid-Eau
Technologies Inc. (2000), 7 C.L.R. (3d)
279 (Ont. S.C.J.); aff’d [2001] O.J. No.
4183 (Div. Ct.); aff’d April 22, 2002, File
No. M28063 (C.A.)
Facts I
Lien claimants had done a significant amount of
surface and underground work on a small hydroelectric project in Northern Ontario, including
blasting and tunneling pursuant to a revocable
series of work permits and land use permits, to
create a generating station on federal Crown
land.
The developers’ ultimate goal was to apply for
and obtain a provincial Water Power Lease
which would give them some security of tenure.
Facts II
In the meanwhile, the land remained
unpatented and all that the developers had
was a realistic expectation that they would
be treated fairly by the provincial
government when they finished the
project.
Could this equitable interest support a
lien?
Court of Appeal Decision (April 22,
2002):
"Despite [counsel’s] argument to the
contrary, an interest in the improvement by
itself cannot constitute a lienable
interest. At the risk of being repetitive, s.
14 of the Act is clear, it is the interest of
the owner in the premises which can be
liened. Premises include the land. If the
owner has no interest in the land then
there's no interest which can be liened by
virtue of the Act".
The End