Construction Liens
April 14, 2004
Afternoon Session
The more things change, the
more they are the same
(Plus ça change, plus c’est la
même chose)
Alphonse Karr, Les Guêpes, 1849
Part I – General
WHY?
A. G’s Committee Report:
“The need […] emanates from the complicated
nature of contractual relationships within the
construction industry, and the credit-granting
practices which are an integral part of that
industry. Ordinary contractual remedies are
believed to be inadequate in the face of these
phenomena.”
WHY?
A. G’s Committee Report:
“The major objective […] is to provide
remedies to construction suppliers that go
beyond those provided by the ordinary law
of contract. The legislation creates two
types of statutory rights: lien rights and
trust rights.”
WHY?
A. G’s Committee Report:
“Should the owner be unable or unwilling
to pay for the work that has been done, his
interest in the premises may be sold. The
trust rights isolate contract monies, and
require them to be used for paying
suppliers who have contributed towards
the making of an improvement.”
Where?
Construction of the White House, 1792
First Anywhere: Maryland, 1791
First in Canada: Ontario & Manitoba, 1873
First major amendment in Ontario: 1983
WHAT?
KEY DEFINITIONS
Privity of Contract
 "contract" = the contract between the
owner and the contractor
“Home Buyer”

. . . 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
. . . is paid prior to the conveyance, and
(b) the home is not conveyed until it is ready for
occupancy, . . .
“Materials”

. . . every kind of movable property,
(a) that becomes, or is intended to become,
part of the improvement, or that is used
directly in the making of the improvement,
or that is used to facilitate directly the
making of the improvement,
(b) that is equipment rented without an
operator for use in the making of the
improvement;
“Owner”
 . . . 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
“Person Having a Lien”

. . . includes both a lien claimant and a
person with an unpreserved lien.
“Premises”

. . . includes,
(a) the improvement,
(b) all materials supplied to the
improvement, and
(c) the land occupied by the improvement, or
enjoyed therewith, or the land upon or in
respect of which the improvement was
done or made;
“Price”
 . . . means the price,
(a) agreed upon between the parties, or
(b) where no specific price has been
agreed upon between them, the actual
value of the services or materials that
have been supplied to the improvement
under the contract or subcontract
“Supply of Services”

. . . means any work done or service
performed upon or in respect of an
improvement, and includes,
(a) the rental of equipment with an operator, and
(b) where the making of the planned
improvement is not commenced, the supply of a
design, plan, drawing or specification that in
itself enhances the value of the owner's interest
in the land,
“Written Notice of Lien”
 . . . includes a claim for lien and any written
notice given by a person having a lien that,
(a) identifies the payer and identifies the
premises, and
(b) states the amount that the person has not
been paid and is owed to the person by the
payer.
Substantial Performance
s. 2(1): . . . a contract is substantially performed,
(a) when the improvement to be made under that contract or
a substantial part thereof is ready for use or is being used
for the purposes intended; and
(b) when the improvement to be made under that contract is
capable of completion or, where there is a known defect,
correction, at a cost of not more than,
(i)3 per cent of the first $500,000 of the contract price,
(ii)2 per cent of the next $500,000 of the contract
price, and
(iii)1 per cent of the balance of the contract price.
Completion
s. 2(3):

. . . a contract shall be deemed to be
completed and services or materials shall be
deemed to be last supplied to the improvement
when the price of completion, correction of a
known defect or last supply is not more than the
lesser of,
(a)1 per cent of the contract price; and
(b)$1,000.
KEY CONCEPTS
Section 3
This statute binds the
provincial Crown.
Section 4
Waivers of lien are void – no
matter what!
Section 5
Every contract or subcontract is
deemed amended to conform to
the Act.
AND FINALLY,
COLD COMFORT
Section 6
Strict compliance, except:
s. 32(2)(5) and 33(1)– Certificate of
Substantial Performance and its
Publication
S. 34(5) – Contents of Claim for Lien
Section 6
… unless in the opinion of the
court a person has been
prejudiced by the failure to strictly
comply.
Part II – Trust
Part II – Trust
Think of each improvement as a cash silo:
All cash goes in at the top (owner)
All cash comes out at the bottom
(least degree of priority).
Part II – Trust
4 KEY CASES
Minneapolis-Honeywell
Regulator Co. v. Empire Brass
Manufacturing Co.
[1955] 3 D.L.R. 561 (S.C.C.)
“. . . too often the contract price has
been paid in full and the security of the
land is gone. It is to meet that situation
that s. 19 [contractor’s trust] has been
added. The contractor and subcontractor are made trustees of the
contract moneys and the trust continues
while employees, material men or
others remain unpaid.”
“. . .payment is the correlative of receipt.
The assignee acts through the right and
power of the assignor; and the receipt
by him is likewise that by the creditor. If
this were not so, the entire purpose of
the section could be nullified by an
assignment contemporaneous with the
contract.”
Rudco Insulation Ltd. v.
Toronto Sanitary Inc. (1998),
42 O.R. (3d) 292 (C.A.)
. . . applying a strict interpretation to the
provisions in ss. 8 and 10 of the Act and
considering the purpose of the legislation, I
am of the view that Part II of the Act did not
confer trust benefits on the recipients of the
overhead expenses and payments to them
did not reduce . . . trust obligations . . .
Structural Contractors Ltd. v.
Westcola Holdings Inc.
(2000), 48 O.R. (3d) 417 (Ont.
C.A.)
Westcola is essentially a landlord. Rent is
not an incidental matter to it. Rent is its
lifeblood, its raison d'être. To exclude rent
from the trust in the case of a landlord
would be to exclude Westcola from the
application of s. 7. No justification has been
suggested for such a step.
Teepee Excavation & Grading
Ltd. v. Niran Construction Ltd.
(2000), 49 O.R. (3d) 612
(C.A.)
“. . . but where all of the steps have
been taken and a conclusion reached at
a hearing, the court should not dismiss
the action for lack of a lien claim and
thus compel a further proceeding
concerning the same issue . . . the
court has available the discretion to
dismiss or to permit the action to
proceed without the lien claim, as the
circumstances dictate.”
s. 13
Part II – Trust Provisions
The Hammer:
s. 13(1): In addition to the persons who are
otherwise liable in an action for breach of trust
under this Part,
(a) every director or officer of a corporation; and
(b) any person, including an employee or agent
of the corporation, who has effective control of a
corporation or its relevant activities,
who assents to, or acquiesces in, conduct that he
or she knows or reasonably ought to know
amounts to breach of trust by the corporation is
liable for the breach of trust.
Baltimore Aircoil of Canada Inc. v. ESD
Industries Inc. (2002), 60 O.R. (3d) 290
(S.C.J.)
Section 13 is not a restatement of the common
law
At common law, if a corporation breaches a
trust, in order to pass that liability on to directors
and officers, it is necessary to prove that they
are constructive trustees
Under s. 13, that level of proof is not necessary
All that needs to be shown is that individuals
belonged to the defined group and assented to
or acquiesced in the corporation’s conduct
Dominion Sheet Metal & Roofing Works v.
4701 Steeles Holdings Inc. (2002), 21
C.L.R. (3d) 250 (Ont. S.C.J.)
It is not necessary for a plaintiff to prove
that it suffered damages from the alleged
breach of trust in order to hold a defendant
liable under s. 13.
Structural Contracting Ltd. v. Westcola
Holdings Inc. (2000), 48 O.R. (3d) 417
(C.A.)
A trial was not necessary to establish that
a sole director assented to or acquiesced
in conduct he knew or reasonably ought to
have known amounted to breach of trust.
As the sole officer, director and controlling
mind of the corporation, it was beyond
argument that he reasonably ought to
have known that the trust was breached.
Part III – The Lien
Part III – The Lien
All You Need to Know!
s. 14(1): No lien for interest
Part III – The Lien
All You Need to Know
s. 15: Your lien “arises” and
“subsists” unless and until it
“expires”.
Part III – The Lien
All You Need to Know
s. 16: You can lien the Crown
(but not its land).
Part III – The Lien
All You Need to Know
s. 17: No set off against
holdback, otherwise . . . knock
yourself out.
Part III – The Lien
All You Need to Know
s. 19: You can lien a lease!
Part IV - Holdbacks
Part IV – Holdbacks
The Serene Centre of the Lien Act
Part IV - Holdbacks
s. 22: Two holdbacks: Basic and
Finishing
Part IV - Holdbacks
s. 23: Two defaulting payers:
contractors and subcontractors
Part IV - Holdbacks
s. 23: Two limitations on owner’s
liability for holdback
s. 23(2): Limitation
(2) Where the defaulting payer is the
contractor, the owner's personal liability to
a lien claimant or to a class of lien
claimants as defined by section 79 does
not exceed the holdbacks the owner is
required to retain.
s. 23(3): Limitation
(3) Where the defaulting payer is a
subcontractor, the owner's personal liability to a
lien claimant or to a class of lien claimants as
defined by section 79 does not exceed the
lesser of,
(a) the holdbacks the owner is required to retain;
and
(b) the holdbacks required to be retained by the
contractor or a subcontractor from the lien
claimant's defaulting payer.
s. 30: No set-off against holdback
“Where the contractor or a subcontractor defaults in the
performance of a contract or subcontract, a holdback
shall not be applied by any payer toward obtaining
services or materials in substitution for those that were to
have been supplied by the person in default, nor in
payment or satisfaction of any claim against the person
in default, until all liens that may be claimed against that
holdback have expired as provided in Part V, or have
been satisfied, discharged or provided for under section
44 (payment into court).”
Part V – Expiry, Preservation and
Perfection
s. 31(2) Expiration
Part V – Expiry, Preservation and
Perfection
31(2) (a) Is the contract certified?
If so the liens expire at the conclusion of the
forty-five-day period next following the
occurrence of the earlier of,
(i) the date on which the certificate is
published; and
(ii) the date the contract is completed or
abandoned;
Part V – Expiry, Preservation and
Perfection
31(2) (b) If not certified, then the earlier of,
(i) the date the contract is completed,
and
(ii) the date the contract is abandoned.
s. 31(3) Expiration
31(3) For everyone else,
(a) if certified, the 45 days runs
from the earliest of,
(i) publication
(ii) last supply
(iii) subcontract certified under
s. 33;
31(3) For everyone else,
(b) If not certified, the 45 days runs
from the earliest of,
(i) last supply
(ii) subcontract certified
complete under s. 33.
Part V – Expiry, Preservation and
Perfection
s. 37 Expiration
s. 37
37(1) A perfected lien expires immediately
after the second anniversary of the
commencement of the action that perfected
the lien, unless one of the following occurs
on or before that anniversary:
1. An order is made for the trial of an
action in which the lien may be
enforced.
2. An action in which the lien may be
enforced is set down for trial.
s. 37
Forget equities.
Forget estoppel.
Forget process arguments.
The lien is gone.
Graham Brothers Construction Ltd. v.
Correct Building Corp. (1991), 46
C.L.R. 205 (Ont. Gen. Div.).
Parties are in the midst of negotiations for
settlement when two-year period expired
Lien discharged, registration vacated
Golden City Ceramic & Tile Co. v. Iona
Corp. (1993), 12 C.L.R. (2d) 1 (Ont.
Div. Ct.).
Parties are in the midst of long
examinations for discovery when two-year
period expired
Lien discharged, registration vacated
Part VI – Right to Information
Part VI – Right to Information
A.G.’s Committee Report:
We suggest that the Act should require
disclosure of only that information which is
pertinent to the decision of whether or not
to preserve a lien claim or to pursue a lien
action. These provisions should be
reinforced with workable enforcement
mechanisms.
Part VI – Right to Information
Result:
s. 39 + $5.00 gets you a cup of coffee
s. 40: gets you cross-examination
Part VII – Discharge of Preserved
and Perfected Liens
Part VII – Discharge of Preserved
and Perfected Liens
How?
s. 41(1): by a deed of Release
Part VII – Discharge of Preserved
and Perfected Liens
How?
s. 41(2): by withdrawal of written
notice of lien
Part VII – Discharge of Preserved
and Perfected Liens
How?
s. 43: by formal Postponement of
Lien
Part VII – Discharge of Preserved
and Perfected Liens
How?
s. 44: by paying into court
(“Vacating”)
Part VII – Discharge of Preserved
and Perfected Liens
How?
s. 45: by court declaration
Part VII – Discharge of Preserved
and Perfected Liens
How?
s. 47: any other way you want
Part VII – Discharge of Preserved
and Perfected Liens
How?
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.”
Part VII – Discharge of Preserved
and Perfected Liens
s. 48 Discharge
Part VII – Discharge of Preserved
and Perfected Liens
Southridge Construction Group Inc. v.
667293 Ontario Ltd. (1993), 12 O.R.
(3d) 233 (Div. Ct.)
Part VII – Discharge of Preserved
and Perfected Liens
Facts:
Plaintiff general contractor registered against the property
of the defendant a lien for $175,095.38.
When the plaintiff subsequently discovered that it had
mistakenly understated the amount of its lien, it
registered a second lien for $279,540.43 for construction
or contracting services supplied from May 13, 1991 to
February 26, 1992 and discharged the first lien by
registering a release of lien.
Part VII – Discharge of Preserved
and Perfected Liens
Decision:
“ The plaintiff's lien rights set forth in its
second claim for lien have been eliminated
and discharged by the registration of the
Release, and cannot be revived, and thus,
the lien must be ordered discharged, and
the registration of the lien and certificate of
action must be vacated and the plaintiff's
action must be dismissed.”
Part VII – Discharge of Preserved
and Perfected Liens
Decision:
“ The plaintiff's lien rights set forth in its
second claim for lien have been eliminated
and discharged by the registration of the
Release, and cannot be revived, and thus,
the lien must be ordered discharged, and
the registration of the lien and certificate of
action must be vacated and the plaintiff's
action must be dismissed.”
Part VII – Discharge of Preserved
and Perfected Liens
Decision:
“ The plaintiff's lien rights set forth in its
second claim for lien have been eliminated
and discharged by the registration of the
Release, and cannot be revived, and thus,
the lien must be ordered discharged, and
the registration of the lien and certificate of
action must be vacated and the plaintiff's
action must be dismissed.”
Part VII – Discharge of Preserved
and Perfected Liens
Decision:
“ The plaintiff's lien rights set forth in its
second claim for lien have been eliminated
and discharged by the registration of the
Release, and cannot be revived, and thus,
the lien must be ordered discharged, and
the registration of the lien and certificate of
action must be vacated and the plaintiff's
action must be dismissed.”
Part VIII – Jurisdiction and
Procedure
Master Calum
McLeod
Part IX – Extraordinary Remedies
Part IX – Extraordinary Remedies
s. 68: Receiver & Manager
s. 69: Labour and Material
Payment Bonds
Part X - Appeals
Part X - Appeals
s. 70: Stated Case
Celebrity Flooring Systems Ltd. v. One
Shaftesbury Community Association
(2003), 25 C.L.R. (3d) 279 (Ont. Master)
Part X - Appeals
71(3) No appeal lies from,
(a) a judgment or an order on a motion to
oppose confirmation of a report under this
Act, where the amount claimed is $1,000 or
less; or
(b) an interlocutory order made by the
court.
Part X - Appeals
s. 71: Appeal to Divisional Court
Villa Verde L.M. Masonry Ltd. v. Pier One
Masonry Inc. (2001), 54 O.R. (3d) 76
(C.A.):
Where a judgment concerns claims only
under the Construction Lien Act . . . the
appeal is to the Divisional Court in all cases
and not to the Court of Appeal for Ontario.
Part XI - Priorities
Part XI - Priorities
What fresh hell is this?
Part XI - Priorities
Remember first principles
No free rides!
No unjust enrichment!
Section 78
Question 1: is it a building
mortgage?
yes: mortgagee loses priority
for deficiency in holdback,
period.
no: go to Question 2
Section 78
Question 2: When did the first lien arise?
Answer: Before mortgage registered or fully
advanced?
mortgagee has priority until lien registered or
written notice of lien received
Answer: After mortgage registered and either fully
or partially advanced?
mortgagee gets lesser of
- actual value when first lien arose
- all advances made without notice
Section 78
Question 3: Is it a homebuyer’s mortgage?
Answer: If it is, the above scheme is
irrelevant and the mortgagee has priority
Part XII – Miscellaneous Rules
s. 86
Part XII – Miscellaneous Rules
86(1) […] An order as to costs may be made
against,
(b) the solicitor or agent of any party to the
action, application or motion, where the solicitor or
agent has,
(i) knowingly participated in the preservation
or perfection of a
lien, or represented a party
at the trial of an action, where it is
clear that
the claim for lien is without foundation or is for a
grossly excessive amount, or that the lien has
expired, or
(ii) prejudiced or delayed the conduct of the
action
Part XII – Miscellaneous Rules
86(2) Where the least expensive
course is not taken by a party, the
costs allowed to the party shall not
exceed what would have been incurred
had the least expensive course been
taken.
Discussion Points
What can you do to make the
Construction Lien Act work for
you and your company?
What can your lawyer do to make
the Construction Lien Act work for
you and your company?
THE END.