Quirky Liens – Part 2 

publication 

April 2010 - (Construction Lien Primer and Update, Ontario Bar Association)

Construction Lien Primer and Update, Ontario Bar Association, October 2009. Part 1 of this paper appeared in Lang Michener's Commercial Litigation Brief Fall 2009, and Part 2 appeared in Commercial Litigation Brief Spring 2010

In law, there is the general rule, and then there are the exceptions. This paper is about the exceptions. More specifically, this paper focuses on some "quirky" construction liens which are not preserved and perfected in the "normal" way or raise issues that must be considered and dealt with at the preservation stage.

In the Fall 2009 Commercial Litigation Brief we presented Part 1 of this paper, dealing with "normal" liens. Here, we continue with a discussion of liening crown lands.

Part II – Crown Owned Land, Municipally Owned Streets and Highways and Railway Rights of Way

Attachment

The reason a lien claimant goes to the time and effort to preserve and perfect a lien is to get paid. The lien constitutes a statutorily created security for payment. The ultimate remedy or the "end game" for a valid lien is to obtain a court order to sell the property, the proceeds of which are to be used to pay the lien (subject to limits on the owner's liability pursuant to the Construction Lien Act (CLA)1). Thus, a lien judgment is usually in the form of an order for the owner to pay the adjudged amount to the lien claimant and to do so within a fixed period set by the court; failing which, the owner's interest in the property will be sold and the proceeds used to satisfy the lien. 2

Of course, if the lands upon which a lien claimant supplies service or materials belong to the (provincial) Crown, 3 the ultimate remedy of sale to satisfy the lien is not appropriate for two main reasons:

a) the Crown must obey any order of the Court to pay pursuant to the Proceeding Against the Crown Act.4 It is further assumed that the Crown will always have the funds to pay its debts. It should never be necessary, in theory, for the Court to resort to ordering Crown assets to be sold to satisfy judgment debts; and
b) it is not in the public interest to have Crown (i.e. public) property sold to satisfy constructions liens. (Imagine selling Queens' Park to the highest bidder to build condominiums.)5

Thus, the lien does not attach to Crown property improved, because the lien is not to be used to sell that Crown property. Similar reasoning applies, with some variation, to municipal streets and highways.6 It is presumed, generally speaking, that it would not be in the public interest for a municipal street or a highway to be sold privately. The inclusion of railway rights-of-way undoubtedly harkens back to the notion that such railways were, like roads, a transportation corridor maintained in the public interest and controlled, if not owned directly or indirectly, by the Crown. The latter reasoning may be less convincing in an era where the shares of railway companies are publically traded and a major transportation route, Highway 407, is privately owned. Nonetheless, liens in respect of work done on such lands do not attach, with the result that the lien remedy of sale is not available. Section 16 of the CLA expressly provides that liens do not attach in the case of the Crown property, public streets or highways owned by a municipality nor a railway right-of-way. Instead, subsection 16(3) provides that the lien becomes a charge, as provided in section 21, which in turn provides for a charge against the holdback amounts that must be maintained pursuant to Part IV of the CLA.

In summary, the Crown and the registered owners of municipal street and highways and railway rights-of-way are bound to observe the holdback and other requirements of the CLA, but are assumed to be good for the money, such that their lands are not to used as security to enforce lien rights.

Preservation

The distinction between liens that attach and liens that do not attach is important, because liens that do not attach are "quirky"; that is, they are not preserved in the "normal" way. As noted above, liens that attach are preserved by registering the lien against title. Liens that do not attach are preserved by giving7 a copy of the Claim for Lien and Affidavit of Verification to the owner.8 More particularly:

a) in the case of a public street or highway, the Claim for Lien is given to the clerk of the municipality;9
b) in the case of a railway right-of-way, the Claim for Lien is given to the manager or any person apparently in charge of any office of the railway in Ontario;10 and
c) in the case of the (Provincial) Crown, the Claim for Lien is given to the office prescribed by the regulations or, where no office is prescribed, to the ministry or Crown agency for whom the improvement is made.11 It should be noted that particular cases have been expressly prescribed12 and delivering the lien to an office other than that prescribed or failing to attach the Affidavit of Verification has been held to be fatal to the validity of the lien.13

This last provision is not as straightforward as it may initially seem. Firstly, the CLA binds the Crown,14 but this really means the Provincial Crown and not the Federal Crown. Secondly, "Crown" is a defined term which includes a Crown agency to which the Crown Agency Act applies. 15 The Crown Agency Act16 provides as follows:

1. In this Act, "Crown agency" means a board, commission, railway, public utility, university, manufactory, company or agency, owned, controlled or operated by Her Majesty in right of Ontario, or by the Government of Ontario, or under the authority of the Legislature or the Lieutenant Governor in Council.
2. A Crown agency is for all its purposes an agent of Her Majesty and its powers may be exercised only as an agent of Her Majesty.

A search of title may reveal that a premises is registered in the name of a board, commission etc., but will not readily reveal whether that body is "owned, controlled or operated by her Majesty in right of Ontario". In fact, the issue of "control" etc. may not be something readily ascertainable by any search or research of the caselaw conducted during the time left to preserve a lien. However, this issue will ultimately determine if the body is a Crown agency, in which case the lien does not attach and the lien is preserved by providing a copy to the Crown and not by registering the lien on title. If it turns out the Crown does not have sufficient control etc. over a particular body, it is not a Crown agency and the lien does attach and it must be registered on title to be valid. Merely giving a copy to what one (wrongly, but perhaps justifiably) thought was a Crown agency is insufficient and the lien will expire for lack of registration.

Further, it is to be remembered that because most lands in Ontario are now in the electronic registry system, one prepares the electronic form of registration with no affidavit of verification if the lien attaches. If the lien does not attach, then the electronic form of lien is meaningless. One must prepare the older form of lien (Form 8) and the Affidavit of Verification (Form 9) and serve them upon the proper person. If one chooses the wrong form and the wrong manner of preservation (registration or service) the lien is invalid. Further, it is not uncommon for a client to approach a practitioner with less than the full 45 days available to preserve the lien. In some cases the practitioner may have only days or hours to investigate and decide who or what owns the premises and whether the lien attaches or not and thus, which type of lien to prepare and in what manner it must be preserved.

A solution to the dilemma in the case of uncertainty is in fact quite easy. Do both! While failure to preserve the lien in the correct manner is fatal, it is not fatal to use both methods of preservation at the same time. One of the two methods (registration or service), in the end, will turn out to be correct and the other method will turn out to be incorrect. The wrongly preserved lien will not invalidate the correctly preserved lien. Further, the information for both forms of lien is the same and the extra cost of preparing and preserving both forms of lien at the same time is nominal. Far better to spend a little extra to preserve both types of lien now than to be told by the Court, after three years of litigation, that the preservation method chosen was incorrect because of unknown or unknowable elements of Crown control or lack thereof. By using both methods, the client's interest is protected, as is the practitioner's sleep.

It should be noted that, in the Claim for Lien (Form 8), there is a section where one must set out whether or not the lien attaches and whether one is seeking a charge against the lands or a charge against the holdback. Because of electronic registration, Form 8 itself will most likely be used now in cases where the lien does not attach and thus, option B will almost always be chosen.

The time limits for preservation, whether the lien attaches or does not, are the same.

Perfection

Liens that do not attach are, generally speaking, perfected during the same time periods and in the same way as liens that do attach, that is, the commencement of an action in the Superior Court of Justice to enforce the lien within 45 days next following the last day the lien could have been perfected.

Since the lien does not attach and was not registered on title, there is no requirement to obtain and register a Certificate of Action on title as part of the perfection process. (Of course, if one has taken the precaution of following both methods of preservation in the case of a possible Crown Agency as described above, one should follow through with registration of the Certificate of Action on title to perfect the lien that may attach).

It is also to be observed that one normally must provide 60 days' notice to the Crown before the commencement of an action further to section 7 of the Proceedings Against the Crown Act. However, lien actions are exempted from this requirement by virtue of subsection 3(3) of the CLA.

Ed.: Glenn would like thank Dean Melamed, articling student, for his assistance in the research and preparation of this article.

This article was prepared for the Construction Lien Primer and Update Conference, presented by the OBA Construction Law Section on October 6, 2009. Contact Glenn Grenier to obtain a copy of the entire paper.

This article appeared in Lang Michener's Commercial Litigation Brief Spring 2010.
 


  1. See for example CLA ss. 17, 23 and 24.
  2. CLA s. 62 and Forms 19 and 21.
  3. As a provincial Act, the CLA cannot bind the Federal Crown nor Federal Crown lands and premises within the Province of Ontario.
  4. R.S.O. 1990 c. P 27, s. 22.
  5. According to the 1982 Report of the Attorney General's Advisory Committee on the Draft Construction Lien Act, attachment was also theoretically absurd since the Crown was the source of property rights.
  6. Ibid, wherein it was also opined by the Advisory Committee that attachment in the case of public roads and railway rights of way was not practical.
  7. CLA s. 87 sets out how documents may be given.
  8. CLA ss. 34(1)(b).
  9. CLA ss. 34(2).
  10. CLA s. 34(4).
  11. CLA s. 34(3).
  12. R.R.O. 1990, Reg. 175, s. 1.
    The office of the Crown to which a copy of a claim for lien must be given under subsection 34(3) of the Act is as follows:
       1. Where the contract is with a Ministry of the Crown, the office of the Director of Legal Services of that Ministry.
       2. Where the contract is with the Ontario Housing Corporation, the office of the Director of Legal Services of the Ministry of Housing.
       3. Where the contract is with a college of applied arts and technology, the office of the president of the college.
       4. Where the contract is with any other office of the Crown, the chief executive officer of that office.
  13. John Bianchi Grading Ltd. v. Eastern Construction Co. (2005), 51 C.L.R. (3d) 111 (Ont. Div. Ct.).
  14. CLA, s. 3.
  15. CLA, s. 1.
  16. R.S.O. 1990 c. C 48.