Commercial Law Part 3 – Bank Act Security & Mechanics’ Liens Bank Act Security

1. Commercial LawPart 3 – Bank Act Security & Mechanics’ LiensBank Act Security

2. History • Bank Act security was introduced nearly 100 years ago when provincial secured lending law was unreformed • It was innovative and ahead of its time in several respects • Notice filing • “Notice of Intention” filed in Bank of Canada Registry • Allows security in after-acquired property • Abolished rule in Hopkinson v Rolt • It is now unnecessary in light of the PPSAs

3. Limitations • Lender • Available only to banks governed by the Bank Act • Debtor • Natural resource sector • Manufacturers • Farming and acquiculture

4. Interaction btw PPSA & Bank Act • PPSA and BAS are extremely poorly integrated • Priorities between PPSA security and BAS is obscure in almost every respect • All that is clear is that registered BAS has priority over subsequent PPSA security • It is usual for Bank to take both PPSA and Bank Act security and register separately • Then attempt to rely on which ever is most advantageous

5. Tax Liens Municipal taxes lien and public utility lien Super-priority on real property without need for registration E.g. Ont Municipal Act s. 349, Public Utilities Act s. 31 NB Real Property Tax Act s.11, Municipalities Act s. 189(10) Local improvement liens (e.g NB Muncipalities s,117 ff) Income tax, sales tax Must be registered, if applicable ITA s. 223, real and personal property Ont Retails Sales Tax Act s. 23, personal property

6. Misc Liens Unpaid Vendor’s lien Possessory lien, does not require registraton s. 37, 38 Sale of Goods Act Lien against property of employer for unapid wages NB Employment Standards Act s. 381 Requires registration Woodsmen’s Lien Lien on lumber Registration in court of Queen’s Bench Etc. Stable Keepers Act, C.C.S.M. c. S200 Possessory lien for costs of boarding animals

7. Mechanics’ Liens • Lien against land • S. 4(1) • Basic idea is to protect subcontractors. • Much construction takes place with a general contractor and subcontractors. • Subcontractors are not in privity with owner. • Subcontractors may be small businesses. • Problem arises when contractor becomes insolvent and subcontractor has not been paid.

8. Mechanics’ Liens • Acts may set up two remedies • lien • trust. • The Act creates a trust in the hands of certain persons • E.g builder for moneys received, in respect of amounts owing to subcontractors: see s.3 NB Act • The trust creates a purely personal remedy • It is effective against claims in bankruptcy and statutory liens. • Not all jurisdictions have trust fund remedy and it differs significantly between jurisdictions.

9. Mechanics’ Liens • Lien is a real right • Enforceable by sale of property • Issues • Creation • Preservation • Priorities

10. Stop Here Fall 2008

11. Creation • Lien arises in favour of any person doing work or furnishing materials: s.4 • In many jurisdictions it also arises in favour of lessee of equipment. • Lien arises when work is done or materials are furnished: s.8

12. Preservation • Lien expires • on payment of person claiming lien • on expiry of time set for filing, unless claim of lien is filed: s.25 • Time varies 30-60 days: s.24. Also varies between jurisdictions. • 90 days from filing of claim, unless action is commenced: s.27 • Or, in NB only, after the expiry of the period of credit mentioned in the filed claim of lien. • If acting for a purchaser or lender, how far back should you search for a lien?

13. Preservation and Holdback • Lien extinguished by good faith payment to contractor • Unless notice given to owner by subcontractor • Only up to holdback amount • 15-20% in NB – s. 15(7) • Owner who pays full amount to contractor is nonetheless liable up to holdback amount to subcontractor who was not paid • Payment of holdback after time for expiry of lien extinguishes lien • Owner should search before paying holdback to contractor

14. Preservation and Holdback • Owner who does not hold back is exposed • Is this good policy? • Who is more vulnerable, owner or subcontractor?

15. Priorities • Lien has priority over unregistered interests • S. 9

16. Priorities – Registered Mortgages • Generally, lien has super-priority for value which is attributable to the improvements made by the work secured by the lien • Much jurisdictional variation in details • E.g. NB • Mortgage registered before lien claim is filed • Has priority for advances made before lien claim is filed or actual notice of lien is given • But only up to the value of the land at the time the advance is made • So, lien which has arisen has priority to the extent that it increased the value of the property, even if unregistered and no notice

17. Priorities – Registered Mortgages • Future advances • M’ee prior to other m’ee in respect of future advances unless actual notice is given • M’ee subordinated to lien holder even without notice • Why the difference in policy? • Should m’ee search for liens?

18. Lien on Goods and Chattels • Personal property • Possessory lien only • S. 6