Construction Liens April 14, 2004 Afternoon Session

1. Construction Liens April 14, 2004Afternoon Session

2. The more things change, the more they are the same (Plus ça change, plus c’est la même chose) Alphonse Karr, Les Guêpes, 1849

3. Part I – General

4. 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.”

5. 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.”

6. 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.”

7. Where? Construction of the White House, 1792

8. First Anywhere: Maryland, 1791 • First in Canada: Ontario & Manitoba, 1873 • First major amendment in Ontario: 1983

9. WHAT?

10. KEY DEFINITIONS

11. Privity of Contract • "contract" = the contract between the owner and the contractor

12. “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, . . .

13. “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;

14. “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

15. “Person Having a Lien” • . . . includes both a lien claimant and a person with an unpreserved lien.

16. “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;

17. “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

18. “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,

19. “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.

20. Substantial Performance s. 2(1): . . . a contract is substantially performed, • 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 • 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.

21. 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.

22. KEY CONCEPTS

23. Section 3 This statute binds the provincial Crown.

24. Section 4 Waivers of lien are void – no matter what!

25. Section 5 Every contract or subcontract is deemed amended to conform to the Act.

26. AND FINALLY, COLD COMFORT

27. 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

28. Section 6 • … unless in the opinion of the court a person has been prejudiced by the failure to strictly comply.

29. Part II – Trust

30. 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).

31. Part II – Trust 4 KEY CASES

32. Minneapolis-Honeywell Regulator Co. v. Empire Brass Manufacturing Co. [1955] 3 D.L.R. 561 (S.C.C.)

33. “. . . 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 sub-contractor are made trustees of the contract moneys and the trust continues while employees, material men or others remain unpaid.”

34. “. . .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.”

35. Rudco Insulation Ltd. v. Toronto Sanitary Inc. (1998), 42 O.R. (3d) 292 (C.A.)

36. . . . 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 . . .

37. Structural Contractors Ltd. v. Westcola Holdings Inc. (2000), 48 O.R. (3d) 417 (Ont. C.A.)

38. 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.

39. Teepee Excavation & Grading Ltd. v. Niran Construction Ltd. (2000), 49 O.R. (3d) 612 (C.A.)

40. “. . . 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.”

41. s. 13

42. 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.

43. 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

44. 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.

45. 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.

46. Part III – The Lien

47. Part III – The Lien All You Need to Know! s. 14(1): No lien for interest

48. Part III – The Lien All You Need to Know s. 15: Your lien “arises” and “subsists” unless and until it “expires”.

49. Part III – The Lien All You Need to Know s. 16: You can lien the Crown (but not its land).

50. Part III – The Lien All You Need to Know s. 17: No set off against holdback, otherwise . . . knock yourself out.