Legal Blog

Boot Strap

Contractors have a specified time to register a claim for lien. Subject to other limitations, a contractor must register a claim for lien within 45 days of its last work on a project. Contractors, who suddenly realise that their lien rights have expired, have been known to manufacture extra work to restart the lien period. Hard to believe, but it’s true. Sometimes extra work is real and sometimes it is a pretense. Sometimes the differentiation is easy to discern and sometimes it is not. In Louch v. Louch, a 2013 Ontario Divisional Court decision, the differentiation seemed to be relatively easy.

Relationship

Wife’s corporation owned a property on which, from 2006, she and husband were building a home. Wife had granted a first and a second mortgage on the property, presumably to finance the construction. Husband and wife had an oral agreement: when the house is built, husband gets shares in wife’s corporation.

Problems arose. Husband assaulted wife, leading to criminal charges, a conviction, and a short incarceration in January 2010. Wife defaulted on the first mortgage and the mortgagee issued a notice of sale on March 26, 2010.

Forty-one days later, husband registered a notice of lien for his 2006-2009 work on the property, claiming that he also performed work in March and April 2010. If that claim were correct, then his lien would be in time and he would have priority over the mortgages for the holdback on all of his work over the 4 years.

Strike

The mortgagees moved to discharge the lien. Not surprisingly, they alleged that the lien was registered too late and husband had not performed work on the property in March/April 2010.

Husband asserted he had an oral general authorisation to finish the house, but admitted in cross-examination that he had not spoken to wife since the assault and had not received any specific authorisation from her to complete the house.

The motions judge held that the additional work was a fraud or subterfuge to revive husband’s lien. The lien claim was merely an attempt to frustrate the mortgagees and was done in bad faith. The judge discharged the lien.

Husband appealed to the Divisional Court, but to no avail. The panel held that the motions judge had broad powers to determine the issue under section 47 of the Construction Lien Act and exercised that discretion appropriately. The Court dismissed the appeal and ordered husband to pay $4,300 in costs to each of the mortgagees.