Legal Blog

Lien Start Date

When a subcontractor supplies materials or services (collectively, “services“) to an improvement and is not paid, it has the right to register a lien against the project lands. Under the current Construction Act, a sub has to register its lien within 60 days of the last supply of the services. Under the old Construction Lien Act, a sub had only 45 days. The lien period also starts to run upon publication of substantial performance of the prime contract, but that alternative is not the subject of this newsletter. So, when does the sub last supply its services? That was discussed in Ozz Electric Inc. v. Bondfield Construction Company Limited, a 2023 decision of an associate judge of the Ontario Superior Court of Justice.

Parties

The sub, Honeywell, supplied services; the general, Bondfield, did not pay for them in full; and Honeywell registered a lien against the project lands on February 21, 2020. This registration was based on an alleged last supply of services of January 8, 2020. The project was governed by the old Construction Lien Act so that Honeywell had only 45 days to register its lien.

Bondfield, who was defaulting on all its projects and who has given us seemingly no end of cases on which to comment, was out of the picture when the validity of the project liens was being litigated. It had, at one point or another, a receiver and a monitor and a trustee in bankruptcy. However, at this stage in the litigation, in which the subs were dividing the holdback proportionate to the amounts of their liens, the protagonists were Honeywell and the other subs. The monitor had no interest in how the holdback was divided – because the monitor never had a right to the holdback.

The other subs took the position that Honeywell’s lien was invalid, having been registered outside the 45-day lien period. Of course, if Honeywell’s lien were knocked out, one less sub would share in the holdback.

Proof of Supply

If Honeywell last supplied its services, as it claimed, then it registered its lien within 45 days and was in time. But claiming to have last supplied services on a particular date and proving that claim are quite different.

Honeywell’s sole evidence of the date of last supply came in an affidavit by its “Senior Contract Lead,” a person who had no knowledge of the day-to-day execution of the subcontract work. The affidavit merely stated that Honeywell last supplied the services on January 8. It attached, as exhibits, invoices from Honeywell to Bondfield. However, those invoices when properly examined contained no evidence that any services were supplied on January 8. Worse yet, the invoices demonstrated that all the work was likely completed sometime in December.

The associate judge noted that Honeywell had the burden to prove when it last supplied services and that adducing evidence of someone who had no direct knowledge of what was happening on the site and producing no time sheets, no diary entries, and no delivery slips was insufficient to establish last supply. Just because the affiant gave a date of last supply in his affidavit did not make it so.

Bona Fide Supply

Honeywell had another problem with its claim for lien – even assuming that it actually did supply services up to January 8. It is not enough to supply services merely for the purpose of starting a new date for the lien period to run. A supply of services, to be valid, must be a bona fide supply made in the normal course of a contract with an expectation of payment. Courts have found that a lien claimant has a positive obligation, if it is put on notice that it will not be paid, to make inquiries of the state of the project, particularly when it has outstanding unpaid accounts. It also cannot attend at a project without authorisation.

Here, the problem arose because Bondfield was in financial turmoil. Honeywell had a series of unpaid accounts. A monitor had been appointed by way of an April 3, 2019 court order and, on December 20, 2019, the court issued an order directing that all project subs report to a new general contractor taking over the project and cease taking instructions from Bondfield.

If Honeywell had no knowledge of the December 20 order, then it might have kept working on the project up to January 8 – but there was no evidence as to when Honeywell was notified of that order. We do know that the monitor advised Honeywell in writing on December 18 that Bondfield had run out of money and would cease further work on the project without further funding and that all subs should cease further work. The associate judge found that, at a minimum, this put Honeywell on notice that if Honeywell supplied services, it did so at its own risk because Bondfield had no money and might not get additional funding. The Court found that any supply by Honeywell after December 18 was unreasonable and even reckless.

The associate judge found that if Honeywell had questioned the monitor, the monitor would have informed Honeywell of the December 20 court order and Honeywell would have ceased taking instructions from Bondfield or supplying any services.

Upshot

The associate judge held that Honeywell’s lien was invalid both because Honeywell had not proved when it last supplied its services and because, even if it had supplied its services on January 8, that supply was not bona fide.

The position of the other subs was affirmed; one fewer sub was involved in dividing the holdback pot; and Honeywell not only received nothing, it had to pay costs.

Image courtesy of congerdesign.

Written by Jonathan Speigel, the founding partner of Speigel Nichols Fox LLP, leads the litigation and construction practices.