Legal Blog

Minefield

We often refer to construction lien law as construction litigation, but with security. The problem for practitioners who dabble in the area is that lien law is also a minefield waiting to blow up on unwary or inexperienced lawyers. Sometimes mistakes can be cured; often they cannot be. Fortunately, lawyers are insured and LawPro, the lawyers’ insurer, will appoint a construction lawyer who knows what to do to deal with these mistakes and sometimes turn a sow’s ear into a silk purse. One such case was Gay Company Limited v. 962332 Ontario Inc., a 2023 decision of the Superior Court of Justice.

What Happened

We are actually not entirely sure – because the references to plaintiff and defendant are interposed from what we would expect. However, we will assume that a contractor registered a lien against the lands of an owner for $767,000. But it is not quite that simple.

The contractor retained lawyer#1 to register the claim for lien against the owner’s property. Lawyer#1 was winding down his practice and suggested that lawyer#2 act for the contractor. But lawyer#2 was busy at the time the lien needed to be registered. Accordingly, the parties agreed that lawyer#1 would register the lien and then lawyer#2 would take over the matter.

Lawyer#1 was a sole practitioner and was not a registered Tarion user. Consequently, he could not himself register the claim for lien. He therefore retained a law clerk, who was a registered Tarion user employed at another law office.

On July 6, the clerk met with a representative of the contractor in her employer’s office to sign an acknowledgment and direction for the registration of the lien. The representative signed it, and the clerk registered the lien the same day. So far, so good; the lien was registered 4 days before the last day it could be preserved.

Mistake #1

On July 7, lawyer#1 reviewed the registered lien and noticed that it referenced the plaintiff as 962332 Ontario Inc. trading as Liberty Metal “Fabrication” rather than “Fabricators.” He instructed the clerk to correct the error. We are of the view that the error was meaningless and should have been ignored; the corporate name was correct and that is all that matters. Regardless, it would have been helpful had lawyer#1 checked the lien document before the clerk registered it.

Because the clerk was a real estate clerk and not versed in construction liens, she thought that the best way to correct the error was to discharge the first lien and register a new corrected second lien; after all, she was still in time to register the new lien. She discussed this with lawyer#1 who agreed with the registration of a second lien, but told her not to discharge the first lien until lawyer#2 took over the lien action and gave instructions.

Mistake #2

On July 7, the clerk duly registered the second lien, with the correct name of the contractor and in accordance with the authorisation and direction that the contractor’s representative had signed. Unfortunately, she then immediately registered a discharge of the first lien – contrary to the instruction of lawyer#1 and without a signed authorisation and direction.

Mistake #3

On July 11, one day after the last day to preserve the lien, the registrar notified the clerk that it had rejected the registration of the second lien because the clerk had registered it as “962332 Ontario Inc, trading as Liberty Metal Fabricators” and the registrar wanted her to delete “trading as” from the lien claimant’s field on the computer.

On July 13, the clerk informed the registrar (we assume orally) that she had made two mistakes: a typo in registering the first lien and the registration of the discharge of the first lien. She requested that the registrar withdraw the registration of both the first lien and the discharge of the first lien. In that way, only the second lien would remain outstanding.

On July 17, the clerk corrected the error on the second lien just as the registrar instructed. On August 1, the clerk emailed the registrar to confirm that she wanted to withdraw the registration of the first lien and its discharge.

On August 3, the registrar certified the registration of the second lien and confirmed the withdrawal of the registrations of the first lien and its discharge.

What’s the Problem

Once a lien is discharged, it cannot be registered again (s. 48, Construction Act); it is gone forever. Accordingly, if the first lien and its discharge were validly registered, then the contractor had no entitlement to a lien and would have had to discharge the second lien.

The owner got wind of all this and took the position that the first lien was registered and discharged and that the second lien was invalid. It then brought the appropriate motion.

If the motion were successful, someone would have been to blame; hence, LawPro appointed a construction lawyer to act for the contractor on the motion.

Question

The Construction Act allows for the preservation of a lien within 60 days from various starting dates, depending on the situation. A lien is preserved by registering it (assuming that the owner is not a public owner, such as the Province or a municipality). The issue to be decided in this case was whether the first lien and its discharge had been registered. The owner said they had; the contractor said that they had not. The Construction Act does not define “registration.” Accordingly, to determine what registration meant, the judge had to look to the Land Titles Act (LTA) (if the land were under the Land Titles regime) or the Land Registry Reform Act (LRRA) (if the land were under the Registry regime).

Under the LRRA (s. 23), an electronic document delivered to the land registration database is not registered until the land registrar registers the document in the prescribed manner.

In this case, the LTA applied. Under s. 78, a document is deemed to be registered at the time it is received unless, before registration is completed, it is withdrawn, or the land registrar decides that it contains a material error. Registration is complete when the land registrar certifies the instrument and entry; the time of receipt is deemed to be the time of registration.

Interpretation

The judge noted that the relevant sections of the LTA were clear and unequivocal; the purpose of the LTA was to provide the methodology for registering instruments. The judge concluded that registration is not complete until an instrument is certified, but, once certified, the actual registration date is the date of the receipt of the instrument. The registrar has 21 days from receipt to determine if the instrument will be certified. If there is an issue, the registrar sends a message to the registrant explaining the problem and the registrant has from 7 to 30 days (the registrar will set the number) to remedy it.

Further, under the LTA, a party may withdraw the request to register an instrument. Accordingly, the judge held that, to be registered, an instrument had to be received, not withdrawn before certification, and certified.

The judge noted that his interpretation did not impugn the integrity of the registration system. It made perfect sense that the registrar be the gatekeeper for the registration of instruments to prevent the system from being abused.

Result

Since the first lien and its discharge were withdrawn before their certification, they were never registered. The second lien was, therefore, properly registered and certified so that the judge dismissed the owner’s motion. Consequently, the lawyer was not accountable for the various mistakes of the law clerk – subject to the terms of his policy with LawPro regarding repairs and costs.

Moral – it ain’t over until it’s over.

 

Image courtesy of dimitrisvetsikas1969.

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