Legal Blog

security for liens upon liens

When a lien is registered against title, the people above the lien claimant in the construction ladder have a choice: leave the registered claim for lien as is binding title to the property, or have the lien vacated. The first choice is rarely used because it almost always ensures that funding for the project and the project money flow to the contractors will come to a screeching halt. A lien is vacated from title by obtaining an appropriate order upon posting security (cash, letter of credit, or lien bond) into court for the amount claimed in the lien plus, for costs, the lesser of

(i) 25% of the lien amount claimed, and

(ii) $50,000.

What happens when there are, say, two liens registered, one by a subsub and one by the sub with whom the subsub contracted? The lien of the sub invariably encompasses the amount its subsub claimed and, accordingly, the quantum of the security to vacate the two liens is far higher than it should be. Often, in the rush to clear title so that money can again flow, the duplication is ignored and security for each lien is posted. However, once the dust settles, the general can move to reduce the amount of the security. That is what happened in Totalsiteworks Management v. Elite Construction Inc., a 2014 Ontario Superior Court of Justice decision.

Liens

 

© 2015

A sub liened for $245,000. One of its subsubs liened for $18,000. Another subsub liened for $228,000 and that subsub’s sub liened for $83,000. All of the lien claimants commenced actions to enforce their claims for lien. The general removed all four liens by posting four lien bonds in the aggregate amount of $699,000.

The general brought a motion in the sub’s action to reduce the total amount of security posted for all four actions from $699,000 to $295,000 plus $50,000 for costs. In exchange, the four lien bonds would be delivered up for cancellation.

This request to reduce the security seemed to us to be eminently reasonable. However, we would have thought that the amount to which the security should be reduced would be $246,000 plus costs (i.e. the sum of the lien claims of the two subsubs). Their aggregate claim was $1,000 more than the sub’s claim and the claim of the sub-subsub would have been subsumed in the claims of the subsubs.

The sub, subsubs, and sub-subsub (the “Claimants”) also thought the general’s request was eminently reasonable. All Claimants, other than one subsub, consented to the requested order and, although the remaining subsub did not consent, it took no position on the motion and did not appear at the hearing of the motion.

Obtaining this order was the proverbial slam dunk. Or was it?

Evidence

Section 44(4) of the Construction Lien Act authorises the court to reduce security already posted to vacate a lien. A motion to reduce security is similar to a motion for summary judgment in which, to be successful, the moving party must show that there is no genuine issue that requires a trial to decide whether the lien claims are inflated or the liens and corresponding lien bonds duplicate or overlap one another.

Like all other motions, its success depends in great part upon the facts adduced in the supporting affidavit evidence. The affidavit in support of the general’s motion stated that the subsubs and the sub-subsub “were suppliers and/or sub-trades working directly for (the sub), and therefore (emphasis added) the amounts claimed in their respective Construction Liens overlap with the amount claimed by (the sub) in its Construction Lien.”

This was not enough for the motions judge. He stated, that “the affidavit does not describe how (the affiant) reaches the conclusion that the liens claimed by (the subsubs and sub-subsub) overlap with the amount claimed in the (sub’s) lien. Furthermore, the affidavit does not explain if the amount of the lien claim by the (sub-subsub) is included with the lien claim and related security posted by (its subsub).”

The motions judge held that the motion materials were insufficient to satisfy him that there was no triable issue such that he could exercise his discretion to reduce the security. The motions judge was also uncomfortable with the general posting one bond in one action in exchange for the lien bonds filed in each of the four actions. He was concerned about a priority contest if the security was ultimately insufficient to satisfy all lien claims.

The motions judge dismissed the motion without prejudice to the general’s right to bring another motion in each of the four actions, not just one of them, with better evidence.

Analysis

This result had to be embarrassing for the general’s lawyer: three opposing parties consented; only one did not consent (but did not oppose); the lawyer was the only counsel who appeared at the motion; and she still lost. It has not been the first time that a lawyer has lost on an unopposed motion, brought upon full notice, and it will not be the last time, but, for counsel involved, it still hurts.

The affidavit was certainly not great. For example, why did the affiant say “therefore” the amounts claimed overlapped? Why not just say that the amounts claimed overlapped. However, given the circumstances and the lack of contestation, we feel that the judge might have been nitpicking and another judge may well have found the affidavit to be sufficient.

In stating this opinion we rely on the claims for lien, which were included in the motion materials. Each claim for lien would have identified the project (as evidenced by its legal title) and the contractor for whom the lien claimant was providing services. Accordingly, the “conclusion” that the motions judge suggested had not been adequately explained in the affidavit was obvious. If a subsub claimed $18,000 for work provided to the sub (who was named in the lien) regarding a project and the sub claimed $245,000 as the total amount owing to it for that same project, then the claim by the subsub had to be subsumed in the sub’s claim. Similarly, if the sub-subsub claimed $83,000 for work provided to its subsub (who was named in the lien) regarding a project and the subsub claimed $228,000 as the total amount owing to it for that same project, then the claim by the sub-subsub had to be subsumed in the subsub’s claim.

The general brought its motion in just the sub’s action and assumed that its motion in the sub’s action could deal with the lien claimants’ rights, and the prior orders made and security posted, in the other three actions. We agree with the judge that the general ought to have brought a motion in each of the four actions.

You will note that the subsubs’ claims are, in aggregate, greater than the sub’s claim. As they say in the newspaper business when describing a suspect, the sub “is known to us.” We are currently dealing with this sub (on behalf of a different general) in a situation remarkably similar to the bare bones facts that we read in this case. We doubt that the sub has much at stake in these actions.

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