Registering a construction lien against a property is a significant remedy that immediately triggers certain obligations and responsibilities for an owner. For that reason, the Construction Lien Act, 1990, c. C. 30 places an obligation on the party that is registering the lien to ensure the lien amount is accurate and not inflated.

A recent decision released by the Ontario Superior Court of Justice (Divisional Court) called HMI Construction Inc. v. Index Energy Mills Road Corp., highlights the pitfalls for a lien claimant in overstating its lien amount. In HMI Construction Inc. v. Index Energy Mills Road Corp. the owner purchased an energy generating plant. HMI was hired by Index to update the building and convert it into a biomass fired cogeneration facility. A falling out occurred between the parties and HMI registered two liens in the total amount of $32,807,468.11 against the property.

Index disputed the lien amount and elected to cross examine HMI’s affiant on the lien. It was determined that HMI used a “costs plus” approach in calculating that quantum of the lien amount. In essence, HMI calculated is actual costs, materials, equipment and labour and then added a 10% markup for profit to reach $32,807,468.11. The problem with this approach was that HMI and Index were on a fixed price contract. The court determined that absent approved changed orders, a contractor cannot include in a claim for lien extra charges over and above the contract amount, despite the fact that the contractor’s costs were more than usual or expected.  After reviewing the fixed price contract, and HMI’s progress draws, the Divisional Court affirmed the lower court’s determination that the maximum lienable amount was $13,872,154.86. As a result, HMI was found to have exaggerated its lien amount by $19,000,000. Index was successful on the appeal, and only had to post $13,872,154.86 as security in order to vacate the liens. Index was also awarded costs of the lower court motion and the appeal.

It is noteworthy that the Divisional Court ruled that “HMI is fortunate indeed that the motions judge exercised his discretion not to discharge the liens entirely, given all the circumstances.” Accordingly, it needs to be highlighted that if lien claimants are haphazard in calculating their lien amounts, the court has discretion to discharge the lien entirely if it is improperly inflated. Additionally, pursuant to section 86 of the Construction Lien Act, a party (or that party’s lawyer) can be ordered to pay a severe cost award if found to have willfully exaggerated the amount of its lien. The lesson here is that caution and care needs to exercised when calculating a lien amount. Lien claimants should consult with knowledgeable counsel in order to ensure the lien is properly calculated, otherwise, they run the risk of unwittingly losing their lien rights or making themselves vulnerable to an adverse cost award.

Jeff Van Bakel

Advocates LLP

Jeff practices predominantly in construction litigation, professional negligence defence and commercial litigation. Jeff takes pride in providing advice to his clients aimed at finding solutions. When a resolution cannot be reached, Jeff regularly appears before the Superior Court of Justice, the Divisional Court and the Court of Appeal for Ontario and aggressively advocates on behalf of his clients’ interests.

In a decision released September 30, 2016, Master Wiebe has provided clarity with respect to the requirements for a valid Written Notice of Lien pursuant to section 24 of the Construction Lien Act (the “CLA”).

Those familiar with section 24 of the CLA will know that it is a powerful tool for unpaid parties to use in holding up the flow of funds from an owner prior to taking the formal step of registering a construction lien.

Section 24 provides that a payer may pay a contractor or subcontractor up to 90 per cent of the price of services or materials supplied under that contract or subcontract unless, prior to making the payment, the payer has received a “written notice of a lien”.  Where the payer has received a written notice of a lien, they must retain an amount sufficient to satisfy that lien, in addition to the normal statutory holdback, before making further payment.

The question before the Court in the case of Trenchline Construction Inc. v. Unimac-United Management Corp., 2016 ONSC 6136, was what amounted to a “written notice of a lien” sufficient to require the owner to retain what is referred to as the “notice holdback”.

The Trenchline case involved Trenchline as subcontractor, Unimac as general contractor and Metrolinx as owner.  Trenchline ran into issues collecting payments from Unimac and therefore between May and December of 2011 issued what it argued amounted to ten written notices of a lien to Metrolinx claiming a total owed to it of $1,085,210.09.

Master Wiebe thoroughly reviewed the case law under both the CLA and the former Mechanics Lien Act and delineated five elements that must be present in order for a communication to amount to a “written notice of a lien”.

The first four elements identified by Master Wiebe arise directly from the definition of “written notice of a lien” found in section 1 of the CLA.  These are:

The fifth element identified by Master Wiebe, which has its origins in the Ontario Court of Appeal decision in Craig v. Cromwel (1900), 27 O.A.R. 585, was described by the Master as being “a clear warning to the payer of the notice giver’s present intention to preserve a lien.”  Master Wiebe made it clear that it is not sufficient to simply notify the payer that there is an issue with payment or even that a lien might be registered at some time in the future.  The notice must be clear that the lien claimant wants the normal flow of money to stop.

In acknowledging that written notices of lien can be, and often are, delivered by non-lawyers, on site, in real time, Master Wiebe confirmed that it is substance, not form that is important.  There is no requirement to use the word “lien” and it can be as simple as stating that the payer should stop making payments.  The bottom line is however that the notice giver’s clear and present intention to lien or require payments to stop, must be communicated.

Court Holds 45 Day Lien Period Can Be Met Despite Subcontractor Not Being on Site For More than 45 Days Due to Scheduled Winter Shut Down.

What happens to a subcontractor’s 45 day lien rights when the work on site is interrupted due to a scheduled winter shut down? This is the issue Mr. Justice DiTomaso decided on July 9, 2016, in Toronto Zenith Contracting Limited v. Fermar Paving Limited, 2016 ONSC 4696.

The facts were straightforward.  Fermar was the general contractor on a major road construction project. It subcontracted some of the work to Zenith.  The subcontract contemplated three winter shutdowns with Zenith thereafter returning to the site to recommence its subcontract work. Zenith started its work in 2013.  The project went through the first winter shutdown. Zenith recommenced its work and worked on site until December 19, 2014, at which time the second winter shutdown began. During the second winter shut down, Zenith performed offsite work intended to become part of the improvement of the Project, in that it prepared and submitted shop drawings, and certain materials were fabricated and picked up by Fermar in February 2015 for the site. Furthermore, Zenith’s temporary shoring system was left in place on site during the winter shut down period and Zenith’s concrete forms installed before the winter shut down were used by Fermar to pour concrete after the winter shut down.

As a result of a dispute over delays and payment, Zenith issued a notice of termination of subcontract on February 6, 2015, and registered a construction lien on March 18, 2015.

Fermar contest the timeliness of registration of the lien, on the basis that the last day of work on the site was December 19, 2015, and, as such, Zenith registered its lien outside the 45 day lien period.

Mr. Justice DiTomaso rejected Fermar’s position and held that Zenith’s lien was registered within 45 days of “the date on which the person last supplied services or materials to the improvement”.  In particular, Mr. Justice DiTomaso accepted Zenith’s contention that:

…Fermar’s submission regarding the timeliness of Toronto Zenith’s lien makes no practical or commercial sense.  It would require parties to register claims for liens within 45 days of the date of their last supply of material or labour whenever a construction project was shut down for a significant period of time (whether it by weather, stop work order, scheduling issues or coordination requirements) even though the contractor, subcontractor or material supplier knew that there was ongoing progressive work or substantial quantities of material to be supplied or delivered as required at a later date.

His Honour ultimately concluded that Zenith’s lien had not expired, and was for a lienable supply of services and materials, given that the subcontract contemplated scheduled winter shutdowns, and the extent of offsite activity being performed during the winter shutdown for the Project.

The practical effect of this decision is that a contractor’s lien rights will be kept alive during a scheduled shut down that is longer than 45 days if the contractor continues to perform off site services for the Project during that shut down.  The more interesting question is what will the Court say about a contractor’s lien rights if the nature of the Project is that no off site work is required during the scheduled shut down.