Monday, 25 May 2015

Mischievous Liens

Author: Corbin Devlin

From time-to-time we see lien legislation abused or distorted for mischievous purposes. Anyone who deals with liens on a regular basis has witnessed such abuse. Anyone involved in the lien process – owners, contractors, subcontractors, suppliers, and yes even lawyers – can be guilty of such abuse.

One of the more common abuses is the mischievous lien registered by a subcontractor. The registration of a lien can have fairly significant consequences. It will often disrupt project financing and suspend further payments by the construction owner. It can also be costly to get resolved. All experienced subcontractors know this, and use it to their protection or advantage when appropriate. Unscrupulous subcontractors will register liens even when they know they do not have the right to do so.

Cancelling the Lien

Last week I was pleased when a Master of the Court of Queen’s Bench, in an unreported decision, cancelled a subcontractor’s builders’ lien and ordered the lien claimant to pay legal costs to the contractor. Not only was the subcontractor’s lien registered out of time (the subcontractor had falsely claimed that work was ongoing, in an attempt to extend the lien period), the lien was also registered for an improper amount (there was strong evidence that the subcontractor had inflated the lien amount).

It is not an easy thing to get a lien removed on the grounds that it is improper or mischievous. The lien legislation is considered “remedial” in nature (which is often used to justify a broad interpretation in favour of the lien claimant). A court application to remove a lien is usually done based on affidavit evidence (i.e. without a full trial) such that the courts are reluctant to make decisions when there is any controversy on the facts. Also, the courts are sympathetic to smaller lien claimants – even though it is often a false assumption that smaller lien claimants are unsophisticated; many of them know their lien rights very well.

Lack of Merit

In this particular case, the contractor’s attempt to cancel the mischievous lien was not guaranteed to be successful as there was disputed evidence. The Master relied on a new line of authority, including a recent Supreme Court of Canada case, to order the cancellation of the lien. Based on this new line of cases, the Court should consider if there is any claim "of merit" and if there isn't, the matter should be dismissed summarily and without the time and expense associated with bringing the case to trial. Although the Supreme Court of Canada was not dealing with a lien case, this reasoning is applicable to the lien context, considering that the Builders’ Lien Act expressly provides “The procedure in adjudicating on the claims shall be of a summary character, so far as is possible, having regard to the amount and nature of the liens in question and the enforcement of them at the least expense” (s. 49(6)). So, the Master did not actually have to go so far as to conclude that the lien was mischievous or improper; he cancelled the lien upon determining that the lien did not have sufficient merit to justify further legal process.

Lien rights are an important protective mechanism for contractors, subcontractors, service providers and material suppliers. But the lien process is complex, and unfortunately this complexity means there are ways to manipulate the process. This case was a gratifying reminder that the Court can sometimes identify such mischief on a summary application, and deal with it appropriately.