Agro Zaffiro

Amendments to the Construction Lien Act

2011-12-15T06:09:00.000-08:00

Builders and developers should be aware of the impact of recent amendments to the Construction Lien Act. The amendments were made by Bill 68, also known as the Open for Business Act 2010. Bill 68 was given royal assent on October 25, 2010.

The Bill impacted the Construction Lien Act in four significant ways:

I. Changes to Liening a Condominium Project
II. The End of the Affidavit of Verification
III. The Death of the Sheltering Statement
IV. Statutory Correction of the Definition of Improvement as set out in Kennedy Electric.

The highlights and practical impact of these changes follow.

I. Changes to Liening a Condominium Project

The Condominium Act makes any “encumbrance” against common elements of a condo enforceable against all the units of common interest after “registration”, meaning that before registration under the Condominium Act, the future condominium land can be liened using the regular process. After registration, every unit in a condominium needed to be liened if someone wished to lien the common elements. Clearly, this was prohibitively expensive for small contractors, as it would require that the personal identification number (PIN) and identities of every unit owner be known.

The Bill 68 solution to the high cost of liening condominium common elements is to require developers to publish their intent to register in a construction trade paper (The Daily Commercial News) at least five days, and not more than fifteen days before registration.

This notice requirement means that contractors will receive sufficient notice of pending registration and therefore be able to preserve their liens before it becomes too expensive to do so. From a practical standpoint developers should be aware of the notice requirements and contractors should pay attention to The Daily Commercial News.

II. The End of the Affidavit of Verification

Before Bill 68, the Construction Lien Act required any claim for lien to be verified by the person claiming the lien. Bill 68 did away with this affidavit requirement.

This means a couple of things. Firstly, a lien will no longer fail on the technicality of not properly serving an affidavit. Secondly, it gets rid of an antiquated sworn affidavit requirement that is impractical in the current electronic registration system for real property.

Bill 68 has replaced the sworn affidavit requirement with Affirmation of Facts statements that are optional to the lien party when creating the electronic construction lien document.

III. The Death of the Sheltering Statement

Previously, when a lawyer went about vacating a lien on the e-registration system they were required to certify through the use of certain form statements whether or not there were lien claimants sheltering under the certificate of action that was being vacated from title, and if that action was being dismissed in the process. These were known amongst lawyers as sheltering statements.

The sheltering statements were problematic for several reasons. Firstly, determining if there is a sheltering lien is a complicated legal task with broad implications. A lawyer from a mere review of title should not undertake such a task. Secondly, for condominiums, a lawyer had to search every single PIN in order to make the sheltering statement, which resulted in higher costs for the client. Lastly, from a practical standpoint lawyers were very reluctant to make a sheltering statement because of the uncertainty and potential liability to an aggrieved sheltering lien claimant.

Bill 68 corrected these problems by permitting a sheltered claim to continue, even if the original claim filed by a third party has been vacated by a court. This amendment should nullify sheltering statements, since no prejudice could result to the sheltered lien claimant as a result of the Certificate of Action being vacated.

IV. Statutory Correction of the Definition of Improvement as set out in Kennedy Electric.

Prior to Bill 68, improvement basically referred to (a) any alteration, addition or repair to land, or b) any construction, erection of installation on land.

Judges have interpreted the Construction Lien Acts definition of improvement to mean that the installation of machinery in a business operated in a building will not give rise to lien rights; particularly where the machinery is portable, since movable machinery does not become part of the building in which it is located, it does not improve the building.

This judicial definition of improvement led to some absurd results. One case that raised some eyebrows was Kennedy Electric. In this case a sub-subcontractor was hired to install a new F-150 assembly line at a Ford plant in St. Marys, Ontario. That sub-subcontractor was denied a lien action because the new assembly line was deemed by judges to not be an improvement. Many were surprised that the installation of machinery as massive as an assembly line would not constitute an improvement for the purposes of the Act. Bill 68 remedied the act to prevent results such as that in Kennedy.

In respect to any land, improvement now means (a) any alteration, addition or repair to the land, (b) any construction erection or installation on the land, including the installation of industrial, mechanical, electrical or other equipment on the land or on any building, structure or works on the land that is essential to the normal or intended use of the building structure or works, or (c) the complete or partial demolition of any building structure or works on the land

In sum, under the former definition of improvement, where services or materials were supplied in respect of a moveable manufacturing or similar installation that was not an integral part of the building, and which did not become a part of the building, lien rights did not arise, although portability was largely a factual determination. Now, improvement has been broadened to include “the installation of industrial, mechanical, electrical or other equipment” that is “essential to the normal intended use of the land, building or structure works”.

Charles P. Criminisi
Real Estate

Subrogation - Part 1 - What is Subrogation?

2011-08-04T08:47:00.000-07:00

Subrogation is a common law right by which one person is substituted in place of another person. The substituted person is then entitled to exercise all the same claims, rights, duties and remedies that belonged to the original person. To put it more simply, if a person is subrogated to another person, then that person is said to “stand in that other person’s shoes”.

Although subrogation is a common law right, it can also arise (or be taken away) by Statute. Having said this however, subrogation most commonly arises in relation to policies of insurance and is based on the concept of indemnity. In other words, once an insurer indemnifies an insured by paying the insured’s claim, the insurer is then subrogated to their insured. The subrogation rights of the insurer may also be taken away, or modified, by the policy of insurance. Subrogation is not available to a volunteer or where the payment is gratuitous.

A good example of an indemnity situation involving a contract of insurance is the following: if you are having your roof replaced on your house and one of your roofer’s employees accidentally starts a fire which causes your house to burn down, then your insurer, after paying you to replace your home, can go after the negligent roofing company for the money that it paid to you to rebuild your house (and you hope that the roofing company also has insurance). The indemnification payment by the insurer to the insured is based on the terms of the insurance policy. Normally the indemnification is based on a replacement value of the property as opposed to the actual cash value (ACV) of the property at the time of the loss. However, in the subrogation action, the damages are limited to the ACV. In other words, damages in tort actions are generally assessed based on placing the plaintiff in the same position as he or she would have been in had the incident not occurred i.e. the actual cash value of the property at the time of the loss.

Subject to any insurance policies or Statutes modifying the subrogation rights of the insurer, the insurer is entitled to commence an action and pursue any cause of action available to its insured with respect to effecting complete or partial recovery of the loss against the negligent person. Since the insurer has the same rights as it’s insured, limitation periods as to when any legal action must be commenced also apply to the insurer.

The subrogated action may be commenced in the name of the insured or the insurer. Normally the claim is commenced in the name of the insured. This way, the insurer can also pursue any uninsured claims on behalf of the insured i.e. the deductible. In fact, the insurer has a legal obligation to pursue all the uninsured claims at the same time as pursuing the subrogated damages. The insurer owes a duty to the insured that they will act in good faith and diligently pursue the insured’s uninsured losses as well. If the recovery at the end of the day is insufficient to recover all the losses sustained by the insured, then the amount recovered is split on a pro rata basis between the insured and the insurer.

In addition, the insured is obligated to assist (non-financially) and cooperate with the insurer in its subrogated recovery efforts. If there are no deductibles or uninsured losses being pursued then the insurer and its lawyer have complete carriage of the action and the insured has no material interest in the lawsuit. The insurer can then negotiate and settle the action as they deem appropriate.

On the other hand, if the insured starts an action against the person who caused the damages, then the insured also has an obligation to protect the insurer’s subrogated interests. If the insured does not protect the insurer’s subrogated claim, then the insured is liable to the insurer for the difference between the actual amount recovered and what could have been recovered.

Paul H. Philp
Civil Litigation

Executor’s Compensation through the Eyes of a Beneficiary

2011-07-18T07:49:00.000-07:00

Concerns of a Beneficiary:
A beneficiary under a Will often feels helpless with respect to the administration of the estate by the executor. Fortunately, as an interested party to the estate, a beneficiary has the ability to question particular decisions and claims made by the executor. A frequent point of contention is the amount of compensation the executor claims. Compensation is often stated as being five percent of the value of the estate. However, the true amount of compensation is more complicated and often fact specific.

The Usual Percentages:
The general accepted percentages of compensation are:

2.5% of capital receipts

2.5% of capital disbursements

2.5% of revenue receipts; and

2.5% of revenue disbursements

Although these percentages are generally used, particular attention should be made to the details of the estate. The following factors are considered when deciding upon an appropriate amount of executor’s compensation:

Size of the estate

Care, responsibility and risks assumed by the executor

Time spent by the executor

Skill and ability of the executor; and

Results and degree of success by the executor

Approval of the Beneficiaries:
An executor may not take compensation unless they receive approval from all beneficiaries of the estate or the Court. Court approval of the compensation amount is granted through a Passing of Accounts application. During the application process the beneficiaries are given the opportunity to review detailed accounts of the estate, including the assets, transactions, distribution of funds and proposed compensation.

Other Considerations:

Specific reference in the Will to compensation – The Will may prohibit or specifically state the amount of compensation the executor is able to claim.

Pre-taking of compensation – A beneficiary may claim a loss of income or penalty related to compensation taken before approval was given.

Executor is also the lawyer of the estate – Where a lawyer is acting as both the executor and the lawyer the services and fees should be accounted for separately to ensure that there is no overlap in compensation.

Lawyer Fees – Any legal fees paid in relation to services that could have reasonably been provided by the executor may be deducted from the executor’s compensation claim.

Preparation of income tax returns and estate accounts – In some cases, the cost of retaining an accountant or other professional to prepare tax returns or prepare estate accounts can be deducted from the executor’s compensation.

Size of estate – The usual percentages may result in a compensation amount that is unreasonable when compared with the work involved. A beneficiary may argue a reduction in compensation for larger estates or with respect to larger assets of the estate.

Assets transferred In Specie – Compensation may be reduced on those assets that are transferred to a beneficiary in kind. Example: transfer of the family cottage directly to a beneficiary.

David Henderson
Trusts, Estates and Wills

Your Automobile Insurance Policy: Your Duty to Co-operate

2011-07-04T07:32:00.000-07:00

Unfortunately, at some point in your driving career you may be involved in a motor vehicle accident. The Transport Canada statistics for 2008 reveal that there were 126,945 collisions involving personal injury that year. While this is the lowest number in recent years, it is still quite high. So in the event that you are involved in an accident it is important to know that you are required by law to co-operate with your insurer. Regardless, of whether you are at fault, you have a duty to co-operate with the investigation and the defence of an action. This article will briefly outline your duty as an insured in this regard.

DUTY TO CO-OPERATE
If you are involved in an accident and the police have determined that you are the ‘at fault’ party, in most cases you are charged with an offence and a ticket is issued. When this happens usually all you want to do is pay the ticket and just forget all about it. However, if the other driver or passengers have been injured, unfortunately this is not the end of the matter…it is usually just the beginning.

In most cases your insurance company will assist in the defence of the litigation. This means they will hire and pay for your lawyer. This is the insurer’s ‘duty to defend’. However, your assistance as the insured is also required. The motor vehicle insurance legislation imposes a duty on the insured person to cooperate in the defence of legal proceedings. The courts have generally held that the duty to cooperate includes the following:

Give to the insurer written notice, with all available particulars, of any accident involving loss or damage to persons or property and of any claim made on account of the incident;

Verify by statutory declaration, if required by the insurer, that the claim arose out of the use or operation of the automobile and that the person operating or responsible for the operation of the automobile at the time of the accident is a person insured under this contract;

Forward immediately to the insurer every letter, document, advice or statement of claim received by the insured from or on behalf of the claimant;

Whenever requested aid in the providing and obtaining information or evidence surrounding the accident;

Provide information regarding any possible witnesses;

Attend required medical examinations;

Attend at Examinations for Discovery to provide your evidence under oath; and

Attend at the Trial to provide your evidence under oath before the court.

While most people do not like to dwell on such matters, especially when they are at fault, unfortunately you must do what is required pursuant to your policy and the legislation. If you fail in your duty to cooperate and your conduct is found to hinder the insurer’s ability to conduct the defence, your insurer can move to deny you a defence to action and indemnification under the policy.

The reality in Canada is motor vehicle insurance is a necessary “evil” that cannot be avoided if you intend to drive. Turning a blind eye to your duties under your policy of insurance will not serve to protect your interests and will only complicate matters if you become involved in a legal action. It is better to be aware of what is legally required of you and co-operate fully with your insurer in order to avoid dire consequences that could have serious financial and legal repercussions for you in the long run.

Civil Litigation

Small Claims Court: Why You Should Hire a Lawyer When Making a Claim

2011-06-20T07:29:00.000-07:00

The purpose of the Small Claims Court is to provide a forum for litigants to resolve their disputes in a quick and cost-effective manner. While the procedures of the Small Claims Court are designed to allow for the ease of use of self-represented litigants, the process remains intimidating for many, especially those who are unfamiliar with the legal system. Hiring a lawyer to navigate the Small Claims Court system can serve to alleviate confusion with the process and could make the difference in the success of your case.

Many people are unsure whether they even have a case, or what the prospect for success of their claim may be. A skilled lawyer will be able to meet with you and assess your claim, answer your questions and provide a legal opinion which highlights the strengths and weaknesses of your claim.

If you do choose to proceed with your claim, a lawyer can assist you in drafting your pleadings in a clear and concise manner that best serves your case and makes your claim easy for the Judge to read and understand. A lawyer will present your case in an objective manner, which is beneficial for those who may have difficulty in organizing their case or who have a great deal of emotion attached to their claim. Furthermore, a lawyer can sort through the documentation related to your claim in order to identify those documents which are necessary to support your claim, and protect documents which are privileged and should not be disclosed.

Once your claim is filed, a lawyer familiar with the process can navigate through many of the procedural steps, including serving the claim on the defendants, assessing any defences which may be filed, and handling interlocutory steps like drafting motions and affidavits or noting defendants in default, if necessary.

In many cases the party on the other side of your claim will have hired their own lawyer to protect their interests. In this way, a lawyer acting on your behalf can serve to protect your rights and deal with opposing counsel directly. On the other hand, having a lawyer on your side to deal with an unrepresented defendant can make the process less stressful on you, as all communication with the defendant is done through your lawyer.

The Settlement Conference, a mandatory meeting between the parties before a judge to discuss the potential for settlement can be an intimidating situation for an inexperienced litigant. A lawyer acting on your behalf can effectively advocate on your behalf to a judge in the skilled and professional manner required by the Court.

Finally, a lawyer knows the best way to present your case at trial. There are Rules on the type and scope of questioning that can be asked, the evidence that is admissible, and procedures to follow while arguing your case before a Judge. An experienced Small Claims court lawyer can present your case in a well-prepared, organized manner that takes into account all of these procedural considerations.

The legal process is intimidating for the inexperienced litigant, no matter what level of Court. Retaining a qualified lawyer that act on your behalf or on behalf of your business and organize and draft your claim, represent your interests through the settlement conference, and advocate on your behalf at trial could be the difference in the success of your case.

Weston Pollard
Civil Litigation

"Freehold Condos" -- Behind the Misnomer

2011-06-09T07:25:00.000-07:00

Homebuyers tend to be divided between those who seek the convenience of condominium living and those who seek maximum control over their monthly expenses and run screaming from the lack of control over condominium fees, which they believe is inherent in condominium ownership. Recognizing this tendency, real estate listings abound with references to 'freehold' condominiums as entities embodying the best of both worlds.

Generally, the term "freehold condo" is used by builders and by the real estate industry to describe (usually) a townhome in which unit owners are assigned responsibility for maintaining and repairing their individual condominium units -- with these individual units being defined in such a way as to encompass the exterior surfaces of the home. The condominium corporation in such a 'freehold condo', however, is still assigned responsibility for maintaining the common elements, which usual encompass the roadway(s) and any grounds not caught within the boundaries of the individual condo units.

For those who want to be free from a certain amount of 'yard work' but do not wish to be made responsible (through the collection of monthly maintenance fees) for the costs of maintaining and repairing their neighbours' homes, a townhome condominium complex that assigns responsibility to individual homeowners for the maintenance and repair of the interior and exterior of their or own townhome may be an ideal purchase. In this light, such 'freehold condos' may suit those home buyers who are concerned with limiting future increases in condominium fees.

With a traditional condominium, condominium fees greatly increase over time largely because, in such a condominium, the condominium corporation has been assigned the task of maintaining and repairing, at the very least, the exterior of the buildings in the complex. Generally, real estate salespersons and builders are using the term 'freehold condominium' to refer to condos where individual unit owners are responsible for the regular repairs and maintenance to their units. As such, the underlying expectation is that the condominium corporation will not need to greatly increase condominium fees over time to take into account the cost of repairing the condominium buildings. Increases in condo fees may (and likely, will) still occur. However, it is assumed that these increases would not reflect the significant cost of maintaining and repairing deteriorating buildings. Any increases are more likely to reflect inflationary pressures/increased labour costs and rising costs associated with the ongoing need for regulatory compliance.

The problem with blindly accepting the industry usage of the term "freehold condo" is that, at law, there is no such creature. Owners of homes described as "freehold condos" within different condominium complexes may have differing obligations to repair and maintain the exterior of their homes. Similarly, different condominium complexes containing homes described as "freehold condos" may have significantly differing common elements, the maintenance and repair costs of which will be reflected in differing condominium fees.

The fact is that if a home is part of condominium complex it is a condominium. It is not a freehold home. This is so regardless of the fact that may 'feel like' a free hold because the individual unit owners may be assigned the responsibility of maintaining and repairing their individual homes. In Ontario, the Condominium Act, S.O. 1998, c. 19., imposes numerous requirements on condominium corporation relating to the management of condominium property and broadly governs the respective rights and obligations of the condominium corporation and individual unit owners. More importantly (from the perspective of individuals interested in the 'freehold' aspect of so-called "freehold condos"), the Condominium Act allows each condominium corporation considerable leeway to determine through its declarations what repair and maintenance expenses will be incurred by the condo corporation (and paid for through the collection of condo fees) and what repair and maintenance expenses will be incurred and paid for by individual unit owners. Even among condominiums described as "freehold condos", there can be significant variation with respect to the potential for condominium fees to increase.

Thus, rather than simply accepting a salesperson's description of the listed property as a 'freehold condo', the prospective purchaser of such a condominium should request from the vendor a copy of the condominium declarations and bylaws as well as a copy of the status certificate and provide the same to his or her lawyer for review. The condominium declarations, in particular, will help to identify whether the repair or maintenance of any parts of the condominium units within a condominium complex is the responsibility of the condo corporation regardless of the salesperson's description of the listed property as a 'freehold condo'. For example, it is not terribly unusual for the declarations to provide that the unit owners are responsible for maintaining and repairing the exterior of their townhomes with the exception of the roof. The logic behind such a provision is that in a townhome it is very difficult to repair only one's own section of roof without affecting one's neighbour's roof. While the logic of such a provision is sound, the existence of such a provision within the condo declarations certainly makes the state-of-repair of rooflines throughout the complex a relevant consideration to a potential purchaser.

D. Dean Obradovic
Civil Litigation

Sure, You Have Auto Insurance, but Do You Have Enough?

2011-06-01T08:26:00.000-07:00

Nobody is immune from the risk of an accident.

If you live in Ontario and own, lease or finance an automobile, it’s the law that you have auto insurance if you wish to operate the vehicle on public roadways. But aside from complying with legal obligations, obtaining an insurance policy on your vehicle helps to protect yourself and your family’s assets against claims made against you following a car accident.

Motor vehicle accident injuries can range from minor bruises to life-altering traumatic brain injuries and death. Injured individuals can make a wide range of claims against the at-fault drivers and owners of vehicles, including those for pain and suffering, past and future economic loss resulting from an inability or decreased ability to work, and many other expenses stemming from the injured person’s condition. Further, the person’s family can claim for expenses incurred for the benefit of the injured person and also for monetary damages for a loss of care, guidance and companionship.

Most often, standard motor vehicle policies are limited to $1 million in coverage. This means, in the absence of coverage issues, that the insurer will indemnify and defend the policy holder up to $1 million dollars plus legal costs and pre-judgment interest that has accrued on a claimant’s damages entitlement. The insurer will pay a claimant’s damages and will hire a lawyer to represent the policy holder’s interests.

However, insurers’ obligations to indemnify and defend are limited by the amount of coverage in a policy. For example, if a claim is asserted for $2 million, an at-fault driver will be personally responsible for any of a claimant’s damages in excess of their policy limits. The policy holder will not have the benefit of indemnity or a lawyer to defend against the remaining $1 million claim. The claimant will look to the at-fault driver’s assets to cover the remaining damages. Further, the driver or owner must pay for its own legal counsel.

Over the past couple of decades, the amounts of claims made by individuals involved in motor vehicle accidents have increased substantially. It is no longer the exception that claims are asserted for damages in excess of $1 million. With the recent changes of September 2010 in relation to Statutory Accident Benefits (insurance coverage that individuals claim against their own insurers), it is anticipated that claims will continue to increase against at-fault drivers.

There are a couple of ways to protect yourself and your family from these increasing claims. Firstly, for a modest increase in your premium, policy limits can be increased to amounts greater than $1 million. Secondly, an “umbrella policy” can be obtained, which has the effect of bringing in insurance coverage from your home insurance policy. In this way, drivers and owners of vehicles can protect themselves and prevent exposure to claims for damages that would otherwise be in excess of their policy limits and the significant legal costs and interest associated with motor vehicle accident cases.

Andrew Keesmaat
Civil Litigation

Post-employment Duties

2011-05-19T10:56:00.000-07:00

Thinking of working for the competition?
Not so fast – look before you leap!

Freedom to pursue new employment prospects is an important feature of any democratic society. The Canadian system of law has always recognized that subject to certain implied obligations of their loyalty and good faith, as a general rule, departing employees have the right to compete with their employers after their job has been terminated. As such, it should not come as a shock that Courts have tended to protect individuals against employers who seek to restrict their mobility within the workforce to become gainfully employed elsewhere.

However, there are some exceptions to the general rule that that all employees, regardless of status, are entitled to compete with their former employers immediately after termination. Those employees who can be classified as fiduciary employees or those who have managerial responsibility over an employer’s workforce will be held to have higher obligations toward their employer after job termination. As well, those employees who misuse the proprietary or confidential information of their former employers may be sanctioned by the Court. Lastly, the Court may uphold a properly worded restrictive agreement that validly restricts the employee’s conduct post termination.

Employers have tried to impose restraints on departing employees though restrictive agreements such as non-competition or non-solicitation agreements. However, Courts have nonetheless considered these kinds of restrictive agreements very cautiously, ensuring that they only go as far as necessary to protect the legitimate interests of the employer, and do not unreasonable control the interests of the employee. After all, a restraint on trade is essentially illegal – therefore the Court is very careful when interpreting these restrictive agreements. If called upon to do so, Courts will examine these restrictive agreements to ensure that they are reasonable in duration, geographic scope, and in the type of activity being restrained. If it is determined to be overly broad in any one of those terms, then the Court will likely strike the agreement down entirely.

In short, the right of employees to complete with their employers after their employment had been terminated affords a balance between the rights of the employer and the employee. However, as you can see, the right to compete with a former employer is not necessarily absolute for all employees as residual duties may remain after the employment has been terminated. Absent those restrictions, all employees can complete with a former employer and are free to pursue new opportunities and to complete with their former employers.

The primary way for an employer to ensure that an employee will not harm their legitimate business interest is to have that employee sign the appropriate non-competition or non-solicitation agreement upon their commencement of employment and each time the employment contract is renewed. However, they should be mindful that such agreements must be drafted fairly, unambiguously and concisely, as they are a common litigated issue, which means every aspect of the agreement may be examined under a microscope.

Andrea Griese
Employment Law

Is Your Condo Unit Adequately Insured?

2011-05-03T09:05:00.000-07:00

Is your condo unit adequately insured? The answer may be found in your condo by-laws and declarations.

Determining the amount of coverage one will need under a typical Homeowners policy for a freehold home is usually a fairly straightforward process. In general one simply needs to consider the market value of the home and the actual cash value or the replacement value of its contents, depending on the level of protection sought.

The task of selecting appropriate policy limits for a condominium unit owners’ policy is far less straightforward. Most condo owners are aware that the condo corporation is required to maintain insurance on the building or buildings that form part of the condominium. As insurance brokers commonly refer to unit owners insurance as “contents” insurance, many unit owners incorrectly believe that the insurance purchased by the condo corporation will cover everything except what is found in the space between the walls and ceiling. They, therefore, assume that they only need sufficient policy limits to cover their furniture and personal effects. Such a view is not necessarily accurate and may lead to a condominium owner finding himself or herself underinsured if they are faced with major disaster. The reason for this is that the Condominium Act, which governs the condominium corporation’s obligation to insure the individual condo units, allows the condo corporation some discretion in defining their obligation to insure.

Although Condominium corporations are required to maintain insurance for damage to both the common elements and individual units that is caused by “major perils” (which includes fire, lightning, smoke, windstorm, hail, explosion, water escape, strikes, riots or civil commotion, impact by aircraft or vehicles, vandalism or malicious acts), the corporation is not required to obtain coverage for improvements made to the “standard unit”. The boundaries of this “standard unit” are usually defined by the corporation itself. For condominiums registered after May 5, 2001, the “standard unit” is defined by the condominium corporation through a corporate by-law or in a schedule given to the corporation by the developer. Without reviewing these documents, therefore, it is not possible for a unit owner to be certain of what parts of his or her condo unit are insured by the condo corporation’s policy.

Let us take, as an example, a basement that was beautifully finished by the builder using top-of-the-line hardwood flooring, drywall and wood trim. Most condo unit owners would be tempted to assume that, because it was finished by the builder, the basement finishes are part of the “standard unit” and is insured by the condo corporation’s insurance policy. This is not necessarily the case. Through its by-laws the condo corporation may choose to remove the finishes found in the basement, including flooring and drywall, from the standard unit definition. One reason for a condo corporation to do so is that other units in the property may not contain finished basements. As the condo corporation’s insurance premiums are paid through maintenance fees collected from all unit owners, it may be deemed unfair by the condo board to force all unit holders to foot the bill for insurance coverage that could only benefit one unit owner.

As such if a major disaster, such a fire, was to destroy the condo unit with the beautifully finished basement, the unit owner may find that the policy limits on his or her ‘contents’ insurance are not high enough to allow for the restoration of the basement to its former glory. It is important, therefore, to periodically review your condo declarations and by-laws and to discuss the same with your insurance broker to determine what additional coverage is needed in order to fully protect your property.

D. Dean Obradovic
Civil Litigation

Clarifying the Myths about Employment Law

2011-04-18T12:27:00.000-07:00

As I represent both employers and employees, often times both types of clients are surprised as to what the entitlement of a departing employee may be. I thought that a brief overview of employment law may prove useful for future reference.

Essentially, there are two types of dismissals in Canada; dismissals for just cause (where no severance is payable) and dismissals on reasonable notice (where the employer must either give reasonable advance notice of termination or pay in lieu of such notice).

Legally, just cause is a narrow concept including such things as theft and conflicts of interest. For the purposes of this article, I won’t deal with just cause terminations.

The Biggest Surprise for Employees
Employees terminated without cause usually want to discuss all of the details leading up to their termination and give all of the reasons why they didn’t deserve to get fired. The biggest surprise for them is that the reasons for the termination are irrelevant. This is also the most difficult thing for employees to understand. A post-termination autopsy of all of the reasons you should not have been terminated is useless. Really, the only issue is if you have been provided with adequate reasonable notice.

What is adequate reasonable notice? It is the employee’s full compensation package for the amount of time which a judge would decide to be reasonable notice in all the circumstances of the case (based primarily on length of service, position, age, level of specialization, etc.).

The Biggest Surprise for Employers
The Employment Standards Act of Ontario provides for a certain statutory minimum, however, an employee is usually entitled to more. Yes Mr. Employer, it is the minimum. There is usually a common law (Judge made law developed through precedents) entitlement which exceeds the statutory minimum. Depending on the employee’s length of service, position, age and level of specialization, the entitlement can be a lot more.

I suggest going to see an employment lawyer if you have been presented with a severance package or if you are thinking of terminating an employee. Either way, the cost associated with the consultation will usually put (or keep) some extra money in your pocket.

Sabatina Vassalli
Employment Law

Employer Responsibility for Employee Conduct

2011-04-06T06:15:00.000-07:00

Employer Responsibility for Employee Conduct in the Workplace

Bullying is a huge societal concern, but not only in the playground - also in the shop floor, photocopying room and within the office cubicles. Yes, that’s right, bullying and harassment in the workplace is a significant management problem, and one that the government will not tolerate. With that comes a question asked by many employers: Can an employer be held liable for the misconduct of their employee within the workplace? The short answer is yes…but only in certain circumstances. With the recent amendments to the Occupational Health and Safety Act, in Bill 168, the government has thrown down the gauntlet against harassment, bullying and violence in the workplace.

However, this won’t just affect employees; employers can and will be held responsible for the acts of their employees under certain circumstances. This includes harassment and bullying that is condoned or seemingly facilitated by the employer. If the employee’s wrongful conduct consists of acts authorized directly by the employer, or even indirectly - when the unauthorized wrongful conduct is so connected with the acts that the employer has authorized - then the employer could be held responsible for the acts of the employee.

There are two practical considerations for the imposition of accountability on employers for the acts of their employees: (1) fair compensation for the harm, and (2) deterrence to avoid the harm from happening again. Keep in mind that the overarching role of the law in this area is in its ability to both reflect society’s concerns to deter social evils, such as harassment and bullying, while not unduly interfering in necessary economic effectiveness.

What does this mean for employers? In short, in order to avoid paying a hefty price for the acts of employees, employers must comply with their statutory obligations, in light of Bill 168, to have a policy and program in place that sets out management guidelines and procedures with respect to harassment and violence in the workplace. Bill 186 sets out certain mandatory requirements. There must also be implementation and supervision of that program. Taken even further, employers should have a system in place that both fairly compensates the harmed employee and punishes the harming employee, to ensure a high level of deterrence.

If the above isn’t enough to convince management to comply with the requirements of Bill 168, keep in mind that the Ministry of Labour health and safety inspectors will enforce the new OHSA provisions for workplace violence and workplace harassment to determine if employers are complying with their new duties.

For further information on Bill 168/Preventing Workplace Violence And Workplace Harassment, see: http://www.labour.gov.on.ca/english/hs/sawo/pubs/fs_workplaceviolence.php

Andrea Griese
Employment Law

Changes to the Automobile Insurance Policy

2011-03-31T05:45:00.000-07:00

Changes to the Automobile Insurance Policy: Things You Need to Know

Any person who is injured in a car accident is entitled to claim for Statutory Accident Benefits from their own insurance company. These benefits include:

      •  Medical / rehabilitation benefits;
      •  Attendant care benefits;
      •  Caregiver benefits;
      •  Income replacement benefits;
      •  Housekeeping and home maintenance benefits;
      •  Dependant care; and,
      •  Funeral benefits.

As of September 1, 2010 the Government of Ontario created new legislation which decreases a person’s entitlement to accident benefits. As a result of this change the amount of entitlement to certain benefits has decreased substantially.

For example, an injured motorist is now only entitled to a maximum of $50,000.00 in medical / rehabilitation benefits for non-catastrophic injuries. This amount was lowered from $100,000.00. As a result, an injured motorist may no longer be compensated by his/her own insurance company for treatments such as physiotherapy or chiropractic once they have expensed over $50.000.00 in treatment and/or assessments.

Further, attendant care benefits have also been lowered from $72,000.00 to $36,000.00 for non-catastrophic injuries. This represents a reduction in how much an injured motorist can claim to provide in-home care for him/her while injured.

Housekeeping and home maintenance benefits as well as caregiver benefits for non-catastrophic injuries have been eliminated entirely from standard policies. Prior to the change, an injured motorist was entitled to a maximum of $100.00 / week in housekeeping and home maintenance benefits, for a period of no more than 104 weeks. Likewise, before the change an injured motorist could be entitled to caregiver benefits in the amount of $250.00 / week for the first child and $50.00 each for each additional child under the age of 16. Now an injured motorist will not be entitled to any housekeeping and home maintenance benefit or caregiver benefit unless they specifically purchase optional coverage.

Overall, the amount of Statutory Accident Benefits that Ontario’s motorists were once guaranteed under their automobile policy has now drastically decreased. The Government of Ontario has now left it up to each individual motorist to buy optional coverage, at an added expense, to provide for benefits which they had enjoyed prior to September 1, 2010.

Ontarians would be well advised to call their insurance company and/or insurance broker to discuss what coverage is currently available to them. Given the individual’s specific needs it may be recommended that a person buy optional coverage to increase the amount of Statutory Accident Benefits available to them in the event that they are injured in a motor vehicle accident.

Unfortunately, only 3% of Ontario’s motorists bought optional coverage prior to the change in legislation. As the cost of car insurance seems to always be increasing and given the fact that consumers are often solely interested in buying the cheapest policy, it is unlikely that consumers will take an interest in the changes to the Statutory Accident Benefit legislation and buy additional coverage. This may prove to be problematic for consumers down the road.

Neil Turchyn
Civil Litigation

Henson Trust

2011-03-24T06:29:00.000-07:00

Henson Trust: Financial Protection for a Disabled Individual

Setting up your estate plan can be a stressful time filled with difficult decisions. A concern for many individuals is how to protect and provide for a disabled family member in the event of their own incapacity or death.

The provincial government of Ontario has implemented various programs for individuals in need of financial and personal assistance. In particular, the Ontario Disability Support Program (ODSP) helps people with disabilities by providing financial assistance for living expenses, as well as health benefits, such as drug coverage, dental coverage and vision care.

The decision on whether an individual qualifies for a disability pension is based on their income and financial assets. As such, if a disabled individual were to receive their inheritance outright, it could detrimentally affect their eligibility to receive a disability pension.

Unfortunately, many individuals construct their Will to leave an outright distribution to the disabled individual. Upon receiving the gift, the disabled individual becomes ineligible for a disability pension. They are forced to use their inheritance as a primary source of support, until the inheritance diminishes to a small amount acceptable to the ODSP.

To avoid this scenario it is often appropriate to use a Henson Trust within the Will instead of an outright distribution. In the originating case, Ontario (Ministry of Community and Social Services) v. Henson, the Court held that because the disabled individual could not compel payments of funds, the funds held in the Henson Trust did not affect his eligibility for disability support programs.

A Henson Trust is a form of absolute discretionary trust, in which the funds are managed for the disabled individual – usually over the course of their lifetime – without them ever having a vested right to the income or capital. The trustee maintains absolute discretion over the timing and amount of payments of funds to the disabled individual.

When setting up a Henson Trust, one must be careful who they select as trustee. This individual will have absolute discretion over the amount of funds they provide to the disabled individual out of the Henson Trust. A decision will also need to be made on whom the funds will vest with upon the death of the disabled individual. If this is the same person as the trustee, it may create a conflict and detrimentally affect the disabled individual. Much thought should be given to these issues during the planning stages.

In summary, the correct implementation of a Henson Trust will shelter funds for the disabled individual in case of an emergency, while ensuring that they continue to receive a disability pension.

David Henderson
Trusts, Estates and Wills

Reporting Minor Collisions

2011-03-14T11:09:00.000-07:00

Why You Should Always Report a Minor Collision to Your Insurer

Every motorist in Ontario is required by law to have automobile insurance. In fact, the law requires that everyone have certain mandatory minimum insurance coverages. As many of you also know, you can purchase additional coverage for an added fee which provides you with increased or additional benefits in the event of an accident. What you may not know, however, is that each policy holder has certain responsibilities that, if not followed, can invalidate an insurance policy, leaving a motorist without coverage when they need it most. This article will provide you with some insight into a common situation which can result in a breach of your automobile insurance policy, and a forfeiture of your coverage.

Following a seemingly minor at-fault collision a motorist may be enticed not to report a collision by the fear of rising insurance premiums or persuaded by the victim motorist to “not go through insurance” and simply pay for any property damage out of pocket without notification to the insurer. While this may sound like an attractive option, it could also lead to some substantial problems down the road. Your insurance policy requires you to, among other things, provide written notification of any incident which results in personal injury or property damage within 7 days. The policy also prohibits you from admitting liability or responsibility for the collision. Paying for property damage following an at-fault collision could be seen as an admission of liability or responsibility for the collision, which is not only a breach of your policy, but could substantially impact on your Insurer’s ability to defend you if you are ultimately sued by a victim as a result of the impact.

Ontario law makes it possible for victims of a collision (driver or passenger) to sue an at-fault driver for personal damages resulting from an accident. These damages could result from any personal injuries which flow from the seemingly minor collision, and may not have been apparent immediately following the accident. A victim has 2 years upon which to commence a court action, and too often the victim fails to provide timely notice prior to issuing a claim. As such, you may have long since forgotten about the accident, when you are suddenly served with a Statement of Claim. While your Insurer would ordinarily assume your defence and any payout for the claim up to the policy limits of the contract, a failure by you to abide by your responsibilities under the policy may well compromise this protection.

Taking some time to review the Ontario Automobile Policy (OAP 1) can provide you with more information about how to ensure you will be protected in the event you are in an accident, or have to make a claim under your policy. The OAP1 can be viewed at http://www.fsco.gov.on.ca/ (see the auto insurance consumer resources section of the website).

Kelly Dunn
Civil Litigation

Construction Liens

2010-04-16T08:24:00.000-07:00

Who is entitled to a Construction Lien?

Under section 14 of the Construction Lien Act, any person who supplies services or materials to an improvement is entitled to a lien. This basic definition is very broad and can capture within its reach many improvements involved with one property. Further, there can be many persons involved with each improvement. Each person involved in an improvement has a lien against the interest of the owner of the property for the price of the services or materials provided the moment that the work is begun or materials are supplied.

Therefore, suppliers of materials, lessors of equipment, and suppliers of services all have rights to lien. However, not all service providers qualify as potential lien claimants. For example, those providing janitorial services generally do not qualify as lien claimants.

Although services considered to be "soft" services historically did not have lien rights in Ontario, it is no longer the case. For example, architects carrying certificates of practice and their employees are now able to lien property interests.

General Liens

It may be the case that several projects are to be constructed under one contract. If this is so, a "general lien" may be used pursuant to section 20(1). The impact of this provision is powerful. It works like this: If an owner owns three lots and contracts with a general contractor in a single contract to construct on all three lots, the contractor or its subcontractors can lien the property interests of the owner in any or all three of the lots for the full amount of the claim. However, section 20(2) allows an owner to limit lien rights on a lot-by-lot basis within the contract itself.

Government Property

It is not possible to register a lien on government property (section 16(1)). Instead, if work or services are provided with respect to a government property, a Notice of Lien should be served on the government entity for which the work is responsible. Where a government property is jointly owned by another entity, however, section 16(2) allows the non-governmental entity's interest to be liened. In fact, any non-Crown interest in property can be subject to liens. However, a lien with respect to work on a public road or on premises which the Crown is the owner operates only as a charge upon the holdbacks that are required by the Act and the registration requirements are not necessary (section 16 (3)).

Leased Premises

When making improvements to properties subject to leaseholds, it is possible to lien the interest in the property of a landlord. In order for this to occur, it is necessary for the contractor to give written notice of the work to the landlord before it begins. The landlord then has 15 days after receipt of this notice to disclaim any responsibility for the renovations or construction. If not, then the interest of the landlord may be liened.

Without a lien, a contractor or subcontractor is an unsecured creditor whose rights may be subject to subordination in the event of a bankruptcy. A properly perfected lien, or a trust, which is discussed in further detail below, has the effect of rendering the claimant as a secured creditor (the creditor's interest is now vested in property itself). Otherwise, a service or material provider is limited to any remedies that are available pursuant to the contractual relationship only. Having a lien places such entities in much better positions with respect to the prospects of collecting what they are owed.

Times within which to file a Construction Lien

There are two steps necessary to secure a lien claimant's right to lien a property. Both of the steps are time sensitive and, if either of them is missed, the lien claimant is out of luck.

Firstly, a construction lien must be "preserved" within a prescribed time. Preservation occurs in regards to a lien that attached to the premises when a "claim for lien" is registered on title to the property. Where a lien does not attach to a premises, preservation occurs when the claim for lien and an affidavit of verification is given to the owner. The time in which a lien claimant has to preserve a lien must be within the earlier of:

1. 45 days after completion or abandonment (45 days after the last day on which work was performed on the site); or

2. 45 days after publication of the certificate of substantial performance.

For example, if the work is completed on January 1, but a certificate of substantial performance (also known as subtantial completion) is published on December 31, the lien must be preserved by Valentine's Day (February 14). If, however, the certificate is published on January 2, the lien must be registered by February 15.

Secondly, a lien must be "perfected". With respect to a lien attaching to premises, this occurs when a Statement of Claim is issued in the Superior Court of Justice and a Certificate of Action is registered on title to the property. For liens not attaching to premises, perfection occurs simply when a Statement of Claim is issued. A lien must be perfected within 45 days of the time for which preserving a lien expires. That is, 90 days from either the last day worked on the site or the day on which the certificate of substantial performance is published, whichever comes earlier. For example, if the certificate of substantial performance is published on January 1 (and assuming that the work has not been completed), preservation must occur by February 15. As long as preservation has been completed on or before February 15, the last day on which a lien may be perfected is April 1. This is true even if preservation occurs on February 5, for example.

The definition of "substantial performance" is as clear as mud. Pursuant to section 2(1) of the Act, substantial performance arises where the improvement, or a substantial part of an improvement is ready for use and it is possible to complete the contract at a cost of no more than 3 percent of the original contract price.

The Construction Lien Act also provides that a contract is "deemed" to be completed "when the price of completion, correction of a known defect or last supply is not more than the lesser of" 1 percent of the contract price plus $1,000.00 (section 2(3)).

The Act also provides for "sheltering". Sheltering occurs when one lien claimant with a preserved lien rides the coattails of another, which has perfected its lien. As long as the second lien claimant's lien is perfected within the time limitation of the first lien claimant's perfection of its lien, the first lien claimant is "sheltered" by the perfection of the second lien claimant's lien. However, in many cases it is not adviseable to rely on the shelter of another's lien. This is because the sheltered lien is perfected only with respect to the Defendants which are named in the sheltering lien's Statement of Claim and the sheltered lien will be limited to the relief claimed in that Statement of Claim.

Priorities

A central issue that arises where there are a number of creditors involved with a property is what priority construction lien claimants have over other claimants and other security holders such as mortgagees. The Construction Lien Act sets out many rules involved with the determination of priorities.

Section 77 provides that "liens arising from an improvement have priority over all judgments, executions, assignments, attachments, garnishments and receiving orders except thos executed or recovered upon before the time when the first lien arose in respect of the improvement". Consequently, unless any of the above occurs before work is commenced with respect to an improvement, a lien ranks in priority.

As for mortgages, the same can be said as above. Liens take priority over all mortgages, conveyances or other agreements that affect the owner's interst in the property (section 78(1)). However, this rule is significantly qualified.

For example, all non-building mortgages registered prior to the time when the first lien arises, and advancements made pursuant to them, take priority over the lien (section 78(3)). The priority is limited, however, to the lesser of the value of the premises at the time the first lien arises and the total of all amounts advanced prior to the time the first lien arises. In this respect, if an improvement increases the value of the premises, the mortgagee's interest in the property does not take priority over the value added.

Further, mortgages take priority over liens for any amounts advanced pursuant to the mortgage after the first lien arises unless a lien was preserved or perfected against the premises at the time of the advance or the person making the advance has received written notice of lien prior to the advance (section 78(4)). This makes complete sense. If a lien is preserved or perfected, a mortgagee searching title to a property will have notice of the lien. If an advance is made by a mortgagee or, for example, a bank has made an advance pursuant to another type of agreement after a lien is preserved, it is done at their own peril. What matters is that the creditor in this case has notice of the lien and should be alert to the fact that their interest is being threatened by the existence of it.

Building mortgages are a different animal. Liens take priority over mortgages that are provided specifically for the financing of an improvement. However, this priority is only to the extent of any deficiency in the holdbacks that are required to be retained by the owner (section 78(2)). This is often why banks hold back on their own behalf monies along the way. This priority over the building mortgage holds its rank regardless of when the building mortgage is registered.

Where a mortgage is registered after a first lien arises, the liens again take priority only over any holdback deficiency (section 78(5)). Further, where a mortgage is registered after a first lien arises and advances are given thereafter, the outcome is similar to that discussed above. The advances take priority unless a lien is preserved or perfected against the premises or the persom making the advance received written notice of a lien (section 78(6)).

There are also differences between classes of lien claimants. Section 79 provides that all subcontractors that provide services or materials to one payor belong to the same class. For example, two subcontractors hired by the general contractor are classed together because of their relationship to the general contractor. The trades hired by these subcontractors also form classes pursuant to the relationship to the payor.

Individuals belonging to each class have no priority over one another. In the construction lien context, all members of one class rank equally with respect to each other. In this respect, any amounts available to satisfy liens vis-a-vis a particular class are divided rateably according to the respective rights of each claimant. With respect to other classes, the lien of every member of a class has priority over the lien of the payor of that class. For example, the two subcontractors' liens take priority over the general contractor's lien (section 80).

It is important to note that workers also have liens that take priority. Workers have a lien to the extent of forty regular-time working days' wages that takes priority over any other person having a lien belonging to the same class.

General liens do not necessarily rank over other liens having to do with the same property. You will recall that general liens can lien all of the properties involved under one contract. If, however, a lien claimant is only providing work with respect to one of the properties, but is receiving payment from the same entity as the general lien claimant, they are a member of the same class with respect to that property and the general lien ranks equally with the other only in respect of the balance owing to that particular property. The amount in balance of the general lien ranks next in priority above all other liens on that property (section 82).

Additionally, other considerations with respect to priorities exist that are beyond the scope of this paper. For example, and perhaps not surprisingly, claims by the federal tax authorities enjoy a "super-priority". Other government-levied services and taxes such as municipal taxes and amounts owed under the Workplace Safety and Insurance Act will outrank construction liens in certain situations. In the event of bankruptcy, a lien claimant is a secured creditor if a lien arises before the date of a receiving order or an assignment in bankruptcy.

Arbitration v. Litigation

Many construction contracts include clauses that mandate the arbitration of certain issues, including construction liens, as an alternative to the costly mainstream litigation process. Courts have now begun to recognize that parties to contracts to to great lengths to negotiate rights and remedies within the contractual document itself and are now willing to enforce the parties' agreement to arbitrate issues.

Arbitration clauses can be drafted to suit the needs of the parties and, consequently, parties can take greater control over the outcome of disputes in the event that they arise. In this sense, parties can choose a mechanism through which to select arbitrators or an arbitration panel that is acceptable to both parties. However, parties are not unconstrained in what the contract can provide for.

With specific reference to the Construction Lien Act, sections 4 and 5 operate to incorporate the provisions of the Act into every contract and render void any agreement purporting to exclude the provisions of the Act. The Construction Lien Act provides for a procedure to be involved in a dispute arising from a contract. However, it has been held by the courts, and specifically in Automatic Systems Inc. v. Bracknell Corp., (1994) 18 O.R. (3d) 257 (C.A.) that arbitrations are not precluded in the construction lien context. Arbitrations in this context must be governed by the rules and rights granted by the Act, however, following sections 4 and 5 therein.

In the event of a dispute, a court or arbitrator may be called upon to determine the intention of the parties at the time of making the contract. Often they are faced with contract documents which contain provisions that are clearly in conflict with one another. To avoid this, it is adviseable to clearly lay out the parties' intentions regarding dealing with disputed in detail. Clear arbitration provisions with short time lines are a good way to obtain speedy resolutions of any disputes involved with construction agreements, including construction lien issues.

Arbitration may actually have the effect of lengthening the process involved with construction liens. Pursuant to the Arbitration Act, 1991, S.O. 1991 c. 17, as amended, when a party that has agreed to an arbitration agreement and commences a court action in the Superior Court or otherwise with respect to an issue falling within the ambit of the arbitration agreement, a court may be forced to stay the proceedings pending completion of the arbitration. In this sense, if an arbitration is unsuccessful, it may actually have the effect of causing unnecessary costs and further delay.

In every case, it will depend on the circumstances and the relationship between the parties as to the appropriate route to take when a construction lien issue needs to be resolved. In our experience, level heads and reasonable outlooks often lead to the resolution of the matter before litigation or arbitration is necessary.

Finally, it is noteworthy that the common law with respect to arbitration applies to the construction lien context. This means that if an owner files a Statement of Defence in a construction lien matter, the owner has waived its right to arbitration under the agreement. If an owner wants to preserve its right to have the issue arbitrated, the proper way to go about it is to bring a motion before the court to stay the proceedings until the arbitration is completed.

Procedures to remove construction liens

The Construction Lien Act also provides for the removal of liens. Firstly, where a lien attached to a premises, the lien is discharged upon the registration of a release on title to the property. Unless the lien claimant is a corporation, an affidavit of execution is required to support the release. If the lien does not attach to a premises, the lien is discharged by giving a release to the owner (section 41).

General liens can be discharged only against one property that is liened. For example, if four projects are governed by the same contract and a general is preserved or perfected, a release can be registered on title to only one of the properties. In doing so, the lien against the other three properties remains intact.

Secondly, section 44(1) of the Construction Lien Act provides a mechanism whereby a lien can be removed when the full amount of the lien claim is paid into court plus 25 percent of costs up to a maximum of $50,000.00. However, under section 44(2), it is possible to ask the court by way of a motion to vacate a lien when a "reasonable amount" is paid into court. Where this occurs, the lien acts as a charge against the monies that are paid into court. In this sense, the lien claimant remains secured.

The security that is paid into court can take the form of a letter of credit or a bond as well as cash.

Thirdly, the court has a general power to discharge a lien in the appropriate circumstances. In order for this to occur, a motion must be brought before the court.

Trust provisions

The trust provisions in the Construction Lien Act are separate and apart from the concept of a lien. A lien creates a type of interest in the owner's property. However, the trust provisions deem any monies being passed down from owner to contractor, to subcontractor, etc., are to be held "in trust" for the entity below on the chain. Each time money is received by (and in the case of contractors and subcontractors, owed to) an entity, it is held in trust by that entity for its subcontractors. The money held in trust is known as a "trust fund".

A trust claim is in addition to a lien claim. In this sense, a contractor or subcontractor may have both lien rights and trust rights. However, the claimant will not be able to recoup more than what it is justly owed. A person involved in an improvement may also seek recourse throught the trust provisions of the Act if their lien rights have expired.

Firstly, an "owner's trust" arises when amounts are received by an owner that are to be used for the financing of an improvement. These amounts constitute a trust fund for the benefit of the contractor. The owner becomes a trustee and is prohibited from using any of the trust fund amounts for its own benefit until all amounts owed to the contractor in relation to the improvement are paid (section 7). Additionally, if an owner sells the property, a vendor's trust arises pursuant to section 9. As a result, the amounts received from the sale, after deducting expenses and mortgage obligations, constitute a trust fund of which the contractor is a beneficiary.

Secondly, contractors and subcontractors are also trustees and hold amounts owing to them whether or not due and payable, or received by them in a trust fund for the benefit of subcontractors or others (such as workers) who have supplied services or materials and who are owed amounts by the trustees. As trustees, these contractors and subcontractors are prohibited in the same manner from using any of the trust monies for any use inconsistent with the trust until those owed money by them are paid in full (section 8).

Pursuant to section 12 of the Act, despite their obligation not to use trust monies for any other pupose, trustees can set off against debts owed to them by subcontractors. The Act permits the retention of amounts equal to what trustees are owed by beneficiaries regardless if the debts, claims or damages are related to the improvement in question. However, it must be known that this section does not expressly permit the use of the funds so retained. On this reasoning, a trustee is obliged to keep the retained set-off amount. The recent case law in this area seems to confirm this.

Trustees are liable at law for breach of trust. This means that if any of the monies that are within the trust funds are used inappropriately, even to pay the trustee's overhead, the beneficiaries have a claim against the trustee for the amount owing. However, and most importantly, it is not just the trustee that may be liable. The Act provides that directors and officers of corporations or any other person, including employees having effective control of a corporation or its activities (what comes to mind in this instance is a foreperson) who "assents to, or acquiesces in, conduct that he or she knows or reasonably ought to know amounts to breach of trust by the corporation is liable for the breach of trust" (section 13(1)). Consequently, beneficiaries can look beyond trustees in certain circumstances for the compensation that they are entitled to.

If a breach of trust has occurred and trust monies have been appropriated for other uses, beneficiaries can "trace" into assets acquired by the use of trust funds. For example, if an owner uses monies out of a trust fund to purchase a new Mercedes, the beneficiarly can actually obtain the Mercedes if the monies used to pay for it can be traced to those that originally comprised the trust fund. Trustees have the obligation to account to the beneficiaries and the court all of the transactions that the trust funds are subject to. This includes receipt and disbursement.

The trust provisions of the Construction Lien Act are only applicable where there is a direct contractual relationship. An owner is not a trustee of a subcontractor. An owner will only be required to hold monies in trust and act as a trustee for its general contractor. Essentially, for a trust to arise under the Act, there must be a direct contractual relationship between a trustee and a beneficiary.

Just as with lien claimants, trust claimants are secured creditors, in a sense. Further trust claims need not be preserved or perfected in the same manner or time frame that lien claims must. Trust claims arise from the statute itself as funding becomes available for the construction project.

In the event of bankruptcy, monies held in trust do not form the assets of the bankrupt.

Please note that this paper is intended only to serve as a general highlight of the areas covered. There is much more involved in protecting rights and fulfilling obligations under the Construction Lien Act and a lawyer should be consulted in every case.

Charles Criminisi
Real Estate