Lessons Learned
- Superior courts are confirmed to have jurisdiction to vacate a lien involving Crown land.
- Understand the implications of the statutory phrase “with any necessary modifications”.
- Don’t confuse a holdback with a holdback account.
- A lien bond from a creditworthy surety is as good as cash: posting a lien bond instead of cash does not worsen the position of the lien claimant.
- Know the distinction between the lien and trust provisions in the Builders’ Liens Act.
Construction
The Manitoba Water Services Board hired Bird Construction Group to construct a wastewater treatment plant on Crown land in Selkirk, a city of 10,000 located on the Red River just north-east of Winnipeg.
Disputes between Bird and one of its subcontractors, Trotter and Morton Industrial Contracting Inc., resulted in TMIC filing lien notices.
Litigation
Bird responded by depositing lien bonds into court equal to the face value of the notices and applying, per Manitoba’s Builders’ Liens Act, for an order vacating the liens. TMIC resisted the application, arguing that an insurance-backed lien bond did not represent appropriate security in the circumstances and insisting that Bird deposit actual cash.
The usual lien process was made hideously complicated in this case by the fact that liens are not permitted to be registered against Crown land, which the Act makes allowance for by providing an alternative procedure in which liens are registered not against the disputed land but against the holdback the Act requires all owners to establish.
Analysis
Jurisdiction
The matter reached the Manitoba Court of Appeal, which began by resolving a subtle issue in the wording of the Act that threatened to deprive courts of jurisdiction over the matter. The often-used section 55(2) allows a court, on application, to order security or payment to be deposited into court by the owner and to then vacate the lien registration. However, section 55(2) uses the phrase “liens registered against a parcel of land”, and a lien involving Crown land isn’t registered against the land, it’s registered against the owner’s holdback.
The Court ultimately decided that a superior court does in fact have the jurisdiction to vacate a lien involving Crown land: section 16 of the Act, which creates a special procedure for liens involving Crown land, states that the Act applies to Crown liens “with such modifications as the circumstances require”, which provided the Court much-needed flexibility in its interpretation of the intention of the statute.
“With such modifications as the circumstances require” and “with any necessary modifications” are in fact terms of art that have replaced an older term in Canadian statutory drafting: “mutatis mutandis”. The Supreme Court of Canada has held that as a result, jurisprudence discussing the interpretation of “mutatis mutandis” applies to those modern equivalents. In short, that phrase instructs a court that statutory intent is to be maintained, but details of the statute may be altered to better accomplish that intent.
Lien Bond or Cash?
The Court then turned to the application judge’s conclusion that a lien bond was not a fit substitute for a cash deposit in the circumstances. The Court observed that lien bonds are generally only rejected over issues with the creditworthiness of the surety or the conditions of the bond, neither of which were a concern here.
However, the application judge believed that since a lien-vacating deposit should not leave the claimant in a worse position than it occupied via lien, and since the lien here was not against land but against a holdback account containing cash, TMIC was entitled to a deposit with the court as good as cash, which a bond – even a creditworthy bond – is not.
The Court’s rejection of this conclusion by the application judge turned on the distinction between a holdback and a holdback account. The latter is mandated by the Act only in specific circumstances, and where it is not mandated, the holdback is simply treated as a debt owing or an account receivable. Here, there was no holdback account mandated, and thus no requirement that the lien-vacating deposit with the court be as good as actual cash contained in a holdback account.
The Court went on to note that in any event, where there are no solvency concerns with respect to a proposed surety, its view was that a lien bond should in fact be treated as being equivalent to cash.
Lien Provisions vs. Trust Provisions
In closing, the Court also had choice words for the application judge’s treatment of the lien and trust provisions of the Builders’ Liens Act. Those provisions derive from separate sources (The Mechanics’ Liens Act in the case of the former and The Builders and Workers Act in the case of the latter), and have traditionally been treated as totally unrelated provisions in practice that do not and need not interact with each other. As the Manitoba Court of Appeal put it in its 1993 decision Provincial Drywall Supply Ltd. v. Gateway Construction Co., 1993 CarswellMan 106 (WL Can):
The trust provisions are designed to help assure that money payable by owners, contractors and subcontractors flows in a manner which is in accord with the contractual rights of those engaged in a building project and it is not diverted out of the proper pipeline. These provisions have nothing to do with the separate matter of creating charges against the land in favour of those contractors, suppliers and workers who can prove their claims.
There is considerable merit to the simple statement…that the trust claimants are to lien claimants as unsecured creditors are to secured.
The application judge, by contrast, stated that the holdback in a Crown land project is the same money designated as trust money under section 4 of the Act, and that paying the holdback money into court eliminates the risk that a contractor would, left unsupervised, improperly dispose of trust funds that should have flowed to a subcontractor.
The Court dismissed this reasoning. First, it observed, holdback funds do not become trust funds until and unless actually transferred from the owner to the contractor. Second, the possibility of a breach of trust obligations is a known risk inherent to the function of the Act. The application judge had erred by seeking to give the subcontractor a better remedy in respect of a potential trust claim than the Act itself provided.
Nor, the Court added, was it even clear that the application judge’s attempted improvement on the Act’s procedure would have worked. After all, cash paid into court as security for a lien claim is only security for that lien claim: if a lien claim is invalidated, the court loses authority to hold the cash and must return it to its depositor. The court has no jurisdiction to use the funds for another purpose.