One misconception I have found about lawyers is that we enjoy going to trial. As I’m sure many of my colleagues would agree, we much more enjoy when cases settle. In contrast to most other civil litigation files, settling construction lien litigation disputes can contain complicated procedural steps.
In the interest of educating more junior lawyers or those practitioners whose central focus is not construction lien litigation, I have put together a checklist of four key points that should be addressed during the settlement process (as applicable).
1) Form of Payment of Settlement Funds
Depending on the type of settlement entered into, chances are that one party will be required to make payment to the other party. As a preliminary matter, it’s always good practice to ensure that the payment of settlement funds is made by way of bank draft or certified cheque to avoid any potential clearance issues or other foul play (whether intentional or not). Minutes of Settlement should also reflect deadlines not just for the delivery of payment, but also for the receipt of payment to avoid any excuses of payment being “lost in the mail”.
Where a lien was vacated, it is also important to clarify whether settlement funds are paid out from the monies posted into Court or whether the monies will be paid directly by the paying party. Chances are, if a lien is vacated by way of a lien bond, the party posting the bond will want it returned for cancellation and will prefer to make payment directly. It’s generally good practice to ensure that payment is received before any security is returned for cancellation (to be discussed further below).
2) Party Responsible for Dismissing the Action/Discharging the Lien and Vacating Certificate of Action
Once a construction lien action is perfected, it is an action that will either need to be discontinued or dismissed following a settlement. Similarly, if a lien and certificate of action are still on title, they will need to be discharged/vacated accordingly.
Without a clear understanding of who is responsible for the costs of bringing respective motions to dismiss the action/discharge the lien, there may issues down the line where neither party agrees to incur these costs. As a general negotiating point, sometimes it is beneficial to offer to absorb these costs in order to obtain a more favourable settlement.
3) Sheltering
Where parties to a settlement wish to withdraw monies paid into Court following a vacating of the lien, it is necessary to confirm that there are no sheltering liens that could lay claim to a distribution of the funds in Court. Without going into the legal explanation behind sheltering, it is important to note that – without this search/confirmation – a Judge or Associate Justice reviewing a Motion to withdraw security funds will most likely not grant such an Order.
Typically, the Court can be satisfied that there are no sheltering liens by providing an up-to-date parcel abstract where the lien is registered to show that no other liens exist, and where multiple liens do exist, that each of the liens has sufficient security for satisfaction. This process becomes more complicated during Public/Private Partnership projects or those where liens do not attach to the property. In these instances, you may need some form of correspondence from the Owners confirming that there are no outstanding liens and that any outstanding liens were vacated with sufficient security.
4) No Steps Until Payment of Settlement Funds is Made
In my few years of practice, I have witnessed more senior counsel attempting to lure junior counsel into discharging the lien or returning security prior to the settlement funds being made. Once the lien is discharged, there is no going back. Releasing any security before you’re in receipt of the settlement could amount to negligence and is hard to defend against (especially if the paying party subsequently goes bankrupt and its solicitor can be seen to have not intentionally mislead opposing counsel).
Therefore, as a standard practice, it is crucial to establish that no releasing of security, or dismissing of the action, or discharging of the lien will take place until settlement monies are in a lawyer’s trust account.
While the above-noted tips and checklist are not exhaustive, this is a good starting point for any construction lien litigator to keep in mind when finalizing terms of settlement and resolving a matter.
The foregoing is for informational purposes only and should in no way be relied upon as legal advice. If you have any further questions, or would like to schedule an appointment for legal advice tailored to your circumstances and business, please contact me at dan@fridmar.com.
