Earlier last year, I made a public service announcement on LinkedIn about the incorrect direction from Justice Services Online to issue construction lien claims in the Small Claims Court jurisdiction that fell under $35,000.00. In this post, we will explain the importance and reasons as to why construction liens may only be perfected in the Superior Court of Justice.
What are the jurisdictions?
For those who do not know, there are two major civil courts of first instance in Ontario: the Superior Court of Justice (“SCJ”) and Small Claims Court (“SCC”). Some of the purposes of the SCC include allowing litigants to adjudicate smaller disputes ($35,000.00 and less) in a more timely, cost-effective manner, but individuals who may not necessarily be judges. It also allows litigants to obtain assistance from paralegals, often at a cheaper expense than lawyers.
These conveniences come with a limitation. The SCC cannot deal with matters over $35,000.00. The SCC also cannot make declaratory relief. Most importantly – for our purposes – the SCC cannot be used to perfect construction liens.
How does one perfect a construction lien?
As a general refresher, once a construction lien is preserved, it must be perfected. More particularly, Section 36(2) of the Construction Act, R.S.O. 1990, c. C.30, as amended (the “Act”) states that,
a lien that has been preserved expires unless it is perfected prior to the end of the 90-day period next following the last day, under section 31, on which the lien could have been preserved.[1]
Further, in order to correctly perfect a lien, the claimant must follow the procedure set out in Section 36(3) of the Act[2] as well as Section 1(1) of O. Reg. 302/18: Procedures for Actions under Part VIII (the “Regulation”). Namely:
36 (3) A lien claimant perfects the lien claimant’s preserved lien, (a) where the lien attaches to the premises, when the lien claimant commences an action to enforce the lien and, except where an order to vacate the registration of the lien is made, the lien claimant registers a certificate of action in the prescribed form on the title of the premises; or[3]
…
(1) An action shall be commenced by the issuing of a statement of claim in a court office in the county in which the premises or part of the premises are situate.[4]
Lastly, Section 50(1) of the Act explicitly confirm that a lien claim is enforceable in an action in the Superior Court of Justice.[5]
One might read the above-noted provisions and still argue that, despite the use of “statement of claim”, there’s no language present explicitly stating that the lien must be perfected in the SCJ over the SCC. They may also argue that the SCC is a branch of the SCJ. To those people, the Court in Reid v. Xiao explicitly stated and confirmed the following:
A lien claim is enforceable in an action in the Superior Court of Justice: [the Construction Lien Act, R.S.O. 1990, c. 30], s. 50(1). Although the Small Claims Court is a branch of the Superior Court of Justice, the jurisdiction of the Small Claims Court is statutorily limited to payment of money and recovery of possession of personal property within its monetary limit: Courts of Justice Act, s. 23(1). The Small Claims Court would therefore seem to lack jurisdiction to make determinations regarding the lien remedy, such as declarations regarding the validity or priorities of liens or orders for sale of a property. It follows that s. 50(1) does not permit issuance of lien actions in the Small Claims Court
What are the consequences of going to the wrong jurisdiction?
If a claimant fails to perfect their construction lien in the SCJ by way of a statement of claim (and certificate of action, where applicable), then that claimant did not properly perfect the lien. As set out above and referenced to Section 36(2) of the Act, unless the lien is perfected in a timely manner, it expires. Therefore, if a claimant erroneously attempts to perfect its lien in the SCC, it – in fact – opens up the possibility for that lien to expire. Once a lien expires, it is unlikely that those rights can be recovered. For lien claimants, this could mean a loss of security. For lawyers aiding lien claimants, this could mean a negligence lawsuit.
This is not to say that construction lien claims cannot eventually make their way to the SCC. Pursuant to Sections 58(1)(c) or 58(3) of the Act, parties can either consent to refer a matter to the SCC or a judge at trial may order direct a reference to the SCC, if the amounts in dispute fall within the monetary jurisdiction of the SCC. However, this can only happen once a lien is properly perfected in the correct jurisdiction (the SCJ).
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.
[1] Construction Act, R.S.O. 1990, c. C.30, s.36(2) (the “Act”).
[2] We’re not going into perfecting by sheltering for the purposes of this article. In those cases, the liens are already perfected in the SCJ.
[3] Act, supra note 1, s. 36(3).
[4] O. Reg. 302/18: Procedures for Actions under Part VIII, s. 1(1).
[5] Act, supra note 1, s. 50(1).
