By Dan Fridmar and Jacob McClelland
It is not uncommon for a construction lien to be vacated in accordance with Section 44 of the Act by the issuance and posting of a Financial Guarantee Bond – Form 15.1 or equivalent form (a “Lien Bond”). This Lien Bond typically sets out the following information:
- The surety who guarantees the bond;
- The principal who issues the bond (typically the party vacating the construction lien); and
- The obligee under the bond. If a Lien Bond is posted to vacate a construction lien, the form requires that the obligee under the bond be the Accountant of the Superior Court of Justice (the “Accountant”).
As one may recall, the purpose of vacating any construction lien is to replace the security attaching to the premises or holdback against which the lien is secured and replace it with the security posted in Court. The ultimate purpose in replacing this security is that – following a determination and judgment under the lien – the lien claimant may satisfy that judgment by looking to payment from said security. Where the security posted is cash (by way of bank draft or certified cheque) the procedure is fairly simple. Obtaining payment from a Lien Bond is more complicated, but can be arranged through the following steps:
- Obtain Judgment: depending on whether the lien claimant secures judgment following a trial or other summary disposition, the first step in receiving payment from a Lien Bond is ensuring that the draft Judgment to be signed by a Judge or Associate Judge (as the case may be) contains the following paragraphs directing payment from the Lien Bond:
THIS COURT FURTHER ORDERS AND DIRECTS the Accountant of the Superior Court of Justice (the “Accountant”) to make a demand for payment for [the amount Ordered with respect to the principal judgment of the lien and any costs] in the total sum of $_______ (the “Principal and Costs”) from the Financial Guarantee Bond obtained by [the principal] from [the surety] (the “Surety”) and issued as Bond No. _____in the sum of $_____________ (the “Bond”), which was posted by [the principal] with the Accountant as permitted by the Order of the Honourable [Judge or Associate Judge], dated _______, 20__ into the Accountant’s file no. _____ (the “Bond Demand”).
THIS COURT FURTHER ORDERS AND DIRECTS that, once the Surety remits payment of the Principal and Costs Judgment from the Bond to the Accountant pursuant to the Bond Demand, the Accountant shall release payment of such monies to [the lien claimant or the lien claimant’s legal representative in trust, as the case may be].
Once the Judgment is signed by the respective Judge/Associate Judge, the lien claimant must ensure that the Judgment is issued and entered. If the lien claimant does not receive an original, wet-ink copy of Judgment and instead receive a digital copy by E-Mail or fax, they will have to obtain a notarial certificate that certifies: 1) that the Judgment is indeed a true copy of the Judgment issued by the Court; 2) by whom, when, and how the Judgment was received by the lien claimant; and 3) appending a copy of the E-Mail, CaseLines page, fax, or other method in which the electronic copy of the Judgment was received.
- Contacting the Accountant: the next step will depend on whether the lien claimant obtained Judgment on consent or following a contested disposition (trial, summary judgment, etc.). If the Judgment was obtained on consent, the Judgment must contain language confirming that the provisions of Rule 72.03(2)(c)(ii) of the Rules of Civil Procedure, R.R.O. 1990, Reg. 194 (the “Rules”) are struck. If, however, the Judgment was obtained following a contested disposition, in accordance with Rule 72.03(2)(c)(ii) of the Rules, the lien claimant must ensure that the time to appeal the Judgment has expired. In accordance with Sections 71(1) and (2) of the Act, an appeal under a Judgment for a construction lien lies to the Divisional Court and must be made within fifteen (15) days of the date of the Judgment (unless the parties agree otherwise or the appealing party brings a motion to extend the time to a single judge of the Divisional Court).
Once the appeal deadline is expired (and if no motion to extend this deadline is brought by any party), the lien claimant must prepare a package in accordance with Rule 72.03(2)(c)(ii) of the Rules to the Accountant containing the following:
- a) a Letter with a written request for payment out of court, detailing that the payment must be made in accordance with the Judgment and reflective of the inserted language pertaining to making a claim for payment from the Surety in accordance with the terms of the Lien Bond;
- b) the original or notarized copy of the Judgment as set out above; and
- c) an Affidavit confirming that the time prescribed for the appeal of the Judgment has expired and that no appeal is pending.
This package may be served personally or delivered by courier. The lien claimant would also benefit from contacting the Accountant simultaneously by E-Mail or fax with electronic copies of the documents enclosed in the package to ensure that the Accountant is expecting same and for ease of communication and coordination with the Accountant while payment is awaited.
If the Accountant takes issue with the wording of the Judgment and requires an amendment, the authors recommend moving for an Order to amend the Judgment, nunc pro tunc. The Court has the authority to issue such an Order under Rule 59.06 and Rule 54.05 of the Rules. Additionally, if the Court is willing to waive the need for the moving party to prepare and file motion materials, pursuant to Rule 37.01 and 2.03 of the Rules, the moving party may simply file a draft Order for the Court’s consideration. It is also advisable to have the Accountant approve the draft Order amending the Judgment before proceeding with these steps.
- Optional – Contacting the Surety: Pursuant to the terms of the Judgment and the Lien Bond, the Surety may only accept a demand of payment under the Judgment from the Accountant. However, it would be prudent to assist the Accountant in expediting this process by contacting the Surety and letting them know that a request is imminent. Finding a contact person could involve researching the Surety online or identifying and coordinating with the Surety’s in-house legal representatives. Contacting the Surety would also assist in obtaining the precise contact persons who deal with payment in such circumstances (adjusters or otherwise), whose contact information may then be shared with the Accountant to expedite retrieval of payment from the Lien Bond.
- Coordination between the Accountant and the Surety: Once the Accountant accepts the lien claimant’s package as set out above, the Accountant will take direct steps in coordinating with the Surety in obtaining payment. The timing and duration of this process is entirely dependent on the Surety in question and there is no limit or time as to how long it may take. It may be prudent to follow up every few days or once a week with the Accountant with a friendly reminder and request for an update/status of the Surety’s payment. Politeness in communicating with the Accountant is strongly encouraged.
- Receiving payment from the Accountant: Once the Accountant receives payment from the Surety, the Accountant will proceed to release said funds to the party identified in the Judgment. Presently, the Accountant’s preferred form of payment is through wire transfer or electronic funds transfer. As such, if the lien claimant wishes to receive the funds directly, they must provide this information to the Accountant in the letter initially requesting the funds discussed above. Alternatively, if the lien claimant is agreeable to having their legal representative receive the funds in trust, the lien claimant must ensure that the Judgment clearly directs the Accountant to do so. If any portions of the Judgment are unclear to the Accountant, the lien claimant may have to return to the Judge/Associate Judge signing the Judgment to make such necessary revisions or amendments. Accordingly, it is important to have the correct information in the Judgment at the time it is obtained.
Once the Accountant sends the funds to the directed payee, this process is complete.
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.
