Executive Summary: Key Legal and Evidentiary Issues

• The central issue was whether the lien and lien security of 1086289 Ontario Inc. o/a Urban Electrical Contractors (UEC) should be reduced or returned following settlements among the parties.

• The effect of settlements between Mercer and UEC on the rights and security interests of Urban Integrated Group Inc. (UIG) was contested, particularly regarding the return of lien security.

• The court examined whether security posted for one lien could be returned without prejudicing other lien claimants, given the “pooling” principle under the Construction Act.

• The statutory framework under s. 44(9), rule 2 of the Construction Act, and the Toronto Region Practice Direction regarding the return of lien security, were key to the decision.

• The court determined that security for UEC’s lien could only be reduced by the amount to which UIG consented, with the balance remaining as security for UIG’s liens.

• No costs were awarded for the motion, but Mercer and UIG retained the right to claim costs against each other in future proceedings related to UIG’s lien actions.

Background and facts of the case

1086289 Ontario Inc. o/a Urban Electrical Contractors (UEC) filed a lien under the Construction Act, RSO 1990, c C.30, as amended, in connection with a project involving Urban Integrated Group Inc. (UIG) and 35 Mercer Limited (Mercer). Mercer brought a motion seeking to reduce UEC’s lien by $4,333,708.96 or, alternatively, by a lesser amount as determined by the court. Mercer also initially sought orders declaring certain other subtrade and supplier liens expired and returning security for those liens from court. UIG opposed the reduction of security, as security posted to vacate UIG’s own liens had already been reduced to account for security posted for other liens in the contractual tiers below UIG.

Prior to the hearing, Mercer, UEC, and UIG settled the motion, except for costs. A key term of their settlement was a reduction in UEC’s lien and the related lien security in court by $3,231,464.75. Counsel for the parties agreed to a form of consent order. Subsequently, Mercer and UEC settled UEC’s lien in its entirety as well as UEC’s claim against Mercer. This settlement included consenting to a full discharge of UEC’s lien, returning the lien bond posted by Mercer as security for UEC’s lien, and dismissing the action as against Mercer. UIG, while not opposing the discharge of UEC’s lien and dismissal of UEC’s action as against Mercer, opposed the full return of security for UEC’s lien.

Legal analysis and policy considerations

The court considered the submissions of all parties and agreed with UIG that UEC’s lien security could not be returned in full and should only be reduced by the amount for which UIG had consented. The court emphasized that security posted for one lien claim cannot be returned without first considering whether other lien claimants are affected by that return. Section 44(9), rule 2 of the Construction Act provides that an amount paid into court or security posted to vacate a lien is subject to the claims of all persons having a lien, and such security is distributed among all lien claimants in accordance with the priorities provided for in the legislation. The court noted that this “pooling” of security is an important feature of lien actions under the Construction Act.

The court found that UIG’s consent to have its own liens vacated with reduced security was expressly premised on accounting for UEC’s lien claim, consistent with the Act. The court rejected Mercer’s argument that its settlement with UEC should result in the full return of security, as UIG was not a party to that settlement and UEC’s claim in contract against UIG and UIG’s crossclaim against Mercer were not being dismissed. The court also noted that none of the parties disputed that UIG’s liens were vacated with reduced security that accounted for the security already posted by Mercer to vacate various subtrade and supplier liens, including UEC’s lien.

Outcome and costs

The court ordered that UEC’s lien be discharged. The enforceable value of the lien bond security for UEC’s lien was reduced by $3,231,464.75, leaving a balance of $2,320,997.51 to be held by the Accountant of the Superior Court of Justice as security for UIG’s liens pending further court order. Mercer was permitted to replace the existing lien bond security with replacement security in the amount of $2,320,997.51 or amend the existing security by providing a lien bond rider reducing the bond amount to $2,320,997.51. The balance of Mercer’s relief on the motion was withdrawn. The action was dismissed as against Mercer only, on a with prejudice and without costs basis. The action continued as against UIG, including UIG’s crossclaim against Mercer, as an ordinary action governed by the Rules of Civil Procedure and no longer by the Construction Act and its regulations. There were no costs of the motion to any party, without prejudice to Mercer and UIG claiming costs of this motion as against one another as costs of UIG’s lien actions, in any event of the cause. The court also noted that the allocation of the sum of $776,777.60 previously allocated for UEC’s lien would be determined at a future hearing for directions in this reference.