1. Commercial Law Part 3 – Bank Act Security & Mechanics’ Liens Bank Act Security

2. History Bank Act security was introduced nearly 100 years ago when provincial secured lending law was unreformed Bank Act security was introduced nearly 100 years ago when provincial secured lending law was unreformed It was innovative and ahead of its time in several respects It was innovative and ahead of its time in several respects Notice filing Notice filing “Notice of Intention” filed in Bank of Canada Registry “Notice of Intention” filed in Bank of Canada Registry Allows security in after-acquired property Allows security in after-acquired property Abolished rule in Hopkinson v Rolt Abolished rule in Hopkinson v Rolt It is now unnecessary in light of the PPSAs It is now unnecessary in light of the PPSAs

3. Limitations Lender Lender Available only to banks governed by the Bank Act Available only to banks governed by the Bank Act Debtor Debtor Natural resource sector Natural resource sector Manufacturers Manufacturers Farming and acquiculture Farming and acquiculture

4. Interaction btw PPSA & Bank Act PPSA and BAS are extremely poorly integrated PPSA and BAS are extremely poorly integrated Priorities between PPSA security and BAS is obscure in almost every respect Priorities between PPSA security and BAS is obscure in almost every respect All that is clear is that registered BAS has priority over subsequent PPSA security All that is clear is that registered BAS has priority over subsequent PPSA security It is usual for Bank to take both PPSA and Bank Act security and register separately It is usual for Bank to take both PPSA and Bank Act security and register separately Then attempt to rely on which ever is most advantageous Then attempt to rely on which ever is most advantageous

5. Tax Liens Municipal taxes lien and public utility lien Municipal taxes lien and public utility lien Super-priority on real property without need for registration Super-priority on real property without need for registration E.g. Ont Municipal Act s. 349, Public Utilities Act s. 31 E.g. Ont Municipal Act s. 349, Public Utilities Act s. 31 NB Real Property Tax Act s.11, Municipalities Act s. 189(10) NB Real Property Tax Act s.11, Municipalities Act s. 189(10) Local improvement liens (e.g NB Muncipalities s,117 ff) Local improvement liens (e.g NB Muncipalities s,117 ff) Income tax, sales tax Income tax, sales tax Must be registered, if applicable Must be registered, if applicable ITA s. 223, real and personal property ITA s. 223, real and personal property Ont Retails Sales Tax Act s. 23, personal property Ont Retails Sales Tax Act s. 23, personal property

6. Misc Liens Unpaid Vendor’s lien Unpaid Vendor’s lien Possessory lien, does not require registraton Possessory lien, does not require registraton s. 37, 38 Sale of Goods Act s. 37, 38 Sale of Goods Act Lien against property of employer for unapid wages Lien against property of employer for unapid wages NB Employment Standards Act s. 381 NB Employment Standards Act s. 381 Requires registration Requires registration Woodsmen’s Lien Woodsmen’s Lien Lien on lumber Lien on lumber Registration in court of Queen’s Bench Registration in court of Queen’s Bench Etc. Etc. Stable Keepers Act, C.C.S.M. c. S200 Stable Keepers Act, C.C.S.M. c. S200 Possessory lien for costs of boarding animals Possessory lien for costs of boarding animals

7. Mechanics’ Liens Lien against land Lien against land S. 4(1) S. 4(1) Basic idea is to protect subcontractors. Basic idea is to protect subcontractors. Much construction takes place with a general contractor and subcontractors. Much construction takes place with a general contractor and subcontractors. Subcontractors are not in privity with owner. Subcontractors are not in privity with owner. Subcontractors may be small businesses. Subcontractors may be small businesses. Problem arises when contractor becomes insolvent and subcontractor has not been paid. Problem arises when contractor becomes insolvent and subcontractor has not been paid.

8. Mechanics’ Liens Acts may set up two remedies Acts may set up two remedies lien lien trust. trust. The Act creates a trust in the hands of certain persons The Act creates a trust in the hands of certain persons E.g builder for moneys received, in respect of amounts owing to subcontractors: see s.3 NB Act E.g builder for moneys received, in respect of amounts owing to subcontractors: see s.3 NB Act The trust creates a purely personal remedy The trust creates a purely personal remedy It is effective against claims in bankruptcy and statutory liens. It is effective against claims in bankruptcy and statutory liens. Not all jurisdictions have trust fund remedy and it differs significantly between jurisdictions. Not all jurisdictions have trust fund remedy and it differs significantly between jurisdictions.

9. Mechanics’ Liens Lien is a real right Lien is a real right Enforceable by sale of property Enforceable by sale of property Issues Issues Creation Creation Preservation Preservation Priorities Priorities

10. Stop Here Fall 2008

11. Creation Lien arises in favour of any person doing work or furnishing materials: s.4 Lien arises in favour of any person doing work or furnishing materials: s.4 In many jurisdictions it also arises in favour of lessee of equipment. In many jurisdictions it also arises in favour of lessee of equipment. Lien arises when work is done or materials are furnished: s.8 Lien arises when work is done or materials are furnished: s.8

12. Preservation Lien expires Lien expires on payment of person claiming lien on payment of person claiming lien on expiry of time set for filing, unless claim of lien is filed: s.25 on expiry of time set for filing, unless claim of lien is filed: s.25 Time varies 30-60 days: s.24. Also varies between jurisdictions. Time varies 30-60 days: s.24. Also varies between jurisdictions. 90 days from filing of claim, unless action is commenced: s.27 90 days from filing of claim, unless action is commenced: s.27 Or, in NB only, after the expiry of the period of credit mentioned in the filed claim of lien. Or, in NB only, after the expiry of the period of credit mentioned in the filed claim of lien. If acting for a purchaser or lender, how far back should you search for a lien? If acting for a purchaser or lender, how far back should you search for a lien?

13. Preservation and Holdback Lien extinguished by good faith payment to contractor Lien extinguished by good faith payment to contractor Unless notice given to owner by subcontractor Unless notice given to owner by subcontractor Only up to holdback amount Only up to holdback amount 15-20% in NB – s. 15(7) 15-20% in NB – s. 15(7) Owner who pays full amount to contractor is nonetheless liable up to holdback amount to subcontractor who was not paid Owner who pays full amount to contractor is nonetheless liable up to holdback amount to subcontractor who was not paid Payment of holdback after time for expiry of lien extinguishes lien Payment of holdback after time for expiry of lien extinguishes lien Owner should search before paying holdback to contractor Owner should search before paying holdback to contractor

14. Preservation and Holdback Owner who does not hold back is exposed Owner who does not hold back is exposed Is this good policy? Is this good policy? Who is more vulnerable, owner or subcontractor? Who is more vulnerable, owner or subcontractor?

15. Priorities Lien has priority over unregistered interests Lien has priority over unregistered interests S. 9 S. 9

16. Priorities – Registered Mortgages Generally, lien has super-priority for value which is attributable to the improvements made by the work secured by the lien Generally, lien has super-priority for value which is attributable to the improvements made by the work secured by the lien Much jurisdictional variation in details Much jurisdictional variation in details E.g. NB E.g. NB Mortgage registered before lien claim is filed Mortgage registered before lien claim is filed Has priority for advances made before lien claim is filed or actual notice of lien is given Has priority for advances made before lien claim is filed or actual notice of lien is given But only up to the value of the land at the time the advance is made But only up to the value of the land at the time the advance is made So, lien which has arisen has priority to the extent that it increased the value of the property, even if unregistered and no notice So, lien which has arisen has priority to the extent that it increased the value of the property, even if unregistered and no notice

17. Priorities – Registered Mortgages Future advances Future advances M’ee prior to other m’ee in respect of future advances unless actual notice is given M’ee prior to other m’ee in respect of future advances unless actual notice is given M’ee subordinated to lien holder even without notice M’ee subordinated to lien holder even without notice Why the difference in policy? Why the difference in policy? Should m’ee search for liens? Should m’ee search for liens?

18. Lien on Goods and Chattels Personal property Personal property Possessory lien only Possessory lien only S. 6 S. 6