Lien Sheltering
When an entity higher in the construction pyramid fails or refuses to pay those below it, this can cause a growing cascade of lien claimants. This is especially concerning, and costly, for those subcontractors providing services on a construction project with smaller lien claims.
Fortunately a lien claimant can shelter their lien under another lien claimant, and in fact, this is another method of perfection[1]. In Sesco Ltd. et al. v. Life Centre Non-Profit Housing Corp. (Ajax) et al., (1996) 13 O.T.C. 98 (GD), the Ontario Court of Justice, General Division, overturned the lower court’s finding that a sheltering lien must be for similar or identical materials or service[2]. Therefore, a lien can be ‘horizontal’, across the pyramid, as long as it is for the same improvement, but it is restricted to the nature of the relief sought in the statement of claim under which it is sheltering.
Advantages and Disadvantages
Sheltering under another lien can certainly have advantages. First, it is much more cost effective for smaller contractors because they will not have to shoulder the legal costs of bringing their own action. Second, a preserved claim might be saved from otherwise expiring if the party is able to demonstrate it is sheltered by another claim (by satisfying the s. 36(4) sheltering regime). However, this method is not without significant shortcomings.
It is important to note that only liens that have not expired when an action is commenced are perfected, therefore relying on another party to bring an action will not save a party whose preserved lien expires in the interim[3]. Depending on another party, whose timeliness is beyond their control or who commits some other fundamental flaw in their Statement of Claim, could invalidate the sheltering action and cause the expiration of the sheltering party’s lien.
While sheltering can be an important tool in construction litigation, it is often recommended to commence your own action to perfect your own lien in lieu of relying on another claimant’s perfection and claim, to which you have little control or input.
[1] S. 36 of the CA governs the rules pertaining to lien sheltering.
[2] Sesco Ltd. v. Life Centre Non-Profit Housing Corp. (Ajak), 1998 CarswellOnt 291, 107 OAC 258. See also State Group Inc. v. Quebecor World Inc. 2013 ONSC 2277, 2013 CarswellOnt 4462
[3] Deslaurier, Supra note 5 at 19.
