The electronic liens registry system has saved lawyers’ time, but it still has a few bugs that need to be worked out before Ontario construction lawyers give it the thumbs up.
Roger Gillott - an associate at Osler Hoskin & Harcourt LLP who acts as liaison between the construction law section of the Ontario Bar Association, the company that runs the liens system, and the provincial government - says he’s received many calls from lawyers who have trouble with the system.
“It’s a new system, and there are some problems with it. I think people are resistant to change. I think people should focus on the positive side, rather than the problems.
“I’ve been working with the Ministry of Consumer and Business Services and Teranet, the private company that’s been implementing electronic registration across the province. I’ve been working with them for four or five years.”
Gillott says the e-registration, or “e-reg,” system had a few problems when it started eight years ago. The system, run by a private company, allows lawyers to instantly search title to any property in the province from their desks. It can also be used to put a construction lien on a property.
Before the e-reg system was set up, conveyancers would have to go out to land registry offices and do physical searches of documents, many of them more than a century old, to determine if a title was free of dispute and encumbrance.
However, there have been major problems that have cropped up with the new electronic searching system, says Gillott.
“One serious issue that has come up is the affidavit of verification. A lien is a very powerful instrument because it’s a stain on title and if a $5,000 lien is registered on a piece of land, let’s say it’s a construction project, the lender will not advance any more money until that lien is off-title.
“If they make a million-dollar advance in the face of that $5,000 lien, the $1 million goes to the back of the line behind all subsequent liens on that project. The banks always insist that liens come off title before they advance money. So it’s a powerful instrument because one little lien can bring an entire construction project to a halt,” he says.
“When the government drafted the Construction Liens Act, they required an affidavit of verification, which is basically a sworn affidavit from the person registering the lien, swearing that they did the work and they’ve not been paid.
“We used to have our clients come to the office and we would administer the oath and get them to sign the affidavit of verification, which was attached to the lien,” says Gillott.
With the electronic system, it’s all done via computer and there’s no way for a client to sign an affidavit. The lawyer is left to sign it using their encrypted electronic signature.
Lawyers are now asking whether they should simply ask their clients to sign the affidavit and store the document in their offices. Do they just do it electronically and forget about the paper lien and the affidavit of verification?
“Part of the reason this is so significant is that under the Construction Liens Act you have the right to cross-examine the affiant of the affidavit of verification,” Gillott says. “If you register a lien, then anyone who doubts the lien is valid can schedule an examination of that party. If you just do it on the computer and the lawyer signs it, then who do you examine? That was one of the big issues.”
He notes that lawyers working with the government on these have come to an agreement to propose amendments to the act on two issues. One is the affidavit of verification, and the other is the issue of sheltering statements.
“On the issue of affidavits of verification, lawyers will be required to administer the oath to their clients and have them sign an affidavit of verification, but it won’t be registered on title, it will just be kept in the lawyers’ offices. That way, you still have the instantaneous registration of the lien, but if there’s any issue requiring cross-examination or anything like that, it will be clear who has sworn the affidavit,” he says.
This practice, says Gillott, was a response to a case called Petroff Partnership Architects v. Mobius Corp., which was heard by a master who was faced with the issue of a lien that was registered electronically. No affidavit had been sworn. One of the parties challenged the lien and went before the master to say the lien was not valid because there was no affidavit of verification.
“The master held that the lien was valid through the electronic system, and that in the system you don’t need an affidavit of verification. This was very controversial because the theory behind e-reg was that it was only to affect the procedural aspects of the law and not the substantive aspects, but many people felt that this decision strayed into the substantive law.
“That is the law at the present time: that you do not need an affidavit of verification. But if the amendment is accepted, you will again need an affidavit of verification but it will be something that the lawyer keeps in their file,” says Gillott.
He says another major problem arose over the issue of sheltering statements.
“When you have a lien on title, it’s possible for another lien to ‘shelter’ behind that lien. The lien is making use of the action started by the other lien claimant. The sheltering lien claimant doesn’t bother starting their own action, they just rely on the action of the other lien claimant.
“So when you’re vacating a lien from title, under the old system you would go before a master on a motion and the whole sheltering issue would be dealt with. You’d get an order to vacate the lien, you’d register the order and that would be the end of it.
“Under the new electronic system, you still go before the master, you still get the order, but when you go to register it, the registrar now requires the lawyer who’s registering the order to make a ‘sheltering statement.’ That’s a statement saying there are no liens sheltering behind the liens that are being vacated.
Gillott says lawyers “went ballistic” over this, as it essentially forces them to make a judgment call that should only come from the courts.
“The lawyer says: ‘I can’t say this. I can’t make a judgment that really should be made by a court.’ The law relating to sheltering is very complicated and there are all sorts of reasons why a lien should or should not be able to shelter. But, in many cases, lawyers have been forced to make these sheltering statements because it’s the only way to get the lien off title,” Gillott says.
Gillott and his colleagues on the advisory committee have proposed to the attorney general that the rules on the sheltering statements should be changed. They want an amendment to the Construction Liens Act so a lien that’s vacated won’t affect the rights of any liens sheltering behind the lien that gets vacated.
“That way, the whole issue of whether anything is sheltering behind a lien will be removed,” Gillott says. “We’re hoping that the government and the attorney general will accept these two amendments to deal with the biggest problems with e-reg.
He notes that some of the smaller problems with e-reg have been dealt with just by speaking to the ministry. For instance, there are condominiums with more than 850 units but the system initially could only handle 200 units. “We talked to them and they increased the number,” he says.