If the Act is to be retained, there are several issues that need to be considered in working out which reforms are needed to make the Act, or any replacement Act, as fair and efficient as possible. This section discusses some of these issues, and seeks feedback on how they are best addressed.
A. Scope of lien rights
In reforming the Act, one of the major issues that needs to be considered is how wide lien rights should be. Several factors are relevant in determining the scope of lien rights. This section considers the three major factors: the type of work that should qualify for a lien, the sort of property to which a lien should be able to attach, and who exactly should be entitled to a lien.
1. Work qualifying for a lien
As discussed above, the definition of what kind of work qualifies for a lien in the Act is outdated, including work such as cooking, blacksmithing, and log driving down watercourses. It also fails to specifically include some types of work, such as mobile chipping and truck haulage, that are integral parts of the modern logging industry.
The LCO’s initial view is that work on every part of the process of getting logs from the forest to the mill should create a right to a lien. This should include the aforementioned chipping and haulage, and the construction of logging roads. This approach would be consistent with that taken in BC’s FSPP Act, which defines “services” (its equivalent of the Ontario Act’s “labour”) as “felling, bucking, yarding, skidding, processing, chipping, grinding, decking, loading, hauling, unloading, dryland sorting, logging road construction and maintenance, and any other prescribed activity”. Such a change would prevent some of the workers to whom the application of the Act is uncertain being unfairly denied liens.
2. Property that can be liened
As set out in chapter III, the current definition of “logs and timber” is obsolete. It specifically lists types of wood products that are no longer in common use (tan bark, shingle bolts, barrel staves), while failing to specifically include other, arguably less processed products such as wood chips. If the general concept of the Act as providing a lien on logs is to be retained, the definition of “logs and timber” therefore needs to be updated.
However, this is not the only option. Under Yukon’s Miners Lien Act, a lien is placed against not only minerals or ore that a person worked on, but on all ore produced from the mine in question and over the assets of the mine itself. This avoids the problem of having to identify particular pieces of property over which a lien is held, but would move a forestry lien further away from what is typically thought of as a lien and closer to a general security interest under the PPSA. In the event of default, it could also give rise to complex disputes as to exactly which assets would be sold to pay the amount owing. Procedures would be needed to determine which logs would be sold or even whether mill assets would be sold to repay the amount owed. Such a process risks being complicated and placing undue burden on licence holders.
3. Persons entitled to a lien
Currently, both employees and contractors are entitled to file a lien to protect work that they have done in relation to logs and timber. As discussed above, the position of subcontractors is unclear. The modern logging industry is dominated by contractors working for various mills, so obviously they ought to be covered. The case for covering employees and subcontractors is not as clear.
Employees who undertake logging work are already offered protection by a number of statutes which did not exist when the Act was passed in 1891. In particular, the Employment Standards Act provides for unpaid wages to have priority over all unsecured creditors to the extent of $10,000 per employee. Further, although this provision does not apply to distributions under the federal Bankruptcy and Insolvency Act, that Act also provides enhanced priority for unpaid wages to the extent of $2,000 per employee in both bankruptcy and receivership.
Given this relatively extensive protection for wage earners, is there still a case for allowing employees to file liens? Both the British Columbia Law Reform Commission and, later, the British Columbia government proposed that liens be restricted to contractors only. However, during legislative debate on the FSPP Act, there was significant resistance to the proposed restriction. The Government therefore left the old Woodworker Lien Act in place.
Subcontractors give rise to a different problem, as discussed above in chapter III(C)(6) of this paper. If they are not allowed to lien, a large percentage of people working in the logging industry cannot access lien protection. If they are allowed to file liens, however, there is a risk that a wood owner can fully settle an account with the lead contractor and still be vulnerable to liens from subcontractors if the lead contractor fails to pay them.
Lien reforms in other jurisdictions have proposed several methods for dealing with this problem. Under the provisions of the enacted but not in force FSPP Act in British Columbia, only lead contractors would be allowed to secure the debt owed to them over the wood owner’s property. Subcontractors, on the other hand, would be given a general charge over the lead contractor’s assets. This way, the interests of all parties would be at least partially protected.
The Alberta Law Reform Institute (“ALRI”) and British Columbia Law Reform Commission recommended a different approach in their reports. They recommended that subcontractors be allowed to place liens on logs even when they have not been employed by the wood owner, but such a lien would secure only that amount owed to the contractor who engaged the sub-contractor at the time the owner was notified of the lien. After being notified of the lien, any payments made to the lead contractor would not affect the lien of the subcontractor until that lien is discharged. Put another way, once notified of a subcontractor’s lien, the owner could not reduce the overall amount owed for the work done on its wood until the subcontractor has been paid by the lead contractor and the lien discharged. This structure would incentivize both the owner and lead contractor to ensure that the subcontractor is paid, thus allowing the lead contractor to be paid and the owner to be fully relieved of any liability. It is, however, an added complication to a lien regime that is supposed to be simple and easy to use.
A similar problem applies to the way subcontractors are dealt with under the Construction Liens Act in Ontario. Under that Act, the problem of contractors and subcontractors being paid is dealt with by requiring a 10% holdback on all payments to those further down the ‘chain’ of contracts. This amount must be retained until the time for filing liens has expired, at which point it may be paid out to the contractor from whom it was held back. If liens arise before this time, however, the holdback fund is used to (at least partially) satisfy such liens. This process can get extremely complicated and intrusive in regulating the flow of money, and the ALRI and BC Law Commission both rejected using their provinces’ construction lien regimes as models for that reason.
The LCO understands that another method has for practical reasons been used recently in several Ontario lien claims, despite not being provided for in the Act. That is, to allow a wood owner to pay the amount claimed by a subcontractor lien holder directly to them and set it off against any amount owed to the lead contractor, or to pay the amount claimed into escrow. This has the advantage of allowing the wood owner to deal with the wood unencumbered by a lien, but does involve the owner paying out, at least into escrow, before a lien is proved. It does, however, have the virtue of being both simple and quick, and therefore ought to be considered as an option for inclusion in the Act.
An additional issue is the way these various terms – employee, contractor, subcontractor – are defined in the Act. None of these terms is currently defined, and the addition of definitions may add further clarity to this difficult issue. For example, does an individual in business on his or her own account, but not incorporated, who is engaged by a contractor to do logging work count as a subcontractor or as an employee of the contractor? This is not entirely clear under the Act, and has not been clarified by case law. Statutory definitio