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As discussed above, the definition of what kind of work qualifies for a lien in the Act is outdated, including work such as cooking, blacksmithing, and log driving down watercourses.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As set out in chapter III, the current definition of “logs and timber” is obsolete.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 definitions of these terms are therefore needed to provide certainty in exactly who is entitled to a lien.
4. Commencement of Lien
At common law, liens typically arise when work is complete. This could be problematic if, for example, the licence holder employing a logging worker or contractor becomes insolvent part way through a job. In such circumstances, it would seem unreasonable to require a worker or contractor to complete their work before a lien can be claimed. Justice Pierce ruled in Buchanan that the lien arises at the time work commences. The LCO agrees that this position is sensible, and should be clearly stated, which the Act does not do. The Act should therefore be amended to clarify that a lien arises at the time work is commenced.
3). What sort of work do you think ought to create lien rights?
4). What sort of wood products do you think ought to be lienable?
5). Who do you think should be eligible for a lien? Should employees be eligible?
6). How do you think the issue of subcontractor liens is best resolved?
7). Do you agree that a lien should commence as soon as work is begun?
B. Filing and Registration
There are two broad issues to consider when it comes to filing and registration of liens. First, what system of registration (if any) makes most sense for forestry liens and secondly the time allowed for logging workers to file lien claims.
1. Registration requirements
The Act has no centralized system for registering liens. Instead, liens are filed in the Superior Court of Justice closest to where the work to which the lien relates was carried out. This arguably makes it difficult for licence holders, and possible wood buyers, to know whether a lien has been filed against wood (although it is obviously in the best interests of lien claimants to provide notice to licence holders to ensure than the wood is not processed before the claim can be enforced). This is contrary to the policy enshrined for most other forms of security in the PPSA. As the ALRI put it when discussing liens in that Alberta:
Many of the policies underlying the present law of liens are in conflict with the underlying policies of the PPSA. The most obvious example is the creation by statute of non-possessory liens that are not subject to a registration requirement. … This is completely at odds with the PPSA philosophy that third parties should have a means of discovering the existence of a security interest. 
One of the other lien regimes in Ontario – that under the Storage and Repairers Lien Act – co-opts aspects of the PPSA to set up a standalone registry. This is also the approach recommended in the ALRI Lien Report. However, both of these lien regimes operate in contexts where a large number of liens will be registered – the ALRI proposal was to provide a registry for all commercial liens in the province, while repair and storage liens are relatively common liens. Log liens, on the other hand, appear to be very uncommon. The LCO understands that, before the flurry of lien registrations associated with the Buchanan Group insolvency, it was common for Superior Court offices to see only one lien filing a year, sometimes none.
With such potentially small numbers of lien claims, setting up a central registry may be an unjustified expense with little practical utility. This appears to have been the view taken in Yukon in revising its Miners Lien Act. Although a comprehensive review of the Miners Lien Act was undertaken, no central registry was adopted. Instead, liens are still filed in one of four local offices of the Mining Recorder, as was the case when the Act was passed in the early part of the 20th century.
Further, one of the key advantages of a central registry is that it is easy for people to search and discover if property they may be looking to acquire an interest in is encumbered. This is simple for serial-numbered property or vehicles. It is also relatively simple for other property that has obvious distinguishing features – valuable jewelry, for example. Logs and other wood products are not so easy to identify. Logging workers do mark the logs they have worked on, but not all logs are marked by the person who cut them, marks would be lost if wood is chipped, and the people not directly involved in the felling process may have no mark at all. Wood products worked on by different people may also be mixed together. In short, it is extremely difficult to identify specific wood products.
There is case law suggesting that identifying the type of wood and the place and time it was logged is sufficient identification to claim a lien. This is a sensible position in terms of determining eligibility for a lien, but still does not provide much useful notice to any third parties who might be dealing with the wood some months after it was logged. It is therefore debatable whether the benefits of a central registry fully apply to wood and wood products. For these reasons, the status quo of filing in local court offices remains an option that ought to be considered.
2. Time for filing/registration
As discussed above, the current rules on when liens can be filed are irrational. Depending on when work is carried out, filing times can be as short as one day after work is complete or as long as one year. This system is clearly inadequate, but there remains a need for some limitation on how long a logging worker has to file (or register, if a central registry is developed) a lien. The absence of any limits could create a significant amount of uncertainty for wood owners. In a way, any limitation on the right to file a lien is arbitrary, but there are several examples from other jurisdictions which can be drawn on in determining the appropriate time limit in these circumstances.
One option, which was recommended by ALRI, is to not have any time limit for filing or registering a lien, but making an unregistered lien unenforceable against third parties. This means that any transfer of ownership from the original wood owner before a logging worker files or registers a lien will make any subsequent lien unenforceable. Similarly, if a lien is not filed or registered, there is nothing to stop a wood owner processing the wood at a mill, which could also render the lien unenforceable. While not a formal time limit for filing, this approach would certainly encourage logging workers to file within a reasonable time.
Another approach, used in the Yukon Miners Lien Act and the Ontario Construction Liens Act is to set a time limit after work is completed for liens to be filed. While this initially seems simple, the context of the logging industry makes this solution somewhat more problematic than it is in a construction setting.
Logging subcontractors, particularly those involved in the early parts of the logging process, often do not know exactly when the wood they have worked on will be delivered to the mill. The delay between that early work and delivery can in some cases be measured in months, and the LCO understands that there will not necessarily be an expectation of payment before the wood is delivered. If the time for filing commences at the time work is completed, these early subcontractors could be left in a position where their right to file a lien expires before the wood owner is even in default. Such a situation is counterintuitive. Further, any premature lien claims prompted by a too-short limitation period could damage ongoing relationship between a wood owner and a contractor. Given that the LCO understands that most contractors rely on a small number of wood owners for their work, such ongoing tension could severely affect their livelihood.
Another option would be to have the limitation period start running from the time wood is delivered to the mill (i.e., the time from which payment could reasonably be expected). This will technically give those contractors and workers involved in the earlier part of the logging process, such as the constructors of logging roads and harvester operators, longer to file than, for example, the contractor who actually hauls the wood to the mill. The practical comparative disadvantage for such later contractors and workers seems minimal, however.
8). Do you think a central register for wood liens is a good idea?
9). What do you think the standard of identification for wood products should be?
10). What time limit, if any, do you think should be applied to lien filing or registration?
C. Lien Priority
Currently, liens under the Act have priority over essentially all other interests other than government stumpage fees. There is nothing necessarily wrong with leaving this priority intact, but as it stands the Act completely ignores Ontario’s main avenue for securing financial interests in property – the Personal Property and Security Act. Some effort needs to be made to reconcile the policy behind the Act and the policy behind the PPSA. One of these policy issues was discussed above – the issue of whether registration ought to be required in order to inform third parties about any security interests 
One of the other broad policy intents is that priority of security interests ought to be determined by perfection and the time a security interest arises, in that order. “Perfection” is a concept used in the various PPSAs in Canada to help determine priority. Typically a security interest is perfected by registering a financial statement in the Personal Property Security Register, but other methods (such as perfection via possession) are available. Thus, under the PPSA the earliest unperfected interest has priority over all later unperfected interests, and the earliest perfected interest has priority over all later perfected interests and all unperfected interests, regardless of when the unperfected interests arose.
The current position under the Act disrupts this position by providing first priority to lienholders, regardless of when the lien arose in relation to other security interests. Is there a reason to disrupt the ordinary course of operation under the PPSA? The PPSA does contemplate liens disrupting this ordinary course of operation, with section 31 stating that:
31. Where a person in the ordinary course of business furnishes materials or services with respect to goods that are subject to a security interest, any lien that the person has in respect of the materials or services has priority over a perfected security interest unless the lien is given by an Act that provides that the lien does not have such priority.
Logging workers and contractors clearly provide services in relation to lumber as part of the ordinary course of their businesses. There is no limitation on their priority under the Act. Under the PPSA, log liens therefore currently trump all secured interests, perfect and unperfected. Be that as it may, the status quo is not a justification for continued special priority. The Repair and Storage Lien Act, for example, specifically provides that a lien under that Act does not have priority over any third party interest that arose after the lien but before it was registered. In keeping with the rest of this project, we must ask whether the status quo is justified. Is there any policy justification in continuing to give enhanced priority to log liens?
If one exists, it is one founded in the first principles of both liens and the Act. First, as noted in chapter III(A) of this paper, a lien was traditionally given to a person whose work improved or maintained the value of property. Logging workers fulfill this criteria, because felled, delimbed (sometimes cut or chipped) timber transported to a mill yard is worth more than standing timber miles from anywhere. This increased work will benefit other creditors, as the assets of the debtor are rendered more valuable. Secondly, the Act was designed to protect a particular class of worker. As discussed above, if logging workers and contractors are still seen to be particularly in need of protection and without other recourse, the disruption of normal priority rules makes sense.
There are therefore arguments to retain increased priority for log liens. If, however, these arguments are not seen as convincing, there are two broad options for change. First, some limits on the lien priority can be prescribed, as is the case in the RSLA. Secondly, log liens could be treated simply as security interests. This would mean that they are governed by the standard priority rules under the PPSA, without any special preference. This second approach is the one the unimplemented BC regime will take when it comes into force in the next few months.
Regardless of priority given to the lien, there are limits to the degree to which provinces can affect the order of priority under the BIA. It is certainly possible for a province to make lienholders first-ranking among secured creditors (because personal property regulation is a provincial responsibility). The BIA’s priority provisions list secured creditors as a group, and the ranking within that group is up to the province. However, any attempt to ‘leap frog’ beyond that, and grant priority over things such as employee wages is beyond provincial authority (in that it disturbs the ranking of creditors in bankruptcy, which is a federal responsibility).
D. Enforcement Process
As discussed above, the current enforcement process is complicated. Everything from how actions are started to how liens can be discharged to how sale is carried out lacks clarity. Court involvement is needed at several stages throughout the process, which adds expense and delay. While courts will almost certainly need to be involved in some capacity, ideally more should be able to be handled without judicial recourse. This section discusses some of the major issues that the process for enforcement ought to address.
1. Proving a lien
As discussed in chapter III, the current process for proving a lien is confusing, outdated and requires reform. In general, what is required is the ability to file and serve a lien claim on the owner (and possessor, if different) of the wood, quickly resolve any disputes as to its validity and, if necessary to preserve the lien (e.g., if the wood is to be sold or processed) seize the wood. A simple process for the wood owner to have the lien discharged (and possession restored, if the wood has been seized) by paying a bond into court, whether or not the wood has been seized, is also essential. This allows the wood owner to continue its normal business and also ensures that the lien claimant will be paid for work done if the lien is ultimately proved. The exact details of the process will differ depending on whether the current decentralized court filing system is retained or a central PPSR-style registry is used, but the broad outcomes required remain the same.
The big difference between a log lien under the Act and other non-possessory liens is that no agreement or acknowledgement of indebtedness is required for a log lien. Other non-possessory lien regimes, such as that which operates under the RLSA, require a written acknowledgement of indebtedness before a non-possessory lien can be registered and goods can be seized. Such an acknowledgement is not conclusive, and the property owner can still dispute the amount owed via the processes under the Act, but it provides the court (and the sheriff) some prima facie basis for seizure. Without such an acknowledgement of indebtedness, or the traditional security agreement, something else is needed. An affidavit from the claimant setting out the work done, amount owed, and circumstances of default could serve the same purpose, but still only provides one side of the story. A claim form and affidavit providing this sort of information is required under the Act, but the content requirements are somewhat outdated. A possible method to counterbalance the problem of a one-sided affidavit is a simple bond-and-discharge process as discussed above, coupled with financial penalties for lien claimants who groundlessly or maliciously file liens.
2. Realizing the lien
Once a lien is proved, it needs to be easy to realize. That is, sale needs to proceed relatively quickly, costs which deplete the amount that can be paid to lien claimants (e.g the cost of the sheriff’s time and storage costs) need to be minimized, and the process of distributing funds to all lien claimants needs to be simple. Speed is particularly important in the context of the logging industry, where the LCO understands that many contractors rely on the amounts owed to them by wood owners to keep up with financing payments on their equipment. Significant delay could result in a total loss of livelihood. The Act is not clear as to whether the costs of the sale can be paid out of the lien fund or whether they must be met by claimants. Even if the costs provisions do allow lien claimants to recover, this amount is drastically limited by a hard cap costs recoverable (discussed further below). The new FSPP Act in BC (albeit not in force yet) provides an example of the sort of sale process that might be used. The relevant parts of this Act are excerpted in Appendix A.
11). What features do you think are essential for a fair process for proving a lien?
12). How do you think the sale of wood to realize a lien should be handled?
13). Should the sale be conducted by the lien holder or by an officer of the Court (such as a sheriff)?
E. Compensation Fund
As discussed above, in 2010 British Columbia passed a major reform of its log lien law, the bulk of which is awaiting implementation. That unimplemented part will integrate log liens into the province’s PPSA and limits the priority given to the lien. To counterbalance this loss of priority, the new FSPP Act sets up a fund to compensate logging contractors who suffer losses as a result of a forestry licence holder becoming insolvent.
The part of the FSPP Act allowing for the compensation fund to be set up came into force on March 30, 2012. On the same day, the BC government set up the fund by Regulation, vesting it with an initial amount of $5 million. The Minister was also authorized to engage an authority to administer the fund. The LCO understands from discussions with the BC Ministry of Forests, Lands and Natural Resource Operations that an interim administrator has been engaged, with a permanent one to be appointed in the near future.
The Parliamentary debates preceding the FSPP Act suggest that the fund will be an insurance or trust-type scheme, with contributions paid by industry participants (i.e. logging contractors, forestry licence holders, or both). The fund is based on the province’s travel assurance fund, which is currently run under BC’s Business Practices and Consumer Protection Act. Discussions with the BC Ministry of Forests, Lands and Natural Resource Operations confirm that this is the general model. However, the identity of contributors to the fund has not yet been set, and therefore the Government’s $5 million seed funding remains the fund’s sole source for compensation at this stage.
Whether funded by government, industry contributions, or a mixture of both, the idea of a compensation fund deserves some consideration. A central fund could speed up the process of ensuring that logging contractors and workers are paid for work done, and has the potential to reduce the transaction costs involved in the somewhat arduous process of claiming, proving, and realizing a lien via the sale of wood products. It would also mean that a contractor or worker’s ability to get paid in the event of a wood owner’s insolvency would not depend as much on his or her ability to afford to pursue a lien. However, any levies required to populate the fund would increase the costs imposed on everyone in the logging industry, including those logging contractors and workers who never needed to claim, and those wood owners who never became insolvent. Similarly, any government funding would result in an increased burden on taxpayers.
The LCO has no firm views on the desirability or otherwise of a compensation fund, but is keen to hear what those working in the industry think about the idea.
14). Do you think a compensation fund is a good way to deal with the problem of vulnerable logging workers and contractors?
15). If so, who should contribute to the fund? Under what conditions should it pay out?
F. Other issues
While the issues discussed above are the most crucial in developing a fair, effective new Act, there are several other matters which ought to be considered. This section discusses these various issues.
1. Costs provisions
As noted above, the costs provisions of the Act are inadequate, allowing at most $10 of the costs associated with filing and proving a lien to be recovered. Aside from not having been updated in a century, this extremely low cost cap can be explained by the fact that the process of proving a lien is intended by the Act to be conducted largely without a lawyer. If this was ever realistic, it certainly is no longer. The current costs provisions mean that, if a lien is disputed or any difficult issues arise in proving the lien, the lien claimant could be left significantly out of pocket. New costs provisions are needed.
In the LCO’s view, this issue can be addressed relatively simply. The Act already provides that the costs tariff of the court in which the lien is enforced applies, but then immediately restricts this application by imposing the costs caps mentioned above. A simple way to fix this issue would simply be to repeal the costs caps.
2. Geographical coverage
Somewhat oddly, the Act only applies to the Territorial Districts of Ontario and the County of Haliburton. The “Territorial Districts” consist of that part of the province North of (and including) the Parry Sound and Nipissing Districts. As this area contains the vast majority of Ontario’s commercial logging activity, this geographical restriction in application does not appear to have caused many issues. From the debate reports, the choice of coverage appears to have been a result of contemporary politics – those were the districts that had asked for, and been consulted about, the Act. The County of Haliburton was added in a later amendment, seemingly at the prompting of an individual MPP. There does not seem to be any principled reason why lien protection should not be available to those undertaking logging activities elsewhere in the province. As such, the LCO’s initial view is that the restriction on the Act’s geographical coverage should be repealed.
3. Payment from an Ontario bank
Section 32 of the Act is somewhat unclear, but appears to make it an offence for any payment of wages for logging work to be paid with any instrument (i.e., cheque, promissory note or money order) drawing on funds held by any bank outside Ontario. The intent of this provision made some sense at the time it was passed. Hon A S Hardy stated when introducing the Bill that the intent of the provision was to prevent Michigan-based log buyers from paying with cheques drawn on Michigan banks. The hardship caused by such a practice was that, such cheques were significantly depreciated in value in Ontario, due to the difficulty at the time in actually getting to the Michigan bank to cash the cheque.
In the modern banking world, this fear of depreciation would no longer seem to be an issue. In the LCO’s view, section 32 therefore no longer serves a useful purpose.
4. Separation of wood
One of the things that is needed to seize and/or sell wood is the ability for wood products to which a lien relates to be separated from other wood products. The Act does have a power supposedly allowing a sheriff to do so, under section 17. However, section 17 only allows a sheriff to “take any proceedings that the owner of any logs or timber may take under the Lakes and Rivers Improvement Act for the purpose of procuring the separation of any logs or timber”.
The current iteration of the Lakes and River Improvement Act does not appear to provide the owner of logs or timber with any such rights. Indeed, the only power relating to logs and timber appears to be that of persons under the Minister’s direction to remove logs that are part of a dam from a lake or river. Even if this was a power given to owners, it clearly contemplates logs being driven downriver rather than hauled by road. It is therefore clearly out of date, and the separation power needs to be updated.
16). What process do you think ought to be used to determine the costs recoverable by successful lien claimants?
17). Do you agree that any revised Act should apply to the whole province?
18). Do you agree that it is no longer necessary to require payment of logging workers or contractors from an Ontario bank account?
19). What sort of power to separate logs do you think a sheriff should be given?
20). Are there any other issues that the LCO should consider in reforming the Act?
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