On December 12, 2017, the Construction Lien Amendment Act, 2017 received Royal Assent. The Construction Lien Act became the Construction Act (the “Act”).
Under the Act, effective July 1, 2018 and subject to the Act’s grandfathering rules, construction lien claims under $25,000.00 can now also be referred to the Small Claims Court.
The key word is referred. Construction lien claims cannot be commenced (“perfected”) by way of a statement of claim issued in the Small Claims Court.
Under the Act, a perfected lien action may be referred to the Small Claims Court by a judge of the Superior Court, provided pleadings have closed.
In other words, a construction lien action must first be commenced in Superior Court, and a statement of claim and certificate of action (“COA”) must be issued. The COA must also be registered on title to the subject lands. Then, all statements of defence – including responses to crossclaims, counterclaims, and third party claims – must be delivered, or the time for their delivery must have expired. Only then may the lien claim be referred to the Small Claims Court.
This referral process is intended, theoretically, to make construction lien litigation involving lien amounts under $25,000 a less expensive, faster and, therefore, more accessible route to justice. However, there are a number of factors to consider in determining if this is the appropriate avenue for a lien claimant.
First, parties need to be cognizant of the fact that Ontario’s Courts of Justice Act significantly restricts cost awards in Small Claims Court. Successful parties in Small Claims Court may walk away with no more than 15 per cent of their own costs, up to a maximum of $3,750.
Moreover, the costs savings associated with the Small Claims Court are limited when the lien action must begin its life in Superior Court. For better or for worse, this procedural framework is a necessary function of our constitution.
The Small Claims Court is not a “section 96” court under the Constitution Act. Section 96 of The Constitution Act, 1867 grants the federal Governor General the power to appoint Superior Court judges. There are limits on the degree to which Superior Court judges can delegate their authority to decide certain actions. The Governor General’s power to appoint judges would be undermined if the provincial legislatures could circumvent the federally-appointed judges by requiring that these actions be heard in a lower court, such as the Small Claims Court. This is true for construction lien actions. It would be constitutionally invalid for the Small Claims Court to hear a construction lien action without requiring that the action be commenced at Superior Court.
Even once the lien action is referred, the Small Claims Court does not have the final say in deciding the case and awarding a judgment. The Act provides that the results of the Small Claims Court lien action constitute a “report.” In order to be enforced, a report of the Small Claims Court must be confirmed by the Superior Court.
And while litigants may be self-represented in Small Claims Court, they will require a lawyer to take the steps required in the Superior Court of Justice unless they have leave of the Court.
In summary, construction lien claims may now be heard by the Small Claims Court, but lien litigant will inevitably find themselves in the Superior Court of Justice – not once, but twice – before they have an enforceable judgment.
(Remember to consider the transitional rules to determine whether the Small Claims Court amendments apply to your particular situation).