PART I

Progress, 1 November 1905, Page 11

PART I

Recent decisions of the Supreme Court on the interpretation of " The Contractors' and Workmen's Lien Act, 1892," have somewhat upset the preconceived notions of laymen as to the protection afforded them by that Statute. A short statement of the existing position of the law may perhaps give leaders of Progress a clearer idea of their rights and remedies under the Act, and the course to pursue if they wish to take advantage of it. The Act gives three remedies to contractors, sub-contractors and workmen for work done by them under a contract, (the term work including the supply of materials), viz — (1) A lien upon land upon which any work is done. (2) A hen upon a chattel upon which any work is done. (3) A charge in favour of sub-contractors and workmen upon moneys payable under the original contract or any sub-contract. This article is confined to liens upon land and hensjin favour of contractors. As the work most commonly done upon land in respect of which hens are claimed is the erection of buildings, that will be for simplicity's sake the only kind of work hereafter referred to. Prior to the act of 1892 a contractor, merchant or workman, whose materials or labour were expended m the construction of a building, had no security over the land on which if was erected. His remedy for non-payment was a personal one only against his employer. The contractor could sue the employer in a civil action for the amount due, and having obtained judgment, could then exercise such powers of distress, execution, judgment summons or bankruptcy as the law gives all creditors. In 1892 the Legislature passed " The Contractors'Workmen's Liens Act," based on the bill introduced into the Queensland Parliament, and prepared by Sir Samuel Griffiths, who took his bill from an Ontario Act, which in turn seems to have been copied from one of the many Lien Acts in the United States. In that country these liens are known as Mechanics' Liens. Each State has its own law on the subject with its own peculiarities, and there has been a great mass of conflicting decisions upon almost every point that could possibly arise. The New Zealand Act was passed to give protection against dishonest or insolvent employers and contractors. If employers and contractors were both solvent and honest no remedy would be needed, for all those employed on the contract would be paid m full. The intention of the Legislature was to give those whose materials or labours went into a building, some security over the land on which it was erected — in other words, the land, to the extent to which it had increased in value by the materials and labour bestowed upon it, should be burdened by a charge in favour of those who had increased its value. The Statute, after some complicated definitions, enacts that contractors, sub-contractors and workmen (which terms inculde merchants supplying materials) have a lien on the interest of the employer m the land on which their work was done for the contract price of that work. If the owner of the land is not himself the employer he is subject to a hen only to the extent to which he has consented in writing. Section 6 prescribes that if a mortgage be duly registered against the land before a hen, it shall have priority over the other unless the mortgagee be a party to the contract. Other sections provide that, in order that a lien may not be extinguished, the henor must do three things • — (1) Withm 30 days after the completion of his work serve a notice in a prescribed form claiming a lien. (2) Within 60 days after such completion issue a summons in the Magistrates, District or Supreme Court, according to the amount involved. (3) Within 30 days after such completion register the lem in the Deeds Register office

or Land Transfer office (according as the land is under one or the other system) by registering a copy of the statement of claim and affidavit verifying it certified as correct by the proper officer of the Court in which such claim is filed. Until recently contractors have been under the impression that as long as they followed the procedure prescribed as above their hen over the land was safe and could not be defeated. Section 29, however, takes away with one hand what the Legislature has given with the other. That section states that if the claim of lien is not registered within 30 days after the completion of the work, the lien shall be extinguished, apparently contemplating the existence of a lien which is to be snuffed out by non-registration. The section, however, concludes • " Until registration, the land shall not be affected by hen or claim of lien." The construction recently placed on these words goes far to render nugatory, so far as land is concerned, the protection that the Act purports to give. En passant, one of the inconsistencies of the Act may be pointed out : although one section gives the contractor 30 days for his notice, and 60 days for his summons, section 29 makes it necessary to issue the summons within 30 days and to register within that time a copy of the statement of claim with the summons. Recent decisions have laid down the following rules : — The hen is created, not by notice or by registration, but by the Statute ; but until it is finally enforced is a mere floating or inchoate charge. It is unaffected by the bankruptcy of the owner of the land, and notice of claim of lien and proceedings to enforce it are effectual, even though given or taken after such bankruptcy. Until the lien is registered, however, the contractor has no real security over the land for his debt. At any moment his claim may be defeated by the prior registration of a transfer of or other dealing with the land upon which he is claiming the lien. The Act applies to all lands, but for simplicity's sake only land under the Land Transfer Act will be referred to. It is immaterial whether the transfer or dealing be by the way of gift or for full consideration, innocent or fraudulent, or whether the transferee had or had not notice of the contractors claim of lien. The mere registration of the transfer gives the transferee absolute priority over the lienor, although the lienor had no suspicion that any change of ownership was taking place, and although the transferee knew that the contractor was being deprived of his claim of lien. If the transfer is registered before the lien, the latter, though registered within the time prescribed by the Act, has ceased to float. It is drowned, and no diligence on the part of the contractor can resuscitate it. Further, if the owner transfers the land when the building on it has only just begun and the contractor, knowing nothing of the transfer and having no reason to suspect a change of ownership, continues to supply material, he has no remedy against the land or against the transferee, not even in respect of the materials supplied since the transfers, and not even although the transferee in his transfer stipulated that the transferor should complete the building. For the transferee, although the owner, has not consented in writing to the lien and has been held not to be withm the definition of employer. Contractors may declare with Mr. Bumble that " the law is a hass," but such is the law until it is altered by the Legislature or reversed by a higher Court. This interpretation opens the door to all kinds of frauds — transfers by husbands to wives or friends, bogus mortgages, and a hundred and one devices which can readily be called to mmd to defeat contractors' liens. It makes the Act a snare instead of a shield for contractors who are induced to give credit to impecunious speculators, relying on the protection which they suppose the Act affords them. Until the law is altered, therefore, merchants, if they have any doubt as to the honesty or solvency of the builder whom they supply with materials, or of his employer, should either take a mortgage over the land of the builder, if he is building on his own land, for the value of all materials to be supplied for the job ; or whenever they supply materials to a substantial amount should give the required notice, issue a summons and register it against the land without delay. In the latter case quite a number of summonses might have to be issued in the course of the erection of a building, a procedure which would mean increased expenditure and worry to the builder and owners and would injure their credits, and doubtless after the registration of one lien prompt recourse to another merchant not quite so keen to protect himself according to the requisites of the law. The law may in theory require the registration of a series of liens during the construction of a building, but in practice such a course will be found quite out of the question by business men.

(To be continued).