An Ontario court has ruled that security posted by a property owner to remove a subcontractor’s construction lien cannot be fully returned to the owner, even after the two parties settled the claim, because doing so would prejudice the rights of the general contractor1. In a decision released on September 9, 2025, Associate Justice Todd Robinson of the Superior Court of Justice emphasized a core principle of Ontario’s Construction Act: money or security paid into court to vacate one lien stands as security for all lien claimants on a project. The ruling came in a multi-party dispute involving the owner, 35 Mercer Limited (“Mercer”), the general contractor, Urban Integrated Group Inc. (“UIG”), and a subcontractor, Urban Electrical Contractors (“UEC”).
The case arose from a construction project where UEC, an electrical subcontractor, registered a construction lien against Mercer’s property for unpaid work. To free the property title from the lien while the dispute continued, Mercer posted a lien bond with the court as security. Subsequently, UIG, the general contractor, also registered its own liens, which included the amounts UEC was claiming from it. When UIG’s much larger liens were vacated, the amount of security it was required to post was reduced to account for the security Mercer had already posted for UEC and other subcontractors. This common practice avoids the duplication of security for the same underlying work or services.
The matter came before the court when Mercer brought a motion seeking to drastically reduce the value of UEC’s lien by more than $4.3 million. Mercer also initially sought orders to have other smaller liens declared expired. This motion was opposed by UEC, the lien claimant, and UIG, the general contractor, which argued that any reduction in security for UEC’s lien would also be a reduction in the security for its own liens. UIG stated that its security had been calculated and posted on the express understanding that the security for UEC’s lien was already in place. Removing it would leave a portion of its own claim unsecured.
Before the motion was heard, the three parties, Mercer, UIG, and UEC, reached a partial settlement. They all consented to an order that would reduce UEC’s lien and the corresponding security by $3,231,464.75. Lawyers for all sides agreed to a draft consent order to this effect, leaving only the issue of legal costs to be decided by the court. Mercer agreed to withdraw the part of its motion dealing with the other, smaller subtrade liens. This agreement appeared to resolve the main substance of the motion.
However, following this three-way agreement, Mercer and UEC continued their own separate settlement discussions without UIG’s involvement. These two parties reached a broader, private settlement. Under their new deal, UEC agreed to fully discharge its lien and have the entire action against Mercer dismissed. In exchange, Mercer expected the full amount of the lien bond it had posted as security for UEC’s claim to be returned. When a new draft order reflecting this two-party settlement was circulated, UIG refused to consent, specifically opposing the full return of the security.
Before the court, Mercer argued that since UEC had now consented to the full withdrawal of its lien, the security posted specifically for that lien should be returned. Mercer’s counsel contended that UEC’s claim was simply a “flow-through” component of UIG’s larger claim, and settling directly with UEC should extinguish that portion of the security requirement. UIG countered that this view was misleading and ignored the interconnected nature of lien security. UIG’s position was that it had only ever consented to a reduction of $3,231,464.75 in security, not its complete removal. The general contractor argued that its own security was reduced in reliance on the UEC bond remaining in place, and releasing it would prejudice not only UIG but also other subcontractors whose claims were subsumed within UIG’s liens. Further complicating matters, UEC’s underlying contract claim against UIG had not been withdrawn, meaning UIG could still be found liable to UEC for the very work that was the subject of the lien.
Associate Justice Robinson sided with UIG, preventing the full return of the security to Mercer. The judge grounded his analysis in the “security pooling” principle found in section 44(9) of the Construction Act. He explained that security posted to vacate a lien is not just for the benefit of that one claimant; it becomes subject to the claims of all persons having a lien on the project. “Put simply, security for one lien is security for all liens,” he wrote. Because UIG’s security was calculated and reduced based on the existence of Mercer’s security for UEC’s lien, UIG was clearly affected by its proposed return.
The judge found that accepting Mercer’s position would effectively allow a property owner to settle directly with a subcontractor and bind the general contractor to the terms of that deal without the contractor’s consent. UIG was not a party to the settlement between Mercer and UEC and therefore could not be bound by UEC’s concessions. “The fact that Mercer has settled UEC’s lien claim directly with UEC does not preclude UIG from still pursuing its own claim for those carried amounts,” the judge stated. Since UEC was still pursuing its contract claim against UIG, the dispute over the work was not fully resolved, reinforcing UIG’s need for the security to remain in place for its own lien.
Ultimately, the court crafted an order that respected both settlements to the extent possible without prejudicing UIG. The judge ordered that UEC’s lien be discharged as agreed between Mercer and UEC. However, regarding the security, he implemented the terms of the original three-party settlement. The lien bond was reduced by the agreed-upon amount of $3,231,464.75. The remaining balance of $2,320,997.51 was not returned to Mercer but was ordered to continue to be held in court as security for UIG’s liens.
The final matter was the legal costs of the motion. Mercer sought approximately $28,000 in costs from UIG, arguing its opposition was unreasonable and had driven up expenses. UIG argued that no costs should be awarded, as the parties had reached a compromise on the motion’s main issues without a full hearing. Associate Justice Robinson declined to award costs at this stage. He noted that the parties had indeed settled and that he could not determine the merits of their positions without a full review of the evidence. Furthermore, UIG had been successful on the specific issue argued before him regarding the return of the security. He concluded that the most just result was for neither party to receive costs now, but permitted both Mercer and UIG to claim their costs related to this motion as part of the overall costs at the final conclusion of UIG’s larger lien action.
Read more about business cases in Canada here.
