Ontario Court of Appeal Case Reminds Vehicle Financiers to Investigate RSLA Lien Claims

Written by:  Adam Nathanson

In November 2015, the Ontario Court of Appeal released a decision relating to the Repair and Storage Liens Act (the "RSLA"). The appeal discussed the definition of what constitutes a "repair" under the Act. KRMC acts for numerous vehicle financing companies and we are pleased to provide a brief synopsis of the case along with some commentary. There is a scarce amount of jurisprudence on the RLSA, and due to the lower amounts typically at issue, it is rarely cost effective for financiers to escalate matters all the way to the Court of Appeal. So it is interesting that the parties on this matter decided to take their fight to the Court of Appeal.

Facts

In 2013, Mr. Connolly purchased tires and rims for his vehicle from a vendor named Xclusive. To finance the sale, he entered into an agreement for a loan with a financier named Advantagewon. The loan application advised that Xclusive would assign their RSLA rights to Advantagewon.

Mr. Connolly defaulted on his monthly payment obligations under the loan agreement. Xclusive registered an RSLA lien against the vehicle and assigned this lien to Advantagewon, who then attempted to seize the vehicle based on a purported non-possessory lien under the RSLA. Mr. Connolly sought a declaration from the court that Advantagewon did not have a lien. The judge at the lower court found that Advantagewon held a valid non-possessory lien on the vehicle and Mr. Connolly appealed this decision.

Result and Reasons

The Court of Appeal found that Advantagewon did not hold a valid lien on the vehicle as the sale of the rims and tires by Xclusive did not constitute a "repair" under the RSLA since Mr. Connolly himself installed the products on the vehicle.

To reach this conclusion, the Court examined the definition of a "repair" under section 1 of the RSLA, as a possessory lien does not arise unless a person "repaired" the article. As per the Act, a "repair" includes "an expenditure of money on, or the application of labor, skill or materials to, an article for the purpose of altering, improving or restoring its properties." The Court found that Xclusive simply sold the rims and tires to Mr. Connolly, and he subsequently attached them to the vehicle at an alternate location. Therefore, Xclusive did not perform a "repair" on the vehicle, as it did not expend any money on, nor did it apply any labor, skill or materials to the vehicle. Xclusive did not hold any lien under the RSLA, which vitiated Advantagewon's claims to assignment of this lien.

Application to Vehicle Financiers

In the typical course of business, vehicle financiers find themselves called upon by either a repairer or an assignee of the repairer for payment of an RSLA lien. This situation creates a substantial risk to the financier's security due to the powers of a lienholder under the RSLA to sell the vehicle, and the tight timelines for payment under the notice of intention to sell (15 days).

This recent Ontario Court of Appeal case exemplifies that either a customer or a financier should carefully examine the circumstances of the RSLA lien claim to evaluate its correctness. In fact, we have seen files where a lien claimant registered a non-possessory lien on a vehicle (financed by our client) because of a default under their financing agreement with a customer (again, for the purchase of tires by the customer). However in that case, the lien claimant seized the vehicle from the customer and towed it from Stouffville, Ontario to their storage facility in London, Ontario (a distance of 223 kilometers). They registered their lien and demanded that the financier pay a total of $4,390 to clear the lien and for return of the vehicle: $1,692 for the balance of the loan for sale of the tires, a total of $1,495 in collection fees, courier fees, and an NSF fee, and $1,203 for towing and storage fees. Prior to assigning the file to our office, our client decided to pay these amount in full, repossessed their vehicle, and thereafter retained our firm to seek the recovery of these amounts and the deficiency balance after sale of the vehicle from the customer as per their contract.

The Court of Appeal's decision casts doubt on the propriety of that lien claimed, and while it has not yet been established, a financier could face an unfavorable result in court if they seek the full amounts from the customer and do not closely examine the circumstances of the lien and/or dispute the lien by paying the amounts claimed into court. For our example described above, the charges for the towing of the vehicle should not have been included in the base lien amount unless the towing was incidental to the repair (which one cannot say is true regarding the sale of tires). As well, the additional fees (collection, courier, and NSF) should not have been included as part of the lien. Going further, if the repair itself (the sale of the tires) was not captured by the RSLA, then these incidental charges would fail to form part of any lien.

The bottom line is that mechanics and storers who assert a lien under the RSLA must fully comply with the Act in order for their lien to valid. In the Court of Appeal case, the lienholder did not meet the definition of a repairer, and in other cases we typically see, the lienholder may not have complied with all of the necessary elements under the RSLA or the Consumer Protection Act to create a valid lien.

What this demonstrates is that to continue with best practices, whenever an RSLA issue arises, a financier should closely examine the circumstances which gave rise to the lien and/or consult with legal counsel before determining the best course of action.

The information you obtain at this site (including this blog) is not, nor is it intended to be, legal advice. You should consult a lawyer for advice regarding your individual situation. We invite you to contact us and welcome your calls, letters and electronic mail. Contacting us does not create a lawyer-client relationship. Please do not send any confidential information to us until such time as a lawyer-client relationship has been established.

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