Previously our firm has written about abuses under the Repair and Storage Liens Act ("RSLA"). The recent case of 417 Truck Center v. Daimler Truck Financial is a classic example of why lenders need be concerned. The three key points under this case:
- an unregistered non-possessory lien for repairs arising under the RSLA can have priority over a registered security interest;
- a $30 per day storage charge was deemed reasonable in circumstances where the article stored was not delivered; and
- non-possessory liens can be registered at any time, and in certain circumstances, may not need to be registered at all to be enforceable.
The case is a good example of the need for lenders to be proactive and timely in their responses when dealing with repair and storage liens.
The Case
The repairer, "417", received a truck for repair in March 2008. The truck was financed to the debtor by way of conditional sales agreement through Daimler Truck Financial ("Daimler"). The repair was completed and the truck was released with the lien unpaid. This non-possessory storage lien was never registered. 417 received the same vehicle for further repair in April 2008 and retained possession of the truck until payment was made for both its new possessory lien and the older non-possessory lien. The evidence before the court was that 417 advised the debtor that storage fees would be imposed should the liens not be satisfied within a reasonable time.
The debtor advised Daimler in the fall of 2008 of the liens, the repairer's demand for payment and that storage charges were being incurred. In November 2008, the repairer and Daimler spoke directly regarding the liens. Daimler advised the repairer it would not pay more than 60 days of storage at $30 per day. Accordingly, on November 20, 2008, the repairer invoiced Daimler for storage fees at $30 per day for only 60 days (despite the fact that the repairer had stored the truck on its premises for approximately seven months). However, the evidence before the court was that the repairer notified Daimler after the initial invoice for storage was sent that storage fees would continue to be charged on a daily basis until the truck was removed from the repairer's storage yard. Daimler and the repairer were unable to reach an agreement on the final amount claimed for repair and storage liens against the truck. Daimler agreed to pay the disputed amounts into court, and the truck was finally removed six months later when these amounts were paid.
In the trial court, the deputy judge expressly held that $30 per day as a storage fee was reasonable and that the repairer's non-possessory lien was enforceable and had priority over Daimler's security interest even though it was not registered. Daimler appealed.
Section 10 of the RSLA provides that a non-possessory lien is enforceable against third parties only if a claim for lien has been registered. Where a person acquires a right against an article after a non-possessory lien arises the right of that person has priority over the non-possessory lien of the lien claimant if a claim for lien was not registered before the person acquired the right. Interestingly, there is no time limit to registering a non-possessory lien.
Daimler's position on appeal is that the trial judge erred in his interpretation of section 10 and 417's failure to register its non-possessory lien claim prevented it from enforcing its non-possessory lien against the funds once paid into court by Daimler. As a result, Daimler submits that its security interest had priority over the amount of the unregistered non-possessory lien.
In Royal Tire Service Ltd.1, the Court of Appeal ("COA") held that the secured party's (Little Bros.) security interest in trailers had priority over the non-possessory repair lien of the repairer (Royal Tire). Little Bros. had seized the trailers pursuant to its security interest and resold them before Royal Tire registered its non-possessory lien. The COA stated that Little Bros. was a third party within the meaning of s. 10 of the RSLA. The critical fact underlying the COA's reasoning was that the secured party had repossessed the trailers and sold them pursuant to its security agreement before the non-possessory lien was registered. Little Brothers had acquired the additional "right" to possession of the trailers and the "right" to sell them as a result of the default under its security agreement. In addition, Little Bros. had not received notice of the claim for a non-possessory lien because it had not been registered.
In Daimler's case, payment into court of the disputed amounts did not give Daimler any new "rights". Moreover, Daimler had actual notice of the non-possessory lien – even though 417 never registered its lien. Since, among other things, there are no time restrictions on registering a non-possessory lien, the court found that no practical or valid commercial purpose would be served by requiring 417 to register notice of its claim for a non-possessory lien in these circumstances other than to meet the technical requirements of s. 10 of the RSLA.
Finally, the trial court held that Daimler was liable for the storage charges for 60 days as invoiced and also for an additional amount of extra storage from November 20, 2008 to April 20, 2009, in the amount of $3,433.50 because Daimler "waited until April to pick up the truck after having been advised in November of its location". This was upheld on appeal, underlying the importance that secured creditors act quickly to protect their rights when learning of accruing potential storage liens. Until the legislation is amended to provide caps on storage or repair charges that will take priority over secured lenders, secured creditors may not have the luxury of negotiating in good faith with repairers as to the quantum of the lien unless there is an express form of understanding that lien amounts will not continue to accrue during the negotiation period.
Footnotes
1Royal Tire Service Ltd. v. Shelleby Transportation (1999), 1 B.L.R. (3d) 250 (Ont. C.A.)
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.