A recent dispute involving the Vancouver airport expansion serves as a reminder to contractors that builders' liens cannot be enforced against the federal government. This principle was affirmed in 2011 by the Supreme Court of Canada in British Columbia (Attorney General) v. Vancouver International Airport Authority and should prompt subtrades to consider the lack of provincial builders' lien protection if they bid on federal work.

Background

This case began as most lien matters do, with unpaid contractors registering builders' liens for work or materials supplied to the Vancouver airport expansion. For the purpose of complying with the form prescribed by the British Columbia Builders' Lien Act (the BLA), in naming the "owner" of the property, the lien holders correctly listed the Vancouver Airport Authority (the Authority). However, the ownership of the airport was more complicated than the builders' lien forms suggested. The property on which the Vancouver airport is situated is Crown land and, as such, is owned by the federal government. The property is then leased to the Authority which operates the airport under a 60-year lease. This arrangement is not unique to Vancouver. Across Canada, the federal government is the lessor of Crown lands designated for use as airports to the various airport authorities as lessees under long-term lease arrangements.

The British Columbia Land Titles Registry registered the builders' liens against the Authority's leasehold interest in the lands underlying the Vancouver airport. The filing of these encumbrances against federal Crown lands triggered government intervention. The lease between the federal government and the Authority prohibited the registration of builders' liens against the Vancouver airport and charged the Authority with the responsibility of discharging any builders' liens.

The Authority first requested that the British Columbia Land Titles Registry stop registering builders' liens against its leasehold interest. When this request was denied, the Authority challenged the constitutionality of builders' liens filed against it at the British Columbia Supreme Court in Vancouver International Airport v. Lafarge Canada Inc. (cob as Lafarge Construction Materials). In an interesting twist, shortly after the Authority made its application, the lien holders voluntarily discharged their liens. Thus, the case changed from a live dispute to an exercise in legal academia. At this point, the Attorney General of British Columbia waded into the fray.

Since the builders' liens had been discharged, the Attorney General argued that the Authority's challenge was moot. Pitfield J. disagreed with the Attorney General and, in the absence of any actual builders' liens, ruled on the constitutionality of filing a builders' lien against the lease to the Vancouver airport.

Federal Lease to the Authority

Pitfield J. affirmed that the Authority's lease was an interest in land against which a provincial builders' lien could prima facie be registered. However, the sole purpose of the lease granted by the federal Crown to the Authority was for the construction, maintenance, management and operation of an international and interprovincial airport. This purpose was not merely incidental but central to an exercise of a core legislative power over a federal work or undertaking, namely aeronautics.

The Authority had entered into contracts for improvements to the Vancouver airport. These improvements were the property of the federal government, pursuant to the terms of its lease with the Authority, and vital to the operation of a core federal undertaking. Provincial builders' liens filed against airport leases could directly, rather than incidentally, impair a federal undertaking as the liens may hold up financing of the airport's improvements or be enforced through the sale of the airport lease.

The Attorney General appealed the chambers judge's decision to the British Columbia Court of Appeal in Vancouver International Airport Authority v. British Columbia (Attorney General). Smith J.A. upheld the decision of the chambers judge such that all builders' liens filed against the Authority's leasehold interest were deemed invalid and to be of no force and effect. The Attorney General's application for leave to appeal the Court of Appeal's decision to the Supreme Court of Canada was subsequently denied on August 25, 2011.

Implications for Potential Lien Claimants on Federal Works

Practically speaking, this decision makes sense. The ultimate remedy under provincial builders' lien legislation is the sale of the liened property such that the lien holder can realize on its claim from the property's sale proceeds. It would not be in the best interests of Canadians if the courts permitted the sale of national airports to pay off builders' lien claims made by unpaid subtrades. However, it is not in the best interests of subtrades to forego working on federal undertakings entirely.

It is important to note that the British Columbia Supreme Court re-affirmed that leasehold interests in respect of federal Crown lands are not automatically immune from builders' lien claims simply by virtue of the fact that they are federal property. Pitfield J. emphasized that only builders' liens which affect the core of a federal undertaking will be rejected. As examples he cited with approval cases in which Canadian courts refused to permit builders' liens to be filed in respect of the construction of an interprovincial oil pipeline and railway property, both of which are core federal works. This is not surprising as provincial builders' lien acts and the Canadian courts have long affirmed that builders' liens cannot be filed against obviously federal interests unless expressly permitted under federal law. In situations where a federal interest is not owned exclusively but held jointly by the federal Crown with another party, builders' liens may be filed against the non-exempt portion of that property (and see Ed Miller Sales & Rentals Ltd. v. R. in Right of Alberta et al.). Otherwise, the British Columbia courts have left the door open for builders' lien claims against federal leases. This practice is common in Alberta where unpaid sub-trades routinely file builders' liens against federal Crown leasehold interests with respect to mineral rights.

It appears that if the purpose of the federal leasehold is not vital but merely incidental to a core federal undertaking then the provisions of provincial builders' lien legislation may be applicable. In any event, federal projects usually have bonds in place against which unpaid contractors and suppliers may have recourse in the absence of provincial builders' lien rights.

Conclusion

The decision in British Columbia (Attorney General) v. Vancouver International Airport Authority is a good reminder for contractors and suppliers on federal government projects that they may not be protected by provincial builders' lien legislation if their invoices go unpaid. As a result, subtrades should ensure that the appropriate bonds are in place, or bid accordingly, when considering otherwise lucrative contracts for federal undertakings, especially airports.