A claim of builders lien appears on title, the lien claimant refuses to remove it and clear title is urgently required - what’s next? Typically, owners and general contractors choose from two mechanisms found in the British Columbia (BC) Builders Lien Act: either apply to the court under Section 24 to post cash, bond or a letter of credit in the same amount as the lien claim or, in the appropriate circumstances, post security for the lien holdback under Section 23. A third, less utilized option, is to bring an application to court to cancel the lien claim outright due to fundamental issues with the lien claim.
In a 2023 BC Supreme Court decision, Justice Ross considered all three of these mechanisms.1 The case involved construction of an underway in Richmond, BC. Lien claims were filed on the project, including two by a subcontractor in the total amount of CA$3.3 million and several by sub-subcontractors in the total amount of CA$3.7 million.
The owner and general contractor disputed the subcontractor lien claims, arguing that the maximum amount owed to the subcontractor was only CA$380,000, substantially less than the CA$3.7 million claimed in its lien claims. Together, they applied to court to cancel the subcontractor lien claims on the basis that the lien claims were grossly inflated or in the alternative, by posting security in place of the lien claims. Separately, the owner also applied to discharge the sub-subcontractors’ lien claims by way of payment of the holdback into court.
Abuse of process (S. 25)
Section 25(2)(b) of the BC Builders Lien Act, permits court to cancel a lien claim if it finds it is vexatious, frivolous or an abuse of process. This relief is rarely granted by the court.
The owner argued that the subcontractor’s lien claims were based on unauthorized and unperformed work, included materials that were never delivered to the site or paid for and work in excess of the contract price. They estimated that it would cost over CA$2.2 million to complete the subcontractor’s scope of work and over CA$600,000 to remedy defects and deficiencies in the work. The evidence on these points was unchallenged.
The Court found that the subcontractor’s lien claims were grossly inflated and constituted an abuse of process. However, the Court declined to cancel the lien claims under Section 25(2)(b), pointing to earlier court judgments where lien claims found to constitute an abuse of process were resolved pursuant to Section 24 by determining the appropriate amount of security to be posted for the lien claim and concluded “that is the appropriate approach to adopt in the present case.”2
Deposit of security (S.24)
Section 24 of the Builders Lien Act permits the court to cancel a lien claim upon the deposit of “sufficient” security into court. The security held in court stands in the place of the land as security for the lien claim. Typically, this requires the full amount of the value of the lien claim to be posted.
In this case, the following factors led to the Court ordering CA$1.00 as security for all of the subcontractor’s lien claims:
- The subcontractor did not provide any evidence to dispute the owner’s challenges to the value of the lien claims – this was an important factor, since where there is conflicting evidence, the court is much less likely to reduce the amount of the security from the face value of the lien claim;
- It was “plain and obvious” that all but CA$380,000 of the subcontractor’s lien claims were bound to fail; and
- The general contractor had a counterclaim for CA$2.6 million to complete and rectify deficiencies in the subcontractor’s work.
Discharge of sub-subcontractor lien claims upon payment of holdback (S. 23)
Having dealt with the subcontractor’s lien claims, the court then turned to the sub-subcontractor lien claims.
If the “required holdback” under the Builders Lien Act in relation to a contract or subcontract is less than the total amount of the lien claims filed by a class of lien claimants other than any lien claimants directly retained by the owner, Section 23 of the Builders Lien Act allows an owner to be removed from a lien claim dispute upon payment of the required holdback.3 In other words, there must be at least one party between the owner and the lien claimant in the contractual chain. A class of lien claimants refers to lien claimants retained by the same contractor or subcontractor. The owner also has the option to pay the full amount of the lien claims in a class if that amount is less than the required holdback.
In this case, the sub-subcontractors were hired by a party two tiers down the contractual chain from the owner: the subcontractor. Section 23 applied and the Court ordered discharge of all but one of the sub-subcontractor lien claims upon payment of the required holdback into court.
In an effort to avoid a particular lien claim appearing on title, the owner had earlier agreed to pay one of the sub-subcontractor’s invoices directly. This agreement was made orally and later confirmed in an email where the owner’s representative stated that a cheque was being processed and could be picked up. However, the payment was ultimately not made and a lien claim was filed. The Court concluded that by agreeing to pay that sub-subcontractor’s invoices, it created a situation in which there was not at least one party between the owner and the sub-subcontractor in the contractual chain. Accordingly, the lien claim could no longer be resolved through Section 23.
This finding serves as a cautionary reminder of perhaps the most important lesson from the case: an owner’s direct negotiations with lien claimants may unintentionally revoke the cap on liability that the Builders Lien Act affords owners and its ability to be removed from lien claim disputes.