29 April 2024

Careful What You Lien For: Excessive Liens May Be An Abuse Of Process

In Darwin Construction (BC) Ltd v PC Urban Glenaire Holdings Ltd., 2023 BCCA 436, the British Columbia Court of Appeal recently assessed when a lien should...
Canada Real Estate and Construction
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In Darwin Construction (BC) Ltd v PC Urban Glenaire Holdings Ltd., 2023 BCCA 436, the British Columbia Court of Appeal recently assessed when a lien should be cancelled where it is excessive and thereby an abuse of process under the British Columbia Builders' Lien Act.

In this case, a developer and a contractor entered into a fixed price contract worth approximately $15.9 million, to construct a multi-phase residential townhouse development in North Vancouver. The contractor invoiced the developer for $15.6 million for its work under the contract prior to being terminated. The developer paid the contractor $14 million for its work, which left an approximate gap of $1.6 million to $1.9 million from what was invoiced.

However, the contractor liened the project for over $3 million. The Developer made an application under the British Columbia Builder's Lien Act to cancel the lien as it was excessive, and therefore an abuse of process. Section 25 of the British Columbia Builder's Lien Act provides that:

25 (2) An owner, contractor, subcontractor, lien claimant or agent of any of them may at any time apply to the court and the court may cancel a claim of lien if satisfied that
(a) the claim of lien does not relate to the land against which it is filed, or
(b) the claim of lien is vexatious, frivolous or an abuse of process.

The Court explained that the threshold to maintain a lien in the face of an application to cancel is low. The Court is tasked with assessing on affidavit evidence whether or not there is an arguable claim to support the lien:

[64] [...] It is not to be treated as though it was a summary trial application, recognizing that in some cases lien claimants may not yet have access to evidence in the hands of the responding party that might help them prove their claims: West Fraser para. 28.

[65] While the "arguable claim" language is similar language to the approach for analyzing whether a pleading should be struck for failure to plead a cause of action, it is not exactly the same test in application. This is because on a challenge to pleadings for failure to plead an arguable claim, no evidence is admissible: Supreme Court Civil Rules, R. 9-5(2).

The Court ultimately concluded that the $3 million lien by the contractor was grossly exaggerated as the only evidence before the Court suggested the contractor was owed, at best, $1.9 million. The Court made several useful comments as to the utility of a lien:

[108] A lien claim is a powerful tool to protect contractors from being exploited but is also one that has significant consequences for those whose property or finances are tied up by the lien. Just as non-payment of a contractor can be used improperly to extract an advantage to under-pay a contractor, a contractor's excessive lien claim can also be used improperly to extract payment that is not due.

[109] When the party subjected to the lien claim has filed an application seeking to cancel the lien, the lien claimant has to be prepared to support an arguable case as to both the right to the lien and the amount of the lien. The threshold to establish an arguable claim is not high and is less than what would be required to support a conclusion in the lien claimant's favour at trial, but more than thin air is required.

As such, while lien claimants often have tight timelines to abide with under provincial Builders' Lien legislation, they should be prepared to file a lien only for amounts to which it is rightfully entitled. Further, it is prudent for lien claimants to review the relevant provisions of their respective provincial Builder's Lien Acts to assess the potential consequences for filing a lien in gross excess of the amounts owed to a lien claimant.

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.

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