Canada: Significant Provisions To B.C. Forestry Service Providers Protection Act Come Into Force

Significant remaining provisions to the Forestry Service Providers Protection Act (British Columbia) (the FSPPA) came into force on April 1, 2013. The provisions, Sections 1-24 of the FSPPA, provide for, among other things, the creation of (a) a contractor's lien, and (b) a charge on all accounts due to a forest products owner (an Owner) securing an amount due.

CONTRACTOR'S LIEN

The newly in force provisions of the FSPPA provide for a contractor's lien to attach to forest products at the outset of the provision of services to secure the fair value of the services provided to an Owner pursuant to a services contract. The lien is enforceable whether or not it has been registered. The contractor's lien also attaches to forest products acquired by the Owner after the services are provided.

CONTRACTOR'S CHARGE

In addition to a lien, under the FSPPA, a contractor has a charge on all accounts due to an Owner to secure amounts due to the contractor for any services it has provided. Like the contractor's lien, the charge attaches and is enforceable whether or not a registration relating to it has been made. A subcontractor is entitled to a similar charge as against a contractor when the subcontractor has entered into a contract with a contractor under which services are provided to or on behalf of the contractor.

PRIORITY OF LIEN CHARGE AND REGISTRATION

While the FSPPA provides that a contractor's lien or a charge, as applicable, has priority over any other interest in the forest products or accounts due, this alone should not raise the alarm bells for secured creditors. As long as a secured creditor with a security interest in the same forest products or accounts due has entered into a security agreement and the security interest thereunder is registered before the contractor's lien or the charge, as applicable, is validly registered, the secured creditor will have priority or the lien or charge. The priority of a secured creditor applies to all advances made or obligations incurred, including those advances or obligations arising after the lien or the charge is validly registered.

Timing of the registration is important for secured creditors as the FSPPA provides that a contractor's lien or charge may not be registered before the Owner is in default in paying the amount due to the contractor. Any registration made by a contractor that is contrary to this provision of the FSPPA is not valid. The effect on a secured creditor is that priority in its favour is assured, provided that the secured creditor has registered a financing statement before a contractor does. The secured creditor's security interest will have priority for all advances and obligations, including advances and obligations made after the contractor's lien or charge is validly registered.

The contractor's lien or charge is also subordinate to a security interest that has been enforced through seizure and sale of the forest products before the lien or charge is validly registered.

A contractor's lien or charge may be assigned under the FSPPA, which may be an additional benefit to a secured creditor lending to a contractor.

A registration under the FSPPA relating to a contractor's lien or a contractor's charge may be made in the British Columbia Personal Property Registry. Upon registration, the contractor must give notice of the registration to the Owner promptly after the registration is made, but failure to comply with the notice requirement does not invalidate the registration.

ADDITIONAL REQUIREMENTS CONCERNING A CONTRACTOR'S CHARGE

With respect to a contractor's charge, the FSPPA provides that the contractor must provide written notice to an account debtor of the Owner stating (a) that the Owner's accounts are subject to a contractor's charge, (b) that the Owner has defaulted in payment, and (c) the amount owing by the Owner. Prior to receiving such notice, an account debtor may continue to make payments on an account to the Owner, but upon receipt of the notice, the account debtor must direct its payments in accordance with the notice. If an account debtor makes a payment to an Owner after the account debtor receives this notice from the contractor, the obligations of the account debtor may not be fully discharged.

The Personal Property Security Act (British Columbia) and the regulations thereto have been amended to add certain definitions related to the FSPPA and to add corresponding references to the FSPPA where necessary in connection with the registration of a contractor's lien, contractor's charge or subcontractor's charge under the FSPPA.

RELATED LEGISLATION

When the FSPPA was first introduced in the B.C. Legislature, it provided for the repeal of the Woodworker Lien Act (British Columbia) (WLA). After much discussion in the legislature, the section repealing the WLA was not approved. We believe that the theory was that the WLA would remain in place to protect the individual worker. Although the priorities under the two acts are different, as a practical matter, few individuals or entities qualify for a lien under the WLA. We will continue to monitor the implications of the interaction between the provisions of the FSPPA and the WLA.

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.