Canada: Contractors Cannot Lien For Damages: Alberta Master Rules On Proper Subject Matter Of Builders’ Lien

An Alberta master's decision examined the burden of proof in an application to reduce the amount of security posted to discharge a builders' lien, and whether damages – such as losses that may not sufficiently relate to improvements to the land – may also be included in claim for a builders' lien. In Krupp Canada Inc v. JV Driver Projects Inc (Krupp), Master A.R. Robertson held that the applicant bears the burden of proof in applications under section 48 of the Builders' Lien Act (Act) to persuade that a lien should be reduced, even when security is provided. The court went on to find that a lien can only be claimed for work actually done to improve the lands and not for other damages.

BACKGROUND

The applicant, Krupp Canada Inc. (Krupp), was the general contractor for the construction of a slurry preparation plant in the Alberta oilsands (Project). Krupp hired the respondent, JV Driver Projects Inc. (JV Driver), as its subcontractor on the Project (Contract). The original Contract value totalled C$38,322,150.28. Krupp paid JV Driver C$37,844,668.64, leaving a balance of C$477,481.64.

Issues arose with the execution of the Contract and JV Driver claimed a builders' lien for C$52,246,550. The lien amount included disputed change orders that increased, in the case of JV Driver, the amount owed to it under the Contract (Lien). Krupp posted security for the full amount of the Lien, and acknowledged that C$6,791,146.04 could properly be the subject of a builders' lien. Krupp disputed the balance of the Lien (C$45,455,403.96) on the basis that JV Driver was pursuing damages that were unlienable through the lien process of the Act.

Specifically, Krupp disputed the portion of JV Driver's claim that consisted of "impact invoices" for the following costs: labour escalation, contract extension, heating/hoarding concrete, extra-time for large cranes, loss of productivity, schedule acceleration, additional scaffolding, and final progress payments. On this basis, Krupp served JV Driver with a notice to prove its lien and applied to reduce the amount of posted security, arguing that many of the damages were not the proper subject matter of a builders' lien.

SECTION 48 APPLICATION

Section 6(1) of the Act creates the lien entitlement and states that lien claims must be for "the price of the work or material as remains due to the [lien claimant]," not other amounts. Krupp argued that since much of the amount claimed in JV Driver's lien was damages and therefore not the proper subject matter of a builders' lien, it should not have to provide security for the damages portion of JV Driver's claim. Conversely, JV Driver argued that the damages portion of its builders' lien claim was protected by the Act, according to case law from various provinces where the issue had been considered, and as such, the entire amount of its claim should continue to be protected by the security posted.

Krupp did not file any evidence in respect of the section 48 application. The only evidence was the affidavit of JV Driver's CFO, filed in response to the notice to prove lien, and the transcript and exhibits from his cross-examination. The question of burden of proof arose as Krupp took issue with JV Driver's evidence. JV Driver's affiant did not have personal knowledge of many details of the claim. However, as Krupp had not filed any evidence, JV Driver's evidence was uncontroverted. As a result, there was no evidence to dispute JV Driver's allegation that its damages claim from the "impact invoices" was Krupp's fault.

MASTER'S DECISION

Master Robertson clarified that, in reply to a section 48 notice to prove lien, a lienholder does not bear a burden to "prove" its lien is valid. Instead, the lienholder is obligated to file an affidavit that provides detailed particulars of the lien, failing which it risks losing its lien. On this basis, Master Robertson confirmed that a section 48 application is analogous to a summary judgment application. The applicant, in this case Krupp, was essentially seeking a summary dismissal of all or part of the lienholder's claim. Therefore, it is the applicant that bears the burden of proof, not the lienholder.

Master Robertson reviewed the evidentiary standard for summary judgment applications and reinforced that in section 48 applications, the evidence need not be personal knowledge, may include hearsay, and business records may be relied upon in the affidavit.

Master Robertson noted that the applicant may be able to obtain relief under section 48 without filing any evidence of its own. This may occur if the lienholder does not file an affidavit, or files an affidavit without sufficient particulars or which proves the lien was filed for an excessive amount. However, the burden of proof remains with the applicant.

Master Robertson also considered whether damages can properly be claimed as part of a lien, either under the express terms of a contract or as a quantum meruit claim, as amounts "due" in respect of work on the improvement to the land. The court summarized the case law regarding the proper subject matter of lien claims as follows:

  • Where a lienholder has done work or furnished materials in respect of an improvement to land, that party has a right to claim a lien for so much as "remains due to him," either under contract or on a quantum meruit basis
  • A lienholder can claim damages in tort or for breach of contract that do not relate to work or materials actually furnished as "remaining due" to it, but these amounts are not properly part of a lien
  • If it is unclear whether a claim is properly the subject matter of a lien, the amount of posted security should be the higher amount and the issue of the proper subject matter of a lien left to the trial or a later application

Based on the limited evidence before the court, Master Robertson dismissed Krupp's claim to reduce the amount of security posted. He held that further questioning and documents would be required to prove whether and which portions of the security posted should be reduced to account for JV Driver's damages claim.

KEY POINTS

The Krupp decision reinforces the principle that section 48 applications under the Act are akin to summary judgment applications. The applicant seeking to discharge the lien, or reduce the amount that is subject to the lien, bears the burden of proof.

More significantly, Master Robertson provided direction on the proper subject matter of a lien claim. A lienholder may claim for damages, but these amounts should not form part of the lien claim. The lien claim is limited to amounts remaining due for work or materials furnished for improvements, either under contract or a quantum meruit basis. Conversely, claims that are not sufficiently related to work or materials actually furnished are considered as damages and are outside the scope of the lien claim.

If there is a material question as to whether the claim is the proper subject matter of a claim, the court is more likely to include that claim as part of the builder's lien, at least pending trial or a later application. This is where filing evidence, such as an affidavit in response to the lienholder's affidavit, may be important. In this case, Krupp did not file any evidence, and Master Robertson declined to reduce the amount of lien based in part on the limited evidence that was before him.

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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