Canada: Posting Security To Discharge A Lien … Plus Costs?

Most contractors and owners know that once a lien is filed against title, the only way that it can be removed from title (in the absence of an agreement between the parties) is for the owner or general contractor to post a bond or pay the full amount of the lien into Court or a solicitor's trust account pending resolution of the dispute between the parties. What often comes as a surprise, is that it has long been the practice in British Columbia that to remove a lien from title, the paying party will have to post an additional 10 to 15% of the value of a lien as security for legal costs. This unanticipated extra expense which requires a party to post "security for costs" emerges from wording in the Builders Lien Act which, upon distribution of holdback funds, gives priority to the recovery of a party's legal costs ahead of the principal debt claim. However, there is no wording in the Builders Lien Act which expressly requires a party to pay "security for costs".

In commercial and civil litigation, a party in an action does not have the right to obtain an order for "security for costs". Generally, it is it is difficult and rare for the Court to make an order that one party must pay security for costs. On a typical application for security for costs, the party seeking security has to establish that the party who ought to pay security would be unlikely to be able to pay the successful party's costs at the end of the trial. Further, the Court must conclude that the claim has a reasonable chance of success. These stringent guidelines in the commercial and civil litigation context makes the automatic allowance for "security for costs" in the builders lien setting a somewhat remarkable practice. In the builders lien context, the Courts tend to skip over these factors and award security as a matter of course when a party seeks to discharge a lien from title.

The recent decision of the British Columbia Supreme Court in Tylon Steepe Homes Ltd. v. Pont, considers the long standing practice of requiring a party to post security for costs in additional to the amount of the lien in order to remove the lien from title. The Court noted that while there are many cases which order a party to pay security for costs, there appeared to be little legal justification for the order. The Court concluded that requiring a party to post security for costs created additional substantive legal rights for the lien claimant; rights which were not the intended purpose of the Builders Lien Act. The Builders Lien Act permits a lien to be filed only in respect of "the price of the work and material, to the extent that the price remains unpaid". Posting security for a lien in order to discharge it from title is meant to substitute the cash (or the bond) for the charge on title. Therefore, to require a party to pay an additional amount for "security for costs" arguably enhances the limited nature of the lien right.

Because liens are such powerful tools for lien claimants to invoke, the Courts must be cautious about expanding a lien claimant's rights without express language.  Ontario, Saskatchewan, Manitoba and Alberta all have builders lien legislation which contains language that expressly permits the Court to add an amount for security for costs.  In the absence of that language in the British Columbia Builders Lien Act, the Court concluded that it is inappropriate to order a party to pay "security for costs" in addition to the amount required to secure the lien.

The contractor in Tylon Steepe Homes Ltd. v. Pont sought permission to appeal the Supreme Court's conclusion on security for costs, however, the Court of Appeal concluded that it was not an appropriate case for an appeal. Although the Court of Appeal did not consider the merits of the lower Court's decision, it stated that the judge gave "comprehensive reasons which security for costs should not be included in the amount of security posted to discharge the lien" and that it was unlikely that the Court of Appeal would overturn the Court's decision in this matter.

The result is that for the time being in British Columbia, and until the Court of Appeal addresses the issue (or until the lien legislation is amended), the costs associated with removing a lien from title have decreased in that a party will no longer have to post security in addition to the amount of the lien.

Originally published in Construction Business magazine.

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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