Canada: Setting Sufficient Security: Builders Lien Case Note

In the recent decision of Buckle v. Timberview Developments Ltd., 2016 BCSC 1301, Justice Williams considered a petition by Steve Buckle (and his numbered company) to have a lien discharged from the title of a property in Whistler B.C., where Mr. Buckle was building a residential home.

In 2011, Timberview entered a stipulated price contract with the numbered company to build a single-family home on the property for almost $2 million. The project was fraught with problems and delays and at the time of the petition (April 2016) the home remained incomplete. Mr. Buckle eventually terminated the contract with Timberview, and Timberview filed the lien in the amount of approximately $750,000 for unpaid fees.

The parties did not dispute that the numbered company, as the registered owner over the land, could have the lien discharged from the title by paying sufficient security into court. At issue was what constituted sufficient security. Timberview would not agree to the discharge of the lien unless the full value of the lien was posted.

Justice Williams began his analysis by citing section 24 of the Builders Lien Act, which states that a registered owner of land upon which a lien has been filed may apply to the court to have it discharged upon posting sufficient security. Of particular relevance, subparagraph 24(3) provides: "The value of the security required under an order under subsection (2) may be less than the amount of the claim of lien."

Relying upon two B.C. Appellate Court decisions, Q West Van Homes Inc. v. Fran-Car Aluminum Inc., 2008 BCCA 366, and West Fraser Mills Ltd. v. BKB Construction Inc., 2012 BCCA 89, Justice Williams set out a two-stage test to be applied in assessing what constitutes sufficient security.

First, a court must consider what claims should be taken into account when fixing security. If it is plain and obvious that certain claims being advanced by the lien claimant will not succeed, such claims may be discounted from the amount of security required.

Second, based on those claims where there is a triable issue, the court must look at the evidence as a whole and exercise its discretion in ascertaining the appropriate amount of security.

The onus lies on the owner seeking to post a lesser amount of security to satisfy the court that it is plain and obvious that part of the claim will fail. Justice Williams emphasized that a cautious approach should be taken before agreeing to reduce the amount of security and noted that this was particularly the case "where the owner against whose property the claim is filed is a one-project company". In such circumstances, there is a genuine concern that the company will not have assets to satisfy a judgment.

Justice Williams reviewed the affidavit materials filed by both parties and concluded that given the contrary evidence presented, it could not be said that any of the claims advanced by Timberview would necessarily fail.

Notwithstanding this finding, Justice Williams found that in applying the second stage of the test it was appropriate to exercise his discretion in reducing the amount of security posted. Specifically, Justice Williams stated:

"I must next look at the entirety of the evidence and exercise my discretion to determine an appropriate amount of security, bearing in mind that the object of the legislation is to effect justice between the parties—both parties—in the circumstances. In doing so, I am permitted to take into account what I believe to be the reasonable prospects of the respondent succeeding in the claims as it has advanced them, and also the prejudice and expense the petitioner will incur in posting security in the full amount claimed."

"On that aspect of the analysis, it is my assessment that a substantial amount of security should be posted, but not in the full quantum of the claims. I am convinced that, when the matter is viewed through the lens of practical reality, the respondent's prospects of complete success simply cannot support a deposit in the full amount. As for the question of determining a proper and appropriate sum, that is not something amenable to precise calculation; it is a matter of making the best rough estimate of an amount that will serve the ends of justice for both sides."

[Emphasis added]

Ultimately, Justice Williams concluded that $450,000 was an adequate sum to stand as security in place of the lien. This represented a sizable reduction of just over $300,000 or approximately 40% of the face value of the lien claim.

Serious consequences will often flow from a court's decision regarding how much security must be posted. More often than not, an owner will be relying on construction financing to complete a project. Upon the filing of a lien, the lender will refuse to advance further funds for the project until the lien is discharged. This can bring an already delayed project to a stop. The owner is placed in the precarious position of needing to raise adequate money to discharge a lien, while at the same time paying a new contractor to complete the project. This can stretch an owner beyond their financial means and place the completion of the project in jeopardy.

At the same time, the absence of adequate security may seriously undermine a builder's ability to get paid for outstanding work, particularly where, as in this instance, the contract is with a numbered company that was incorporated solely for the purposes of the project. In such circumstances, a builder faces the risk of a dry judgment.

It is within this context that our courts must try to "effect justice between the parties" in asserting how much security should be posted.

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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