Canada: Whose Burden Is It Anyway? : Reducing The Amount Of Security Paid Into Court To Secure A Lien Claimant's Claim

In a recent decision, Centura Building Systems (2013) Ltd. v. 601 Main Partnership, 2018 BCCA 172, the British Columbia Court of Appeal confirmed that a court's inquiry under s. 24 of the Builders Lien Act (the "Act"), should be approached with caution in order to avoid potential injustice to lien claimants who, generally speaking, have the right to have their claims fully adjudicated at trial.

The Court dealt with an appeal by the appellant lien claimant, from an order of the chambers judge, reducing the amount of security paid into court to secure its builders lien claim by approximately 50%.

The underlying dispute related to the value of work performed by the appellant in the construction of a mixed-use residential tower, prior to the termination of its agreement by the respondent developer. The appellant, Centura, was engaged by the developer, 601 Main Partnership, to construct and install steel stud framing, drywall and insulation at its project in Vancouver. The appellant began work on the project in June 2015, and was originally scheduled to complete that work in late November 2015. The work was not completed as of late January 2016, when the developer terminated the appellant's contract. Following termination, the appellant filed a lien claim and commenced action against the developer. Pursuant to s. 24 of the Act, by consent, in April 2016, the developer paid approximately $1.1 million into court to secure the claim of lien. The lien was then removed from title to the lands.

In March 2017, the developer applied to the court to cancel the appellant's claim of lien pursuant to s. 25 (2) of the Act, as an abuse of process, or alternatively, to reduce the amount of security under section 24(3) of the Act. The chambers judge dismissed the developer's application pursuant to s. 25, but reduced the amount of security posted pursuant to s. 24 (3), which allows a court to reduce the value of security to an amount less than the claim of lien.

The Court of Appeal affirmed that an inquiry under s. 24 should be approached with caution. A court exercising its discretion to fix the amount of security, should exercise that discretion with due caution. The Court noted that reducing the amount of security in some circumstances may effectively lead to a decision of the case against the lien claimant, before there is an actual adjudication on the merits. The Court confirmed that a determination under s. 24 involves consideration of a two-pronged test. The first of which is a consideration of what claims should be taken into account when fixing security, and the second is determining what amount of security is appropriate. Citing from Q West Van Homes Inc. v. Fran-Car Aluminum Inc., 2008 BCCA 366, the Court confirmed the following inquiry to be undertaken:

  • the judge must look at the claims of the parties to determine whether it is plain and obvious they will not succeed; a prima facie case will suffice;
  • any claims that are not sustainable will not be considered in fixing the appropriate quantum of security;
  • looking at the evidence as a whole, the judge has discretion in fixing the amount that is appropriate security;
  • that discretion must be exercised judicially based on the relevant evidence before the court and taking into account the objectives of the legislation: to protect those who supply work and materials to a construction project so long as the owner is not prejudiced;
  • the amount of security may be less than the amount claimed under the lien."

The parties took issue over who bears the burden during the two stages under the s. 24 analysis. The Court confirmed that under the first stage, which involves an examination of the claim, all that is required to support the lien is a prima facie case. The judge must order security be posted for a claim or component of a claim of lien unless the owner or developer can demonstrate that it is "plain and obvious" or "absolutely beyond doubt" that the claim is bound to fail. If the developer or owner alleges that it is plain and obvious that a lien claimant's claim or a component of the claim is bound to fail, the judge must examine the lien claimant's position to determine if it raises a prima facie case, or discloses "a reasonable prospect of success". According to the Court, this does not impose a new burden on the lien claimant; rather, the burden remains on the applicant developer or owner, as the case may be.

The Court noted that a lien claim or a component of a lien claim will only fail to advance to the second prong of the s. 24 analysis if it is plain and obvious that it is bound to fail because the claim discloses no chance of success. If the lien survives the first stage of the analysis, the second stage requires looking at the evidence as a whole to determine whether the security should be reduced. At this stage, although a court can order less security than the claim, it "cannot make a determination on the merits with the material at hand and should be cautious in ordering a reduced amount of security". The caution during this stage ought to operate in favour of the lien claimant.

The Court of Appeal found that at this second stage of the analysis, the chambers judge "ventured into a difficult analysis of the claim on the merits, including contractual interpretation without considering the context, rather than applying the cautious approach" thereby reducing the security in error. The Court allowed the lien claimant's appeal, setting aside the order.

In summary, the Court of Appeal has confirmed that in an application to reduce the amount of security pursuant to s. 24, the burden of proof remains on the applicant developer or owner, and not the lien claimant. All that is required from the lien claimant is evidence adduced in support of the claim, allowing a court to determine whether it discloses a chance that the claimant's claim may succeed.

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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