Canada: Limitation Periods And Liens: Saskatchewan Court Of Appeal Provides Clarifications

Last Updated: February 18 2019
Article by Jonathan Martin

A common misunderstanding with regard to builders' liens is the belief that they require no further action once filed and remain on title until a debt is paid. This is not the case. A lien is not self-enforcing and does not guarantee payment. It is but a registered interest on the title of a property that prevents it from being sold (or encumbered to some extent) until that unpaid debt is paid or becomes unenforceable. Its purpose is to preserve the asset on which the work was performed or for which the materials were provided so that a judgment from a lien enforcement action can be enforced against it. Because of the two-year limitation period in the limitations acts of most provinces,1 a lien will typically become unenforceable if nothing is done to enforce it through the courts within a period of two years from when the unpaid debt is discovered.

There is often little to be done to save and enforce a lien that has outlived its limitation period for enforcement. For example, recently in Nayeem Uddin v Tubello Stoneworks Ltd., 2018 SKQB 301 [Nayeem], the Chambers Judge2 agreed with the conclusions reached earlier in P.J.D. Holdings (1989) Ltd v Kasa Construction Ltd, 2016 SKQB 103 and found that the procedure in subsection 56(4) of the Saskatchewan Builders Lien Act, SS 1984-85-86, c B-7.1 (the "BLA") is not available to circumvent an expired limitation period. Whatever the Legislature meant when it said that the court may, upon application, order that monies previously paid into court be paid out to the "person entitled", the Saskatchewan Court of Queen's Bench found that it did not have in mind a substantive determination of construction disputes beyond the two-year limitation period.

The Nayeem appears to have definitely closed the door which had been opened by the Saskatchewan Court of Appeal in Axcess Capital Partners Inc. v Allsteel Builders (2) Ltd., 2015 SKCA 33 at paras 29-33. The Court of Appeal had there suggested that subsection 56(4) may provide an alternative procedure to a court action for the summary determination of a lien claim on the merits. This likely also closes the door to the availability of subsection 57(5) for obtaining, after the limitation period runs out, a determination on the merits of a lien dispute over the paying out of a holdback amount paid into court.

Absent overruling by the Saskatchewan Court of Appeal, the two-year limitation period is now firmly entrenched in the Saskatchewan BLA, and there are no procedures in Saskatchewan for the substantive determination of one's lien claim that survive an expired limitation period. This should not necessarily surprise, given that no such procedures have been found by the courts in other provinces for their own builders lien legislation.

The Artis Builders Clarification

Despite the foregoing, it is still possible in some cases that even if a lien has been registered for more than two years, the underlying cause of action to enforce it has not yet expired. The Saskatchewan Court of Appeal recently found this to be a possibility and allowed the appeal of an unpaid contractor in Artis Builders v Kehoe, 2019 SKCA 14 [Artis Builders] on the basis that the lien may have been registered before the cause of action had been discovered.

The owner in that case was a house flipper who had used Artis Builders for renovations of other homes in the past. Artis Builders' evidence stated that it had an established practice whereby the owner would make partial payments for materials and services when the work was undertaken and would then pay the balance when the house was sold. The lien had allegedly been registered sometime between these two events. Artis Builders stated in its evidence that the lien had been registered on the property solely to give notice to the owner that Artis Builders had not yet been paid. This made sense. After all, Artis Builders would certainly wish to register its lien interest on the title to the property before title was transferred to a new owner.

Artis Builders held that it did not yet have a cause of action for unpaid debt when it registered its lien because the property had not been sold. In agreeing with Artis Builders, at least in principle, Chief Justice Richards explained that a cause of action does not arise automatically by virtue of a lien being filed and found that, in this case, the cause of action may not have arisen until after the lien had been registered. He stated: "[a] lien can be filed before the price of the relevant services or materials becomes due and payable and hence before the provider of the services or materials has a basis for commencing an action to enforce its claim of lien." The Chief Justice found sufficient evidence to warrant sending the matter back to the lower court for redetermination.

Key Points

In most cases, unpaid lien holders will not register a lien on a property until an invoice is past due. For this reason, the situation before the Court of Appeal in Artis Builders is rather uncommon. It is most likely to arise in cases involving novel payment arrangements that do not follow the typical pattern of the delivery of an invoice for work done that is to be paid within a set amount of time. It may also arise in situations where the property is to be transferred before the invoice comes due.

It should also be noted that although a limitation period may expire more than two years after a lien is registered, it may also expire much less than two years after the lien is registered. What Artis Builders shows is that the two are not connected. A limitation period for a lien enforcement action expires two years after the underlying cause of action is discovered. The discovery of a cause of action for an unpaid debt is a fact-specific determination unconnected to when the lien is registered. In the context of a builder's lien, it is generally the day an unpaid invoice becomes past due. The lien, however, may be registered before or after this event. When the lien is registered is simply not relevant to the determination of when the two-year limitation period begins or expires.

Though filing of a lien can be an effective incentive for an owner to pay contractors or subcontractors (or to put pressure on the payer to do so), this will not always be the case. Typically, if the filing of a lien is sufficient on its own to cause the payment of an unpaid invoice, payment will be forthcoming within a short period of time. If payment does not come, one can assume that the lien is not providing a sufficient motivation and is not likely to in the future. Waiting too long before moving on to enforcement is not recommended. Even if one files a claim in time to avoid the two-year limitation period, the BLA and parallel provisions in some other provinces' builders lien acts have their own two-year limitation periods, which require that a lien action be set for trial within two years from the time the lien is registered. Although courts will often exercise their discretion to extend this period, there is always a risk that a court may refuse to extend the rights of a lienholder who can provide no good reason for proceeding more quickly with an enforcement action after registering its lien.

With the upcoming introduction of prompt payment amendments to the Saskatchewan BLA, situations such as that of Artis Builders will likely become less common, though not outside of the realm of possibility. Prompt payment legislation requires the giving of a proper invoice and payment of that invoice within 28 days, or objection to the invoice within 14 days. For this reason, payment arrangements that do not follow this template will likely be less common. On the other hand, parties will still have an interest in filing their liens before a property is sold, even if their debt is not yet due.

The new adjudication procedures arising from the prompt payment amendments will reduce the incentive for parties to register liens and then do nothing. On the other hand, because the lien remedy will remain available and will continue to be far less costly than adjudication, it is likely that the practice of filing liens and not enforcing them will continue to some extent. Those who follow this approach do so at their own risk and should, at the very least, mark their calendars.

Our lawyers at Miller Thomson are happy to assist you with all of your lien registration and enforcement needs.


Footnotes

1 In Saskatchewan, section 5 of The Limitations Act, SS 2004, c L-16.1 (the "Limitations Act").

2 Justice B. A. Barrington Foote, recently appointed to the Saskatchewan Court of Appeal.

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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