Copyright 2011, Blake, Cassels & Graydon LLP
Originally published in Blakes Bulletin on Construction, April 2011
The recent Alberta Master's decision in Zahmol Properties Ltd. v. Richardson Bros. (Olds) Ltd. is the first reported analysis of section 48 of the Alberta Builders' Lien Act (BLA), which section allows an owner to post security to discharge a lien from title. The case confirmed the requirement that any such security must represent an adequate replacement for the land itself. Most significantly, Master Laycock rejected the usual practice of fixing the costs portion of the security in a builders' lien application at a further 10% to 15% of the sum to be posted and instead held that a "genuine calculation" of anticipated costs was required.
Background
The respondent contractor, Richardson Bros. (Olds) Ltd. (Richardson), contracted with the applicant owner, Zahmol Properties Ltd. (Zahmol), to supply labour, equipment and materials for road building, gravelling, levelling and landscaping on Zahmol's development site. After a dispute arose over the balance payable, Richardson registered a builder's lien for C$953,492.45 against 22 of Zahmol's development lots.
Pursuant to section 48 of the BLA, Zahmol applied to discharge the lien prior to trial. However, rather than post security to stand in place of the land, Zahmol argued that the lien should be discharged from 21 of the development lots and that one of the lots would provide adequate security for Richardson's lien.
Master's Decision
The court reaffirmed that section 48 of the BLA provides the mechanism by which security may be paid into court to remove a lien from title to land prior to trial. Master Laycock noted that this issue had never been the subject of a written decision in Alberta and went on to consider the intention of the legislature in allowing an owner to post security to discharge a lien. The court cited with approval the following principles regarding the adequacy of security paid into court to discharge a builders' lien:
- In order to balance the interest of the lien holder with those of the owner, and to allow s. 48(1) to act as an alternative to immediate litigation on the lien, the interest of the lien holder must not be prejudiced by the security.
- The lien holder should not be put in a less favourable position by having its charge against the land changed into a different form of security, and this factor outweighs the inconvenience to the applicant owner.
- Cash, a letter of credit and a lien bond are all equivalent forms of security and are generally interchangeable, but only if the method of payment has no effect on priority.
- Where a lien bond is offered as security to discharge a lien, and there are concerns regarding the viability of the surety or the bond that may jeopardize the lien holder's position, then an alternative form of security may be required.
In addition to the foregoing, the court reinforced that the security contemplated by section 48 of the BLA is for "the amount of the lien and any costs that the court may fix."
Given these principles, Master Laycock held that reducing the amount of land secured by the lien from 21 lots to only one lot would prejudice Richardson. In rejecting Zahmol's argument, he reinforced the principle that general liens may attach to multi-lot developments in order that lien claimants are not forced to identify specific individual lots or locations to which their labour or materials were ultimately supplied. Since each lot bore its proportionate share of the work, reducing the amount of land secured by the lien would have jeopardized Richardson's position. Section 48 of the BLA is not intended to allow a lien to be discharged from a portion of the land or to have only some of the land stand as security for the lien.
This case is perhaps most significant for Master Laycock's determination of the costs to be included as part of the security to stand in place of the land. He rejected the usual and accepted practice in Alberta in builders' lien applications of setting costs at 10% to 15% of the value of the lien claim. Instead, he held that counsel should determine whether the lien claim will be summary in nature or a fully contested proceeding and then make a "genuine calculation" of the anticipated costs. The security paid into court to discharge a lien should then include both an amount in respect of the lien claim and an amount for such anticipated costs.
Conclusion
The Zahmol Properties case reinforces the principle that the position of the lien holder generally outweighs the convenience of the owner when an application is made by the owner to provide security to discharge a lien prior to trial. In particular, a portion of the land cannot stand as a substitute for the security provided by all of the land, and security cannot be substituted to the lien holder's detriment.
Most significantly, Master Laycock has provided clear direction on how security for costs is to be calculated in such applications. The effect of allowing costs to be fixed based on an estimated amount, rather than on an arbitrary percentage as was previously the accepted practice in Alberta lien claims, may be a boon for lien holders and a cautionary item for owners. Fixing security and discharging liens before trial may now cost owners significantly more while providing lien holders with increased motivation to pursue their claims if increased costs must be posted by owners. It remains to be seen whether this decision will be followed by other masters, in higher Alberta courts or in builders' lien disputes in other provinces.
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