Canada: Lien On Me: Consequences Of Excessive Liens

Courts have the discretion to determine the security amount required to vacate a lien, which can be less than the claimed lien amount. In a recent BC case, a lien was allowed to be vacated by posting security for half of the disputed amount, due to insufficient evidence supporting the contractor's additional fee claims. This approach is consistent across various Canadian provinces, such as Alberta, where courts have also permitted liens to be discharged for lesser amounts. The case also underscores the risks of informal, text message-based contracts that lack clarity in work scope and payment terms. Properly drafted contracts can prevent costly disputes and save time.

The value of work performed is a common dispute between an owner and a contractor. When the contract between the parties is a series of disjointed text messages, a dispute about the value or scope of work is almost inevitable. While the court can vacate a lien upon posting security into court, an owner may not wish to post the full amount of security if they dispute the validity or amount of the lien claim.

A British Columbia court recently dealt with this scenario and allowed a lien to be vacated via posting security for far less than the lien amount, based on the strength of the evidence before it.

Background

The plaintiff contractor, BSSD Excavating ("BSSD"), entered into a contract via text messages with the defendant owner, Green Blvd. ("Green"), to perform digging, extraction, dirt removal, road cleaning, backfill, and drain installation on two lots in a residential construction project in Coquitlam, BC. The parties agreed on a price of $33,600 per lot for the work to be done. BSSD argued that there were extra costs associated with its services, but these were not documented in the text messages.

On December 28, 2022, BSSD requested payment of $45,000 for work performed to date. The next day, Green paid $21,000. On January 27, 2023, BSSD sent two invoices for $23,000 each, which approximately added up to the agreed amount, less the $21,000 that Green had paid. The parties later agreed that $46,000 would be payable once the work was completed. BSSD made no mention of the extra costs.

Issues arose, and in late February 2023, BSSD was fired from the project. BSSD then issued two additional invoices for $39,417 and $38,934 for the two lots. BSSD registered two builders' liens for $62,417 and $61,934 on the lots, which were based on the two $23,000 invoices plus the two $39,000 invoices. Green denied that there was any agreement to pay more than $33,600 per lot, which would have left a balance of at most $46,200 outstanding. Green also argued nothing was owed due to deficiencies and incomplete work on BSSD's part.

Green applied to discharge the liens on the basis that they were registered for an excessive amount. In the alternative, it sought to vacate the liens via posting security of a reduced amount.

What the Court Said

The Court noted that the liens were registered appropriately – it was clear that BSSD performed work at the project for which it remained unpaid. The issue was whether the liens were frivolous due to being registered for an excessive amount. Citing West Fraser Mills Ltd. v. BKB Construction Inc., the Court reiterated that if a lien claim is neither plainly nor obviously frivolous, then the claim is not frivolous at all. The Court also noted that BSSD's claim to additional costs outside of the text messages was not per se frivolous, but considering the parties' conduct, the Court agreed with Green that the all-inclusive, agreed-upon price of $33,600 per lot made more sense than the claim of $62,000 per lot.

The Court highlighted that the BC Builders Lien Act permits a court to vacate a lien by posting security that is less than the amount of the lien. The overarching principle is that courts may exercise their discretion in directing the amount of security that is required to vacate liens, and there is no requirement stipulating the amount that a court determines must be equal to or greater than the amount claimed in the lien.

The Court here concluded that there was little support – whether in the text message contract or in other materials produced by BSSD – for the additional fees that BSSD was claiming. As a result, the Court granted an order for the liens to be vacated, via Green posting security in the reduced amount of $32,000 per lien – approximately half the amounts liened for. The Court reasoned that this amount provided some protection for BSSD's weak claim for additional fees, while balancing Green's ability to obtain clear title to have the project lands sold.

Takeaways

Where a lien amount is disputed, courts maintain discretion to set an appropriate amount of security required to vacate a lien. This amount can be less than the amount claimed. While the lien legislation varies across Canada, a similar result would likely occur in the other common law provinces and territories.

For example, in Alberta, section 48(1) of the Prompt Payment and Construction Lien Act, provides that in applications to vacate liens via posting security, courts can use their discretion to reduce security to a lesser amount than claimed, similar to the result in BSSD v. Green Blvd. The Alberta Court in Enerkem Alberta Biofuels LP v. Produits Metalliques Pouliot Machinerie Inc. followed a similar analysis to the BC court, ultimately allowing liens to be discharged for amounts less than the amounts claimed in the liens.

This case also highlights the risk of an informal, text message contract without clear scope of work and payment terms. In the event of disputes in such cases, the Court can find it difficult to assess what was agreed short of trial.

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.