Canada: Restoring The Balance Of Power: Addressing Abusive Claims Of Lien Under The BC Builders Lien Act

Construction project stakeholders have an important new precedent to rely on when seeking to eliminate grossly inflated claims of lien quickly and efficiently. Darwin Construction (BC) Ltd. v. PC Urban Glenaire Holdings Ltd.¹ ("Darwin Construction") marks the first reported instance that a court has cancelled an inflated claim of lien under section 25(2)(b) of the Builder Lien Act²(the "BLA") for abuse of process before the trial of the lien claimant's enforcement action.

While BC courts have been reluctant to use this statutory cancellation mechanism previously, this decision provides a persuasive authority for owners and others to discover the basis for claims of lien and have them removed where they are exaggerated and the amount unsubstantiated.

Background

Builders liens are powerful tools that protect contractors, subcontractors and workers from being exploited, yet they also carry substantial implications for owners whose real property becomes subject to the lien or who are forced to incur costs to secure the lien. Unfortunately, the builders lien tool can be misused to gain an unfair advantage. An example is an inflated claim of lien, where the face value exceeds the amount lawfully owing to the lien claimant.

The BLA seeks to balance the power of the builders lien by, for example, providing mechanisms to remove claims of lien from title. One such mechanism is section 25(2)(b), which aims to protect against dubious claims of lien by empowering courts to cancel claims of lien that are "vexatious, frivolous or an abuse of process".

Grossly inflated claims of lien can constitute an abuse of process under section 25(2)(b), but BC courts have been slow to apply the section at the pre-trial stage, preferring instead other BLA remedies that do not fully eliminate abusive claims of lien (such as replacing the claim of lien with alternate security, such as cash or a lien bond, under section 24). As noted by the BC Law Institute in their 2020 report on the BLA, our courts' approach had effectively stripped s. 25(2)(b) of its "original purpose of providing an expeditious means of eliminating lien claims that are... exaggerated".³

Darwin Construction signals an important change for construction project owners by re-opening the door to expeditious elimination of grossly inflated claims of lien.

Decision

In Darwin Construction, PC Urban Glenaire Holdings Ltd. and PC Urban Glenaire 2 Holdings Ltd. (the "Developers") entered into a contract with general contractor Darwin Construction (BC) Ltd. ("Darwin") for the construction of a multi-phase townhouse development in North Vancouver for approximately $15.9 million. The relationship between the parties deteriorated and the contract was terminated.

Darwin subsequently filed a claim of lien against the property for approximately $3 million. Darwin provided no justification for this figure, despite the Developers' many inquiries.

The Developers brought an application to cancel the claim of lien under section 25(2)(b) as an abuse of process, or, in the alternative, to reduce the lien security under section 24 of the BLA (the Developers had previously deposited a lien bond under section 24 to discharge the lien, at significant cost)⁴. The Developers' arguments included that the claim of lien exceeded Darwin's maximum possible claim of lien of between $1.6-1.9 million. Darwin repeatedly sought adjournments and, although Darwin's counsel attended to make oral submissions, filed no response to the application.

The decision of the Chambers Judge at the Supreme Court of British Columbia demonstrates the approach courts have traditionally taken to inflated claims of lien: the Chambers Judge declined to cancel the claim of lien as an abuse of process under section 25(2)(b). Finding there was at least an "arguable" claim of lien, he instead reduced the lien security from the full $3 million face value of the lien to $500,000.⁵ Darwin appealed and the Developers cross-appealed the Chambers Judge's decision not to cancel the lien entirely.

On appeal, the Court found the claim of lien to be so grossly exaggerated as to be an abuse of process and cancelled it under section 25(2)(b).⁶

The Court held that when a claim of lien is challenged under section 25(2)(b) of the BLA, the lien claimants must show some evidence of both its entitlement to the lien and its amount.⁷Darwin failed to provide any rationale for the quantum of its claim, and never presented evidence to support it. In addition to the grossly exaggerated sum, Darwin's conduct was found to be relevant to the abuse of process analysis under section 25(2)(b).⁸

Key Takeaway

Darwin Construction establishes a clear precedent that an inflated claim of lien may constitute an abuse of process warranting cancellation under section 25(2)(b) of the BLA, even before trial. This new decision supports the original purpose of the section, to permit owners (and others) to efficiently deal with inflated or otherwise abusive claims of liens.

In addition, as it is now clear that a lien claimant must support the quantum of its lien with evidence when resisting a s. 25(2)(b) application (or risk the consequences of not rebutting the applicant's evidence), even if the court ultimately decides not to cancel the claim of lien, the owner (or other applicant) may obtain additional information about the basis for the quantum where previously unexplained.

McCarthy Tétrault LLP acted as counsel for the Developers in Darwin Construction.

Thanks to Erin Jackes for her assistance in preparing this post.

Footnotes

1. Darwin Construction (BC) Ltd. v. PC Urban Glenaire Holdings Ltd., 2023 BCCA 436.

2. Builders Lien Act, S.B.C. 1997, c.45.

3. British Columbia Law Institute, Report on the Builders Lien Act (Vancouver: British Columbia Law Institute, 2020) at 163, online PDF: <https://www.bcli.org/wp-content/uploads/2020/07/Report-Builders-Lien-Act-final.pdf>.

4. Darwin Construction (BC) Ltd. v PC Urban Glenaire Holdings Ltd., 2022 BCSC 1121 at para. 17.

5. Darwin Construction (BC) Ltd. v PC Urban Glenaire Holdings Ltd., 2022 BCSC 1121 at para. 67, 82.

6. Darwin Construction (BC) Ltd. v. PC Urban Glenaire Holdings Ltd., 2023 BCCA 436 at paras. 105, 111.

7. Darwin Construction (BC) Ltd. v. PC Urban Glenaire Holdings Ltd., 2023 BCCA 436 at para. 110.

8. Darwin Construction (BC) Ltd. v. PC Urban Glenaire Holdings Ltd., 2023 BCCA 436 at para. 107-111.

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