In West Fraser Mills Ltd. v. BKB Construction Inc., 2012 BCCA 89, the British Columbia Court of Appeal confirmed restrictions upon the ability use certain provisions of the Builders Lien Act, S.B.C. 1997, c. 45 (the “Act”) to remove lien claims from land quickly and economically. The decision is also notable because it casts doubt on a lower court’s finding that removal of equipment of land did not constitute lienable work under the Act.
The facts of the case are as follows. The appellants, West Fraser Mills Ltd. (“West Fraser”) operated a paper mill in Kitimat, British Columbia. West Fraser closed the mill and sold certain machinery located on the land to a third party. The third party was obligated to dismantle and remove the machinery from the land and repair any damage caused by its removal. The third party contracted the Respondents, BKB Construction Inc. (“BKB”) and NDF Enterprises Ltd. (“NDF”), for the removal and repair work. The Third party failed to fully pay BKB and NDF for that work. Accordingly, BKB and NDF filed claims of lien against the land.
West Fraser argued the removal work undertaken by BKB and NDF was not lienable work under the Act and applied to cancel the liens under (a) section 25 of the Act which allows the court to cancel a lien which is defective for several specified reasons, or has lapsed, and (b) section 24 of the Act which allows the court to cancel a lien by giving substitute security. West Fraser proposed to replace the liens with security in the amount of one dollar.
At first instance, the chambers judge held the lien claims were invalid on the ground that the work was not performed in relation to an “improvement” as defined in the Act because the removal of the machinery would have diminished, rather than improve, the value of the land, and ordered the liens cancelled on that basis. BKB appealed.
The Court of Appeal reversed the decision of the lower court on the grounds that a judge cannot embark upon a consideration of the merits of a lien on an application made under sections 25 and 24 of the Act.
Under section 25 of the Act, the court may only order the cancellation a lien on the grounds that it has lapsed or is otherwise defective by, for instance, being frivolous, vexatious, or an abuse of process. The Court of Appeal held the question of whether a lien is frivolous, vexatious, or an abuse of process imposes a low standard on a lien claimant, who must only satisfy the court that it has an “arguable” case or that it is not “plain and obvious” that the claims could not succeed. The Court of Appeal held that the lien claimants had at least an arguable claim that the removal of the machinery increased the value of the land and that determining the validity of the liens was premature without a fully evidentiary record before the court, which could only be generated in the context of a civil action.
Under section 24 of the Act, the court may order the cancellation of a lien upon posting sufficient security. The Court of Appeal held that to allow the cancellation of a lien upon posting nominal security, in this case, one dollar, would be tantamount to determining the validity of a lien and finding it invalid.
This decision highlights the difficult balance which the Act aims to achieve between giving lien claimants a form of security for work or materials provided in relation to an improvement without allowing lands to be encumbered by unjust claims. The decision confirms that courts should be reluctant to order the cancellation of liens before an action has been started unless (a) it is clear the claim is bound to fail, or (b) sufficient security is ordered such that the amount required is not indicative of the court’s opinion on the merits of the claim.
The practical effect of this decision is that a party seeking to remove a lien claim from land must either provide sufficient security for the lien pending resolution of the dispute, or wait for the lien claimant to commence an action to prove its lien in order to attack the merits of its claim, which, in either case, is a burden in terms of time and expense.
The decision is also notable because the Court of Appeal suggested that the Appellant’s position that the removal of the machinery from the land could enhance its value was at least arguable, leaving the question of whether such work is lienable under the Act presently unresolved.
Mark Danielson is a lawyer at Pushor Mitchell. You can reach Mark at 250-869-1284, or by email at [email protected].
