Avoiding The Builders Lien Act May Be A Costly Mistake

A drawback of British Columbia’s Builders Lien Act, S.B.C. 1997, c. 45 (the “Builders Lien Act”) is that the cost of enforcing a lien relative to the amount in dispute may be prohibitive. A builders lien must be enforced in the Supreme Court of British Columbia even if the value of the lien is within the monetary jurisdiction of Small Claims Court (i.e. $25,000.00 or less).

To avoid the cost of enforcement, lien claimants (or potential lien claimants) sometimes choose to sue for breach of contract in Small Claims Court instead of trying to prove the lien in Supreme Court, where the legal process may be more complex, costly, and daunting. The Small Claims process may present an alternative where there is a contract between the parties to the dispute. However, as often happens in construction disputes, there may be numerous parties seeking to recover against parties with whom they have no direct contractual relationship, such as the circumstances among an owner and various subcontractors working on a project.

In the past, subcontractors have tried, with limited success, to invoke the legal principle of “unjust enrichment” to avoid the need to (a) prove their claim in Supreme Court, or (b) adhere to the requirements of the Builders Lien Act. However, the Supreme Court of British Columbia has had the opportunity, on two recent occasions, to clarify when the principle of unjust enrichment might apply to provide a remedy as between non-contracting parties, and has confirmed the circumstances that might give rise to an unjust enrichment remedy in a construction setting are very limited.

The first case, Park v. K.S. Mechanical Ltd., 2012 BCSC 1751, involved an appeal of a Small Claims Court judgment which awarded a subcontractor damages against an owner of land on the basis of “unjust enrichment”. The subcontractor had previously filed a claim of lien but failed to take steps to prove its lien within one year after filing and the lien was held to be invalid. The subcontractor turned to Small Claims Court and sought recovery on an unjust enrichment basis. The Small Claims judge held that it would be unjust to deny the subcontractor a remedy merely because he did not contract with the owner of the land and granted the subcontractor relief based on the principle of unjust enrichment.

The decision was overturned on appeal to the Supreme Court of British Columbia, where the Court held that subcontractors’ remedies in the absence of a direct contract are, save exceptional circumstances, limited to those prescribed by the Builders Lien Act and granting the remedy of unjust enrichment in such circumstances would be an unwarranted intrusion into the construction field. The Court remarked that “special circumstances” which might warrant the application of the principle of unjust enrichment might include circumstances where the subcontractor was somehow induced to act to its detriment by a misrepresentation by the non-contracting party against which it claims relief.

The second case, NR Excavating & Services Ltd. v. Mand, 2013 BCSC 723, a subcontractor claimed a builders lien against land owned collectively by several defendants and alternatively, if the lien was held to be invalid, claimed for unjust enrichment. Although the Court held that the claim of lien was valid, it went on to consider whether the Plaintiff had proven a claim for unjust enrichment if it was wrong about the former finding. The Court held (at paragraph 79):

As observed recently in Park v. K.S. Mechanical Ltd., 2012 BCSC 1751, the courts rarely grant remedies for unjust enrichment in favour of a subcontractor as against the owner in relation to a construction project, as the subcontractor has remedies in contract against the contractor, and additional statutory remedies under the Act. I consider that decision indistinguishable here.

A required element of proving a claim for unjust enrichment is proving the absence of a “juristic reason” (which is, essentially, a “legal” reason) for the enrichment. These cases tend to confirm that the courts of British Columbia treat the very existence of the Builders Lien Act, and parties’ failure to utilize or adhere to its requirements, as good reason to deprive them of recovery on an unjust enrichment basis. While this brings a measure of certainty to the resolution of construction disputes, it may present, practically, an economic bar for parties looking to resolve their disputes and means that many disputes of moderate value should be resolved by negotiation outside the courts.

Mark Danielson can be reached at (250) 869-1284 or at [email protected]

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