Arbitration is a process for resolving disputes outside of the courtroom. Parties may, by consent, submit disputes to arbitration for determination by an independent decision maker known as an arbitrator. When used appropriately, arbitration may be a cheaper, faster, and generally preferable alternative to traditional courtroom litigation.
Many construction contracts have provisions requiring the parties to submit disputes arising under the contract to arbitration instead of court. However, the existence of an arbitration clause in a construction contract may cause issues for builders lien claimants by delaying and increasing the cost of lien enforcement proceedings.
Section 15 of the Arbitration Act, R.S.B.C. 1996, c. 55 (the “Arbitration Act”) allows a party to such a contract to apply to court to stay (meaning “postpone”) the court action in favour of arbitration.
Section 26 of the Builders Lien Act, S.B.C. 1997, c. 45 (the “Builders Lien Act”) provides that a builders lien may only be enforced by commencement of an action in the Supreme Court of British Columbia.
At first glance, the relationship between these statutes is problematic because a builders lien may not be enforced through the arbitration process. The question of whether arbitration and lien enforcement procedures are compatible often arises in Canadian courts. The answer to this question, at least in British Columbia, is “yes”.
In Tylon Steepe Homes Ltd. v. Pont, 2009 BCSC 103 (“Tylon Steepe”), the British Columbia Supreme Court clarified the procedure which applies when a lien enforcement action is stayed in favour of arbitration.
In that case, a lien claimant argued that an arbitration provision contravened section 42(2) of the Builders Lien Act by infringing upon the lien enforcement remedies under the Act. That section precludes parties from making an agreement that the Builders Lien Act will not apply to their contract, by rendering any such agreement void.
The Court did not agree that the arbitration provision interfered with lien enforcement rights. The Court noted that a lien claimant could pursue its lien enforcement rights in Court after the arbitration had concluded. In other words, arbitrator could determine the amount of the lien claim, and the Court could then order a builders lien for that amount assuming the lien was otherwise valid.
While arbitration and lien enforcement procedures are not inconsistent, the relationship between the Arbitration Act and the Builders Lien Act is somewhat problematic. It is questionable whether a lien enforcement process which requires a claimant to litigate its claim in separate forums is desirable. Then again, if parties agree to submit their disputes to arbitration they should be presumed to know the consequences of such an agreement. While the inclusion of an arbitration clause undoubtedly makes sense in some construction contracts, we often see them included in contracts without much thought as to whether they are necessary or desirable in the circumstances. If a contractor is presented with a contract which contains an arbitration clause, he or she should give serious thought this question.
The British Columbia Law Institute is presently reviewing the Builders Lien Act and will report its recommended changes to the Provincial Government. It will be interesting to see if those recommendations will address the relationship between arbitration and lien enforcement procedures.
