Discharging a Builders’ Lien on Posting of Security: How Much is Enough?
When a builders’ lien is filed, it can cause all manner of disruptions to financial, contractual and business relations and there can often be urgency in getting a lien discharged while, at the same time, ensuring the right to dispute the underlying claim giving rise to the lien is preserved.
The Builders Lien Act (BLA) provides different mechanisms for discharging and dealing with builders’ liens and this article focuses one of those remedies found in s. 24 of the BLA. S. 24 of the BLA provides that a land owner, contractor, subcontractor or any other person liable on a contract or subcontract can apply to have the court cancel a builders’ lien on the giving of sufficient security for the payment of the claim. The key question that then arises in a s. 24 application is what sufficient security is.
The question of what constitutes sufficient security for the purpose of s. 24 of the BLA was at the heart of the decision in Westurban Developments Ltd. v Forged Construction Ltd., 2018 BCSC 2354 (CanLII).
In that case, Westurban Developments was a general contractor who had retained Forged Construction as a subcontractor. Forged Construction filed a builders’ lien for $568,986.26, claiming that such an amount was due or was going to become due in respect of a $689.433.00 fixed price contract.
The Court held at para. 4 that s. 24 of the BLA establishes a two-prong test: (1) the Court must determine whether the amount of lien claimed is sustainable and (2) if so, to determine what is sufficient security.
On the first prong, the Court held that Forged Construction could only claim for work actually performed. The evidence before the Court established that Forged Construction had only completed 64% of its work. As such, the capped value of work performed was $441,237.12, being 64% of the total fixed price of $689.433.00. Notably, a party cannot lien for anticipated lost profits in the face of a wrongfully terminated or performed contract; such losses are claimed through a legal action, not by a lien.
The Court went on to find that Forged Construction had already been paid $272,253.02. Accordingly, the paid amount was subtracted from the capped value of the work performed ($441,237.12) leaving $168,984.10 as the total lienable amount. The Court noted this amount to include the holdback on the work performed.
The Court then went on to the second prong of the analysis; determining what amount of security was appropriate. Westurban Developments urged the Court to find that $1.00 was sufficient security, essentially amounting to a claim that Forged Construction’s lien was invalid. The Court did not go that far; instead, finding that there was evidence of significant deficiencies in the work performed by Forged Construction. While there is limited discussion of the Court’s reasoning, based on the finding that there were significant deficiencies in the work performed by Forged Construction, the Court found that sufficient security would be 85% of the total lienable amount of $168,984.10, being $143,636.48. Upon posting of the $143,636.48, Westurban Developments would be able to discharge Forged Construction’s lien.
Westurban Developments Ltd. v Forged Construction Ltd. is illustrative of some of the issues that arise when a party seeks to discharge a lien by posting of security. Westurban Developments was found to have demonstrated that the face value of the lien was substantially inflated and advanced further, supported arguments that the lienable amount ought to be further reduced. This resulted in substantially less security being posted than the face value of the subject lien. While not addressed in the decision, it also appears to be the case that, since Forged Construction’s lien greatly exceeding the amounts that were properly lienable, Forged Construction was exposed to substantial damages and costs including a fine under s. 45 of the Act at a later date.
It is likely that with well-informed legal advice, Forged Construction would not have filed such an excessive lien. It likewise could have avoided the significant exposure to damages and costs that flow from its excessive liens and potentially the loss of credibility and having to continuously acknowledge its excessive lien in the remaining fight over what amounts were owed and to which party.