In my previous article, Discharging a Builders’ Lien on Posting of Security: How Much is Enough?, I discussed the two pronged approach by the courts when considering what is sufficient security to be posted in order for a party to be able to discharge a builders’ lien further to s. 24 of the Builder Lien Act (the “BLA”). Again, the two-pronged test includes: (1) the Court determining whether the amount of lien claimed is sustainable and (2) if so, to determine what is sufficient security.
What level of proof may need to be furnished in order to apply the two-pronged test was at the heart of the decision in 0991193 B.C. Ltd. v 1004664 B.C. Ltd., 2018 BCSC 2510 (CanLII).
The dispute concerned a commercial property that was being purchased. After the parties entered into the purchase agreement (with a vendor take-back mortgage) and before the closing date, the purchaser immediately took possession of the commercial property and commenced significant renovations. The purchase agreement was later amended to provide that the renovations done by the purchaser would be at the purchasers’ expense and that any default of the take-back mortgage would result in the renovations becoming property of the vendor.
Prior to closing, a fire occurred which caused significant damage and the deal ultimately did not complete. Other dealings followed to arrange for the property to essentially be purchased through a share purchase agreement, which deal also collapsed. The vendor eventually filed a builders’ lien against the property in the amount of $560,377.05 primarily in relation to work and materials alleged to be supplied prior to the share purchase agreement was entered.
In the meantime, the vendor secured a new purchaser and was required to discharge the builders’ lien in order to complete the deal. To do so, it posted $560,377.05 as security further to s. 24 of the BLA in order to discharge the lien. The matter was before the court because the vendor applied further to s. 24 to have the court reduce the amount of required security. The vendor said the appropriate amount was $0, the original purchaser, now lien claimant, disagreed.
The court addressed the level of proof required in order to establish whether a claim of lien is sustainable; that being whether what is before the court is sufficient to establish a fact or raise a presumption unless disproved or rebutted. Conversely, the standard to be applied in reducing the amount of lien security required the court to consider whether the lien claim, or component of a lien claim, is plain and obvious that it is bound to fail. It is enough for a lien claimant to establish only a chance of success, not probable success.
The nature of the lien claim was described as barely satisfying the test to show it was sustainable and the evidence provided in support of the claim was similarly described as nothing more than a bald statement. Still, the court accepted that the test to maintain a substantial portion of the security was met.
That said, it was clear to the court that $150,000 of the client claimant’s claim was an amount pulled out of the air for alleged lost profit, which, at law, is clearly not the proper subject of a lien claim. As such, the court reduced the amount of the lien security by $150,000.
0991193 B.C. Ltd. v 1004664 B.C. Ltd. illustrates that the court will apply relatively minimal scrutiny of a builders’ lien claim in considering the amount of security to be ordered held in place of a builders’ lien. It is sufficient that the claiming party show that their claims are properly the subject of a builders’ lien and that there is the barest of evidence to support the quantum of a claim. Notwithstanding, it remains in a lien claimant’s best interests to present more fulsome evidence and a well-argued position in order to avoid any real risk of the reduction of their lien security.
0991193 B.C. Ltd. v 1004664 B.C. Ltd. further demonstrates that, even with the very low threshold applied for maintaining lien security, the court still retains discretion to reduce the amount of security where the underlying lien claim or a portion of it are clearly bound to fail. It is often the case that lien claimants, whether intentional or through a misunderstanding of the BLA, include claims which are not the proper subject of a builders’ lien as part of the amount that the seek a lien for. It is not unusual for there to be debts between parties which include amounts which are and are not properly the subject of a builders’ lien claim.
0991193 B.C. Ltd. v 1004664 B.C. Ltd. underscores the importance to both lien claimant and those defending against such claims to have a clear understanding of the rights and remedies afforded by the BLA as well as to obtain timely legal advice to best pursue and preserve their interests.