Builders liens are commonly referred to as “extraordinary tools” for unpaid contractors, subcontractors or suppliers to ensure that the cost of their unpaid labour and materials is secured. The registration of a lien to property can immediately halt financing of construction funds, or put an owner (or person with an interest in the property) in default of other financing agreements, leases, or other third party agreements. For this reason, lien claimants are required to strictly comply with the requirements of the Builders Lien Act, S.B.C. 1997 c. 45, and, pursuant to section 19 of the Builders Lien Act, a person who wrongfully files a claim of lien is liable to the owner for costs and damages incurred as a result of that wrongful filing. This section has not received much judicial consideration, however, leaving us with questions such as: what is meant by “costs and damages”? How much could an owner claim as a result of a wrongfully filed lien? In the recent decision of Century Group GP Co. Ltd. v. KRS Excavating Ltd., 2022 BCSC 357, our courts have provided some direction to this question.
In Century Group Co Ltd. v. KRS Excavating Ltd., the plaintiff owner (collectively, Century Group), sought an order that the defendant KRS Excavating Ltd. (KRS) pay it costs and damages in the amount of $124,860.52 plus its actual legal expenses in connection with a lien filed by KRS in the amount of $2,085,088.82 that was wrongfully filed. KRS disputed the amount of costs and damages that Century Group sought to recover.
The lien at issue was filed by KRS on April 3, 2020. The lien was subsequently discharged from title pursuant to security letter agreement entered into on April 23, 2020. On June 22, 2021, Century Group successfully brought an application before the BC Supreme Court seeking cancellation of the lien on the basis that it had been filed out of time.
In considering Century Group’s position, the court agreed that section 19 of the Builders Lien Actis intended to provide an important deterrent to lien claimants that fail to comply with the lien requirements. The court drew a distinction between section 19 of the Builders Lien Act and section 45 (which provides for certain instances when penalties may be imposed against a person who knowing files a lien with a false statement), finding that the objectives of section 19 are to ensure that the owner owner whose land has been unreasonably encumbered by a wrongful lien is compensated by the person who wrongfully filed the lien. The question the court was left with, was then what sums Century Group could properly seek and recover under section 19.
One portion of Century Group’s claim was for its legal fees (also referred to as “costs”). Of note, when it brought its application to cancel the lien, Century Group agreed to accept costs payable under the scheme of the Supreme Court Civil Rules, which will award a successful party a sum for costs based on a tariff calculation. In most cases, these tariff based costs are less than the successful party’s actual legal expenses. Taking this into account, the court determined there were two types of legal costs an owner may seek under section 19: the first, legal costs incurred to address the filed lien directly (referred to by the court as ‘lien investigation/removal costs’); the second, legal costs incurred to challenge the validity of a lien (referred to be the court as ‘lien litigation costs’). The court found it was appropriate to award an owner the amount of the actual legal costs incurred for the lien investigation/removal costs, but that an owner would only be entitled to tariff based costs for its lien litigation costs.
KRS argued that, if Century Group was seeking to claim the actual legal costs incurred it must waive privilege over its legal files for that portion of work in order to permit it to assess the reasonableness of such legal costs. The court agreed with this analysis, but found that a practical result in most cases would for the parties to come to an agreement as to the reasonableness of actual legal costs incurred.
The second portion of Century Group’s claim was for financing costs associated with the security it obtained to secure the discharge of the lien immediately after it was filed. The court found that Century Group was entitled to recovery of these financing costs.
Ultimately, the court ordered that Century Group be awarded judgment against KRS in the sum of $28,844.25 for the security financing costs; its “reasonable legal fees” arising in connection with the ‘lien investigation/removal costs’ in an amount to be agreed to by the parties or further assessed by the courts; and, its costs of the application (the ‘lien litigation costs’) on the tariff basis. Once these costs are assessed and calculated, Century Group will be awarded less than the total amount it sought to recover under section 19 of the Builders Lien Act for KRS’ wrongfully filed lien.
Going forward, owners should be aware that, even if a lien is wrongfully filed against its property, the owner will be unlikely to recover 100% of the costs it incurs in disputing the validity of the lien. Although owners will be able to seek dollar for dollar recovery of all costs incurred to immediately discharge a wrongfully filed lien, the owner will only be able to recover a portion of the costs it incurs to establish that the lien has been wrongfully filed. Accordingly, owners faced with a wrongfully filed lien may want to consider if they have any other available contractual remedies (such as a general contractor’s indemnity obligation) to deal with the discharge and dispute of the lien, or, if the circumstances support any claim for penalties for a knowingly false claim under section 45 of the Builders Lien Act.
This decision also serves as a reminder to lien claimants to strictly follow the requirements of the Builders Lien Act when preparing and filing a lien.