By Jacob Foster
The Builders Lien Act, SBC 1997, c. 45 (the “BLA”) provides contractors with a powerful tool to protect them from being exploited: lien claims. Lien claims are an extraordinary remedy that have significant consequences for those whose property is charged by the lien. Just as some owners may seek to exploit contractors, some contractors may seek to exploit owners by leveraging inflated lien claims to extract payment that is not owed. However, there are significant penalties applicable for contractors that abuse lien rights in this way.
Abusive lien claims are not only detrimental to owners, but also to other contractors and legitimate lien claimants, who may face significant delays in receiving holdback and other payments, as well as other negative impacts including reduced recovery on legitimate lien claims and increased legal expenses to pursue recovery. Fortunately, the BLA also includes provisions designed to protect parties from abusive lien claims.
Section 25 of the BLA allows for any of an owner, contractor, subcontractor, or lien claimant to apply to court to cancel a claim of lien in certain circumstances. One of those circumstances, under s. 25(2)(b), is where the claim of lien is vexatious, frivolous or an abuse of process. This article addresses one type of abuse of process: the inflated lien claim.
Typically, when an applicant seeks to have a claim of lien cancelled under s. 25(2)(b) as being an abuse of process, the applicant will seek alternative relief that the lien be discharged on the posting of security under s. 24 of the BLA. Historically, our courts have been reluctant to discharge liens on the basis of s. 25(2)(b) as being an abuse of process, even where the liens are clearly inflated (Henderson Land Holdings (Canada) Ltd. v Micron Construction Ltd., 1999 CanLII 5251 (BCSC); Atlas Painting & Restorations Ltd. v 501 Robson Residential Partnership, 2016 BCSC 2472). BC courts have frequently found that as long as a lien claim is arguable, even if the amount has been significantly inflated, it is not an abuse of process that can be cancelled under s. 25(2)(b). Instead, our courts have generally relied on s. 24 of the BLA to discharge an inflated lien on the posting of reduced security. Effectively, this approach excused the filing of clearly inflated lien claims by maintaining them in the amount they should have been filed in. A recent decision of the BC Court of Appeal clarified that inflated liens can be cancelled as an abuse of process and set out the analysis that courts should follow.
In Darwin Construction (BC) Ltd. v PC Urban Glenaire Holdings Ltd., 2023 BCCA 436, the Court of Appeal considered an appeal from an application to cancel an inflated lien under s. 25(2)(b) of the BLA (or, alternatively, under s.24). The amount of the lien claim exceeded $3 million. The applicant’s position was that the maximum possible amount of the lien was in the range of $1.9 million, but that the amount was not due and owing because of the applicant’s own claims against Darwin Construction (BC) Ltd. (“Darwin”), the lien claimant.
The chambers judge had previously found that the lien claim was not an abuse of process, although it was excessive, and ordered reduced security in the amount of $500,000 to discharge the lien from the subject property.
The Court of Appeal, however, found that the chambers judge failed to address the applicant’s argument that the lien claim was an abuse of process because it was excessive. The Court of Appeal reversed the chambers judge’s decision and, in doing so, set out the approach to be taken on applications seeking cancellation of a lien under s. 25(2)(b) of the BLA when relief under s. 24 is sought in the alternative.
The Court of Appeal in Darwin held that, when faced with an application for relief under s. 25(2)(b), and alternatively s. 24, of the BLA, the application under s. 25(2)(b) must be determined first. Under this approach, an abusive lien claim will not be saved by resorting to the alternative relief sought, as was done in Henderson. Further, the lien claimant must support both the right to the lien claim and the amount of the lien claim with admissible evidence. The Court noted that there may be times that a lien claimant might miscalculate its lien claim and found that, if a lien claimant explains the error and concedes that the lien claim should be reduced, the lien claim may be preserved and not cancelled as an abuse of process.
In opposing the application to cancel its lien claim, Darwin relied on a letter from its counsel to counsel for the applicant, which summarized its position and the breakdown of its lien claim, but did not provide any supporting documents. The Court of Appeal held that the letter was nothing more than argument by Darwin’s counsel, not evidence of the right to the lien claim or the amount of the lien claim, and accordingly, should not have been considered. The Court found that Darwin’s lien claim was grossly exaggerated on any analysis and was therefore an abuse of process. As a result, the Court ordered that the lien be cancelled under s. 25(2)(b).
The decision in Darwin suggests that, in the right circumstances, parties faced with an inflated lien claim may now be more likely to obtain relief under s. 25(2)(b), rather than merely obtaining a discharge of the lien for reduced security under s. 24 of the BLA. The decision also serves as a warning to lien claimants to ensure that they file accurate liens, and that if they later learn that the amount of their lien claim was inadvertently inflated, they concede that issue in order to preserve their lien claim in the appropriate amount.
Owners and others who are impacted by a potentially inflated lien claim should consider making a request to the lien claimant to provide an accounting to explain the basis of its lien claim. The lien claimant’s response, or lack thereof, may assist in determining whether it would be appropriate to bring an application to cancel the lien claim as an abuse of process. Lien claimants should be prepared to respond to such requests and, if an application to cancel their lien claim is made, to respond with admissible evidence to support both their right to the lien claim, and the amount of the lien claim, or else risk the lien claim being cancelled under s. 25(2)(b).