The BC Courts have recently clarified the mechanism under the Builders Lien Act for clearing liens and associated certificates of pending litigation (“CPLs”) from title to construction project lands.
In construction disputes clearing builders' liens and CPLs registered on title to the project lands often needs to be done quickly, efficiently and with certainty. Lenders to construction projects will often withhold construction financing until liens and CPLs are cleared from title to the project lands. Similarly, purchasers of residential units in projects will not close sales until liens and CPLs are cleared from title.
One of the most important mechanisms to do so for owners and contractors on construction projects is section 24 of the Builders Lien Act. By paying into Court security for the lien claimed title can be cleared for the project lands so that construction financing is advanced and sales closed.
However, in the recent case of 4HD Construction Ltd. v. Dawson Wallace Construction Ltd. (2020 BCSC 1224), in which the authors of this article were the successful legal counsel, the practical effect of the procedure under section 24 of the Builders Lien Act to clear liens and CPLs was tested.
This decision resulted from an appeal of a Master's decision in a summary proceeding commenced by the general contractor, Dawson Wallace Construction Ltd., (“Dawson Wallace”), seeking an order pursuant to s.24 of the Builders Lien Act for cancellation of a claim of lien and related CPLs filed by its subcontractor, 4HD Construction Ltd. (“4HD”).
The essential argument made by 4HD on the appeal was that the court lacked jurisdiction to order the discharge of its CPL under s.24 of the Builders Lien Act as 4HD had filed its CPL to secure all of its claims with respect to a builders lien, constructive trust and unjust enrichment claims arising out of allegedly unpaid work and materials it provided to Dawson Wallace. According to 4HD, Dawson Wallace was required to bring a second Court application to cancel the CPL under the Land Title Act as 4HD's claims included allegations that fell outside of the Builders' Lien Act and Dawson Wallace could not rely solely on the mechanism in s.24 of the Builders Lien Act to obtain clear title to the project lands. The B.C. Supreme Court rejected this argument from 4HD and provided clarity on the court's jurisdiction to give practical effect to the mechanism to clear title set out in s.24 of the Builders Lien Act.
4HD raised two primary issues on appeal:
- Did the Master have the jurisdiction to order the cancellation of the CPL on a petition under s.24 of the Builders Lien Act?
- If so, did the Master err in her assessment of the relevant circumstances in exercising the jurisdiction to cancel the CPL?
The Court dismissed the appeal, finding that the Master did have jurisdiction to cancel the CPL under s.24 and did not err in exercising her discretion to do so.
In its jurisdictional argument, 4HD argued that after a CPL had been filed to perfect a claim of builders lien under s.33(1) of the Builders Lien Act, the only mechanism available to discharge the CPL is to bring an application pursuant to Land Title Act for cancellation of the CPL. In other words, a party seeking to discharge a lien from title after a CPL had been registered would have to bring two applications: one, for the discharge of the lien under s.24 of the Builders Lien Act; the other, for discharge of the CPL under the Land Title Act.
The Court rejected this argument and found that s.24 of the Builders Lien Act must be interpreted to include an implicit power on the part of the Court to cancel a related CPL on an application to cancel a claim of lien. Indeed, the Court found that such jurisdiction is, in fact, necessary to avoid undermining the statutory objects of the Builders Lien Act and to ensure coherence in the operation of the Builders Lien Act scheme as a whole. The intent of s.24 of the Builders Lien Act to provide a summary means for owners or contractors to clear title, and thereby avoid construction delay and associated costs, while still protecting the rights of the lien claimant.
In its second argument, 4HD asserted that, even if the Master did have jurisdiction to order the cancellation of the CPL under s.24 of the Builders Lien Act, she erred in doing so as she failed to appropriately consider 4HD's claim for constructive trust and unjust enrichment. 4HD was also not successful in this argument.
The Court agreed with the Master's finding that 4HD's allegations of construction trust and unjust enrichment were duplicative of the lien registered on title. Allowing 4HD to maintain its CPL after security had been paid pursuant to s.24 of the Builders Lien Act would undermine the purpose and intent of the Builders Lien Act and provide 4HD with double security for its single claim regarding payment for the work and materials it provided.
Clarification on the Operation of S.24
This decision has provided clarity on the scope of authority of a Court's jurisdiction on the hearing of an application to discharge a builders' lien from title pursuant to s.24 of the Builders Lien Act. Although not expressly stated within s.24, it has been common practice for parties within B.C. to seek the discharge of related CPLs when seeking the discharge of a lien from title on an s.24 application. This practice has reflected the practical concerns of a party seeking a discharge of a lien on payment of security: ensuring clear title to the project lands. With this decision, there is now clarity that s.24 of the Builders Lien Act operates to provide a mechanism for owners and contractors to quickly and efficiently obtain clear title to project lands with respect to CPLs, and not just the discharge of a claim of lien.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.