- Builders Liens - Know Your Legal Paths to Resolution
- May 31, 2016 | Authors: Robert A. Hodgins; Michael Peraya
- Law Firm: Singleton Urquhart LLP - Vancouver Office
In its first construction lien decision in some time, the Supreme Court of Canada confirmed what many British Columbians have known since the 2003 Court of Appeal decision in Shimco Metal Erectors Ltd. v. Design Steel Constructors Ltd., namely, that lien claimants are not confined to pursuing only one statutory remedy at any one time.
In this more recent case from Manitoba, the Supreme Court of Canada confirmed in Stuart Olson Dominion Construction Ltd. v. Structal Heavy Steel that unpaid subcontractors can seek compensation simultaneously via builders’ liens and statutory trusts. As well, the Court ruled that security posted for one remedy may not act as security for all remedies. This is good news for those pursuing such claims. Here, briefly, is how the case unfolded. Dominion Construction Company, a general contractor, was hired by BBB Stadium to construct Investors Group Field, a new football stadium at the University of Manitoba.
As construction proceeded, Dominion withheld payment from its steel subcontractor, Structal Heavy Steel, originally citing a delay in receiving progress payments from the owner, BBB Stadium. Eventually, however, Dominion changed its stated reason for withholding the payments to Structal, advising Structal that it was using the unpaid amounts for back charges that resulted from what Dominion claimed were delays attributable to Structal.
Structal then registered a builders’ lien against the property totalling in excess of $15 million, prompting Dominion to file a lien bond in the full amount of the builders’ lien in the Manitoba Court of Queen’s Bench. The bond’s effect was to ensure that Structal would be paid the amount of any lien judgment it obtained against Dominion, in the event that Dominion did not satisfy the amount of the lien judgment (up to the maximum bond amount). Structal approved the bond and discharged its lien. In the meantime, Dominion continued to receive progress payments from the owner, but refused to make further payments to Structal on the basis that it was entitled to deduct from those amounts the back charges attributable to Structal’s delays and that Structal was already fully secured by the lien bond. Structal responded by requesting that the owner withhold payment from Dominion or face an action for violating the trust provisions of Manitoba’s Builders’ Lien Act.
The owner obliged, and Dominion brought an application to the Manitoba Court of Queen’s Bench seeking a declaration that it satisfied its trust obligations to Structal under the Act. If granted, Dominion could pay the amount the owner was withholding from it to other trust claimants and, once they were paid, to other creditors.
The Court of Queen’s Bench ruled that the lien bond secured Structal’s trust claim, whereupon the holdback being maintained by the owner was paid to Dominion, which used it to pay other contractors and itself. The matter proceeded to appeal. On appeal, the Manitoba Court of Appeal reversed the lower court’s ruling, concluding that, under the Act, subcontractors have two separate and distinct rights beyond the common law right to sue for breach of contract: the right to the statutory trust and the right to file a lien claim against the property. In upholding the Appellate Court’s ruling, the Supreme Court recognized the distinct operation of lien and trust provisions, a concept that was rooted in previous iterations of the Act.
The Court held that the Act itself contemplates that lien and trust remedies may be pursued concurrently. Dominion argued that, where a lien bond has been filed with the Court, the bond should stand as security for any potential claim. The Supreme Court disagreed, finding that a reading of both the lien and trust provisions of the Act reveals that filing a lien bond has no effect on the existence and application of a trust remedy. Nothing in the Act suggests that lien and trust provisions do not remain as two separate remedies.
The Court recognized that holding that a trust claim is extinguished by filing a lien bond would undermine the purpose of the statutory trust, which is to assure that monies payable by owners, contractors and subcontractors flow with the contractual rights of those engaged in the building project, and money “is not diverted out of the proper pipeline.”
If a judgment were issued invalidating the lien because it failed to comply with the requirements in the Act, liability under the lien bond would be extinguished. The claimant would then find itself with no access to the funds guaranteed by the bond. Nonetheless, a contractor or subcontractor may still have a trust claim independent of the lien claim; the lien bond would not have secured this trust claim. This is consistent with the law in B.C., which recognizes that a subcontractor may pursue remedies it has against holdback funds or in breach of trust, independent of its rights against the property.
The Supreme Court’s decision in Dominion Construction also highlights the distinction between payment and security. The Court refused to accept Dominion’s position that it would be commercially unreasonable to require a general contractor to pay twice—once in discharging the lien and, again, to secure its trust obligations.
Justice Rothstein for the Court explained that owners, contractors or subcontractors will never be required to pay twice: "To the extent that the lien and trust claims are for the same work, services or materials, payment under the trust will eliminate the equivalent amount payable to satisfy the lien claim."
Essentially, this Supreme Court decision confirms the distinct operation of lien and trust provisions. So to make the best of a potentially challenging situation when it comes to builders’ liens, unpaid participants in the construction payment process need to be well aware of the separate remedies available under the applicable legislation.