The decision in West Fraser Mills. Ltd v. BKB Construction Ltd., 2012 BCCA 89 confirmed that under s. 24 and 25 of the Builders Lien Act (the “Act”) the courts should not assess the validity of liens on the merits without a complete evidentiary record before the court.

In this case, West Fraser Mills (“West Fraser”) owned a paper mill in Kitimat. It sold the machinery on its land to a buyer who was to remove it and repair any resulting damage to the land. The owner would then sell the land to another party. The buyer of the machinery retained BKB to remove the machinery, who in turn subcontracted the work to NDF. Both BKB and NDF were not fully paid, and both filed liens against the property.

The owner applied for an order to cancel both liens under s. 25 of the Act or, alternatively, under s. 24 on posting of nominal security of $1.00. The BC Supreme Court ordered that the liens be cancelled under s. 25 as the work performed by BKB and NDF did not constitute an “improvement” with respect to the lands. The court found that, while demolition was lienable when it was part of a larger project providing improvement to the land, in this case there was no such improvement.

The Court of Appeal reversed the lower decision, confirming that the issue of the validity of liens does not arise under either s. 24 or s. 25 of the Act. Neither section requires the claimant to prove the lien, or entitles a landowner or a contractor to disprove the lien. The only question under s. 25 is whether the lien is defective for any of the reasons specified, or whether it is vexatious, frivolous or an abuse of process.

Here, West Fraser did not assert that the liens were filed out of time, against wrong property or had been extinguished. In fact, the lien claimants have not yet commenced their actions to enforce the liens. In the circumstances, the liens could only be cancelled if they were shown to be scandalous, frivolous or vexatious, and no such findings have been made. The Court of Appeal accepted BKB’s and NDF’s argument that the documents to be disclosed by West Fraser could show the purpose for which West Fraser sold the machinery, and that the work in question did in fact relate to an improvement.

With respect to s. 24 of the Act, the Court of Appeal confirmed that, in fixing the amount of security to be posted on cancellation of a lien, the court should not resolve the merits of the lien claim. The security should be posted in the amount of the lien unless it is “plain and obvious” that the lien or certain components of the lien are not provable. Of course, if the evidence shows that the entire lien is not provable, it would be appropriate to cancel the lien under s. 25 on the basis of it being vexatious, frivolous or an abuse of process.

Why is this case important? There have been recent cases where courts have shown a willingness to dispense with liens upon the posting of $1.00 or other nominal security. This case pushes back in the other direction to limit such treatment to instances where it is “plain and obvious” that the lien or some of its components are not substantiated.