Pursuant to the Builders Lien Act, SBC 1997, c. 45 (the “Act”), a contractor, subcontractor, or worker is entitled to a lien for the price of the work or materials that they provided to a project, to the extent the price remains unpaid. However, what happens if a lien claimant knowingly files a lien far in excess of the amount actually owed to it?
Recently, in 601 Main Partnership v Centura Building Systems (2013) Ltd., 2024 BCCA 76, the BC Court of Appeal addressed the circumstances in which an inflated and improper lien will constitute an abuse of the court’s process, and the consequences that follow.
Background
The Court of Appeal considered an appeal from an award made in favour of the respondent-contractor (the “Contractor”) for work that it performed on a multi-storey mixed-use construction project (the “Project”) prior to its termination, and a cross-appeal relating to an order of costs and interests awarded by the trial judge.
The underlying dispute related to a construction contract (the “Contract”) entered into between the appellant-owner (the “Owner”) and the Contractor, whereby the Contractor agreed to provide drywall, insulation, and steel-stud work to the Project.
A dispute over payment arose, and the Contractor filed a claim of lien against the Project lands in the amount of $1.136 million (the “Lien”). The Lien was comprised of amounts the Contractor claimed were unpaid under the terms of the Contract, and for increased costs the Contractor alleged it had incurred due to the Owner’s “interference” with its work (the “Interference Claim”). The Owner posted cash security for the full amount of the Lien pursuant to section 24 of the Act (the “Security”).
The Contractor filed an action to enforce the Lien. The Owner filed a counterclaim in which it claimed, among other things, that the Lien was grossly inflated and an abuse of process. The Owner also sought damages for the financing costs it incurred to post the Security.
The Trial Decision
The trial judge awarded the Contractor $575,576 for the work it performed on the Project, but dismissed the Interference Claim, which represented the balance of the total Lien value. Despite finding that the Contractor’s project manager had provided deliberately false evidence to support the Interference Claim, the trial judge did not find that the Lien amounted to an abuse of process because she was not persuaded that the Contractor knew the project manager’s evidence was false when it filed the Lien, and therefore did not knowingly inflate the Lien. The trial judge declined to award the Owner the damages for its financing costs to post Security for the full value of the Lien.
The Court of Appeal Decision
The BC Court of Appeal overturned the trial judge’s decision on the question of abuse of process as it related to the Interference Claim, noting that the Contractor’s project manager gave evidence at trial that the Owner did not interfere in the Contractor’s work. Accordingly, by including the Interference Claim in the Lien, the Contractor abused the mechanisms of the Act to secure funds it knew or ought to have known it was not entitled to, and in doing so caused the Owner to suffer damages: the time value of the money held in court as Security for the portion of the Lien relating to the Interference Claim.
The Court of Appeal commented that it is not necessary to prove that a lien claimant had an ulterior motive for filing an exaggerated lien in order to find that the lien claimant committed the tort of abuse of process: the filing of the exaggerated lien is itself improper.
Accordingly, the Court of Appeal found that the Owner suffered damages on the portion of the Security paid in connection with the Interference Claim ($412,409.44) and the Contractor was ordered to pay damages equal to the pre-judgment interest under the Court Order Interest Act on that amount from the date the Security was paid until the date of the trial judgment. Interest under the Court Order Interest Act was ordered because the Owner failed to introduce any evidence on the actual interest costs it incurred in connection with the Security.
Takeaways
Contractors preparing a claim of lien should ensure that they are including only lienable interests in their claim, meaning the amounts they are owed for the work and services actually performed. The lien should not include other amounts such as interest charges or damages claims. A contractor that knowingly files an inflated or improper claim of lien may be exposed to a claim of abuse of process and ultimately be required to pay compensatory damages to an owner for amounts paid to obtain a discharge of the inflated or improper claim of lien.
Owners who have paid security to discharge a claim of lien they allege to be an abuse of process should ensure they introduce evidence of their financing costs at trial to support their claim for damages, which are likely to be much higher than the interest rates under the Court Order Enforcement Act.
Our team has extensive experience with construction and builders lien matters, and are ready to assist with any questions you may have regarding filing, prosecuting, or defending claims of builder liens.
