Commercial Litigation and Dispute Resolution Blog

In a previous blog post, Multimillion Dollar Claims of Builders’ Lien Cancelled for a Buck, and One of These Subcontractor Liens is Not Like the Others, we discussed a B.C. Supreme Court decision that altered an owner’s right to discharge a subcontractor’s claim of lien under B.C.’s Builders Lien Act (the “Act”)^[1] because the owner had agreed to pay outstanding amounts directly to the subcontractor.

The owner and general contractor appealed, and in Pinnacle Living (Capstan Village) Lands Inc. v. Fairway Recycle Group Inc.,^[2] the B.C. Court of Appeal determined that because the subcontractor performed the work before the owner agreed to pay the subcontractor for the work, it did not alter the owner’s right to discharge the claim of lien alongside the claims of the other subcontractors.

As such, the chambers judge should have treated the “one” of those subcontractor liens just like the others, the Court of Appeal allowed the appeal, and the subcontractor’s claim of lien was discharged from the project lands.

Factual Background and the Supreme Court’s Decision

Pinnacle Living (Capstan Village) Lands Inc. (the “Owner”) was an owner-developer of a development in Richmond, British Columbia, and Mondiale Development Ltd. (“Mondiale”) was the Owner’s general contractor.

Mondiale engaged Tarrier Group Inc. (“Tarrier”) as one of its subcontractors, and Tarrier then engaged Fairway Recycle Group Inc. (“Fairway”) as a sub-subcontractor.

Tarrier did not pay Fairway’s invoices, and Fairway alleged that the Owner and Fairway entered into a forbearance agreement whereby the Owner would pay the outstanding invoices in return for Fairway refraining from filing a claim of builders’ lien on the project lands.

The Owner did not pay the invoices, and, not surprisingly, Fairway registered a claim of lien.

The Owner and Mondiale then brought an application in Supreme Court to remove the subcontractor claims of lien from the project lands, including Fairway’s lien claim, under section 23 of the Act.

Section 23 of the Act enables owners and contractors (among others) to discharge their liability under the Act and obtain a court order to remove claims of lien registered against project lands upon paying into court the lesser of: (1) the total amount of the lien claims; and (2) the amount owing by the payor to the party that it contracted with and through whom the liens are claimed.

However, the scope of the lien claims that are removed under such an order excludes lien claims made by persons that were engaged by the owner, hence the dispute between the Owner and Fairway.

The chambers judge concluded that Fairway no longer belonged to the class of subcontractor lien claimants captured by section 23 of the Act because the forbearance agreement transformed the contractual relationship between the Owner and Fairway.

As a result, the chambers judge determined that the Owner and Mondiale were unable to discharge Fairway’s lien claim under section 23 of the Act.

The Owner and Mondiale appealed the chambers judge’s decision.

It’s worth noting that the Owner and Mondiale did not apply to cancel the lien claims under section 24 of the Act, whereby they could provide “sufficient security” to discharge the lien claims from title – including lien claims made by persons that were engaged by the owner – but not discharge liability under the Act.

The Court of Appeal’s Decision

The Court of Appeal started its analysis by clarifying that the matter involved two different types of contractual arrangements with Fairway:

1. a contract between a subcontractor, Tarrier, and its subcontractor, Fairway, for which Fairway supplied work and services to Tarrier in relation to an improvement on the Owner’s land, and was to be paid by Tarrier; and
2. a contract between the Owner and Fairway, entered into after Fairway had already performed its work and services for Tarrier, by which the Owner agreed to pay the amount owed to Fairway by Tarrier, in return for Fairway’s forbearance in filing a claim of lien.

The Court of Appeal stated that none of Fairway’s work that formed the basis of Fairway’s claim of lien was supplied under contract with the Owner.

The Owner’s subsequent agreement to pay for the past work did not change the nature of the prior contractual arrangements that gave rise to Fairway’s lien claim.

The Court explained that the contractual arrangements that are relevant for the purpose of section 23 of the Act are therefore the contracts to supply work or materials to an improvement that existed when that work and those materials were provided.

When the work in relation to an improvement was provided by Fairway, it was provided under subcontract to Tarrier.

This is what gave rise to Fairway’s lien rights in the first place, and also gave rise to holdback obligations under the Act for those parties above Fairway in the contractual chain.

The Court determined that this was the relevant contract for purposes of section 23 of the Act.

The subsequent forbearance agreement between the Owner and Fairway did not have a retroactive effect of changing the contractual arrangements between Fairway and Tarrier at the time Fairway provided its work in relation to an improvement.

Instead, the forbearance agreement was not a contract to provide work or materials, and it did not create lien rights for Fairway, just as it did not change or create new holdback obligations under the Act.

As such, the Court of Appeal determined that section 23 of the Act applied to Fairway’s claim of lien, allowed the appeal, and discharged Fairway’s lien claim alongside the lien claims of Terrier’s other subcontractors.

Fairway was not, however, precluded from pursuing its claim against the Owner under the (alleged) forbearance agreement.

In Closing

Owners can proceed with some confidence that an agreement with a subtrade to pay outstanding amounts after the subtrade has performed work on a project will not retroactively alter the owner’s rights under the Act with respect to lien claims based on that work.

However, Owners should nonetheless be mindful of any additional obligations that are created by such an arrangement, and are encouraged to consult with a legal professional when faced with a dispute, or otherwise considering altering their legal position, with respect to a project.

^{[1] Builders Lien Act, S.B.C. 1997, c. 45.}

^{[2] Pinnacle Living (Capstan Village) Lands Inc. v. Fairway Recycle Group Inc., 2024 BCCA 172.}