BC Court of Appeal Settles the Law on Lien Rights for Construction Projects that Span Multiple Parcels of Land
The B.C. Court of Appeal (the “BCCA”) recently issued reasons for judgment in the highly anticipated case of JVD Installations Inc. v Skookum Creek Power Partnership (“Skookum”). The court, for the first time, declared that a “single integrated improvement” is not part of the law in B.C. and dismissed certain claims of builders’ liens (the “Lien Claims”) in their entirety. The result means that contractors and subcontractors will have more restrictive lien rights than perhaps expected, or anticipated, where they are engaged in constructing large and complex construction projects involving multiple parcels of land.
The trial judge had allowed the Lien Claims on the basis that because various components of a complex construction project, being a run-of-river hydro project (the “Project”), covered more than one parcel of land, a contractor and subcontractor (the “Claimants”) who had worked on one parcel were entitled to a lien against another parcel as one “integrated improvement” was being constructed. The BCCA set aside the trial judge’s decision and allowed the appeal. The BCCA held the trial judge was in error by applying a “mutual interdependence test” to determine that an integrated improvement was being constructed and that, at law, solely for the purposes of the B.C. Builders Lien Act (the “BLA”), separate “improvements” were being constructed on each separate parcel. In particular, the powerhouse and other components of the Project that were constructed on Crown land were separate “improvements” from the transmission line that had been constructed, in part, on a right of way several kilometers away. As the Claimants had performed no work on the right of way or the transmission line itself, they were not entitled to any lien rights. Further, the BCCA also held that the subcontractors who had built the transmission line had already been paid for that work which would have disentitled the Lien Claims on that basis as well. That further conclusion cemented the court’s view that only work performed on a specific parcel of land is relevant to the issue of who is entitled to a claim of builders’ lien under the BLA and, if so, the quantum of any such lien.
The BCCA also determined another issue under the BLA which had previously never been considered in B.C. Prior to trial, the owner had posted security into court in order to have the Lien Claims discharged from title to the lands pursuant to s. 24 of the BLA. At that time, there was no equity in the right of way lands as a large mortgage had been registered and advanced to secure the financing for the entire Project. The BCCA held that if the Lien Claims had been valid, the Claimants could have nevertheless recovered the full amount of the proven Lien Claims from the security despite the fact that if the Lien Claims had not been removed from title, there would have been no recovery as the Lien Claims would not have attached to any equity in the right of way lands. The court determined that the owner could have posted less than the full amount of the Lien Claims because of the lack of equity in the right of way lands. That conclusion appears to part ways from prior BCCA decisions which had held that there is limited ability to post less than the full amount of a claim of builders’ lien under s. 24 given the summary procedure contemplated by that section. As such, owners or others who are contemplating posting security for the discharge of a claim of builders lien now ought to give consideration to the equity in the property before posting the full amount of the lien or else the security is at jeopardy of being depleted by that lien and which may effectively give the lien claimant a potential windfall.
Needless to say, the Skookum case is a significant decision for all construction industry participants including owners, contractors, subcontractors, developers, lenders and construction lawyers. It will no doubt have wide ranging ramifications for all such participants given its conclusions with respect to projects spanning multiple parcels of land, as well as the impact of posting security for lien claims under s. 24 of the BLA.
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