Those in the construction industry are well aware that a contractor or subcontractor who performs or work or supplies materials to an improvement is entitled to a builders lien for the price of such work and materials to the extent the same remain unpaid. It is also well-known that in order to perfect a builders lien claim, a claimant must file a notice of civil claim and register a certificate of pending litigation (CPL) against title to the liened property within one year of the lien being registered. It is common for such notices of civil claim to contain pleadings for alternate relief to support the CPL should the builders lien claim be found to be invalid. However, a recent decision of the BC Supreme Court in Cape Group Management Ltd. v. 0793231 B.C. Ltd., 2024 BCSC 493 has made clear that this alternative relief will not always be sufficient for a lien claimant to establish an entitlement to a CPL where the related builders lien claim has failed.
Certificates of Pending Litigation (CPL)
A CPL is a mechanism by which a person claiming an interest in land (whether a claim of builders lien or otherwise) may register that interest against title to the lands. The right to file a CPL arises under s. 215 of the Land Title Act which expressly notes that other statutes (including the Builders Lien Act) may give rise to a right to file a CPL. In cases where the person claiming an interest in land is also seeking to perfect and advance a builders lien claim, it is common to see a claim for constructive trust being advanced as an alternative relief to support the CPL. In a constructive trust claim the plaintiff (i.e.. lien claimant) will allege that they performed work or supplied materials benefiting the property, but have not been paid the amounts due to them. As the property has received the benefit of the work and materials, the argument follows that the property is held in trust by the owner for the benefit of the plaintiff.
How effective are such alternative claims, however, if the claimant is unable to make out an entitlement to a builders lien claim under the Builders Lien Act?
A CPL can be challenged in different ways. For example, if a lien is discharged from title to the property on the payment of security under the section 24 mechanism of the Builders Lien Act, any CPL registered on title to the property will also be discharged (for further details on this, see our prior article). An owner can also apply to discharge a CPL under the Land Title Act in various instances, including (among others) where the CPL is causing or will cause the owner to suffer hardship or inconvenience.
The question then arises: if a CPL was filed to perfect a builders lien claim, should that CPL remain on title if the lien is found invalid? Can an alternative argument for constructive trust support the filing of the CPL? Or, should the CPL be discharged for causing hardship and inconvenience under the Land Title Act?
The Facts Matter
The recent decision of the BC Supreme Court has confirmed that a lien claimant who has been unsuccessful in advancing a lien claim will only be able to maintain a CPL in connection with an alternative constructive trust remedy where the claimant has properly pleaded an interest in land separate from the lien.
The effect of this finding makes clear that the strategy of including a claim for alternative relief may not be successful, particularly in circumstances such as those before the court in this case where the action related to a project that had not yet commenced construction.
In Cape Group Management Ltd. v. 0793231 B.C. Ltd., the Court considered an application brought by the defendant land owners (the "Owners") to dismiss a claim of builders lien and CPL asserted by the plaintiff construction manager (the "CM") in the underlying action for money owed to it for certain pre-construction services for a mixed-use commercial residential building to be constructed in Olympic Village (the "Project"). Originally, the Project was to be constructed by the Owners and the CM acting in partnership. Both parties had certain obligations (including monetary obligations) that were required to be met as pre-conditions for construction of the Project.
Ultimately, the Project never went forward. No development permit was ever issued for the Project, and no demolition or construction work occurred. The Owners allege that the CM abandoned the project in May 2022. At the end of June 2022, however, the CM issued an invoice for pre-construction services it had rendered to the Project. In mid-July 2023, the CM filed a lien on title to the Project lands in an amount over $2,000,000. On September 18, 2023, the CM commenced the underlying action to perfect the lien and caused a CPL to be registered on title to the Project lands.
The Owner's application sought to discharge both the lien and the CPL and asked the Court to consider if On hearing the Owner's application, the Court was required to consider if the builders lien claim filed by the CM was valid, and, (if the lien claim was not valid), if the CM had made out a claim capable of supporting a CPL.
The Owner's argued that the lien claim was invalid as it did not relate to work performed or materials supplied to an 'improvement' under the Builders Lien Act. 'Improvement' is defined as "anything made, constructed, erected, built, altered, repaired or added to, in, on or under land, and attached to it or intended to become a part of it, and also includes any clearing, excavating, digging, drilling, tunnelling, filling, grading or ditching of, in, on or under land". None of the enumerated activities had occurred at the Project at the time the CM filed its claim of lien.
The Court agreed with the Owners that the law is clear: where an improvement has not commenced construction, lien rights do not arise. The Court accordingly ordered that the lien claim be discharged from title.
The Court then turned to the second question of whether the CPL must also be discharged from title, or if it was appropriate given the constructive trust remedy advanced by the CM. On consideration of the facts, the Court found that the CM had also failed to make out its alternative claim of constructive trust to the Project lands. Specifically, the fact that the CM alleged that it had done work in order to facilitate the Project which never went ahead was not sufficient to establish that the CM had an interest in land (particularly as the CM also pleaded that its claim was fully compensable in damages). The Court found the intent of the CM in advancing an argument for constructive trust in this case was for the sole purpose of maintaining an interest in land after its defective lien failed. It is clear that action is not appropriate.
Takeaways
This case makes clear the importance of assessing the rights and remedies available to any party seeking to advance a claim. Specifically, contractors and subcontractors considering advancing a claim of lien should carefully consider if they have met the statutory requirements for a lien, and, if they should not advance frivolous alternative claims for the sole (improper) purpose of maintaining an interest in land. This recent decision makes clear that our courts will not automatically find that a claim for monies due in connection with a project will result in a claim for an interest in land. A careful and strategic assessment of the rights and remedies available to you on non-payment should always be undertaken to avoid advancing an improper claim.
As an owner, any CPL or claim of lien advanced against your property should be carefully assessed in order to consider if the lien claim, or any alternative argument for an interest in your property has been properly advanced.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.