This bulletin covers a recent decision from the BC Court of Appeal in Pinnacle Living (Capstan Village) Lands Inc. v. Fairway Recycle Group Inc., 2024 BCCA 172. The decision determined that an owner entering into an agreement with a subcontractor to pay outstanding amounts owed by another subcontractor did not alter the owner's ability to discharge the subcontractor's lien claim under section 23 of the Builders Lien Act.
Background
The owner of a mixed-use project engaged a head contractor for a project. The contractor engaged an excavation subcontractor for the project, who in turn engaged another subcontractor to perform disposal work for the project.
The disposal subcontractor performed the work on the project, but the excavation subcontractor failed to pay the invoices issued by the disposal subcontractor.
The owner and the disposal subcontractor allegedly agreed that the owner would pay the disposal subcontractor's invoices, in exchange for the disposal subcontractor's agreement to refrain from filing a claim of builders lien (the "Payment-Forbearance Agreement").
After the owner failed to make payment, the disposal subcontractor filed a claim of builders lien against the project lands.
The owner and the head contractor subsequently brought a petition to discharge all of the lien claims of subcontractors engaged by the excavation subcontractor, upon the payment into court of the statutory holdback pursuant to section 23 of the Builders Lien Act. This included the claim of builders lien filed by the disposal subcontractor.
Under section 23 of the Builders Lien Act, an owner, among others, may discharge itself from liability in respect of the claims of lien filed by the "class of lien claimants, other than a class of lien claimants engaged by an owner" upon payment into court the lesser of: 1) the total amount of the claim or claims filed; or 2) the amount that is at least equal to the statutory holdback required by the Builders Lien Act.
Supreme Court of BC Decision
The Supreme Court of BC found that the owner and the head contractor were entitled to discharge all of the excavation subcontractor lien claims upon payment into court of the statutory holdback other than the lien claim filed by the disposal subcontractor due to the Payment-Forbearance Agreement.
The disposal subcontractor argued that the Payment-Forbearance Agreement took it outside the "class of lien claimants, other than a class of lien claimants engaged by an owner" required by section 23 of the Builders Lien Act. This meant that section 23 did not apply to the disposal subcontractor. The Supreme Court agreed and concluded that the disposal subcontractor was no longer in the class of subcontractor lien claimants under the excavation contractor subject to section 23 of the Builders Lien Act. The Supreme Court based its conclusion on the fact that the owner and the disposal subcontractor had a direct contractual relationship with each other, thus the owner and the general contractor could not rely on section 23 to discharge the claim of lien filed by the disposal subcontractor.
BC Court of Appeal Decision
The BC Court of Appeal allowed an appeal brought by the owner and the head contractor on the basis the Supreme Court judge erred in their interpretation and application of section 23 of the Builders Lien Act.
The Court of Appeal decision distinguished between the two separate agreements that the disposal subcontractor entered into in relation to the project:
- the contract between the disposal subcontractor and the excavation subcontractor for the supply of work and services in relation to the project; and
- the Payment-Forbearance Agreement between the disposal subcontractor and the owner after the work was performed whereby the owner agreed to pay the amount owed to the disposal subcontractor by the excavation subcontractor, in return for the disposal subcontractor's forbearance in filing a lien claim.
The Court of Appeal held that the first agreement gave rise to lien rights under the Builders Lien Act. However, the Payment-Forbearance Agreement did not have a retroactive effect of changing the contractual arrangement between the disposal subcontractor and the excavation subcontractor at the time the disposal subcontractor provided its work on the project. The Payment-Forbearance Agreement was not a contract to provide work or materials to an improvement. As such, the Payment-Forbearance Agreement did not create lien rights, just as it did not change or create new holdback obligations. Therefore, the Court of Appeal held that the Supreme Court erred in determining the Payment-Forbearance Agreement placed the disposal subcontractor outside of the class of lien claimants to which section 23 applied. As a result, the owner was entitled to have the lien discharged on payment of the statutory holdback pursuant to section 23 of the Builders Lien Act.
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