In a recent Alberta decision, the court determined that a contractor was not entitled to file a builders’ lien over unpaid invoices on a turnaround project because the work it performed did not qualify as an “improvement”.
Contractor Hired to Work on Turnaround Project
A contractor was hired to carry out a turnaround project at a gas processing plant.
A “turnaround” is a scheduled event in which processing activity at a facility is shut down for repair, maintenance, and renewal. Turnarounds are necessary because the functionality of pressure vessels, tanks, pressure piping systems and valves deteriorate with time and use. Therefore, to ensure that deterioration was being addressed appropriately, the gas plant’s owner had to undertake the turnaround project.
In the fall of 2015, the contractor carried out the turnaround project and it was completed in December 2015.
Contractor Files Lien Following Unpaid Invoices
Between October 20, 2015 and December 6, 2015, the contractor issued five invoices to the plant owner for the work completed on the turnaround project. The total amount billed was $1,686,256.
The plant owner paid one of these invoices in the amount of $7,261, but made no further payments. The balance outstanding was $1,678,995.
As a result, on December 23, 2015, the contractor filed a lien against the owner’s lands and filed a statement of claim with the court on February 3, 2016.
The plant owner argued that the contractor’s lien was not valid because the work it provided was not an “improvement” as contemplated by the Alberta Builders’ Lien Act (the “Act”).
The Law on Liens in Alberta
At issue before the court was whether the contractor had a proven lien under the Act.
Section 6 of the Act sets out the requirements for the creation of a lien, which reads in part:
“Creation of lien
6(1) Subject to subsection (2), a person who
(a) does or causes to be done any work on or in respect of an improvement, or
(b) furnishes any material to be used in or in respect of an improvement,
for an owner, contractor or subcontractor has, for so much of the price of the work or material as remains due to the person, a lien on the estate or interest of the owner in the land in respect of which the improvement is being made.”
Further, s. 1(d) of the Act sets out the definition of “improvement” as follows:
“improvement” means anything constructed, erected, built, placed, dug or drilled, or intended to be constructed, erected, built, placed, dug or drilled, on or in land except a thing that is neither affixed to the land nor intended to be or become part of the land;
Thus, the court had to determine whether the work performed by the contractor for the turnaround project qualified as an “improvement” under the Act for the purposes of the lien.
Court Rules That Contractor’s Lien Is Not Valid
At the outset, the court explained that to establish the validity of the contractor’s lien it must prove that it strictly complied with the statutory pre-requisites to the creation of the right to a lien.
It then reviewed relevant case law, which makes clear that services need not be physically performed upon the improvement to fall within the meaning of the Act, but they must be “directly related to the process of construction”. Additionally, it noted that a distinction must be made between primary services and secondary services. The court then cited a 2002 Alberta court decision which clarified the issue, stating:
“It is an attempt to distinguish on a principled basis between primary services which have the attributes of proximity from those which are relatively remote and which, accordingly, are properly described as secondary. Mere contribution to the total project will not entitle the person who performed the “work” to file a lien. […] it is the degree of proximate connection to the process of construction that must be evaluated.”
Ultimately, the court ruled that the work performed by the contractor in the turnaround project was not in the nature of “primary services.” It found that the cleaning, repairing, and relining the interior of tanks and pressure vessels and replacing old or faulty piping and pressure valves were not directly related to the process of construction. Instead, it found that the activities performed by the contractor were more appropriately characterized as being in the nature of maintenance.
In the result, the court held that the turnaround project did not amount to an “improvement” as contemplated by the Act and the contractor’s lien was therefore not valid.
Contact DBH Law for Experienced Advice on Construction Law Matters
The knowledgeable Calgary construction lawyers and staff at DBH Law understand the complex risks of both multimillion-dollar and smaller construction projects and the expensive disputes that can arise when something goes wrong in all cases. We handle all elements of a construction relationship. We can proactively advise and help draft important documents such as contractor and subcontractor agreements and similar, to make expectations clear and eliminate as much risk as possible. We can also represent you in any litigation or other dispute resolution that may be needed if a dispute arises.
The team of professional and experienced construction lawyers at DBH Law have the experience and technical knowledge to provide you with the legal advice needed in the modern construction industry. We understand the number of moving pieces involved in construction projects and work tirelessly to resolve issues quickly. Contact us online or by phone at 403.252.9937 to discover how we can help you today.