An Alberta court recently decided a case that raised the issue as to whether a contractor could dispute the validity of a lien after alternate security had been paid into court.
The application was brought by a general contractor.
At issue were four liens.
Three of the liens were filed against the Mahogany School in Calgary. The title disclosed that the land was designated as “Municipal and School Reserve”. The general construction contract for the Mahogany School was between the school district and the general contractor. It contained references to the Builders Lien Act (the “BLA”).
The fourth lien was filed against the Ecole School in Okotoks. Title to the land was in the name of the town and was designated as “Municipal Reserve”. The general construction contract for the Ecole School was between the province of Alberta and the general contractor. It contained references to the Public Works Act.
The liens were all discharged when the general contractor obtained orders pursuant to section 48 of the BLA allowing it to post security for payment of the liens. Section 48 permits a court to order that the registration of a lien be removed after security is given or payment is made. The legislation states that, after the court order, the security or payment “stands in the place of the land”.
The general contractor argued that the posting of security was without prejudice to its ability to later argue that the liens were invalid. It sought the ability to argue that the lands in question were not lienable on the ground that municipal and/or school reserve lands are not lienable.
The primary issue was whether, after the contractor had caused liens to be discharged by posting security pursuant to s. 48 of the BLA, it had abandoned some of the grounds for later challenging the validity of the liens.
The court acknowledged the ambiguity of the legislation, stating:
“To me it is unclear whether the words “stands in the place of the land”:
mean that one should continue to consider the nature of the land (such as ‘municipal reserve’) in evaluating whether the lien is valid, or,
alternatively, should treat the security paid into court as now divorced from the nature of the land. In other words, treat the security or cash in court as if it were proceeds from the sale of the land.”
The court determined that the legislation should be interpreted so as to allow an owner or contractor to make a payment or post security (thus ensuring payment of any lien which is ultimately judged to be valid) without needing to abandon any argument which the owner/contractor has as to the validity of the lien, which would allow for the speedy clearing of title and resumption of progress payments.
Having decided that the contractor had not abandoned its ability to challenge the validity of the liens, the court turned to the question of the liens’ validity.
The court looked at a previous Alberta Court of Appeal decision which stated that liens filed against reserve land were “unenforceable and should be removed from the titles” to the land.
In this case, the court was bound by the Court of Appeal decision. As a result, the court found that all four liens were therefore invalid, and ordered that the security posted by the contractor be returned to it.
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, including builders’ liens. 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.