In Golden Triangle Construction Management Inc v Nuwest Interior Systems Inc, 2019 ABQB 292, Master Prowse considered whether paying security into court prevents a party from challenging the validity of an otherwise defective lien.
Golden Triangle Construction Management Inc. (“Golden Triangle”) was general contractor on two school projects: Mahogany School in the City of Calgary, and École School in the Town of Okotoks. Title to both schools indicated that the project lands were designated as either a municipal reserve or a municipal/school reserve. The contract for the Mahogany School project referenced the Builders’ Lien Act, RSA 2000, c B-7, and the contract for the École School referenced the Public Works Act, RSA 2000, c P-46.
The lien claimants registered three liens against the Mahogany School project, and one against the École School project. Golden Triangle discharged all four liens by posting security into Court pursuant to section 48 of the Builders’ Lien Act. Golden Triangle subsequently argued that the liens were invalid because municipal and school reserves are not lienable.
The Court found that it was bound by the Alberta Court of Appeal decision in McFarlane Oil Co. v Sturgeon (Municipal District No. 90), 67 DLR (4th) 151 (“McFarlane”). This decision held that liens filed against reserve land were unenforceable and should be removed from the title because the court could not force the sale of reserved land.
The lien claimants argued that because Golden Triangle had paid funds into court as security for the liens, there was no longer a reason to be concerned about the court’s ability to sell the land, and therefore McFarlane no longer applied. They relied upon the decision of Master Funduk in Bogardus Wilson Ltd. v Kawneer Co. Canada, 1989 CarswellAlta 525 (“Bogardus”), in which a lien against otherwise-unlienable public land was declared valid on the basis that funds were paid into court as security, and there was no longer a lien against the land itself.
Master Prowse declined to follow the decision in Bogardus. He reviewed the wording of section 48 of the Builders’ Lien Act, which states that money paid into court as security for a lien “stands in place of the land.” He commented that it was unclear whether this meant the court should:
- continue to consider the nature of the land (such as ‘municipal reserve’) in evaluating whether the lien is valid; or,
- treat the security paid into court as now divorced from the nature of the land (i.e. treat the security or cash in court as if it were proceeds from the sale of the land).
However, the Court held that it was “not appropriate to force a contractor such as Golden Triangle to give up arguments as to the validity of liens due to institutional delays arising from the litigation process.” Master Prowse stated that:
In my view section 48 of the BLA 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. This allows for the speedy clearing of title and resumption of progress payments.
Therefore, pursuant to McFarlane, the Court declared all four liens invalid, and ordered the return of the security to Golden Triangle.
The Court also considered Golden Triangle’s alternate argument that one of the lien claimants erred by failing to name Golden Triangle as a defendant within the 180 day period required by the Builders’ Lien Act , and that this error was fatal to those particular liens.
The Court held that although a subcontractor is required to name the owner and contractor pursuant to section 49(3), the posting of security into court rendered this provision inoperative. Pursuant to section 44, once a court has ordered a lien be removed via section 48, that lien does not cease to exist by virtue of the fact that a claim has not been commenced within 180 days from the date the lien was registered. As such, the lien enforcement proceedings were now governed by order allowing security to be posted, and not the operation of the Builders’ Lien Act.
Therefore, because Golden Triangle was aware of the lien regardless and would suffer no prejudice, the Court granted the lien claimant an extension of time to file amended pleadings naming the Golden Triangle as a party pursuant to Rule 13.5(2) of the Rules of Court.
This case contains two important lessons for both owners and lien claimants:
- Paying security into court does not prevent a party from challenging the validity of a lien. However, it is prudent to include language in the pay-in order that expressly reserves the party’s rights to do so. Such language is now included in the Form of Order available on the Alberta Courts website.
- For subcontractors, it is important to name both the owner and contractor as parties to lien enforcement proceedings. However, if security has been posted by virtue of a court order, any subsequent lien enforcement proceedings are governed by the terms of that order rather than the Builders’ Lien Act.